Major Labels

Digital Music Business And The Rashomon Effect – Jim McDermott’s Important A2IM Keynote

2In this keynote address transcript, Jim McDermott explains how the Rashomon effect, wherein multiple parties share contradictory but equally plausible accounts of an event, has persistently existed in dealings between artists, labels and the music tech industry.


Guest Post by Jim McDermott 

Writer’s note: this is a lightly edited transcript of a keynote address I gave at A2IM (American Association Of Independent Music) Indie Week on June 13th, 2016 in New York City.

A2IMI was invited in part to speak with you here today was because of a rebuttal piece I wrote recently to a venture capitalist named David Pakman. You might have seen it on or Hypebot. David wrote a piece entitled “The Music Business Buried More Than 150 Startups” which blamed the failure of these companies on the greed and ignorance of the major record labels. I perhaps somewhat less diplomatically entitled my reply piece “Most Music Tech Startups Didn’t Know Shit About How Labels Worked.” Now I’ve known David Pakman for 25 years, back when he was a Music Evangelist at Apple, he then went on to head up eMusic. He showed me the first CD burner I ever saw, it was the size of a mini-fridge and cost 12 grand. He’s a very smart man and I respect him highly.

Now I’ve heard the “record labels are greedy and stupid about new tech” rhetoric plenty over the years, but for some reason, his piece bugged me. I worked in new tech at PolyGram, Universal and Sony while the “burying” he refers to was getting done. I met with hundreds of music startups, heard their pitches and negotiated deals with many of them. From my perspective, most music tech companies often didn’t know or didn’t care about how the music business worked. They viewed music as “content,” not art. They wanted to be acquired, or IPO and get that pot of gold at the end of the rainbow. Very few were interested in being long term partners with the labels or artists. That’s how I saw it, anyway.

So how do two guys who worked in the same space for all that time, who get along pretty well, end up with such diametrically opposed viewpoints of what actually happened in digital music and why? Who is right, and who is wrong?

There’s a brilliant 1950 film by the genius Japanese filmmaker Akira Kurosawa called “Rashomon”. In the movie, several characters provide differing, self-serving accounts of the same incident to an inquisitor. Their contradictions make it impossible to determine what really happened. This concept actually transcended the film into real life, and is referred to as the “Rashomon Effect” in anthropology, journalism and elsewhere where observers of an event produce very different but equally plausible accounts of it.

In an interview on YouTube with the director Robert Altman about the film, he explains The Rashomon Effect: who we are as people, what we’ve seen and done in life, and where we’ve worked is a filter though which information passes. It colors our perceptions, our truths. We create our own unique interpretation, our equally plausible account based on our individual perspective. All that we believe is true; and yet, none of it is true.

To work in the digital music business is to be in an ongoing Rashomon Effect. For over 20 years now, artists, labels and the music tech industry have been stumbling along, seeing things very differently, all sides believing our own truths. So I’m going to share a few thoughts with you today, fully understanding that these are only my truths.

Venture capitalists complain a lot about music tech companies being bad investments, because such a tiny percentage succeed. A VC brought it up at Midem just last week. Well, welcome to the music business! How many records become huge hits? VCs invest in promising, early stage companies with the hope that they’ll bring back an exponential return on their investment. The funny thing is — record labels have been venture capitalists since long before VCs were even a thing. It’s true! The first venture capital firms were founded in 1946. The phonograph was invented in 1877 and soon after that, commercial recordings appeared. Gramophones and Victrolas followed and by the first World War, people were buying records in significant numbers. Which of course, means that a proto-A&R scout went out and found an artist, convinced a label owner to risk their money and record a couple of sides on the chance that people might like it enough to buy it. And maybe the sales of that record would be enough for the label to fund another one that people might like. Many people in this crowd got started funding releases out of your own pockets, some of them still do it. How many VCs do you think put their OWN personal money into the tech companies they seed?

But then, all of this is true. And none of this is true.

Most of us go to work thinking we’re the good guys. Whether we’re artists making the music, labels releasing and marketing it, or tech companies building ways for consumers to congregate and consume music, most of us don’t wake up, wring our hands and say “I can’t wait to screw someone over today.” Labels, artists and music tech companies exist in symbiotic relationship, where each can benefit from the activity of the other. But after 20 years of digital music, the symbiosis is still not mutually rewarding, and is often parasitic.

This feels like a good time to segue into a few thoughts about YouTube.

The folks at YouTube probably show up to work thinking they’re good guys too, although Irving Azoff and others are making that a little harder lately. YouTube seem to have a “gated community” mentality about artists — they get that artists provide needed services (content), but they don’t want to see them too much, and rarely want to hear their complaints. YouTube uses the DMCA as a shield and an excuse to behave like internet companies did in the Napster and Limewire days, when iffy behavior about copyright was still getting hashed out. The fact that consumers can listen to pretty much anything on YouTube for free certainly impedes the value proposition of streaming services that charge listeners fees. YouTube enables large scale theft in plain sight and benefits from it to the tune of billions of dollars. To hide behind the DMCA, to pay artists little or nothing in their legitimate deals they do offer and then have “Do The Right Thing” as a corporate motto is the ultimate irony. Vinyl revenue is bigger than YouTube revenue in the U.S. and U.K. — come on.

There was a famous club in NYC called the Limelight, which opened in 1983. It was a wild place with all sorts of open illegal activity, none of which was being perpetrated by the owners of the club. But the NYPD shut it down anyway, deeming it a “harbor for illegal activity.” They said the club owners created an environment in which this criminal activity could thrive. If YouTube was a NYC dance club, it would have been shut down years ago.

Of course, YouTube is an essential distribution and promotional platform, we all get that. And it could be an essential revenue platform if things change. The truth is, the music industry needs YouTube as much as YouTube needs music; nobody wants it shut down.

But we must speak truth to power. It is an obligation. Google has been called out on so called “revolving door hiring” in both the U.S. and EU governments, where employees in key government policy making positions are hired by Google and then go back to government. The Google Transparency Project said that in the EU, these hires “dramatically stepped up” just after the European Commission launched its first investigation into alleged anti-trust violations by Google. As big a threat as Napster once was to the survival of our industry, Google is a much greater existential threat, now and in the years to come. Napster didn’t have the ambition or the deep pockets required to influence governments. It’s going to be an incredibly difficult battle, and our industry is outgunned. We’re going to need consumers on our side, which means the artists are going to have to get a lot more vocal. And the messaging needs to be crafted carefully, because the tech industry and the media so often reframe any artist who speaks up about their rights as greedy.

When we speak about protecting copyright, very few consumers get the message. Perhaps they would understand better if we called it protecting consent. Consent is a word that is rarely heard when the rights of creators are discussed. There are many instances where music for free makes sense. We’ve been deeply discounting and giving away our products for decades to reap the promotional benefits. But if and when an artist or label chooses to do it should be up to them. Consent also means not being forced into a bad deal because someone has power over you. Consent should rest in the hands of the creators, not those who make the negation of it their growth strategy.

1A lot of people think the music business got killed by Napster; I don’t think that’s true. File sharing is not the predominant way people consume music today. But Napster did help kill was the perceived value of music, and the record industry made it easy for them. We did such a good job as an industry positioning the CD as a premium product that consumers believed that the physical carrier was where most of the value was. So when they could cherry pick the songs they wanted on Napster, replicate and distribute music themselves — that put a bullet in the perceived value of music. And it’s doubtful that we’ll ever get back to a place where people buy an album at the 1999 frontline CD price point.

But can we all admit that the static pricing of digital music lacks imagination? Almost everything we else we consume has a variable price: a cup of coffee, a hamburger, your cable bill or a subway swipe. If cows have a bad year the price of milk goes up for a while. Yet ten or eleven bucks is the carved-in-stone monthly price of music access. If the streaming services need better margins, labels and publishers want higher rates, and artists demand better compensation, how is that all going to work? We used to work with our retail partners on price evolution and had formats with different price tiers. Catalog music that we used to put in bins at a cut-rate price in the backs of record stores is now some of the most listened to content on streaming services. Why can’t we work together, explore and experiment in this digital world that has no boundaries? There is this ceiling that has somehow become sacrosanct. And yet some pundits say this price is still too high. There was a time in the not too distant past when journalists and so-called digital thought leaders said that streaming would never work because “people don’t want to rent their music.” These same people say that tiered pricing would be confusing to consumers. You know, all it takes to be a thought leader is a bullhorn and a backside to stick it in… there is no reason why labels, artists and music services cannot work together creatively to extract more from the consumer, instead of always looking to extract it from each other.

Of course, all of this is true. And none of this is true.

Tom Silverman’s thoughts on moving to from a units-based business to an “average revenue per user” model are spot on. Ironically, “ARPU” is reminiscent of Napster’s pitch to the labels in 1999. Napster said (and I’m greatly simplifying here): “people are super excited about this, let’s get everyone in the tent paying $9.99 a month, and adoption will be so great that the overall numbers will be way better than whatever you sell in units.” Back then we considered “active music buyer” purchased someone who purchased one CD a year — total revenue to the music industry, about fifteen bucks. $120 a year per consumer is obviously a much better number, so the idea made some sense. The problem was, well… everything else about Napster. And in 1999, shifting from a unit based business to an “average revenue per user” based business was a non-starter. It was too early; retail was on the ropes but we had hopes that things would turn around. CD sales were about 13 billion dollars annually in the U.S. It’s obviously a different world now, and ARPU is really the way that makes the most sense to look at things. I still strongly believe that Napster was an impossibility to make legit and we had to fight it, but nonetheless, here we are 16 years later and the model we said then was impossible has become probable, perhaps even inevitable. The question is: how do we get to that magic 150 million subscribers where streaming numbers works better for all of us?

Pricing is only part of that conversation. Making the listening experience great, something people cannot live without, is the greater challenge. And it starts with music curation.

Curation is more important now than it ever has been in the history of music. We’re wading through millions of tracks via tiny interfaces, and are still figuring out how to distill it all in a meaningful way. Data and algorithms can help provide unique music experiences with scale. But they can also be used to remove human beings from the music value chain and produce pablum for easy digestion by the masses. Only someone who lives music has the empathy and understanding required to recognize that rare emotional component in art that makes it is worth elevating. And nobody has invented an algorithm that can replace that.

Independent labels have always dived the deepest into these waters, bringing treasures to the surface that the mainstream has been unable to comprehend. The most meaningful art has never been created via a democratic process or a popularity contest. It is born out of the obsessive creative vision of individuals who often are seeking to destroy the commonplace, the mainstream, the popular. Great music pushes and challenges the status quo. New genres often appear as a reaction to social conditions (think punk and rap) and often are initially disparaged by the mainstream. This music is born like a virus and spread by small groups of passionate people until it is popularized.

1Now, I’ve been a premium Spotify customer for years; I always felt that that discovery was an area in their service that was lacking. So I was pretty excited about Spotify’s Discover Weekly, their personalized playlist curation play. Apparently lots of other people are, the listening numbers are very big. But you know, I have mixed feelings about Discover Weekly. On one hand I have found a few tracks that I liked by artists I hadn’t heard before. But overall, and I know this isn’t a very kind analogy — I feel like a man who’s been wandering in the desert dying of thirst, and I crest a sand dune and find a pristine chrome and porcelain… bidet. I know I’m going to fall to my knees and drink, but it’s far less than my ideal scenario.

Here’s why: streaming services scan our entire digital music libraries. They have incredible granular data about our listening habits — what, where and when. The discovery experience they provide should be as good as a mix tape from a close friend. Or like a good college radio show, where a playlist of songs that shouldn’t work together somehow does, because the DJ puts their heart and soul into selecting them. Thankfully there are diverse playlists by other music fans on these services that are often good. But they haven’t informed and evolved my musical tastes to anywhere near the degree the late lamented NYC indie record store Other Music did, where the staff hipped me to Monoton, Rapoon, Ike Yard, DopplerEffekt, King Midas Sound and hundreds of artists over the years.

I want these things because their analog counterparts are disappearing. I want these things because, in part, the technology industry is what is killing them, so I feel they’re morally obligated to replace them. And with their huge valuations, brilliant engineers and creative staff, they should be able to elevate these experiences. With all these billions of dollars floating around, the end result should not be “less than.” It should be wondrous. Apple Music’s curation is good, but the technical execution of the service is the worst I’ve seen in 20 years as an Apple loyalist. Amazon is launching their streaming music service later this summer, but they’ve always been better at selling than engagement. Google Play is about as compelling as one of those DVD rental machines you find outside supermarkets. Hopefully these services will get there — but one wonders if in trying to create an audience so broad, they will end up underserving hardcore music fans. Thankfully, more experienced music people are being hired by these services, which is a positive sign.

There needs to be more innovation in the consumption experience. Perhaps the next generation of virtual reality will provide it to bridge the emotional gap and engage fans on a deeper level. Today, innovation is a photograph or video that disappears after a single viewing. We all have to deal with that, all have to figure out how to use these tools to help us reach fans. There’s a seemingly endless wave of new social platforms that we have to engage with, all of which require us to rework our content to fit in their context. It can be challenging to determine where to direct our attention and resources as all it seems to change so fast.

But all of this is true, and none of it is true.

Music 1.0 was the record business before new media, before the internet: let’s say pre-1995. We’ve been stuck in “Music 1.5” for over 20 years. The dialogue around fairness and transparency is growing, the antiquated rights and accounting systems are evolving. But the culture that perpetuates a lack of transparency is far from extinct. It is on the defense now more than ever before, and we need to keep it on the defense. So what should Music 2.0 look like? To end up in a place you want to be, you have to imagine it first and start heading in that direction, with purpose.

Music 2.0 to me is about flatness. It is a world where there are not just three or four big destinations where people get their music from, but millions of places. A world where getting a license to sell or stream music is easy enough that any little blog can do it, just like any little record store could, with no huge advances to labels or equity swapping required. It’s a world where creators know that technology is helping them make a living, not taking it from them. It’s a world where artists and labels can see exactly where their music is being consumed in real time; and they are paid on that actual consumption and can react on the marketing opportunities quickly. A world where big players do not conspire to create false scarcity that confuses and annoys music fans.

It’s a world where artists, labels and technology companies can have a meal together and nobody has to look down at their feet or bite their tongue because everyone at the table is being treated equitably. That is a world where we all benefit from each other, and that benefits music fans. A world that has evolved beyond the bitterness and mistrust that has characterized the first twenty years of the digital music business. A world beyond the Rashomon Effect, where we all share the same truth.

Blockchain technology is exciting; there is an inherent flatness about it that could underpin this new world — which is precisely why many powerful entities will be against it. If you want the world to change, work with the people who are trying to change it, and stop giving the advantage to those who are trying to keep you down. Don’t blindly give the best stuff to them, even if they have the biggest audiences at the moment. Empower those who are trying to get to the same destination as you. Experiment, think outside the box, be willing to make mistakes. You might just figure it out before anyone else. And use your strength in numbers to move the needle — it’s what the majors do every day, and why organizations like A2iM are so important.

We need to zoom out and realize that issues that seem so unsolvable, the struggles that make it so difficult to do our jobs every day are not really new. Our industry has faced the challenge of evolving technology for over 100 years; we’ve always adapted and succeeded. People listened to Robert Johnson and Bessie Smith on 78s in the 1930s, then they listened on the radio, on LPs, cassettes, eight tracks and CDs. All those formats had their moment of dominance, and all have faded, just as paid downloads are fading now.

Major labels consolidate, dot coms and technology companies falter and die. The format or distribution platform doesn’t matter — these things are castles made of sand, sitting on a beach waiting for the waves to roll in. Robert Johnson and Bessie Smith couldn’t have imagined something like Pandora or Tidal, but their music is on those services. And 100 years from now, their music will be licensed to some new service that none of us sitting here can possibly imagine.
We must all work together to give life to great music, because music is the only thing that lasts.

Thanks for letting me share my thoughts with you today. And whether you agree or disagree with what I’ve said, remember:

All of it is true, but none of it is true.

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