Flip (22 page)

Music industry executives justifiably worry as music CD sales continue to fall in the face of downloading, but the position outlined by Mr Heckler is not a winning one, as Sony's copyprotected CD fiasco shows. Illegal downloading I think is just plain wrong, but when asked, many who engage in this activity have said that if it was easier and less restrictive to download legally they would. Obviously iTunes and a host of other such sites have now thankfully made it easier to download, but still make it restrictive to use.

Digital music sales from legitimate downloading have not yet offset the decrease in CD sales. But they are getting closer and closer to doing so. Legitimate downloads increased 89 per cent in 2006 over 2005, and global digital music sales over some 500 legitimate downloading sites reached US$2 billion. Total music sales were down 4 per cent from 2005 to 2006, but the trend is clear: music customers want to pick and choose the songs they buy, not be locked into the music company's, or the artist's, album offerings.

Not only do customers value control over the songs they buy, but buying online is faster and easier. The simplicity builds on the power of ideas presented in chapter 3, 'Superficial is Anything But'.

There are signs of the music industry beginning to recognise that it is better to adapt to rather than fight global customer behaviour.
The New York Times
reported from the January 2007 meeting of Midem, the music industry's annual trade fair, that the major recorded music companies are feeling their way towards joining independent labels in selling digital downloads in Mp3 format without copy protection, based on the realisation that hackers will quickly figure a way around any copy protection software and on the expectation that these unrestricted file formats will serve as a form of advertising.

Earlier in the same month, EMI announced that it would make free streaming music available on Baidu.com in China. And Yahoo! is continuing experiments, backed by Sony BMG and EMI, in selling a limited number of songs without copy protection. In addition to this EMI are dropping piracyprotection restrictions from the digital music it sells over iTunes in a bold move to increase the popularity of online music downloads.Most music you download from iTunes can only be played on the owner's iPod and can only be authorised to play on a couple of different computers. EMI – who own the rights to some big names such as Coldplay, Lenny Kravitz and Norah Jones – are experimenting with a 30¢ price increase for the copy-protection-free downloads. Although they have been widely criticised by the industry, I love their willingness to trust the customer, and the willingness to diverge from the crowd and, as per the title of this chapter, give up control.

Customers' demands to access music as and when they want to do so will also put pressure on Apple's digital rights management model, which makes iTunes available only on the iPod. Fuelled by customer frustration, legislative proposals to mandate interoperability are being made in France and other European countries. Throughout its history Apple (like Sony) has had a reputation for making things that only work on its proprietary platforms. The first important signs of moving away from this were making iTunes compatible with Windows and using Intel chips in the latest Macs.

I have talked about the halo effect of the iPod on Apple computer sales, but I can assure you that the introduction of an Intel chip into Macs and Apple laptops was a major reason for the strong growth in sales in very recent times. I owned an Apple before and did not become a typical Apple disciple, but now I would again consider moving across to Apple and over time this may attract me to the OS X operating system as well. Obviously iTunes will need to follow a similar path. Sooner rather than later I hope. Considering the rate of downloads, Apple will likely find more money and better margins selling digital music than they did selling digital music players.

Meanwhile the musicians who have embraced free downloading have vastly broadened their potential markets. This is not surprising considering that until such technology came along their ability to access the market was very low without a record label, and in effect they had no control.

The Arctic Monkeys are one of several bands to use MySpace to attract the interest of record labels.Adding to the list of music industry turning points, in January 2007 was the first instance of a band hitting a major music chart without being signed to any record label. The 'unsigned' rock band Koopa, from Essex, England, hit the UK top forty with a single called 'Blag, Steal & Borrow' that was available only as a downloaded Mp3 file.

Unfortunately the PR frenzy that surrounded Koopa being the first 'unsigned' band on the UK charts was a little misleading. You technically can't be on the UK charts without being signed, because you need what is called a Catco ID in order for royalties to be paid. So in truth Koopa were actually 'signed' with a company called Ditto Music, owned by two Edgbaston brothers Lee and Matt Parsons. The key differentiator is that a deal with Ditto Music is non-exclusive and is only for distribution and promotion. In other words, Koopa retains the rights, whereas with a 'traditional' music label this is usually not the case.

The real example of getting control by giving it up is in fact Ditto Music, not the band themselves. Ditto managed to get their second 'rights retained artist' (which they spin as being an 'unsigned' artist) onto the top forty charts in the UK in March 2007 when Midas entered at number three. According to their website Ditto Music have hundreds of artists as clients. They have these clients because they don't want to 'own' the rights for their clients' music. Sure, they are not the multibillion- dollar giants that EMI or Sony Music are, but they are certainly a sign of a new business model emerging – a model that seeks to get control (distribution of new music) by giving it up (rights).
⁶

As television executive turned internet entrepreneur Jordan Levin puts it, 'Ultimately these big media companies are all wrestling with the same thing – the power is being taken out of their hands. This is an industry that for its entire history has imposed its model on consumers. They've always said, "We'll tell you when you'll watch our TV show or see our movie." But that's fundamentally changing. The whole structure of people who control content is being supplanted by the content users themselves.' And according to MGM executive Harry Sloan, 'We've got to get the creativity to stand against user-created content, because that's what people are watching at my house.' In an interview with
Variety
, Sloan described his 17-year-old son with the television on behind him and 'two screens in front of him, one connected to friends and one to play World of Warcraft.'
⁷

What I would add to this is that current trends do not spell the end of the movie and television companies but the end of the movie and television companies controlling when and where we watch what we watch.

YouTube has become an arena for copyright-protected content uploaded without the copyright holders' consent as well as user-generated content. Thanks to its US$1.65 billion purchase of YouTube, Google gets the chance to demonstrate that advertising tailored to each individual user's viewing habits, like the advertising on Google Search that changes depending on what you're looking for, can adequately compensate copyright holders for the loss of control over their intellectual property. Google will also be making advertising-based payments to the amateur video makers who upload their own creations to the YouTube site. No doubt the most successful of these amateurs, who may as well be film school graduates as self-taught, will face the same quandary as the rock band Koopa: if there is profit without them, who needs the movie and television companies or the record companies? Personally I think YouTube is a holding yard for a collection of garbage. Organised garbage, for sure, but I am astounded daily at not only how many clips get loaded up, but worse, how many hours people will spend downloading them. The scary thing is that they are probably your staff.

I am more of a fan of the News Corporation, AOL and NBC deal which will use the internet as a means for distributing quality content. I will talk about this innovative deal in some detail in chapter 7, 'Action Precedes Clarity'.

This example is evidence that despite some nutcases suggesting the 'end of TV', the industry will not die. They just need to flip some of the paradigms that until recently have made them phenomenally successful. It is time to take some action and have the courage to explore new business models. For example, despite the movie studios' and cinema owners' resistance, simultaneous release of movies in cinemas, on pay-per-view television and on DVD is coming soon, because that's what the public wants. In the United States the maverick entrepreneur Mark Cuban, who coincidentally owns the NBA team the Dallas Mavericks, has staked out an early lead in this arena.

Together with fellow entrepreneur Todd Morgan, Cuban has assembled a vertically integrated media and entertainment company that includes a movie production studio, a movie distribution company, a chain of cinemas and an all highdefinition digital television network 'to experiment with a "day-and-date" model in which films will be released simultaneously across theatrical, television and home video platforms, thus collapsing the traditional release windows and giving consumers a choice of how, when, and where they wish to see a movie.' The model is already proving successful with films like George Clooney's
Good Night, and Good Luck
and the documentary
Enron: The Smartest Guys in the Room.

To complete this tour of the entertainment industry's challenges in updating its treatment of intellectual property, book publishers have also struggled to come to terms with the world of downloads. Interestingly, book publishing shows perhaps the clearest benefits to both companies and artists in making downloads freely available. Listening to a downloaded file is no different from listening to a CD (sorry to all of you audiophiles). The best file formats, which perhaps will not even be Mp3, can offer CD quality sound, and video and film downloads will surely follow the same upward quality curve. But reading a book on a computer is nowhere near as enjoyable and practical as reading an actual printed book. Dedicated electronic book readers have not yet bridged the gap in terms of the quality of the reading experience. This helps explain why authors like the marketing commentator Seth Godin and the science fiction writer Cory Doctorow, who have made their books available as free downloads, have reaped huge increases in the sales of their books in traditional print format.

For example, sci-fi author Cory Doctorow makes most of his books free online before they are available for sale. This apparently self-sabotaging flip has helped to make the regularly published and sold editions of his books bestsellers.

He says on his website:

I've been giving away my books ever since my first novel came out, and boy has it ever made me a bunch of money . . . I believe that we live in an era where anything that can be expressed as bits will be. I believe that bits exist to be copied. Therefore, I believe that any business model that depends on your bits not being copied is just dumb, and that lawmakers who try to prop these up are like governments that sink fortunes into protecting people who insist on living on the sides of active volcanoes. Me, I'm looking to find ways to use copying to make more money and it's working: enlisting my readers as evangelists for my work and giving them free ebooks to distribute sells more books. As Tim O'Reilly says, my problem isn't piracy, it's obscurity.
⁸

PROFITS THROUGH PARTICIPATION AND PERSONALISATION

I mentioned at the start of this chapter that your brand does not belong to you. While this is not news to anyone, it is worthwhile to remind ourselves of this regularly. The identity of your product or service brand and its fate in the marketplace ultimately rest with your customers. Likewise, the identity of your employment brand and its fate in the marketplace ultimately rest with your staff.

What customers think and say about your products and services determine whether they will be profitable and for how long. And what staff think and say about your business as a place to work determine whether you can attract, develop and retain the best and brightest to work for and with you. For good or ill, nothing beats word of mouth.

Nothing beats it, that is, except for word of
mouse.
What has changed with the internet and the new communications technologies is the speed with which perceptions of your brand can spread, infecting people with an enthusiasm for contact with your brand or with a disdain for it as the case may be. The old rule of thumb was that whereas a satisfied customer might tell one person what was great about a product or service, a dissatisfied customer would tell eight people what was wrong with it. Nowadays, there is no limit to how many people dissatisfied customers can communicate with via the internet. And although there may also be no limit to how many people satisfied customers can communicate with, human nature still means that people get more fired up about complaining when something goes wrong than they do about enthusing when something goes right.

Let's briefly consider Dom in my office, who not so long ago had an ordinary experience with his local Australian bank. It was so bad it prompted him to start a user group on Facebook.com called 'I hate banks: let's start a consumer rebellion'. Within one hour sixty-four of his 'friends' (that is, people he has a direct connection with on the social networking site) had joined. Interestingly enough, a significant number of them were from Western Europe, so obviously we are talking global here. Now assume that like Dom, his first-degree connections also have dozens of 'friends'. On they spread the message, and before you know it hundreds of people, many of whom Dom has never met, have now joined his club. They then ask their contacts, who in turn ask their contacts, and so on until this user group has thousands of members beating up on banks.

After gently reminding Dom that the banking sector is one of our best sources of clients, and that I like those clients very much and so should he given they pay his bills, the growth of the user group was stemmed (or should I say halted) but not before showing me a live example of just how powerful word of mouse can be. By the way, my behaviour here goes against the flip I am putting forth in this chapter, and had I been the bank I would have been more interested in learning from the experience, knowing full well I had no ability to shut it down.