U2 Manager Says Google And Its Hippie Friends Should Pay The Recording Industry

from the still-haven't-found-what-i'm-looking-for... dept

While the IFPI and the RIAA have been actively pushing for ISP liability for file sharing, it appears some in the industry are taking it even further. U2's manager for 30-years, Paul McGuinness, gave a talk at the Midem conference where he blamed Silicon Valley's "hippie values" for creating the problem, and demanding that tech companies of all stripes start paying the recording industry. He's talking not only about ISPs, but also Google, Apple, Microsoft, Facebook and basically every other successful tech company. There are so many problems with this, it's difficult to know where to begin, but let's tackle a few of the quotes:

First he blames these companies who have "built multibillion dollar industries on the back of our content without paying for it."

This is a common refrain from those in struggling industries, but it's meaningless. Complementary goods are a natural for building bigger markets, but no one expects one side to pay the other just for moral reasons. The oil industry's success is built on the backs of the automobile industry, but does the automobile industry demand that oil companies have a moral obligation to pay them? Computer makers have built a multibillion dollar industry on the backs of the internet and software companies -- yet, no one says they have a moral obligation to pay those companies anything. Travel guides have built huge business based on hotels and restaurants around the globe, but does anyone think that those travel guides owe the hotels and restaurants money for doing so? Hell, the recording industry itself was built off the backs of complementary goods such as radio, yet when they paid radio stations, it was known as payola and outlawed.

These companies, McGuiness claims, need to help out "not on the basis of reluctantly sharing advertising revenue, but collecting revenue for the use and sale of our content."

Uh huh. And I guess that automobile companies should be collecting revenue for the oil companies. And, home builders should be collecting revenue for the electricity companies. And, airlines should be collecting revenue for the hotel industry. You see, these are all separate industries. They may be complementary, but it's up to each one individually to figure out the business models that work. None should be pressured into saving the other from its own missteps.

"I call on them to do two things: first, taking responsibility for protecting the music they are distributing; and second, by commercial agreements, sharing their enormous revenues with the content makers and owners."

This is beginning to sound an awful like journalists who claim that Google has a moral obligation to "share revenue" with newspapers.

He claims that what all of these companies do is the equivalent of a magazine that "was advertising stolen cars, processing payments for them and arranging delivery."

That makes for a nice soundbite but has nothing to do with reality. First there's the little problem that nothing is being stolen here, only copied. Second, none of these companies are "processing payment" for unauthorized transactions. Third, none of them are "arranging delivery." It would be like the same scenario, but blaming the guys who paved the road on which the car was driven.

"Embedded deep down in the brilliance of those entrepreneurial, hippie values seems to be a disregard for the true value of music."

First, this shows a misunderstanding about the difference between price and value. It also misunderstands the culture of Silicon Valley, which is generally more libertarian these days than "hippie."

On top of all this, McGuiness is whining about this at the same time that U2 is pulling in incredible profits, making $355 million on its last tour. You know what helped fuel some of that? The fact that a new generation of fans are learning about U2 from downloading its music for free. Not only that, since they don't have to stretch their entertainment dollars as far on buying the actual music, they can pay the exorbitant concert ticket prices that U2 is charging these days.

The problem here isn't that others are letting the recording industry languish. It's that just about every other industry has realized that there's plenty of money to be made in the music industry. As we've pointed out, just about every aspect of the industry is doing fantastically well. More money is being made on concert revenue than ever before. More artists are making music than ever before. More music is being heard than ever before. Even more musical instruments are being sold than ever before in the past. Yet, because one segment of the market (the one selling plastic discs) is unwilling to take some simple steps to change its business model, everyone else has to pay up?

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Don't Underestimate Google's Ability To Shake Up Established Markets

from the complementary-goods dept

The generally-reliable Wall Street Journal is reporting that Google is planning to introduce a free network storage product. In response, over at ZDNet, Larry Dignan suggests that Google is late to the party and worries that they'll turn customers off with annoying ads cluttering up their desktop. This gives Google too little credit. In the first place, virtually every successful product Google has launched has entered an already crowded market. Most obviously, there were already plenty of search engines when Google was founded. More recently, GMail and Google Maps were both launched in what were thought to be relatively mature markets, but Google nevertheless found ways to shake up those markets by producing extremely polished offerings that had features missing from existing products. It may very well do the same thing in the storage market. By the same token, it would be shocking if Google tried to shove intrusive desktop ads down users' throats. Google has always been careful not to let its efforts to generate revenue interfere with the usefulness of its products. For example, it offers POP and IMAP features for GMail, despite the fact that it doesn't have any way to directly monetize users who check their mail that way. Google does that because it knows that almost every POP or IMAP user will check their mail on the web some of the time, and it will get the chance to display ads to users at that point. By the same token, I expect that Google will find non-intrusive ways to present ads in some parts of the GDrive product, while offering other parts of the product ad-free. The most obvious way to do this is to follow the GMail model: ad-free access from the desktop alongside an ad-supported web-based interface. As Mike pointed out earlier today, one of the secrets to Google's success is to recognize the power of complementary goods. Google understands that if it can get a lot of users using its products, it will eventually find a way to monetize those eyeballs. And more importantly, it understands that it's short-sighted to generate revenue in a way that alienates customers and thereby reduces long-term traffic growth.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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Google's Real Innovation: Recognizing The Power Of Complementary Goods

from the the-nicholas-carr-enigma dept

Of business pundits these days, I think the one I enjoy reading the most is Nicholas Carr -- and it's not because I agree with him, but because he's the most challenging to understand when I think he's wrong. Carr is amazingly smart, often sifting through a lot of hype to pull out some really key and important insights and making them clear and easy to understand. What's amazing, however, is that all too often, he takes all of those really great insights and jumps to a totally ridiculous and unsupported conclusion. As I've pointed out before, as you read what he says, you agree with all those really smart insights, and if you're not careful, you can accidentally agree with the conclusion he draws -- even if it's not supported by all those insights. His latest is an article where he argues that Google is not a company worth emulating when it comes to innovation because it has a unique business model that is really based on providing complementary goods (basically almost any use of the internet) to encourage more sales for its key good (ads). The fact that Google uses complementary goods to help make its core business bigger is a key insight that too few people have expressed clearly, so it's great to see Carr call that out.

However, where he goes off track is in suggesting that this is somehow a unique situation and there isn't much to learn from it. Instead, he should be pointing out that this is the key insight that plenty of companies should be paying attention to -- as the key to building sustainable competitive businesses in the digital age is understanding the economics around complementary goods. Almost every successful business recognizes this and learns to exploit it. Intel always did a great job of this, building up businesses that seemed unrelated, but were always about driving more advanced uses of computing to increase the demand for more chips. As we've discussed at great length, the entertainment business has always been about using content to sell complementary goods, whether it's movies to sell admission tickets or DVDs or music to sell concerts and CDs. The newspaper business has always been about that too. Using "the news" as a complementary good to sell eyeballs to advertisers. In fact, Techdirt's own business is based on this core concept as well -- though, I'll leave it as an exercise to the reader to figure out how (and, no, it has nothing to do with advertising).

Carr, unfortunately, leads people astray by suggesting that understanding complementary goods isn't important unless you're Google. He is right to point out that this is a key point to Google's on-going success (rather than the silly things the press often talks about, such as its free food and "20% time"), but he's way off in suggesting that there aren't important lessons that others can learn from this recognition of basic economics concerning complementary goods.

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Universal Music Execs Finally Recognizing That It Needs To Make Its Money On Complementary Goods

from the slowly,-but-surely dept

The press and various tech blogs have had something of a field day with the news of Vivendi's CEO, Jean-Bernard Levy, calling Apple's iTunes' contract "indecent." Vivendi, of course, owns Universal Music, a company that has been rather aggressive in trying to squeeze money out of just about everyone while searching for new business models. However, reader Cannen writes in to point out that, while the "indecent" quote is getting all the headlines, there's a much more interesting quote buried further down in the article. Levy then is talking about Universal Music's plans to make money, and there are a few very interesting quotes:

Fleshing out UMG's strategy, Levy said it planned to focus on better exploiting the "monetization of an artist's image" which included branded clothes and TV shows. "This is what we hope will revive our business," Levy said. "People indulge in piracy but spend a lot of money on many other things that are linked to an artist." Levy forecast that "in the not so distant future", traditional music products such as DVDs and CDs would make up less than 50 percent of music publishing revenues.

That sounds shockingly similar to what some of us have been advocating for about a decade -- which had record industry insiders telling us we didn't understand their business at all. Of course, it's not all the way there. What's missing is the realization that if you stop thinking of it as "piracy" and start thinking of it as "promotion" then you want people to share the content, recognizing that it will spread further, creating more fans with more interest in buying all those other things linked to the artist. Of course, if any of the record labels want to get a better idea of how to do this, they should contact us. We could have helped them avoid much of the mess of the past ten years. There's still time to make sure that the next ten aren't even worse.

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