How The Record Labels Are Killing Innovative New Music Services: No Money, No Content

from the death-by-stupidity dept

A couple years ago, we discussed how Universal Music CEO Doug Morris gleefully explained how clueless he was about technology -- while also being quite ignorant of basic economics and business models. It's amazing that Vivedi has allowed him to remain in charge. One of the more stunning statements was that the idea that you had to give up some money now to make more in the future just means "someone, somewhere, is taking advantage of you." Apparently, the guy has never heard of investing and has no bank accounts that earn interest, because that's just "someone, somewhere... taking advantage."

With that said, the following really isn't all that surprising. Gerd Leonhard highlights the explanation of why concert video site FabChannel shut down:

No money means no content. That is the way the labels (major and independent) look at potential partnerships with internet companies. Even when it is obvious a service provides added value in promotion and sales, the mantra stays the same: no money, no content. Even when a service invests substantial amounts of money in creating high quality concert footage and an award winning platform to show it to the world, the mantra stays the same: no money, no content.

When you look at it from a label point of view, it might even look logical. Their business models have been hammered the last ten years by decreasing CD sales. Their radio, TV and newspaper partners are not doing their promotional job as they used to. And last but not least: the majority of consumers are now downloading tracks for free. All bad things for companies that invest in recordings of artists.

So the most important feature that new partners have to have is: MONEY. Money to counter the decrease in CD sales. Promotion has turned into a dirty word. MTV for example got big and wealthy by showing video clips paid for by the labels. So now these labels think: We will not let that happen again. From now on everybody who wants to become a media partner online is going to have to pay up front to even start.

It's hard to think of anything more short-sighted or suicidal. Here are all sorts of online companies looking to help promote your works better so that you can make more money, and the you decide that unless they give money up front, they need to be shut down. And we've seen this over and over again. It's why every hot new music startup ends up getting sued by the record labels, with the end result being either the site gets shut down, or the startup gives a big equity chunk to the labels, in combination with promises of impossible-to-afford payments. The record labels with their "no money, no content" mantra have destroyed their own business. So many services that could have helped better promote musicians killed off because of this silly and suicidal mantra. It makes you wonder how the management at those record labels keep their jobs. Don't they have boards and parent companies who monitor what's happening?

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Amazon Acquires Zappos; Zappos Pretends It's Not Really An Acquisition

from the hello...-reality dept

In the last few years, Zappos has definitely come on strong as an e-commerce brand -- perhaps the first online brand ever to have a real shot at unseating Amazon in terms of serious customer loyalty. Obviously, this did not go unnoticed by Amazon. The key to Zappos' success has been their focus on overdelivering on the customer service front (sometimes to hilarious levels). Zappos execs realized a key point that many more companies really ought to understand: customer service is marketing. Customer service is where many of the interactions occur with your customers. Companies that view customer service as a cost center will discover that they end up driving away customers. Zappos, on the other hand, would bend over backwards to keep customers happy -- and because of that, customers were very loyal to the company.

While still a lot smaller than Amazon, there was definitely a lot of attention getting paid to a potential world where Zappos had a brand presence that rivaled Amazon. It's no surprise, then, that the two companies have probably discussed an acquisition, and it looks like those plans have finally come together, as Amazon is buying Zappos. The link there is to the letter announcing the deal from Zappos' CEO Tony Hsieh. I like Tony and like what he's done with Zappos, but have to admit the letter is a bit silly, as he tries to redefine the acquisition as not being an acquisition:

This morning, our board approved and we signed what's known as a "definitive agreement", in which all of the existing shareholders and investors of Zappos (there are over 100) will be exchanging their Zappos stock for Amazon stock. Once the exchange is done, Amazon will become the only shareholder of Zappos stock.

Over the next few days, you will probably read headlines that say "Amazon acquires Zappos" or "Zappos sells to Amazon". While those headlines are technically correct, they don't really properly convey the spirit of the transaction. (I personally would prefer the headline "Zappos and Amazon sitting in a tree...")

We plan to continue to run Zappos the way we have always run Zappos -- continuing to do what we believe is best for our brand, our culture, and our business. From a practical point of view, it will be as if we are switching out our current shareholders and board of directors for a new one, even though the technical legal structure may be different.

If I had a dollar for every time an acquired company insisted that the acquirer was going to keep them running exactly the same as before, I'd be a lot wealthier. And if I had to give back that dollar for every time that wasn't true, I'd be giving all that money back. This is an acquisition, no matter how Zappos is trying to paint it. It's great (and, I believe, smart) that Amazon plans to keep Zappos running as a subsidiary, rather than fully integrate the two, but that doesn't make this any less of an acquisition -- and Zappos' attempt to paint it as something "different" is a bit disingenuous. Yes, the company always likes to present what it does as being different and unique, but an acquisition is an acquisition.

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The Pirate Bay Has Been Bought By A Public Company [Updated...]

from the didn't-see-that-coming dept

Details are a bit scarce at this point, but Martin alerts us to the news that The Pirate Bay has apparently been sold to a public company for 60 million SEK (about $8 million US) -- at least according to a press release from the supposed buyer, Global Gaming Factory X (GGF). Apparently it's 30 million SEK/$4 million in cash and another the rest in shares in GGF. The company claims the acquisition will be complete in August, and that it will "launch new business models that allow compensation to the content providers and copyright owners." Separately, it appears GGF is also buying another technology company, called Peerialism.

Apparently GGF operates internet cafes and gaming centers in Sweden, and also offers software for managing internet cafes as well.

I assume more details will be forthcoming soon (we'll update the post as necessary), but this raises a variety of questions -- in part about the ongoing lawsuit and the lingering jailterms for the four people who were on trial. Considering it was always quite amorphous who actually "owned" The Pirate Bay, it makes you wonder who sold it and who gets the money. Also, since the guys on trial insisted they actually didn't make much money from The Pirate Bay, they may actually be seen in a worse light after this news, suggesting that even if they didn't make money from ongoing operations, they may have cashed in on the sale. All in all, quite a surprise, and we look forward to additional details.

Update: Ok! Martin alerts us to the fact that Peter "brokep" Sunde has confirmed the deal and provided some details via a Twitter interview. Martin, helpfully, translates:

Daniel Goldberg:
@ brokep Is this correct? http://bit.ly/1YR0m

Peter S Kolmisoppi:
@ danielg0ldberg Yes.

Daniel Goldberg:
@ brokep What a thing! Who gets the money? Who owns the TPB?

Peter S Kolmisoppi:
@ danielg0ldberg Foreign company, with demands from our side to finance a fund for internet projects. We get no money.

Daniel Goldberg:
@ brokep Cool. What do you mean internet project? Will you not have to use the money to cover the damages?

Peter S Kolmisoppi:
@ danielg0ldberg Internet Project in the form of political activism, etc. TPB changed hands in 2006 already to not be sued.

Daniel Goldberg
@ brokep Congratulations, the scoop! Who is the owner of TPB today?

Peter S Kolmisoppi:
@ danielg0ldberg It's partly why we've have been so sure that lawsuits against us is pointless in the end ... :-)

Peter S Kolmisoppi:
@ danielg0ldberg I do not think that I may say for legal reasons. But they are people we trust. And have conditioned things too..

So... that answers some of the questions (and raises a few others!). The money is not going to these guys, but will go towards funding internet political activism. Also, apparently the official ownership of The Pirate Bay had been in the hands of others who are not clear.

Update 2: The official blog post from The Pirate Bay basically says the same thing as the interview above, and suggests that the site operators felt that the service needed new blood to power it and keep it evolving.

Update 3: Apparently The Pirate Bay is also close its tracker and remove the torrents it hosts itself, instead just will rely on third parties, which it will index. The claim is that this is to make the service even more decentralized, but it is a bit of a headscratcher.

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FCC Just Couldn't Stop Voting

from the election-day-festivities dept

Well, it's election day and apparently the FCC commissioners liked voting so much they took votes on just about everything. Amazingly, it looks like they even made some good decisions. The big one, of course, and the one that will get the most press, is the unanimous vote to free up television "white space" spectrum. While the NAB made a last ditch effort to stop this, the FCC made the right call here. This spectrum can be put to much better use, which can have a huge impact on increasing innovation and wireless technologies. This is a big win. The FCC also approved Sprint and Clearwire's deal to set up a joint venture for their WiMax operations, as well as allowing Verizon to buy Alltel. Both of those deals make sense as well, so it's good to see them approved.

Other than that, the FCC said that it's going to start looking into the pricing policies of cable companies... and Verizon. Who's missing? FCC boss Kevin Martin's best friends over at AT&T. To be honest, while it's quite likely that the cable companies and the telcos (yes, including AT&T) are abusing their oligopoly position, the answer shouldn't be having the FCC act as a watchdog over pricing policies, but for a better system to be set up that encourages real competition. In the meantime, though, can someone explain why AT&T was left out of the bunch?

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Google And Yahoo May End Deal; Not Worth An Antitrust Lawsuit

from the ouch-for-yahoo dept

With various politicians pushing the Justice Department to slam Google on antitrust charges (it's worth noting, of course, that Rep. Joe Barton, who seems to be leading the anti-Google charge, just so happens to have received an awful lot of campaign money from AT&T -- Google's arch nemesis), it appears that Google and Yahoo's attempt to broker a deal with the Justice Department may be falling through.

Reports are coming out that the two companies are ready to announce that they're walking away from their planned deal. This actually represents a bad end result for almost everyone involved. Yahoo will be hurt the most by this, and the last thing Yahoo needs right now is more trouble. For Google it's a loss, but not a huge loss. Microsoft comes out of it happy (and will gleefully watch Yahoo's stock continue to slide). It's still unclear what actual harm it would do to the marketplace to have Google running ads on Yahoo, but since when is politics about reason?

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Are Companies Too Eager To Do Big Mergers?

from the big-egos-big-mergers dept

With Microsoft and Yahoo! back at the negotiating table, Megan McArdle suggests that corporate CEOs are too trigger-happy when it comes to big mergers. She says there are a few situations where mergers really make sense, including when there are significant economies of scale or cost savings. A big part of the original rationale for the Microsoft-Yahoo! merger was that it would give them the scale to compete effectively with Google in the search advertising market. But against these speculative advantages, it has to be remembered that Microsoft would have have had to pay a hefty premium on a firm's market value, cover the costs of the merger process, worry about corporate culture clashes, and absorb the reduced productivity as employees of both companies were focusing on the details of integration rather than developing new products. The deal would have had to produce some amazing benefits to offset those costs.

Indeed, this kind of basic math suggests that big mergers should be pretty rare. But in practice, they seem to get proposed pretty often. In a lot of cases merger proposals seem to be driven by empire building and excessive optimism on the part of the acquiring CEO. CEOs tend to have high opinions of themselves and their managerial skills, and they like the idea of running a larger, more prominent company. And with deals of this size, it's almost always possible to tell a plausible story of how things will turn out well. The AOL Time Warner merger is the classic example of this, it was heralded as a strategic master-stroke, but it created a lot of problems and the promised synergies never materialized. Megan suggests that Microsoft's new strategy of pursuing a strategic partnership rather than an outright acquisition makes more sense. They can probably get most of what they could have gotten from a merger without all the baggage that comes with a full-blown acquisition.

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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Competition Isn't War

from the scorched-earth dept

Ben Worthen theorizes that Microsoft is acquiring Yahoo not to increase its own profits but to damage Google. Worthen is suggesting that by slashing prices for its ads, Microhoo could "chip into Google’s profit center," slowing down Google's expansion. I haven't talked to Steve Ballmer about this, but I really doubt this what he has in mind. In the first place, it's not clear that aggressive price-cutting by Yahoo! would even hurt Google that much. Aggressive price-cutting only hurts your competition significantly if you've got enough inventory to satisfy the market at the new, lower price. But Yahoo! has significantly fewer eyeballs than Google, so even if Yahoo! gave away its ads for free, there would still be a lot of unmet demand that Google could cater to. Secondly, trying to "chip away at" Google's ad revenue seems like exactly the wrong way to attack Google. Google has plenty of cash on hand, and its still-astronomical share price makes it easy to raise more. Google employees have told me that the limiting factor for the company at the moment isn't money but the ability to recruit new employees.

More fundamentally, the war metaphor is misleading in this kind of discussion. In a competitive market like this one, companies make profits by creating value for their customers. Especially in a growing market like this one, there isn't a fixed pie to be divided. So there's no reason to think that lowering Google's profits would improve Microsoft's fortunes. Microsoft should acquire Yahoo! if the combined company will be more profitable than they would be separately. Obviously, competition with Google is a big factor to consider, but it gets things backwards to view hurting Google, in and of itself, as a win for Microsoft.

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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The Hidden Message Behind EchoStar's Potential Marriage To AT&T: U-Verse Sucks And Satellite TV Is Dying

from the gotta-make-the-deals-now dept

We were a little confused last month when EchoStar announced plans to buy SlingMedia. Such a deal made some sense for the investors and founders of Sling, looking to cash out -- but at a strategic level it didn't seem to make much sense. Locking Sling into EchoStar seemed unnecessarily limiting, and the benefits to EchoStar of being the sole owner seemed... not all that compelling. However reports quickly came out about the details behind the plan. Basically, EchoStar CEO Charlie Ergen seems to be realizing that the satellite TV business has gone about as far as it can go, and its opportunities for growth aren't all that interesting. However, some of the technology behind what the company is doing is quite interesting, and when you combine that technology component with Sling, you potentially get something very interesting. The problem, though, is that you need to shed the whole satellite TV albatross legacy business. And who better to dump a dying business on than a massive telco who has trouble understanding business trends. Hello... AT&T... step right up. Indeed, the talk is now getting much louder that AT&T plans to buy EchoStar shortly in order to get approval from a friendly DOJ before a change in Presidential administrations could perhaps make it less business friendly. If true, then this sounds like a great deal for Ergen and EchoStar, who ditch the loser part of their business to focus on the growth part.

As for AT&T, initially, I would say that it's a bad deal, but that might not necessarily be the case due to its own problems elsewhere. AT&T flirted with buying DirecTV in 2003 and EchoStar in 2005. The company did invest in EchoStar, and already offers a bundled package. However, as we pointed out during the original EchoStar rumors, the combination doesn't seem to make much sense. If AT&T is really pushing for a triple play offering, they should focus on doing that all through a single pipe (as with its U-Verse offering), rather than getting tied up with the limitations of satellite. So why would it make sense? If AT&T's U-verse plans aren't going particularly well. In such a case, AT&T could buy EchoStar to get its hands on all of the pay-TV customers and hope that those customers can easily be transferred over to IPTV when AT&T finally figures out how to offer it more broadly. It would be about buying customers, not technology (the good technology would stay with Ergen anyway), squeezing some life out of the legacy satellite business and then casting it off and transferring everyone over to fiber. At least, that's the only way the plan makes any sense -- and it would still require AT&T be able to successfully convert DISH customers to U-Verse, which may not be particularly easy.

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Looking For A Travel Deal? Have Your Browser Do The Walking... Out Of The Country

from the go-local dept

With the Internet, we now have a whole range of options when we need to book travel, ranging from online travel services to "name your own price" services. Whether or not we are better off still is up for debate, but now a new angle has emerged in the quest for lower prices. Booking travel through non-US websites may yield travelers a better deal -- even for the same exact offering. In one example, the rental car price quoted was 58 percent lower when booked through the foreign site. Travel companies defend this practice, claiming that they need to be able to set different prices in different markets in order to compete. But, this is merely the economic principle of price discrimination at work -- if you're able to get a higher price for any reason, then it technically is exactly what the market will bear. The mere fact that American customers visit different websites than Spanish customers naturally segments the market. So, by being able to increase their utilization by lowering prices in the appropriate markets, the price of the goods is driven down in the long run by this practice. That said, people will still be pissed off by this practice because buying from a different website does not seem like a "reasonable" explanation for that price difference. At least companies have not implemented higher prices for the wealthy -- that would definitely raise some eyebrows.

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