One for the Money, Two for the Show: Gerd Leonhard and Music 2.0

The future is here, as they say, and boy is it messy. If you are a creator of content, your economic model for making a living probably feels a little twisted around at the moment. Though handwringing is usually in ample supply, there’s actually been a lot of action reported in the headlines of late. First, there was the ASCAP-proposed “Bill of Rights for Songwriters and Composers” and accompanying position paper (download here). Though the point of the document was clarification over forward-moving action, it was consciousness raising in an arguably friendlier guise than the RIAA’s courtroom approach to the matter.

But copyright infringement in the digital age will not be stopped, at least not with guilt trips, so some new options need to be placed on the table before we lose any more time and money. Hypebot has a stellar round up of recent action available for your review, and this week in Slate, Reihan Salam outlines what could be a promising solution or a troubling “music tax” in the quest for new profit schemes.

Also out on the net is Gerd Leonhard’s Music 2.0 (download here). He asserts that the technology is already in place that would allow us to let go of policing copies and instead track music usage in such a way that the public could access “music like water” while also allowing artists to be precisely compensated based on the usage of their work. This would admittedly dramatically shift our economic model, but his thinking fits quite comfortably with the changes we’ve seen in the past few years. Did he really have the answer? If so, why isn’t anyone doing anything like this?

Leonhard studied music at Boston’s Berklee College of Music but is based in Switzerland these days. I rang him up, appropriately enough considering the topic, via Skype. Here’s what he had to say.

Questions for Gerd Leonhard, author of Music 2.0

  • Download a copy of Music 2.0 here

Molly Sheridan: I’m glad that we got to do this, and it’s exciting that we got to do it this way [via Skype] considering the topic of your latest book, Music 2.0. It’s a collection of your writings in which you suggest strategies for getting the music industry out of some of the economic challenges that it’s facing, and one of your key concepts is a proposal that you call “music like water.” Could you give us a quick summary of what that means?

Gerd Leonhard: First of all, I have to credit David Bowie for coining this phrase; I found it in The New York Times—I think it was 2001—where David Bowie said that music will be like water. That sort of stuck to me. Basically what “music like water” means is that music becomes a service rather than a product, and it’s something that everybody has—like electricity and like an internet connection, eventually. The internet is becoming a way that we can get music in a way that doesn’t feel like we’re buying individual copies. What we have to get used to is that the music in this pipeline flows freely, which means that there is a charge for the pipeline, but it’s bundled. You know, we don’t perceive it to be an actual product thing, like a CD or individual download. So imagine basically a pipeline of music into your PC, into your mobile, your TV, that is just part of the deal. And then, just like water, if you consume more, if you fill up your swimming pool every day, if you want premium products, you pay extra. So it’s the very idea of providing music as a service rather than a product.

MS: In the entire 200-and-some pages of this book, you make it sound so obvious and so easy to shift to the model, so I’m curious: What is the hang up? Paradoxically, why does it seem so difficult to get this going in the actual music industry?

GL: Well, I think that main issue, which I describe in my next book, is about control. You can check out a preview at endofcontrol.com. In the old way of doing things in the music business, there were essentially artists who were under the control of the middlemen—the labels, the publishers, societies, and so on—and the users, who were under the control of retailers and the media. And now because of the internet that whole thing is completely falling apart. So both the artists and the users are becoming empowered to such a degree that the middlemen are suffering from the consequence of course, and in some cases they’re benefiting. But they have to re-think their models. No longer do they have the authority or the ability to completely control the environment. This is actually a very good thing—even for them it’s a good thing—but in terms of paradigm, the music industry is severely worried that the loss of control will basically kill their profits. And I think this is much more a fear than a fact, like most fears, you know. They are there, but they’re not quite real. I mean, obviously you can see that not having total control is a great moneymaker—eBay, Amazon, Google, Skype, that’s what they do.

MS: I know that a lot of these concerns often come down to issues surrounding copyright law, which has been slow to catch up in these new digital environments. We have people who want to share, remix, the big Creative Commons movement, but the rules of the game aren’t keeping pace. Can we wait for them to catch up? You do mention too that major changes are coming from outside [the music industry] that might actually end up effecting this kind of change. How do copyright and digital delivery in this environment fit together for you?

GL: Well, I’m very much in favor of copyrighted protection of the creator. I think that it cannot be possible that remuneration for music is completely voluntary in the sense of, you know, if you feel like donating you’ll do so; I don’t think that’s a very successful model for content, even though as a user I would probably like it. But having said that, I think copyright doesn’t really help us here. We need a new kind of right that’s essentially based on usage. Copyright is a good thing when it’s about making copies, but so far all of technology is a giant copy machine—computers, mobile phones, televisions, digital radios. They make copies inadvertently without paying for them. So the idea of copyright doesn’t really work here any more in the sense of monetizing. What we need is a new license that basically turns the copying and the using into money. That’s what I call a usage right, and we’re seeing that happening everywhere. We’re seeing the move from the sort of static idea of a copy that gets paid a certain rate to a revenue share and to a usage right which means that I am authorizing agents to give the license for the use of the music, like I always have in the past, for example with radio. I just want to collect a piece of the revenues that the other party is making rather than preventing any kind of copy.

Unfortunately the thing that we’re seeing here is that, in principle, I as the music creator have the exclusive right of distribution and copy. In reality, however, that’s no longer really feasible. And it sounds like a great loss, but it’s not. I cannot really prevent my music from being copied on digital networks. That would be like saying I could prevent airplanes from flying above my house, but that right doesn’t really exist anymore even though it did! I did have the right to refuse it.

The reality is that yes, I can refuse it, nobody will care, everybody will keep on doing it [making copies], and I won’t be collecting money. So what I’m saying is I think we should make a switch and say okay, copyright has to be revisited as a term of monetizing. We need a usage right that gets people to be legal users and pay the creators in the process.

MS: How far away are we from having a system that could handle that, though? Is that something that the PROs could flip over and do? Do we need a whole new system? Is there some model that we could follow to get that going?

GL: Well, there are a couple of things that have to happen for this, but in principle points all the pieces are right here. The technology exists to monitor what people are doing. In terms of recognizing songs and counting them: Shazam, Gracenote, Philips, they all have this fingerprinting and waveform analysis technology—we have all that. That’s in place. There is technology that can actually administer royalties, and there are a couple of really cool companies like royaltyshare.com, Bob Kohn’s company. That already all exists. So the thing is that the copyright societies that we have now—ASCAP, BMI, and of course the European societies—it would be very hard for them to do a job that’s basically mostly built on technology because my hunch is that you’ll only get paid 2 or 3 percent of the total to do this job. It’s a tech job.

The biggest thing about basically counting what people listen to and then paying for it on a pro rata basis is not the technology, it’s the privacy issue. In other words, when you have 5 billion people connected on wireless devices, phones, and computers, and then you track all of the use of music—the listening, what they share, what they send—it turns people into sort of glass boxes, right? You know all their profiles, and that can’t possibly happen, so the biggest issue there is that, as a user, I want to make sure that I’m not completely transparent to anybody who cares to look at what I listen to. So it has to be anonymized, but those technologies exist as well.

Now that the flat rate is a huge discussion point even with Warner Music in the US and with a Danish telecom called TDC and in China and in India, now these companies are gearing up to provide these services.

MS: I was going to say, from your global perspective, this seems in a way kind of un-American and perhaps more at home in a system where, as you have in Europe, they are already paying these kinds of fees for public television and such.

GL: Let’s be sure: I don’t think this is a tax or should be a tax. I think this is a commercial arrangement where the rights holders are saying together that we’re giving a collective, voluntary license to anybody who wants one to build their business on our music, because so far people are building their businesses on our music without doing anything because there wasn’t anything to use; there was no way to get it ahead of time. This is like starting a radio station and not knowing what you’re going to be paying for the music. So now that the whole world is moving onto the web and my grandmother is now using eBay, we just can’t ignore this issue.

The global perspective here is that people in India and China and Indonesia and Brazil and Russia have never really bought into this sort of unit economy, of buying copies of CDs or downloads, because they didn’t have the wherewithal to do it. They were never on the Western system that sort of hardened copyright; that doesn’t work there. So in China this model is perfect because everybody participates, everybody pays, everybody gets. And that makes great sense when there’s very large numbers of people. So you will see this come into place very soon and you will see it come into place in India where you’re talking about 350 million cell phone users paying their $.20 or $.30 a month to get music.

MS: Are the music creators themselves really going to be able to recoup enough of a profit to make this worthwhile for them?

GL: Well, it’s not just this. The economic calculations have shown that if a flat rate is put into place at the rate of about $1 a week, which of course would be much less in India or in Brazil, the total volume of music is already twice as much if you get everyone into the system. (And in most cases the users wouldn’t actually pay; this would be completely ad and up-selling and sort of commission and affiliate supported.)

So the users themselves would perceive that as essentially built into the system, very much like if you’re a blackberry user you don’t count the emails, you just get them. This is why, again, if you have water, you’re not worried about having a connection, you’re just worried about filling up huge pools everyday because that will cost more. But anyway, I think that the rights holders are very happy about this because it gives them a guaranteed knowledge that everybody will actually be paying for music and then in addition, of course, they get this huge amount of marketing data back that the providers can share with them—the actual clicks, the amount of plays, the territories, the comments, the links, the shares, the bookmarks. That’s basically free marketing for anybody who is in the content business. And that reduces their costs by another, what, 30 or 40 percent? That’s a huge chunk. So the only real drawback is I can’t say no; I can’t say I don’t want you to use my music on the web. And if that’s what you want, then you shouldn’t be publishing it because that is the reality today. In principle it would be nice if it could be the other way around, but it’s not.

MS: You talk a lot in the book about how in the new paradigm what you’ll really be after is attention, and I’m curious how advancing technology will really help niche genres like the ones that NewMusicBox largely speaks to, which have historically had a lot of problems with getting enough attention.

GL: The thing is, if you’re good at getting attention, then you’ll be good with that in real life or on the internet or somewhere else, you just have to learn how to do it. The main challenge for the average artist is not that people are taking free downloads; the main challenge is that nobody wants to download you—nobody can even be bothered to click on your name, right, because you’re unknown. Today you can measure the value of media by how many people want to download it. It’s not how many people want to pay, but how many people even want to try it. So the big challenge is not to turn the use into money, because that should be the part of the system that’s built in, but how to get people to be interested in the first place.

When I was a musician 20 years ago, there was no online networking. There were no blogs, there were no free radio stations on the web; you had to do all that work by hand. And now you can have virtual radio stations streaming your music, using stuff like my own company, Sonific, or ReverbNation or, of course, MySpace and others. Now you can spread your images, now you can do blogging, all that stuff is free. So if what you offer is good and if you know how to attract attention in terms of what you get across, people will find you. And just like you do in real life, you play gigs. A band goes out and plays gigs. So that’s what you do on the web; you play gigs—you put up your stuff, you publish your things, and if you’re good and you keep it up, then people will find you.

MS: Do you think this is sustainably good from an artistic point of view, though? Now it becomes about buzz and how well you promote participation among users. Are there some purely artistic dangers there? You come from a music background and can sort of take a look at that from both sides, I think.

GL: Well, that danger is always present as an artist. Some artists are changing their art to be more popular. Other ones are even starting their art to be popular to begin with and yet other ones don’t care at all, and they’re still popular. What can I say? I think that ultimately whatever happens in media will influence artists to behave differently or to create different art. You know, now I find out when I write blogs I can’t write like I write the book because nobody would read it; it would be too long. So I have to change my style. Well, in many cases I don’t like changing my style so I use a different form. I think we’re going to see artists do all kinds of things. Some people will have multimedia virtual life installations where you pay lots of money to go and interact with them and other ones will keep coming out on vinyl. That’s not a bad thing. I think that technology, like the nuclear bomb and nuclear power, does have those two sides to it. It can be used to the detriment and it can be used to the betterment. I think there are great dangers using technology as a substitute for artistic merit, which basically gives us heaps of garbage. However, I would much rather have a society that’s empowered by technology tools than one that’s completely limited by lack of them.

MS: You speak in the book about the changing economic picture that the industry and in particular the middlemen will have to shift to fit into in this new paradigm. I’m curious then how the net neutrality debates fit into this, because it seems like that’s another door through which people are trying to get back in control.

GL: Well, I think there are two things to this equation. I think first, when content is legally licensed for use on digital networks, the traffic will go down because then I foresee people stopping the hamstering, the storing of content just because they can get it. Today you have kids downloading 50,000 songs and listening to 5 just because they are afraid it will be gone tomorrow. None of that will be happening anymore. There are studies about this, saying that if the content is licensed, traffic will go down, which alleviates the whole need for streamlining the web to perform better because everybody is using it for free downloading.

So that’s one issue. The other one is that the very idea of policing the network to stop the transfer of certain content is just utterly ludicrous. I think that anybody who says that just doesn’t know how it works and what people are doing. People are sharing music in a hundred different ways, including USB sticks, memory cards, flash memory, Bluetooth, Gmail, Gtalk, and what have you, right? They’re using it with IM much more than with Limewire.

MS: In the book, I liked the analogy to the cell phone network and the concepts of how we pay a flat fee and then we’re tempted with fancier phones and we pay more for other features. Framing it like that, with something we already use and which is economically successful, made it a little more comfortable.

GL: Yeah, I mean basically what we’re seeing here is that everywhere you look, stuff that used to cost money is starting to feel like it’s free. For example, airplane flights in Europe, well, I wouldn’t say they’re free but they’re close to free—you just pay for the luggage. Email feels free, software feels free, operating systems become free with Google and Linux and other things, and there are many other examples, but still people get paid for creating this. So the question isn’t really one of saying, “Is there money in the system?” but “Can we find a smarter way than the old way to monetize what we do?” And clearly for music, and then followed by film and TV, the issue can be solved by an access charge which essentially is bundled into the system so it feels like free—very important: not free, but feels like free—to the user. This is great news to the artist, great news for the user, and a little bit tougher for the middlemen, because they have to be transparent and they have to be sort of all on a level playing field.

MS: I was going to say, I like this idea. The only television programs I watch anymore I watch when I want to, online. But when I spoke to a friend of mine who works in the television industry and asked him how long it would be until all shows would be made available that way, he said it won’t happen. They’re not making any money off it, it’s not going anywhere really and they are really frustrated with it. You paint a very rosy picture of how this could all work out, but do you think you’ve overshot it a little bit, or are they being shy?

GL: Well, I think basically the realization is that an engaged user is worth a lot of money, and a user that’s being thwarted or being fought or being kept away isn’t worth much money, and that happens no matter what kind of network; the internet just amplifies this. All television wants an audience, all artists want an audience, all radio wants an audience, so the creation of a powerful audience is number one. And for television, the way that they can create an individual world-wide audience now is absolutely a huge opportunity for them, but they have to change the model to be based less on this advance fee or copy fee or physical thing, but [instead] on a share of the revenues of what happens during the engagement.

For example, people click on links, they buy other products there, they’re up-sold to buying concert tickets or merchandise. There’s lots and lots of options. If you want to read more about this issue, check out Kevin Kelly, who was the editor of Wired magazine, who has a lot of interesting articles about this on his blog. I use some of his stuff as well; it’s really great stuff. It’s basically explaining to us that in a system where content is becoming sort of, I wouldn’t say a commodity, but a “0 and 1″ thing that can be copied, then it’s the intangible that becomes really powerful—the added value. So, in other words, you may not be selling a copy of a TV show, but you sell everything around it. You sell the branding, the sponsorship, the advertising of course, the access to community of fans, the brand around the TV show—pretty much like the for some TV shows it has already been in the past. So the shift isn’t really that big except that we have to be prepared to say, well, it’s no longer just the copy that matters, it’s the context.

MS: In a way, your own career mirrors this system. You collect your writings from your blog and turn them into a book that you then make available for download. And then this all plays into, I assume, your “live performances”—your speaking engagements, outside articles, and such. Is this working out for you? You have a career that you’ve built on almost exactly the same model you’re describing for the music industry.

GL: Don’t forget that I was a musician myself, so for my part, I know what it’s like to live in the product world where it’s already clear to like 99.9 percent of the artists that they’ll never see any money from the product of music. You get a couple nickels and dimes. I made 20 records, but I didn’t see much money. That might have been the fault of the records [laughs] but in any case, now I provide my content more or less for free and it works out great. I get to do a lot of really interesting speaking engagements, I do really interesting advisory sessions and think tanks, and the value is in the network. In other words, it’s not in keeping a .pdf to myself, but in spreading it as far as it will go and then creating value that way.

I think that at a certain level—this also very important—that if you reach a certain level of prominence in the network, then you can turn the product back into money. So if you’re reading Chris Anderson for free at Wired magazine, I think he can actually sell quite a few printed books and make money with that too because he’s reached a certain liquidity in the virtual sense that he can turn into money. So in other words, as a musician, if you’re at the peak of things, if you’re a global star, you can sell records, you can sell DVDs, you can sell physical things, but to get to that point, you don’t get there by insisting on the physical things first.

MS: You mention in the book how record labels are always asking you to predict the future. But looking at it from a composer’s point of view, what should composers be focused on? Since it seems like your predictions for the industry make a lot of sense, if they do indeed come to pass where should composers be looking so they’re ready for it?

GL: Well, you know, underneath every song, underneath every ad campaign, underneath everything creative there’s an idea, and composers, to me, they provide ideas, whether they’re audio ideas or other ideas. And the creation of ideas is not something that comes easy to a lot of people. Technology will never substitute for the creation of ideas just because you have better tools. So composers, and creative people in general, will be much more in demand than ever before.

Also, we’ll be using a lot more media. Tens of thousands of TV channels, rich media advertising, mobile advertising, we’re talking about a huge boom in the creation of media. The thing to do for a composer is to use all these tools that are available to get the word out about what they do. I think the major areas of growth are things like games, obviously. Motion pictures that are premiered on the web, which is now becoming a fantastic way for composers to show what they do without having to have a major contract, without the gate of Hollywood. So all these things become a huge pipeline.

The only thing I think you have to be aware of: I think we do have a sort of digital Darwinism here. Because we have so many people offering it and so many people wanting it, there’s quite a bit of pressure on the merit. So unlike the old days where you could be a lousy singer and you could still be successful, today that’s going to be next to impossible. Quality today—we’re living in a meritocracy, right? If you read my blog and you think it sucks, you won’t come back. You won’t even let me know. And the same is true for writers, for composers, for lyricists. The difference is that the middle is removed—the control is no longer with just a few people who are holding the key to the kingdom.

Having said that, I think the future of publishing is quite clear on the web because the web is essentially a publishing machine. Music publishers stand to heavily profit from the web as long as they agree on a revenue share—which they are pretty much doing, but they should go further. If you are looking at the growth in revenues from ASCAP and BMI, their performance revenues are growing, synchronization licenses are growing, all these things are growth factors. All we really have to do as creators is say yes, use my stuff and here’s the deal.