|The Eighth Annual Interactive
PROJECT BAR-B-Q 2003
Group Report: nASCAP -
|Participants: A.K.A. "nASCAP"||Len Layton; C-Media Electronics|
|David Roach; SigmaTel||Martin Puryear; Microsoft|
|Glenn Arenzoff; DTS||Mike D'Amore; Kensei Consulting|
|Richard Dekkard; Orphic Rez||Spencer Critchley; composer|
Background and Motivation
If they themselves are to be believed, the recorded music industry is in crisis. Falling sales, low profitability, rampant piracy -- all blamed to varying degrees on the digital music 'revolution' and a the technology of file sharing and downloading that started with Napster. Artists, too, bemoan the lack of transparency in revenue flows and exorbitant fees charged by record labels to distribute copies of their music. Artists have now returned to a revenue model invented in medieval Europe: tour the country side with a big tent and put on a show for paying customers. The music buying public is, too, unhappy, since they obviously don't like the catalog or the prices they are offered for CDs and don't understand why they cannot do what was easy 5 years ago: enjoy a song within seconds of choosing it.
How did it all go so terribly wrong?
Could the key to this crisis be the economic structure that has evolved around the recorded music industry? What's the alternative?
The current online music systems are based on the same business model as the physical media distribution systems in that they sell all songs for the same price (first release CDs are all priced almost exactly the same) and that the user gets a copy of the music that they can use in limited ways. A well-known current example of this is Apple Computer's iTunes Music Store. Songs can be purchased for US$0.99 each. However the analogy between the physical and online business model soon breaks down when you examine the online services closely. If you buy a song online you can't sell it again(1) and you can't give it to anyone else (you buy a right to play the music which is non-transferable.) Despite the drawbacks and expense, the iTunes Music store has sold over 16 million songs and a certain fraction of the population seems to like the service. Steve Jobs has said that Apple's research suggests that 80% of music downloaders want to do so legitimately, but can't.(2)
The current systems are also besieged by hacking attempts that try to circumvent the systems designed to enforce the business model, because there is a direct economic incentive to do so -- if you have access to the keys to the library, you can listen to everything and anything for free, whenever you want.
The current online music systems are essentially run by the big music labels who provide the catalog of songs to distribution intermediaries such as Apple who apply a very small mark up and then resell the catalog in an unlimited fashion, reporting on and paying a royalty on, every sale they make. Apple has also stated that they are not doing the iTunes Music Store to make money selling music -- they want to sell iPods. This means that the interests of the music industry and Apple are not well aligned.
Many artists who have signed record deals (a small percentage of the total who try to get a deal) never see any real returns and instead rely on radio airplay (carried out at very low royalty rates by the radio stations) and their records to promote themselves and to sell concert tickets which are the most profitable revenue line for the musicians themselves. The current online music models do nothing to change this state of affairs -- of the 99c that you pay to Apple for a song, very little gets to the artist.
Radio stations are also an important stakeholder in the industry and in the US at least, operate in a 1950's world of rock & roll and very low royalties for playing songs. Artists are compensated statistically rather than on a 'pay per play' basis as in Europe. There are proposals afoot to change the radio airplay tracking system in the US so that radio stations will have to track each and every song they play and pay the royalty accordingly.
Another problem with the current online music systems, such as Apple's, is that of a very limited catalog. Great swathes of the recorded library of human music are missing from the iTunes music store. Most of the songs are 3 minute pop songs from the last 20-30 years, focusing on US baby-boomers'(and their kids') demographics.
The rogue group, sitting in the Playdough discussion on DRM systems thought, 'what if the radio stations were somehow forced to pay more for a song, depending on how popular it was?' and this led to the Big Idea : nASCAP.So What's the Big Idea?
The nASCAP rogue-group was formed on the spur of the above idea -- what if songs were able to be bought and sold on a market, like a stock market? Instead of a fixed price per song as per the current online music systems, the price of a song would reflect demand and the available quantity.
If only a limited number of copies of a song were available, and there was a high demand for a song then the price would increase. Conversely, if the song wasn't so popular then the price would go down. Combine the idea of 'floating,' market-determined pricing with the ability to sell songs to someone else and you have the essence of the nASCAP idea.
While many variations on this basic idea are possible in practice the nASCAP group explored only one simple model, based on an electronic stock market such as NASDAQ.(3)
A public market would be established wherein content owners and the general public could buy and sell 'tokens' which are either a copy of the song itself (as a digital file) or a key to unlock a specific song file.
Content-owners, even artists themselves, could release a limited number of tokens into the market in a process akin to an Initial Public Offering (IPO). These tokens would then be traded and freely bought and sold with the market price of the actual transactions publicly available.
nASCAP proposes that a percentage of every transaction on the market would go to the original artist and/or content owner to provide a residual 'upside' income for content that was incorrectly priced at IPO yet subsequently becomes popular.
Content owners could release additional tokens for any content, but would need to understand the market demands so as to maximize their returns on the project.
Clearly, nASCAP relies on very secure Digital Rights Management (DRM) technology and encryption, but no security system is unbreakable. Taking inspiration from eBay, a community of buyers, brokers, artists and sellers would be created with a transparent rating system to highlight and reward good behavior and to negate the potential rewards for circumvention. It is also possible that a "digital provenance"(4) could be established, but it is likely that privacy considerations would prevent this from containing any information that uniquely identifies and individual.
Originally conceived for music (at Barbq!) it can be seen that the concept could be extended to other forms of content.
nASCAP key concepts
A Token is like a Stock Share, but...
There are different types of rights that a token may confer on it's owner:
Funding the creation of content
Content costs money to produce. Artists currently 'sell' their rights to future income via a record deal with a label. Out of a total of 100, "points" are distributed to various stakeholders in the content. Under the nASCAP system, points are replaced by Tokens so that an artist can sell tokens to people who want to invest. Investors could be the existing organizations, such as record labels, or nASCAP could create a new economy of investors of different sizes.
Prior to the beginning of a project, an artist could sell a 'future' in a token -- which is a right o buy a token at a specific price at a specific time, irrespective of the prevailing value of the tokens at that time. This allows investors to hedge against downside risk, but can also work against them if there is significant upside. The futures might also be tradeable, which allows risks to be spread or played off against one another. It is beyond the scope of this document to go into the complexity of derivatives markets, but it can be said that this can make the whole business rather abstract as the value of the underlying token is already an abstract concept, as opposed to a stock which is much more concrete.
The equivalent of "Dividends" (cash payments made to shareholders) might be alternative mixes or holiday songs. Dividends are paid (delivered to user account) of whomever owns the token at the moment
Grouping of Content in Albums
Tokens can be permanently linked or grouped into a playlist which has a discount (purchase an album). This linkage would be an independent stock, and could not be broken up. This is also a departure from traditional stock market model.
nASCAP would spawn the creation of a new animal : the Music Broker -- the equivalent of the stock broker from the sharemarket world. This person would, in essence, combine a radio station's programming manager and A&R functions. Music brokers would guide users to songs that they would like and add value by prescreening the songs, effectively keeping junk out of the system. This is like a favorite DJ on public or college radio -- a kind of opinion or fashion broker.
Variations & other considerations
Community honesty systems
eBay(5) supports a vibrant and rapidly growing community of buyers and sellers who, via a system of praise or criticism, create a system of community-enforced ethics. This system results in a high level of trust in buying or selling items on eBay, even if the person you are dealing with is in another country. The stockmarket does not have the equivalent of this, except via the securities regulators and institutional organizations such as the stock exchanges themselves. Recent high profile events(6) highlight the current inadequacy of the enforcement and substance of regulations surrounding mutual fund trading, for example.
nASCAP should consider ways to combine the trading system with an eBay-style community ethics system.
We could consider secondary tiers in the model -- a retail and a wholesale model whereby a right to make copies can be purchased at a higher rate and then a cut of the sales of these secondary tokens would be fed back to the artist or owner.
Taxes could also be levied on recordable media which would then be distributed through nASCAP. This would link government and business, unless nASCAP was government mandate.
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