Google is today launching a free, ad-supported music service in China, with the backing of more than 140 record labels, including the Big 4. The service sounds like exactly the sort of thing that people have been calling for since the Napster days: a search engine linked to a trove of music files, supported by advertising. Google's wanted to add some sort of music search to its Chinese product for some time, as it's been at a significant disadvantage to rivals like Baidu, which have the feature to thank for much of their success. The record labels say this is the first attempt to monetize online music in China, and mirrors moves by some movie studios to compete with piracy there with new products and services, rather than through lawsuits and lobbying. These efforts always give a nod to the rampant piracy going on in China -- acting as if it's a completely different environment than the rest of the world. So is the lesson here that only if piracy, or at least the labels' and studios' perceptions of it, gets "bad enough", will they do something positive, rather than sue people or try to get laws strengthened in their favor? Or is it only because those aren't viable options in China that companies try something different there? The fact that the labels are moving forward with this plan in China, given its reputation as the wild west of copyright infringement, undermine their contention that they can solve the supposed piracy problem with legal or technological means elsewhere. Furthermore, it exposes the reality that what's staring them in the face is a tremendous opportunity, not a problem.

Last year we wrote about a fascinating interview with Terry McBride, the CEO of Nettwerk Music, a Canadian record label that has proven to be quite innovative with its business models (and quite successful). He's really focused on helping musicians build up valuable brands, and then being able to make money off of those brands by being consumer-friendly, rather than consumer-antagonistic. One of the examples mentioned in that interview was a new album coming out where before the album was even released, the raw files were put online for fans to download and mix themselves. As he said, it wasn't "remixing," it was "premixing." And, the plan is to take the best of those and release the actual album in two formats: the official mix and the best fan mixes.

There's now another interview with McBride at the Future of Music site where he talks more about his vision of a music future where people effectively pay not for the music, but for the convenience of a "music valet" that does a better job organizing and finding the music you want when you want it. I'm still not convinced this is how things eventually work out, but it's certainly worth thinking about.

However, there are few statements McBride makes that are worth highlighting. First are two statements I agree with, and then one I don't:

People have always been sharing music. Why would I want to stop them? Why would I want to tell them what to do? The way to win was to get them to support my artists, not to force them to do it a certain way. I know I wouldn't like anyone telling me that.

This is a huge point that is so often missed by those in the industry who are focused on "protecting" and "control" rather than recognizing how people want to interact with musicians. The thing that I find most ridiculous from those complaining about file sharing is that they always make some statement along the lines of, "people who are sharing my files aren't fans, because real fans spend money." Of course, if that's true, what's the problem? The people who aren't fans aren't paying and (based on that statement) the real fans will pay. So, there's no problem at all...

Songs are not copyright. Songs are emotions.

Indeed. And that's the point. Do people pay for emotions? No. However, emotions will impact what people will pay for. However, despite agreeing with McBride on so much, I think he goes a bit off-track with the following:

Out of all of the sharing of music, who's making an economic return? Whoever is should then share that with all the people that allowed it to happen, creating a nice alignment of interests to grow any business. A lot of the providers have viewed music as free content, while at the same time paying for the cable content to grow their networks. They've been making money off the backs of the artists without any compensation for the artists at all. I think that's fundamentally wrong. I've also said it's fundamentally wrong to go after the consumers that are using that opportunity. That's not the right approach either. The phone companies and the cable providers have gotten away with murder in this whole situation.

This is the blame game and it's missing the point. The ISPs haven't "gotten away with murder." They've simply put in place a reasonable business model based on fundamental economics -- and there's nothing stopping plenty of others in the music business from doing the same. Demanding those who have figured out how to make money share with those who haven't isn't the answer either. There are business models that work just fine for those creating the music that don't require demanding anyone else share their profits. You just focus on coming up with real scarcities that give people or companies real reasons to buy and there are tons of business models that work.

Mark Glaser has an absolute must-read interview with music label Nettwerk's CEO Terry McBride. Nettwerk, of course, has been one of a few record labels that really understands how the market has been changing, and has moved aggressively to take advantage of that. The label, which represents some top artists like Coldplay, Barenaked Ladies, K-OS and Avril Lavigne, got a lot of press a couple years back when it agreed to pay for the defense of some folks who were sued by the RIAA for file sharing. But, much more interesting was how it was actively embracing the changing market while other record labels were trying to hold back the tide. I don't agree with everything McBride has to say, but he's a lot closer to understanding where the music market is heading than pretty much everyone else we've seen in the recording industry.

You should really read the entire interview, but a few highlights are things like where he points out that musicians and record labels should be selling the overall brand, not the music:

In the digital space, where you don't need to buy shelf space, if you create the right metadata behind what you're doing, and market it in an effective way -- you're not marketing the new album, you're marketing the brand.... Chad [Urmston of State Radio] just played to 2,800 people with a $25 ticket price in New York on the weekend. He's marketing a brand, he's not just marketing intellectual property. Now it all makes sense. He's happy, he owns his future, his audience has grown with him really well.

Which brings up the second key theme: growing the audience and having them connect more closely with the musicians, even to the point of having some say in what direction the band goes in. For example, he talks about originally letting fans design the t-shirts the bands would sell. While some band members didn't like the fan-designed shirts, they inevitably sold more than the band-designed shirts. So, they started taking that even further: releasing versions of the bands' music online for fans to remix. And, with the latest K-OS album, even releasing all the musical stems for remixing, months before the actual album is released, with a plan to then release both the artist mix and the best fan mixes as both physical and digital offerings:

You can even take it beyond that. With K-OS, we're thinking about having the audience vote on which 10 to 12 cities he plays in Canada. We might even take it one step further: pay as you go not as you enter. And maybe when you leave you get a copy of the fan mix for your donation, so there's karma pricing on the exit.

McBride also talks about where he thinks this is all going to end up, and he discusses a model that might sound sort of like the music tax we've been slamming, but in reality it's quite different:

To me, the future of music is really simple. It's cloud-based servers that have all of the music, TV, movies -- whatever it might be. Very rich application-driven PDAs, whether it's the iPhone or whatever else comes up, that has applications that I have yet to see. Like digital maids or valets, which go out and knows what your musical tastes are and your 20 friends, and finds that music and organizes it -- not the actual music but the metadata so you can pull it when and how you want it. You would have a $5 or $10 per month fee for pulling it down. And that's how it will all end up, because business cannot drive business consumption.

How free loses out is the applications and metadata that makes it really easy. I call it the "hassle factor" -- for $5 to $10 you get all the music you want without the pain of having to find it. So you get the new Killers album without even knowing the new Killers album is out, and it's automatically in your weekend listening folder because your digital valet got it for you. And if you want to know what your buddy Ken's listening to, then the valet checks out his playlist and copies it over for you.

I could see this happening to some extent. The difference between this and a music tax is (a) it's totally voluntary (b) it's about adding value beyond "free" that makes it worth paying and (c) what you're really paying for is actual scarcities: convenience and pointers to good music you'll really like. Of course, in the end, my guess is that eventually this would go one step further, where the service itself would be free, because musicians would find so many other benefits from being promoted through such a system (increased ticket sales, fan club subscriptions, etc...) that it would make even more sense for the whole system to be free.

Anyway, it's great to see real progress being made on business models in the industry, and this actually highlights (once again) why Warner Music/Jim Griffin's music license system just isn't necessary. The market is making things work without it. In fact, the key quote from McBride may highlight why Nettwerk is getting somewhere while so many of the old school labels are having trouble:

It's a business model and not a consumer model. And it's definitely not a psychological model. This is about monetizing consumer behavior and not about trying to control where they go.

He's talking specifically about "ad-supported" music, which I agree is a model that will never get very far, but the same thing pretty much applies to the old record label model, as well. These days, when there are real consumer options out there, you don't succeed by limiting what consumers do, you succeed by enabling them to do more. And, that seems to be exactly what Nettwerk is doing.

Apparently the Justice Department is suddenly worried that the four major record labels are colluding in creating a new online music subscription service. The last time this happened was back when the record labels tried to (wait, this sounds familiar) create online music subscription services -- which were universally panned, rarely used and eventually shut down. So, even if the labels are colluding, given their strategic vision, it seems rather unlikely that they're going to leverage their position to dominate the market. They certainly could hold back other services -- but it seems like they've been doing that for years already, just with their own shortsightedness.

It's been quite a bad month for the record labels, huh? Kicked off by Radiohead's ditching record labels in order to embrace the new business models that the record labels insisted were dangerous to the industry. In retrospect, it looks like they were just dangerous to the record labels (gee, who could have predicted that?). The latest huge name to ditch a record label appears to be Madonna, who is apparently signing a huge deal with a concert and merchandise promoter instead for over $100 million. She'll still be putting out albums through the promoter rather than the label. There's no indication if she's going to use this to free up some music, but the point should be pretty clear. The money is in concerts and merchandise -- the stuff that the music makes valuable -- not in the music itself. While EMI's new owners have made some noises that maybe they understand what's going on, there's a good chance that it's way too late for the old labels. They had their chance to embrace fans, new technology and the music itself -- and they spent 8 years suing the fans and the technology instead. It's reached the point that college kids are now organizing to protest the RIAA. It's becoming increasingly clear that the labels weren't helping musicians very much either -- and now it appears to be payback time. This isn't the "fault" of piracy. This is the fault of shortsighted recording industry executives who had every chance to understand the economics at play and instead chose to attack everyone (and there were lots) who pointed out to them where the market was going.