This week the Apple-Beats acquisition became official. At the same time, there was news that Beats was not taking its design team with them to Apple. Suffice it to say, with that went my theory that this acquisition was all about wearable design capabilities. Instead, the focus returned to music. Apple itself indicated that this was about the next generation of iTunes music and the speculative commentary moved back to focus on that.
As I have been thinking about music artists and their role in the digital economy of late, it was interesting to think about precisely what all this meant. The one trend that many focussed on was the move away from buying music towards streaming music. Of course, it is hard to characterise that as a trend per se as the dominant mode in music has always been streaming — in this case, over the radio and sometimes over the television. What has changed is a move from human curated streamed music (chosen by radio programmers) to algorithmic and user-based systems. Pandora lies on the more algorithmic side while Spotify and YouTube (yes, YouTube is how the kids today listen to music) are on the user side. Apple itself came into the fold with its iTunes Radio concept but, while I have tried to like this, it just hasn’t caught me in the way other options have.
On Medium, Michael Vakulenko (who is, on web paper, precisely the model of someone I would never pay attention to) wrote an interesting piece relating Apple-Beats to the Lady Gaga business. If you are at all interested in these issues I recommend it highly. It is very thought provoking and what I want to do here is share the thoughts it provoked in me.
Let’s approach music artists the way we would approach entrepreneurial start-ups. These are people with some talent, creativity and an idea of what sort of music people might like. Given that entrepreneurial opportunity, they then have to select the business model they will use to commercialise that opportunity. For the vast majority of music artists, what they pursue is what might be called “an intellectual property strategy.” That is, they focus on selling the stream of licensing rights to their music to music publishers (and others) in the hope that that stream of royalties will last a good deal of time. This is the music business otherwise known as the business of selling music.
This music business made sense in the olden days (of last century). The artist’s customer were established publishers who held the assets and capabilities to grab final consumer attention. The technology used to distribute music was tied to the physical world and either required real commodities like records and CDs or bandwidth on radio, etc. An artist’s competitors were other artists trying to make a case to music publishers that their music would be the next big thing. And this gave the artists an identity whereby they spent their time either in the studio or otherwise out having fun because of the success the money had brought them. It was only when they were established that the artists might (basically, if they were still alive) “return to their roots” and perform in what was essentially an opportunity to commercialise their fame in another way.
This old business model has been challenged as being the “only option.” Artists now have more choices as to how they commercialise their opportunities. The issue is how many realised it.
According to Vakulenko article, Lady Gaga and her manager, Tony Carter, realised it right from the start. Carter is quoted: “music, we realized, sells everything but music.” Right there is an abandonment of the intellectual property strategy. The music would not generate the money, it would be an instrument by which money is generated elsewhere.
And so what did they do? While they might not like to characterise it this way, they moved towards “selling the artist.” The music would become essentially free so that the fan base was maximised. Lady Gaga customers would be final consumers themselves and her competition would be anyone competing for their attention. The technology used to distribute music would be digital. And the identity of Lady Gaga would not be the artist creating music and having fun but instead be of a tireless worker using fame to bring concerts to the masses, and her name to both commercial and non-commercial products and causes. Moreover, while she may become rich off this strategy, there would be no stream of future income without further and persistent effort. In other words, rather than focussing on controlling her music through intellectual property protection, Lady Gaga would relentlessly promote herself in a way that valued excellent execution.
And it is here that the second part of the Vakulenko article becomes interesting. If artists are moving from an intellectual property strategy to capture value to an alternative based on execution and disruption of existing value chains, is there more that has to happen for that model to be viable for more artists? Vakulenko suggests that a close reading of Jimmy Iovine’s statements gives us a clue. Here is Iovine:
But there something else going on our service that doesn’t go on anywhere. We have to make it user-friendly to the artist. They have to be able to build businesses on it. They have to be able to have the information who is using their music, where they are… That has to become a business for the artist as much as communicating with their fans. Right now, they (music services) have all the information and the artist have no information. No one knows… I don’t know. I own a record company. I would die to know who bought my records on iTunes or bought my tickets on TicketMaster.
In the old music business, the information about what consumers want was collected by retailers and publishers and then fed back to artists. In the new business, digital retailers such as iTunes, streaming music services and YouTube have all of the information. So the artists have to guess what is going on from analytical tools. Suffice it to say, it can’t be easy. What’s more those digital retailers aren’t passing information back.
Here is where the Apple-Beats merger might well be significant. Just as Apple opened up the mobile application market by making it easier for developers to access consumers and understand that market, they could be planning to do the same for music. They already have the consumer base. Now it is about making them useful for artists who are interested in the new business model rather than the old intellectual property business model. Exactly how that might occur is hard to say. But I do love this quote from Iovine:
“Obviously, we can’t talk about that, as you know. See, in the record business, you can show someone your song, and they don’t copy it. In the tech business, you show somebody your idea, and they steal it.”
If I had to guess, my belief is that Apple’s target is YouTube. Time will tell.