All Access: RAIN Summit ‘Future Of Music’ Panel Sees Litigation, ‘Freemium,’ Tough Competition

April 11, 2011

At the final RAIN SUMMIT panel MONDAY, “The Future of Music,” MP3TUNESMICHAEL ROBERTSON defended his business model of the remote, cloud-based “locker” of music accessible everywhere, which, at his present company and at MP3.COM, has been the subject of music industry lawsuits.  Joking that he invented several years ago at MP3.COM what AMAZON unveiled at the end of MARCH, ROBERTSON said that the music industry’s objection to his companies, which have generated lawsuits, lies in its intent to make people pay for each time a song is used on a different device rather than to allow people to own the song as they did before the digital age.

“Don’t think about what’s morally right and wrong,” ROBERTSON said of the litigation.  “Think of it as a business strategy.”

MOG‘s ANU KIRK noted that the VCR drew industry objections upon its introduction but ultimately grew the business.  Asking the audience to think about their monthly cable bills, he noted that people still go to movies; extending that to music, he said that the music industry needs to embrace new media over its previously tightly-controlled distribution system.  ERIC JOHNSON of WOLFGANGS VAULT agreed, saying that “if these things aren’t embraced, they’re just going to get done illegally”; he raised the point that the publishing industry thought that the iPad would be its “savior” but found people embracing alternatives like FLIPBOARD instead.

Moderator TED COHEN of TAG STRATEGIC asked the panel why people object to paying even $5 per month for unlimited music while they pay $150 or more for cable TV, and KIRK responded, “Most people don’t really care about music that much… a small amount of people pay a lot for music.”  COHEN asked whether the music services like MOG or SPOTIFY need personality rather than just allowing skipping, and KIRK said that the services had to be conservative in their approaches to start, to avoid driving off potential users.  KIRK noted that no radio music would say that it was trying to reach every possible listener.

ROBERTSON said that the music industry “outfoxed” everyone in the room and on the panel by getting a performance royalty passed for Internet streaming, “which has now set royalty rates very high for online radio.”  Explaining the difference between “pureplay” Internet streaming rates and broadcasters’ rates, he contended that PANDORA is “never gonna be a profit machine.  Never, never, never.”  “The economics are horrific,” ROBERTSON said, adding that when DAN MASON of CBS RADIO said earlier in the day that his company isn’t making money or losing money on streaming, “he’s losing money.”

For his own company, ROBERTSON said that his business model involves a “freemium” plan, adding that “getting someone to pay for something on the Internet is really, really hard,” estimating that most conversion rates are at 0-3%, including his own. The numbers, he said, mean that his company will have to add in advertising or merchandising to the service as “the only way our business is gonna work,” a point echoed by JOHNSON, who said that e-commerce is critical to his company as well.

Also operating a “freemium” company is DIGITALLY IMPORTED‘s ARI SHOHAT, who agreed that the conversion rate is in the low-single digits.  He noted that much of the competition comes from entities that are not “in it for the money” but still take a portion of the potential audience.

“The record labels are chasing an era from the past,” ROBERTSON said, likening it to trying to stop an iceberg from melting in the desert.  “It’s done.”

Courtesy All Access Music Group

Posted by Ted • Monday, April 11, 2011 .