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The Fourth Annual Interactive Music Conference
PROJECT BAR-B-Q 1999
brainstorming graphic

Group Report: The Impact of Digital Distribution on the Various Constituencies Within the Music Industry

Participants: Aaron Higgins; Microsoft
Mark Miller; GroupProcess Consulting Joe Bryan; Hyperactive Audio Systems
Alec Robinson; Texas Instruments Howard Brown; Voyetra/Turtle Beach
Jim Reekes; Kerbango! Tony Faranella; SRS Labs
Victor Borda; Intel Marc Jordan; Crystal Semiconductor
Mike D'Amore; Yamaha Facilitator: Dave Kaplowitz
 

Note: The views expressed in this report do not represent the official views of either the group members or the companies for which they work. This report represents only the result of an informal discussion group at the 5th Annual Texas Interactive Music Conference. No other inferences or conclusions should be drawn based upon that participation of any individual or company involved.

The Angry Frogs
No need for a riot
(unless of course you want one for entertainment value
or concession revenue..)

  1. THE MISSION STATEMENT
  2. THE PROCESS
  3. SOME ISSUES SURROUNDING THE NOTION OF "MUSIC AS A SERVICE"
  4. PERCEIVED CONSUMER BENEFITS OF "MUSIC AS A SERVICE"
  5. RELEVANT BUSINESS MODELS
  6. CONCLUSIONS
  7. SUPPORTING DATA:
  1. TECHNOLOGY/INFRASTRUCTURE REQUIREMENTS
  2. CHANNEL POTENTIALS - GROWTH, IN DECLINE ETC
  3. BUSINESS IDEA: THE SERVICE MODEL
  4. BUSINESS MODELS
  5. APPENDIX #1: SMDI DISCUSSION

THE MISSION STATEMENT:
Examine sustainable business models enabled by new digital music technology - that grow the market overall and enable new, expanded, extended, or unique commerce opportunities. (i.e. we get to sell more stuff..)

The Process

In order to pursue the mission statement we asked the following questions:
How have consumers traditionally obtained their music?
What are the new digital technologies that are relevant to music?
What are the consumer issues (challenges, requirements, and impact on experience)?
What are the content sources?
How is content created?
What are the delivery mechanisms for digital content today / 5 years from now?
Given the specific delivery method - what are the selection mechanisms?
What are the promotional mechanisms for that channel?
What are the transaction models?
What are infrastructure requirements?
Given each distribution channel what are the trends that will effects its growth?

Based upon an examination of the consumer value propositions that emerged from discussing these questions, we determined that viewing music as a service, as opposed to a product is a preferred perspective to adopt.  For example, we postulated that convenient legitimate access to what you want, when you want it, where you want it is potentially an effective weapon against piracy..

Some issues surrounding the notion of "music as a service" are:

The nature and current state of secure digital content delivery and piracy concerns.
How is the service paid for?
Non PC Centricity, musical appliances, and mobility/portability
What is the fate of CDs?.
    CD collections can be personal statements or status symbols.
    Digital content delivery will compliment, not replace, such collection.
The connection between personalization and bandwidth
    Personalization, which brings convenience, requires bandwidth which influences
    cost.  At least today!
Navigating the sea of content.
    How do you find the content you want?
       Meta data standardization
    Personal profiles are required.
    What are the associated privacy issues?
    What is the role of the traditional "taste makers" in the future?
How do you facilitate instant, simple commerce?
    Ease of payment (the "buy it" button.)

Perceived consumer benefits of "music as a service" are:

  • What you want, When you want it, Where you want it.
  • Convenience
  • More variety/exposure possibilities to new music
  • Well targeted advertising is indistinguishable from information.
  • Perception of value
  • Hardware cost can go to zero based upon subscription fees.

Relevant Business Models

  • Content Sale and Rental
  • Free Content and Advertising
  • Music Selection Guide
  • Personal Music Hosting
  • Services for Artists and Labels

Content Sale and Rental ($ for content)

  • Purchase
  • Download and keep
  • Download and expire
  • Pay per listen (PPL)
  • PPL Live broadcast
  • Subscription
  • Personal radio station (Digital Radio, Cable or Satellite delivered)
  • Premium channels (Digital Radio, Cable or Satellite delivered)
  • Home Broad or Narrow Band Karaoke

Free Content and Advertising ($ from advertising)

  • Broadcast with general ads
  • Point-to-point with targeted ads
  • Music sampler
  • Free Promotional Music Channels (Digital Radio, Cable or Satellite delivered w/built in e-commerce)

Music Selection Guide ($ for referring sales & advertising)

  • Find the music you want
  • Based on reviews
  • Based on collaborative filtering
  • Based on community

Personal Music Hosting ($ for service)

  • Personal storage for your music
  • Accessible on any Internet device
  • Download to car or portable device

Services for Artists and Labels ($ for service)

  • Matchmaking artists and labels
  • eBay for musicians and bands
  • Community building

Conclusions:

The Sea of Content creates a free market meritocracy, (let the best music win).  Navigating this Sea of Content creates unique opportunities for both new and established businesses in which community is essential and services which save time and provide reliable guidance become highly valued.

Supporting Data:

How have consumers traditionally obtained their music?

Are the record companies really the bad guys?
Is piracy a real issue?
Are record companies irrelevant?
Are we advocates for the artists or for the record companies?

The record companies create artists - and artists create record companies.

It may cost MORE to "BRAND" a product (artist) via the Internet!  The record companies promote the brand - can an individual artist actually build that brand name recognition without the record label?

The record companies have dictated "taste" we have relied on them to tell us - what we want to listen to.

If we don't have the record companies - how will we decide what we want to listen to?

How do you find it?

How do the small bands get rid of the record company and still promote their goods?

Is it the night club taking the place of the A&R

Where does Radio fall into the equation? The house party, "Raves" -

Over the air radio is built upon the advertising model -

You have to hear the music first before they decide to buy it. They here it for free first - then buy the bits.  Now - night club -> radio -> national radio -> tour -> big record sales.

High quality music production "at home" is possible - the distribution problem is "solved" (Internet) - but marketing is the big problem.

HB: The mechanisms may change - but the expectations of the artists need to change also.

A new business idea for music is making it easier for the consumers to find AND buy the product without inter-mediation from the record companies.

What are the new digital technologies that are relevant to music?

  • Standard digital compression formats that enable convenient distribution.
    - Symbolic compression (MIDI)
    - MPEG4
  • Inexpensive digital audio production equipment
  • Digital Broadcasting technologies (Over the air, cable, Telco, and satellite
    - Data-casting
    - Side band transmissions
    - Subscriber based music services
    - With or without a back channel
        Can you make choices, can you send information back and forth.
    - Live broadcast
    - On demand broadcast
    - Multi-casting
    - Streaming (point to point)
  • Encryption / Watermarking
  • Pre-view technologies i.e. try before you buy
  • Wireless
  • Networking
  • Storage in what ever format
  • Contextual filtering
  • Collaborative filtering
  • Interactive playback technologies
  • Personalization of the music your listening to
  • Enhanced data
    - Data which you may or may not be able to use, but it is included within the file.  I.e. liner    notes, pictures etc..
  • Meta-data
    - Data about data
  • Surround Technologies

What do these technologies enable?

What are the consumer issues?

  • Is more choice better?
  • How does this make me fit into a community?
  • Usability of the hardware
    - Battery Life
    - Storage Capacity
  • Usability of the transaction system
  • Usability of the acquisition system
  • Life cycle of the content
  • How does it save me time?
  • What makes it better than CD's?
  • Audio Quality
  • Cost of the transaction
  • Transaction model
  • Environmental Impact
  • The fashion / social status aspects.
  • Perception of value
  • The Moral Dilemma
    - Piracy & Ethics
       Can you defeat unorganized piracy with convenience?
       The perception of digital content copying NOT being considered stealing. The original       is still "there" - so what is so wrong?

What are the content sources?

  • Individual artists
  • Funded Corporate
  • Funded Independent
  • Hobbyists
  • Collaborative Development
  • Back catalogue
  • Live Performance
  • Re-Mix

How is the content created?

  • Recording
    - Live
    - Home
    - Studio
       PC
       Hardware
       Digital / Analogue
  • Solo / collaborative
  • Local / remote
  • Pro / pro-sumer / hobbyist / non-musician
  • Hobby / Pro

What are the delivery mechanisms for digital content today / 5 years from now.

  • Internet
    - Broadcast
    - NAPTSTER.COM
       Decentralized, distributed servers for MP3s
    - Buying Media
       Streaming, download, on-demand
  • Cable
  • Satellite Broadcast
    - To home
    - To car
       Streaming, download, on-demand
  • Record-able media
    - CD, DVD, Minidisk, ROM
  • Kiosk - POP
    - Streaming, download, on-demand
  • 3G wireless data delivery
    - Streaming, download, on-demand
  • Terrestrial broadcasting
    - Streaming, download, on-demand

Given the delivery methods - what are the selection mechanisms.

  • Chat
  • Email
  • Smart Agent
    - Collaborative filtering (amazon.com, - people who bought this book also purchased this    book)
  • The dumb agent Programmer (person)
  • Booking agent
  • The traditional promotional model
  • Word of mouth
  • Search Engines
  • Content Guides
    - Traditional media, rags etc..
  • Chart reports
  • Connivance
  • Pre-views
  • Ease of access

What are the promotional mechanisms for that channel:

  • Traditional advertising
    - Print, TV, Radio
  • A&R
    - Artist Incentives
  • Banner advertising
    - Internet style advertising buys
  • Affiliate Internet alliances
  • Product placement / usage
  • Live
    - Appearances
    - Performance
    - Chat rooms
    - Show cases
  • Direct Mail (spam)
  • "Samplers"
  • Internet Hype creation / buzz
  • Cross promotion
  • Controversy
  • Coupons

What are the transaction models for that channel?

  • Retail - CD Purchase
  • Buying Clubs (Columbia house)
  • On-Line Retail
  • Digital Download
  • Pay per listen
  • Juke Box
  • Subscription
  • Rental
  • Library (borrow)
  • Steal (Piracy)
  • Swap / Trade
  • Auction o Resale
  • Advertising supported
    - Permission based marketing
  • Incentive based
  • Audience aggregation
    - You give people music while they stay on your site.

Technology/Infrastructure Requirements:
   
(70% of transactions on the Internet STOP before completion.)

  • Back channel
    - Does it need to be real time - or deferred
        Dependent upon bandwidth requirements
  • Ubiquity of coverage
    - Should not require internet connectivity
  • Bandwidth
    - Access to sufficient bandwidth at reasonable cost
  • Local Storage
  • Meta-data
    - Needs to be standardized
    - Should be regulated
    - Carried within the song - encapsulated into the content
    - Need methodologies for associating the metadata to the song
  • Better filtering, sorting, cataloguing
  • Ubiquitous access to your existing music collection
    - In addition to broadcast and point to point - you have the access to your "personal
       server" from any where.
        You can play your music collection which is stored off site - at your friends house.
  • "Hot mail" Model
    - Application ubiquity
        UI standardization
    - Infrastructure ubiquity
  • One touch convenience
    - Purchasing
    - Feedback
  • Conditional Access
    - Parental Controls
    - Commerce restrictions
    - Etc.
  • Export guides, human navigation
  • Universal identification per song
    - GUID
    - World wide homogenous database index
  • Secured transactions
    - How do they pay?

How do you "return" the bits?

Channel Potentials - growth, in decline etc..

  • CD / DVD-A / Minidisk (ROM)
    - Value added?
       Including compressed files with the "normal" data etc.
         o Will real consumers rip their own - or would they prefer to simply transfer the files?
       How about non-PC centric transfer functions?
         o Transferring files from their CD player to their PD!
       Maybe a situation which adds convenience for the consumer! And therefore may help
         prevent piracy!
         o Higher quality mix, and integrity of materials for the compressed format.
       No back channel for profile aggregation, personalization and targeted advertising in
         place.
       The large CD collection is a status symbol

Prediction: This channel will not shrink in the near future, but may grow more slowly that in the past.

  • Wireless distribution (data services)
    - 3G @ 56kbytes now - should go to 384 then "a couple of megabytes" in the
       foreseeable future.

(This section was only completed up until this point by the group. The remained was added
by the editor, Mark Miller of GroupProcess consulting.)

- Battery powered devices with sufficient memory storage still aways off.
- Best hope for ubiquitous what you want, when you want it where you want it.
- Secure billing infrastructure in place
- Back channel for profile aggregation, personalization and targeted advertising in
   place

Prediction: This channel is the least developed but could have the best chances for long term growth

  • Internet distribution (broadband and narrow band)
    - The MP3 cat is out of the bag.
    - SDMI looks cumbersome at best, ridiculous at worst.
    - Commerce is in place, but piracy is rampant, but maybe our ideas about Intellectual
       Property are simply outdated.
    - Billing system is in place but can be cumbersome
    - The record companies are acting as a "delay" agent
    - Back channel for profile aggregation, personalization and targeted advertising in place
    - Well developed content "search" and navigational systems in place.

Prediction: This is the fastest growing channel right now, but is also quite controversial. Growth looks insured but could be side tracked politics or supplanted by alternative broadband delivery systems.

  • Push (Digital "over the air" Broadcast, one way Satellite, one way cable)
    - Subscription music services are quite successful
    - Local storage is extremely limited
    - Billing structure is in place
    - E-commerce is cumbersome
    - Piracy is minimal
    - "Free" or advertising supported business model is in question
    - No back channel for profile aggregation, personalization and targeted advertising in place
    - Broadcasting methodology limits personalization in delivery
    - US infrastructure for OTA digital broadcasting is in shambles.

Prediction: In this channel, subscription services will continue to grow slowly and steadily but 'free' over the air broadcasting could be on it's way out

(End of editor's addition)

Business idea: The Service model

  • Consumers purchasing a license instead of the bits.  Can play them back, anywhere or anytime.  Their "collection" - exists on some monster database somewhere and they can create play lists etc.
  • What you want, where you want, when you want it.
  • Piggy backing compressed files onto "normal" media
    - Fighting piracy through convenience
    - Not a PC centric model for feeding PD devices
  • Re-purposing the catalogues for surround reproduction
  • DVD-ROM is emerging
    - Multi-channel
    - Hi-resolution
    - Back catalogue conversion
    - CD's may be phased out in favor of DVD
  • Cars are preparing for multi-channel sound

Facilitating the access to new kinds of music - can expand the music industry.

Facilitates instant commerce possibilities

Question: Do you buy and own the bits and cart them around with you - or - do you access them whenever you want?

Business models:

  • Subscription services: Bandwidth vs. Storage vs. Convenience
         o Much less cost per song - because it is shared bandwidth
         o Personalization required bandwidth - added value
    - Pay channels (premium content)
    - Free channels
    - Content aggregation channel
        One that goes out and gathers all the data that the consumer "owns" and puts it in one place for access.
    - TiVio model
        Recommends music for you to listen to etc.
    - Per transactions
        Micro-transactions made on a monthly basis, billed monthly - i.e. cell phone model.
    - Personal Music remote site hosting.
        Music ISP (Hotmail for music) - HOTMUSIC!!!!!!
         o You just buy the "keys"
         o They store and convert the data for you
  • Pay per play
  • Buy & Download
  • Promotional Models
    - Always free - but driven by the "channel" owner
  • Profiling models
    - As long as you provide feedback - you can get free service
    - Locale storage provides information on both what you buy, like etc. but what you had
       to "throw away" to get the new data.
  • Community profiled
    - Based on the play preferences of the group.
  • Record companies are going to become their own radio stations.
    - The advertising (commercial break) model maybe on the way out.
  • Advertising Model
    - Expert guide to music
        Search engines
        Content providers pay for posting
  • Helping new bands navigate up the meritocracy
    - "Real world" agent model
    - % of the bands take
    - Soundsbig.com
    - An Internet Record company
        Promotions, productions, producer, booking agent, etc.
    - Garageband.com
        An incubator for new bands.
    - Match making
    - Musician stock exchanges
    - Auctioning musicians services
        Lounge acts Lead singers
        The EBAY for musicians
        Electronic Booking services
         o Homeimprovement.com
  • Internet DMX
    - Subscription channels for music
    - Internet Broadcasts
    - Pay-per-view of live events
        I can listen to a live concert happening anywhere in the world
    - Pay per view of pre-recording events
  • Subscription Karaoke
    - In the home
    - In the car
    - Bar
  • Local Content Aggregator
    - Remote broadcast
    - Studio & remote recording
    - Community portal
    - News & Information
    - Feeding the "central" database
  • Selling side band - bandwidth along with popular content
    This is a very questionable end of a business.

Appendix #1: SMDI Discussion:

  • Generation 1 specification - really to "wrap" the portable digital devices.
  • The PC is a "safe" haven for digital recording
  • How to stop the proliferation of illegal MP3 files, and then to supplant that format with a "safe" format.
    - Entice the consumer to purchase the new devices for music from the internet.
    - The MP3 world basically has to be written off - yes the cat is out of the bag, but "so
       what."
  • Internet -> application ->LCM - Licensed compliant module -> PD
  • A SDMI licensed device cannot play "clear text" MP3 files - the files must go through the software "system" - to get to the Portable Playing device.
  • The labels must get together and insist that they will not distribute data in any other manner than via SDMI authorized avenues.
  • The apps & LCM does some screening to prevent the proliferation of copies of CDs. Defaults to allowing up to 4 copies.  However, data from the net - carry their own specific rules - i.e. 2 copies, 1 million copies etc. all apps / LCM must honor the rule with the data.
  • PD can't transfer music back to the system - only the check in/check out license.

What will be the price of a individual song? $1.00, $2.95 - the market will decide
JR: If it's too expensive - you'll steal it.

* Must Reject content in a state that is reflective of DVD audio

The state of the SDMI v1 spec - is pretty close to being closed except for the patents on the watermark.  Aris is the technology company behind the watermarking.

Would the consumer prefer to have an incidental transaction model vs. some other model

section 5


next section

select a section:  1. Introduction  2. Speaker Summary  3. Executive Summary  
4. The Big Picture Group  5. The Impact of Digital Distribution on the Various Constituencies Within the Music Industry Group  
6. The Apostles of the Church of Appliantology Group 
7. The Sound Pressure Lobby Group   8. Schedule & Sponsors