Saturday 30 April 2011

EMI is being throttled by music pirates!

EMI was founded 80 years ago and has grown into one of the 'big four' of the recorded music industry (with Universal, Sony and Warner).  Now, though, it is in the hands of its bankers (Citigroup) and a buyer is sought.  What went wrong? 

Earlier this month Britain's Daily Mail had no doubt.  A picture slogan spells it out: "the future of recording giant EMI is being undermined by Google" (the Mail's argument is that because music pirates show up in Google searches, then Google is complicit in music piracy).  In an extraordinary outburst the Mail rants that "digital piracy ... has made it all but impossible to sustain heavy investment in new artists".

Similar points were made in the NME recently, under the headline "EMI's Plight Proves It - Downloading Has Murdered the Music Business", and the BBC identified downloading as one of a range of problems undermining the company.  The Daily Mail agrees about other factors - it also blames "the aftermath of the financial crisis", ignoring the fact that the reason Citigroup has acquired EMI is that the previous owners (private equity investorsTerra Firma) had been unable to keep up the payments.  When Terra Firma bought EMI in August 2007 the financial crisis had yet to hit the headlines, and EMI was in desperate financial straights anyway.

Back then, Terrra Firma's Guy Hands identified a host of problems at EMI, but illegal downloading didn't appear to be one of them.  An article in GQ reported how an audit found that London staff had spend £700,000 on taxis in a year, and that some executive salaries were as much as double the market rate.  The Guardian reported that expenses were running at the rate of £100 million, including what Hands euphemistically referred to as "flowers and fruit".

The new owners were realistic enough to recognise that the music business was changing: to survive and prosper (like many of the newer independent labels) it would need to bring its costs base down in proportion to the size of the business.  The new CEO Guy Hands believed that he could add value to EMI by working its assets harder.  But as Neil McCormick in the Daily Telegraph pointed out, these assets were the musicians, and they didn't take kindly to being treated as balance sheet items.   "Radiohead, The Rolling Stones and ex-Beatle Sir Paul McCartney were amongst the most high profile of EMI’s artists to take themselves elsewhere in a huff."  Later they were joined by Queen and Pink Floyd (who had a separate legal dispute over royalties). Veteran EMI insider and producer George Martin voice their frustration "I understood Paul McCartney's frustration when he quit EMI... The old production teams had broken up; recordings seemed to be manipulated by a faceless committee. One-on-one contact no longer seemed to be applied."

Even Hands' allies saw the difficulties (without highlighting music piracy among these): the new chairman of EMI's holding company, former Director-General of the BBC Lord Birt told the House of Lords that EMI "has been slower than most to reinvent itself and to take advantage of new opportunities for discovering talent and better serving businesses and consumers" (Daily Telegraph)

EMI is a long-established company in a market that has been subject to disruptive changes.  It has failed to adapt to the digital era, and in recent times has been focused on business to the detriment of its artists and audiences.  The Daily Mail is wide of the mark talking about piracy making it impossible to sustain heavy investment in artists: EMI wasn't even able to hold on to the major artists it had. Music piracy has clearly affected EMI, but as I noted in an earlier posting, illegal copying of music has been endemic since the 1970s - EMI's heydey.

Besides, there is some evidence that persistent illegal downloaders are also often the biggest purchasers of recorded music.  How do we know this?  It's all in the Daily Mail.  I wish they would make their minds up.



Thursday 28 April 2011

Piracy is destroying musicians' jobs!

In a recent posting on the topic of music filesharing I blithely avoided the ethics of illegal downloading by saying "It's complicated".  I went on to show how many people distrust the music business when it bangs on about its lost revenues: not only has it been doing this for more than 30 years, its figures are often questionable and there is certainly some contradictory evidence.

Another strong argument it has been using in recent years is that piracy is destroying jobs in the music industry.  Under the headline "1.2 billion songs downloaded illegally", Britain's Independent newspaper reported "The creative industries employ two million people in the UK... Urgent action is needed to protect those jobs and allow Britain to achieve its potential in the global digital market."  This is quoted directly from a report produced by the BPI, the trade body that represents Britain's record labels.  It is a credit to the BPI's public relations team that the same quote found its way into many other national and regional newspapers in Britain, and was cited in numerous other blogs and online news pages.

Making the connection between illegal downloading and the threat to two million jobs is a clever piece of reporting, as most readers leave with the impression that if piracy is allowed to continue there are going to be vast numbers of people thrown out of work.  That is why "urgent action" is needed now.

There is nothing much wrong with the data, and the figure of 2 million jobs makes for good headlines.  Indeed, urgent action was being called for in December 2010 because although the UK's Digital Economy Act had come into force just a few months earlier, it was looking increasingly clear that the legislation was being implemented too slowly for the industry's liking.  Earlier this year it became clear - following legal challenges by some internet service providers (ISPs) - that the law might not be enforceable.

The Digital Economy Act was one of the last pieces of legislation put through by Britain's Labour government, which rushed the law through parliament just before losing office in May 2010.  The Act put the onus on ISPs to warn users who had been identified by the music industry as illegal downloaders, and to terminate their internet service after three 'offences'.  It was widely referred to in the press as the "three-strikes rule", which is similar to legislation operating in France.

The BPI had lobbied vigourously for the Digital Economy Act as a way of combating internet piracy, but by the end of 2010 it looked as if its efforts might have been in vain.  Not only was implementation being slowed, but one of first decisions made the new Conservative-Liberal coalition government in Britain was to abolish the Strategic Advisory Board for Intellectual Property Policy (SABIP), the body which had been instrumental in setting up the Digital Economy Act in the first place.

In order to regain the PR initiative the BPI commissioned new research showing that illegal downloading was still endemic in Britain, and played the jobs card.  This was another shrewd lobbying tactic: Britain's new government was struggling with a economy in recession and unemployment rising to levels not seen for more than a decade.

There was nothing dishonest about the BPI research: it had been produced by respected market research companies Harris Interactive and UKOM/Nielsen.  And the figure of 2 million employed came from the government's own figures.  What is questionable is suggesting that illegal downloading is putting 2 million jobs at risk.  The two million figure relates to the creative industries as a whole, and the Department for Culture, Media and Sport which came up with the number was at pains to admit that these are "experimental statistics" and a "first attempt" to measure the sector.

Looking more closely at the data we find that the music industry element is subsumed under the heading 'Music & Visual and Performing Arts': the largest employer is 'Software and Electronic Publishing' with more than twice the number represented by Music.  Looking more closely at the DCMS classifications, the Music category included anyone employed in the performing arts, supporting the performing arts and working in casting.  There are additional categories counted here including operating arts facilities, "artistic creation" and employment agencies in the arts.

So just how many of the reported 306,000 people in the "Music & Visual and Performing Arts" sector are connected to the music business?  Once we strip out all backstage staff at theatres and arts complexes? When we take out the entire acting profession?  In truth nobody knows. But we can get an indication, perhaps, from applications for courses in higher education in Britain:  according to UCAS figures for 2010, more than twice the number of young people applied for courses in drama and dance (64,000) than chose music (28,000).

This sort of ratio might mean that less than 100,000 people are employed in the music 'business'.  But you are going to get better headlines quoting 2 million jobs under threat from illegal downloading.  This is an example of the practice regularly highlighted by author and columnist Ben Goldacre, called 'cherry picking' statistics to suit your argument. 

In any case, it is practically impossible to measure the number of people employed in the music business.  Hardly any musicians make a living from their art (in the sense that it is their only or main source of income).  Mostly musicians supplement meagre earnings from gigs, merchandise and recordings with more regular, paying jobs in areas such as teaching and the service sector.

It is not so much these jobs that are 'under threat' from music piracy, but instead those in the record labels represented by the BPI.  But technology is changing the whole creative landscape, and there is a strong argument that musicians don't really need the traditional record labels any more.


Illustration (used with permission) from Deviant Art's ~Mad-Hatter-LCarol

Sunday 24 April 2011

Storytelling and St George

Yesterday was the birthday of William Shakespeare. The day is also celebrated in England as St George's Day - St George has been England's patron since 1422. Here in the words of Shakespeare, is King Henry V urging his troops into battle with the French: here

I see you stand like greyhounds in the slips,
Straining upon the start. The game's afoot:
Follow your spirit; and, upon this charge .
Cry God for Harry, England and St George!


(Henry V, Act 3 Scene 1)

Shakespeare was a master story-teller, of course, but the legend of St George is nothing more than that - legend. How is it that a mythical figure from the distant past in the middle east could come to stand for Englishness, the national 'brand'? The answer to this question is more complex than you would think, and is given here in a paper I will be presenting next month at the CHARM conference in New York City.

What has all this to do with social media and other aspects of technology that are normally covered in the blog? Curiously, quite a lot. St George vanquished more deserving English saints to become national patron by having a more interesting story (good and evil, maidens and dragons, that sort of thing). In just the same way marketing people are discovering that in order to succeed in social media you need to be telling a persuasive story.

A good narrative will not only engage with your audience, but they will share it with their friends and family. A good story gets people's attention, and is infinitely adaptable. Successive generations of rulers in England managed the St George narrative to emphasize different aspects at distinct periods of history. For example in the period of imperial expansion in the 19th century, it was St George the conquering soldier-hero. After the first world war people wondered what 9 million men had died for: St George the soldier-martyr was then immortalized in memorials all over England.

Word-of-mouth marketing has been practiced as long a people have been able to use speech to communicate, and word-of-mouth relies on persuasive and memorable stories. Social media marketing relies, not on the slick production values of 20th century advertising, but on simple, credible, powerful stories that people will listen to and spread.  It is these stories that people will share on Facebook and will re-tweet on Twitter.  St George has long been a 'social brand', standing for a certain set of values and behavioural norms.  Now consumer brands are having to rediscover the art of storytelling.

Friday 22 April 2011

George Gershwin: living with disruption

It is common for people to think that technology is moving so fast that we are in danger of being passed by.  In yesterday's post I reported how Feargal Sharkey had talked of the effect of 3-4 disruptive technologies happening during his musical career.  These included music going digital, the advent of the CD and download technologies like iTunes.

This feeling is nothing new, and for two hundred years or more people have felt the same way.  You might be tempted to think that this would not apply to the music business, but it is as true for music as for any other aspect of life.  A good way of illustrating this is to look at the life of George Gershwin.

Gershwin was born into a Russian Jewish immigrant family in New York in 1898.  There were no obvious musical influences in the family, but George seemed to show an aptitude for the piano at an early age.  He went on to become a prolific composer of songs, musicals and orchestral works, and was probably the first composer in history to get rich from music.

George Gershwin quit school at the age of 15 to join the music business.  At that time the money was in sheet music, and George was employed as a music 'plugger' (a kind of salesman) in Tin Pan Alley.  His job was to promote songs owned by publisher Remicks to would-be buyers from Broadway and music halls.  A catchy number associated with a hit show would sell hundreds of thousands of copies of the sheet music.

At the same time Gershwin was starting to produce recordings of Remick's numbers, and some of his own compositions, on a new development for the music business, the automatic piano.  These devices were the forerunners of programmable computers - virtuoso pianists would themselves create original 'recordings' on paper rolls which in turn would be fed into the ultimate in-home entertainment system.

George Gerswhin's big break came with one of his own numbers, writing the music in 1920 for Swanee which was a huge hit for singer Al Jolson and librettist Irving Berlin.  Recorded?  Yes.  Jolson's success with with an emerging technology, the phonograph.  This went on to change everything - effectively wiping out most of the sheet music business.

George Gershwin, though, was hot property in the older musical economy, and went on to write hundreds of individual songs, mostly in Broadway shows and other musical offerings.  Some of these shows went on to become massive hits (and, like Oh Kay, are still performed today), others died quietly.  Gershwin's greatest songs have been recorded by countless musicians.

Gershwin was one of the first musicians to realize the promotional potential of radio, the hottest medium of the early 1920s.  At the beginning of 1922 there were just 28 radio stations in the US: by the end of the year there were 570.  The new 'broadcasters' were struggling to fill the schedules, and here the music industry was able to help out and  music 'pluggers' like the young Gershwin were sent out to plug the gaps. 

If this technological explosion sounds familiar, then listen to this complaint from the time when networked radio was becoming a reality: "Anyone who thinks he can carry a tune... nowadays takes a 'shot' at music making" (Gershwin himself in 1926, when his burgeoning career as a national broadcaster, with a syndicated coast-to-coast radio show and a massive audience to match.

Gerswhin, of course, turned his hand to orchestral works (the most famous being Rhapsody in Blue) and opera (he wrote the music to the perennial Porgy and Bess).  The next technology he embraced was the movies, moving to Hollywood in 1934 and writing the score for two Goldwyn blockbusters, including Shall We Dance which featured Fred Astaire and Ginger Rogers.

George Gershwin died tragically early, on July 11 1935.  During his short career the music business he earned a living from evolved from making its money from sheet music and piano rolls, the stage and then into radio, gramophone and the movies.  Gershwin was just 39, and in his short life had ridden the wave of a succession disruptive technologies.  Feargal Sharkey is 52.

Thursday 21 April 2011

What is the music business for?

Just recently I was at the Guardian's Changing Media Summit, listening to Feargal Sharkey talking about the music business.  Sharkey made his name as the lead vocalist of the 70s punk band The Undertones.  He noted how he had lived through 3-4 disruptive technologies (the move from vinyl to CD, the growth of the digital, the evolution of downloadable music, etc.), and is known as the man who crossed over from music to management (he now heads up UK Music, an umbrella body representing the interests of musicians, writers and other creatives in the music business).  Sharkey made the point that, regardless of the disruption, irrespective of the doom-mongering of the record labels, young people would continue to write, record and perform new and original music.  It really wasn't about the money.

The Undertones were signed to Sire Records, a label that was bought by Warner in the 1980s, and which in turn is in difficulties and is up for sale.  The question is, what does a record label do?  What is it for?  A useful term to consider at this point in 21st century is disintermediation.  This is a word that is used by experts commenting on what has happened to retailing in the internet era: airlines, car insurance, investments and many other sectors have disintermediated, that is to say, agencies and brokerages have ceased to become useful when consumers can buy directly from the provider online.

Originally a travel agent or insurance broker on the high street would have the subject knowledge to match our needs and wants with what was available on the market.  The intermediary would complete the paperwork, issue documentation, take payment and generally complete the transaction.  Now all of this is done online, direct between consumer and provider.

In the music business, from the middle part of the 20th century, record labels set up to exploit the new technological phenomenon that was the grammophone (EMI started business in 1931, for example).  As intermediaries, record labels provided the recording and production facilities for musical acts, financed the pressing and distribution of costly vinyl recordings, and managed the entire promotional effort of the acts they signed.

This particular branch of the creative industries did particularly well in the post-war years, riding the wave of pop music, rock, punk and later genres.  It was particularly good in developing relationships with the mass media, and as both sectors started to be undermined by the growth of the world wide web in the 1990s the mainstream media have been happy to champion the business in the face of what they see as unprecedented levels of piracy of the industry's intellectual property (see for example a recent example from Britain's Daily Mail).

But what we are witnessing is another example of disintermediation.  Recording studio time is no longer the preserve of the few: a band can book a fully-fledged digital studio from around £150 per day ($250), and is able to have a say in how the final tracks sound.  It is no longer necessary to get together complete albums of music (10-15 tracks) and have these pressed and distributed: instead a band can issue individual tracks as they are made, and 'monetize' these right away on iTunes or Amazon.  A band can build its own following on MySpace and Facebook, linking to gigs, social interaction and merchandising  - all functions originally handled by the record label.  The band and its fans can build its brand through co-opting fans in social media to spread the 'authentic' message.

Now the band can design and produce its own CDs and EPs for less than 75p each ($1.65) and distribute these via gigs and mail order.  Amazon and other online retailers will also distribute these.  Tour venues are bookable online.  Bands can handle their own publicity - often much better than a record label.  The Arctic Monkeys are a good example of a band whose debut album became the fastest selling album in British music history on the back of the band's own web-based promotional activity.  The Arctics were famous for their early hostility towards the music industry establishment.

What does a record label do nowadays?  They used to secure airtime on popular radio stations, but now these have fragmented into hyper-local media and online channels, and the mass audiences have gone.  Bands, if they put their minds to it, can handle the whole disintermediated package.   Both Warner Music and EMI are up for sale: but while the music industry bleats about technology and the insidious effect of online piracy, they need instead to ask themselves the fundamental question, 'What are we for?'

Wednesday 20 April 2011

Apps are making shopping easy... or is life complicated enough already?

British supermarket giant Tesco announced its year-end results yesterday: in the figures was the information that its growth in online sales was 15%.  Encouraging except that online sales across the UK in 2010 rose 18%, according to researchers IMRG.  Tesco says that online sales grew "strongly", pointing to a 30% increase in non-food items from Tesco Direct - implying that supermarket sales grew by rather less than 15%.

Tesco, though, drew attention to its innovative new iPhone app, which it says now accounts for 12% of online sales.  This seems to be a smart idea - wherever you are, when you spot something that takes your fancy, just scan the barcode and Tesco will put it in your shopping basket for next time.

By chance, on the same day Tesco's arch rival Walmart announced that it was buying the social networking platform Kosmix.  Why?  Because, they say, you can't ignore social trends and this one is huge.  It's not clear exactly what Kosmix is offering Walmart, but it is something to do with the immediacy of mobile-based connections to real-time purchasing decisions.  It's all part of Walmart's multi-channel strategy, apparently.  Walmart - it has to be remembered - owns Asda, a UK supermarket chasing Tesco for the number one spot in FMCG retailing.
 
The sort of technology involved in Tesco's iPhone app is not new.  Barcode scanning using the iPhone is helping shoppers to make their purchasing decisions.  The Foodwiz app allows people with allergies quickly to check items in Asda and Tesco if they are celiacs or have other intolerances.  The company's software gives users rapid feedback about the suitability of branded foods and own label alike.  It hopes to have the programme rolled out to other supermarkets soon.

The same technology is offered by Barcoo to allow ethical shoppers to make quicker decisions.  This examines the environmental, ethical and CSR credentials of the brand owner (ie companies like Nestle and Procter & Gamble) and gives the user a quick response as to whether this is an ethical company.

Whatever way you look at it, smartphone ownership is exploding (something I blogged about a few days ago), just as social media continue to extend their influence.  It seems clear that the ultimate target market (young, educated, affluent, connected) are in both spaces.  And so are Asda and Tesco.

Tuesday 19 April 2011

Music piracy: who do we trust?

A few days ago I noted how the problems of the music industry were "complicated".  Above all, the sector's contention that illegal downloading of music was killing music needed to be looked at in more detail.

The problem is actually more one of who to believe.  There are three powerful arguments why we would be right to be sceptical about the music industry's complaints: firstly that they have been making the same claims for 30 years or more; secondly because generally their figures don't add up; and finally because there is a lot of contrary evidence.

Young people have been illegally sharing music since the growth of the mass market cassette recorder in the 1970s.  It was easy and everyone was doing it.  The C90 cassette was ideal as it would fit one album on each side.  No wonder C90s outsold all other formats by a big margin.  Charlie Brooker describes how making your own compilation tapes could form part of your courtship ritual at the time.  By the 1980s the music industry was sufficiently worried to launch a high profile campaign "Home taping is killing music", using the same sorts of figures of lost revenues and jobs that it is deploying now, and reminding us that the process was illegal.

Closer to our own time and government and the music industry continues to produce 'research' to show how 4.73 billion items worth £12 billion were being illegally downloaded in Britain in 2009.  However, the figures don't stand up to scrutiny, as Ben Goldacre made clear in a thorough demolition of the report.  It was not just that there was mis-reporting of the facts (it was actually 473 million items), but also the way in which pieces of data were extrapolated to make alarming headlines about job and revenue losses. 

More to the point is the fact that research is often contradictory.  A Norwegian study, for example, found that illegal downloaders were ten times more likely to buy music than those who didn't.  It seems that the worst 'offenders' are young music lovers, who in turn are the biggest buyers of music.

In the 1970s and 1980s we used to share music (illegally) on cassette.  But if it was any good you would buy the album and then re-recorded the tape.  The stuff you kept on cassette was music you liked but wouldn't pay money for.  Sharing of this kind was the original social networking, with music bringing people together and helping to encourage a booming music industry.

So, album sales are down and the music business is still preaching doom.  Yes, there is illegal downloading, but this has been going on for years.  The industry still hasn't made the case that piracy is causing its problems.  There are a lot of contributory factors.  EMI and Warner, two of the big top four in the industry worldwide are up for sale: has piracy done for them?  It's complicated.

Monday 18 April 2011

Stealing from the virtual Mafia

Ashley Mitchell, a hacker from Paignton in Devon was given 2 years in jail last month after being convicted of stealing virtual gaming chips. Mitchell, aged 29, stole the chips by hacking into the mainframe of Zynga, the highly successful games developer, responsible for popular Facebook games Mafia Wars, Cityville and Farmville.

Zynga has only been trading since 2007 yet had sales of $850m last year, and 72 million users. Mitchell had stolen the identities of staff members at Zynga in order to access the digital chips used in virtual poker.  There is a market online in these tokens, and Mitchell pocketed around £50,000 ($80,000) before being found out.  What is not made clear in the reporting was that the black market value of stolen digital currency like this is very low: Mitchell's $80,000 income was from selling tokens with a face value of $4 million.

Zynga claimed the losses were greater as Mitchell had stolen far more than he had been able to sell. and their lawyers called for a stiff sentence.  Mitchell didn't help himself by breaching the terms of an earlier suspended sentence, imposed for hacking in 2008. Behind the headlines, though, he is unlikely to be languishing in jail.  Skills such as these will have been noticed by both the government and private online security companies.  It is said to be common for this type of 'black hat' operator (a rogue hacker who is in it for profit) to be recruited into a new 'white hat' role, working to make the internet a safer place.  White hats conduct penetration testing for clients and help identify security weaknesses - something that Ashley Mitchell has shown himself expert at.

Mitchell's hacking identity was hidden at first as he accessed Zynga's network by using two unsecured wireless networks belonging to his neighbours.  Police origially showed up at his street in Paignton and took away computer equipment belonging to people in houses nearby.  Eventually the trail led to Mitchell, as he had rashly used his own Facebook profile in one of his hacks.

Sunday 17 April 2011

Facebook's strategy

At the Guardian's recent Changing Media Summit in London, Mattias Miksche, CEO if the amazingly successful Stardoll Media told delegates: "You have to have a Facebook strategy, because Facebook is eating the internet."  But does anyone know what Facebook's strategy is?

My guess is that Facebook is banking on mobile.  It's not just about the exponential growth in smartphones which I talked about in an earlier blog.  It's not just that sales of tablet devices like the iPad have hit sales of PCs (according to the Financial Times, shipments in quarter 1 2011 were down, despite healthy demand in emerging markets).

Two good indicators of Facebook's thinking are, firstly, a recent announcement regarding their moves in location-based social networking (another earlier blog) and secondly their acquistion of Snaptu, an Israeli company which makes applications allowing platforms like Facebook to run on the simpler 'feature phones' which came before the debut of iPhone and its smartphone competitors. 

Facebook's unprecedented subscriber growth in 2010-2011 means that to a large degree it has now reached much of the young, affluent, educated, web-connected audience that there is in the developed world.  In developing economies, though, there is considerably more internet activity via mobile phones than through fixed lines.  India, for example, has 50 million broadband connections but 950 million mobile phones. 

Perhaps more significantly are the developments happening in mobile banking in parts of Africa (see here for a special BBC report on the great strides being made in this field in Kenya).  If money is being moved around then Facebook and other internet companies want to know, but few people in developing countries like Kenya can afford iPhones. 

Accessing the web on feature phones is not easy, but Facebook would like to be our home page on this sort of device.  When social media becomes as central to your lives as it already is in Britain and America, why not trust Facebook with 'search' also?  Currently it doesn't offer a Google-type search function, but this is where the real money is being made.

My predictions are that in the next 12 months Facebook will continue to push into developing markets in Turkey, Africa, the Middle East and the Indian subcontinent, particularly in countries where there is a growing middle class and a young, educated population.  I think that they will partner with Microsoft to offer Bing search via Facebook, and that they will start rolling out 'Facebook Lite' to mobile phone users around the world not lucky enough to own an iPhone.

Saturday 16 April 2011

Google and the arts: patron or thief?

A few days ago Britain's Daily Mail published a sensational, centre-page spread under the headline "Google threatens to destroy not only pop sensation Adele, but Britain's film and music industries. So why is No.10 in thrall to this parasitic monster?"

A couple of days later The Guardian replied with "YouTube NextUp scheme to back UK digital talent".  This is a story about how Google is investing €500,000 (£441,000) in nurturing young artists.  So, who is telling the truth?  Is Google a latter-day Medici family, offering patronage for art and then showcasing it on Youtube?  Or is it "a giant vacuum cleaner parasitically sucking up content from media companies, publishers, film makers and musicians without paying anything back into the creative process?"

First of all, it has to said that the Mail's Business Editor seems to have a problem with the whole 'internet thing', a point made repeatedly by online contributors in the paper's comment section.  According to this argument, the music industry's current problems began with the growth of the web in the 1990s, and all of its woes (falling album sales, digital piracy, high street shops closing) stem from that era.  Therefore it follows that the internet caused the problems.  Google is the voice of the internet, so it stands to reason that Google is to blame.

Let's stick to music for now and try and establish the facts.  It's complicated.  Last year in Britain CD sales fell 12%, the 6th year in a row.  But that is largely a structural thing: music is now much more likely to be consumed in a digital form on a portable device: singles (as downloads at least) sold nearly 6% more, with 5.2 million tracks downloaded in the last week of 2010 alone.  People are still buying music, but often don't want the whole album.  In any case, digital versions of complete albums are doing well, up more than 30%.  The problem is that, overall, the rise in digital sales is offset by the decline in physical products.  To make things worse, record labels make far smaller margins on downloads than they used to on CDs sold in the shops.

The big winners in all this are the dowload stores, particularly Apple and Amazon.  the iTunes store had sold more than 10 billion songs this time last year, according to the Guardian, with Amazon catching up quickly.  Now Google is set to enter the download market - no doubt recognizing the revenue possibilities of the seamless link from Apple's iPhones, iPads and iPods into the digital store (smartphones powered by Google's Android operating system are out-selling iPhones by a factor of 3-to-1).

The music industry says that piracy (illegal downloading) is the problem.  The Daily Mail seems to believe that because pirate sites show up in online searches, Google is somehow complicit in the destruction of the creative industries.  Although this clearly misses the point, what about YouTube, bought by Google in 2006?  There is almost nothing downloadable from YouTube into the sort of format you would want to listen to music on: much of what there is has been put there by musicians and record labels in order to publicise their work.  There is a good example below from an up-and-coming Welsh band I have been following.  In this case Google is providing free publicity as well as paying a share of the advertising revenue to the production company which made the film.

Google wants a share of Apple's download business, and Amazon's.  It wants to make YouTube a more broadly-based entertainment channel with live sports, entertainment and music.  It does not engage in piracy or condone it.  The fact that it is willing to provide funds for young artists to develop their talent should be encouraged.

Digital piracy is a serious problem, and as we have noted, a complicated one. There are no easy answers, but I will attempt to identify some of the questions in a later post.


Friday 15 April 2011

Social overtakes Search?


Confirmation last month that social networking is growing in popularity in the UK, with the announcement that Britons spend more time on social media sites than on search. According to a study produced by online market analysts Experian Hitwise (summary available here), traffic to Facebook, Twitter and Youtube was up 17% on the year. But Google still outranks Facebook in the number of individual site visits.

Another very interesting fact from the Financial Times report was that only 16% of social networking visits then went on to 'transactional sites' such as retailers, compared to around 33% from Google and other search engines. Interesting because transactions are where the real money is. Facebook traffic tends to go to other social media links, but the FT reported last year that FB is more interested in brand building advertising revenues than quick hit purchases.

Meanwhile a BBC news report (which also draws on the same Experian study) says that social networking in the UK now accounts for 12.5% of all internet traffic. Another curious fact from Experian Hitwise is that Facebook and YouTube are the most popular brands searched for on Google in the UK.

Thursday 14 April 2011

Myspace is on the up again!

According to reports out this week, things are looking up for struggling social media platform, Myspace. News Corporation, which owns the company, predicts that next year Myspace will be making profits of around $15m. How, when revenues are falling? Because costs are falling much more steeply, so the net result is positive.

But, as journalists and analysts point out, this is speculative and forward-looking. News Corporation has chosen not to look at the historical information. Back in February, the Financial Times was reporting how Myspace had put a $275m hole in News Corps's profits. Before that (January) the story was about massive layoffs at Myspace, which had lost 10 million users in just a month (according to the Daily Telegraph).

If News Corporation is to be believed, though, revenues will start rising, despite this apparent hemorrhaging of customers. Maybe the optimism is fueled by another report, that online advertising revenue is increasing again after a slight hiatus during the recession?

The most likely reason for the upbeat tone at News Corporation is that it is widely known that Myspace is up for sale, and needs to have its prospects talked up. Online music site Vevo has been talked about as a prospective buyer. But News Corp has few options: having paid $580m for Myspace in 2005 the company can sell at a massive loss (which is what happened with AOL's disastrous purchase of Bebo) or it can just close Myspace down.

This gloomy scenario is very much at odds with what is happening elsewhere in the social media scene, with huge (and unrealistic) valuations being put on Facebook and Twitter (neither of which are for sale), and growing excitement about possible flotations of other platforms.

The core demographic for brand owners - young, educated, affluent, global, connected - has migrated from Myspace to Facebook. This company not only can demonstrate exponential growth in user numbers, but it seems to have plans which involve continuing growth in users and better monetization of the existing customer base.

Sunday 10 April 2011

Facebook and location marketing

Facebook Deals launched in November 2010, with little fuss or publicity. In fact most FB users probably don't know it exists. It allows users to check into selected locations to take advantage of special offers, deals, etc. The service, it was announced last week, will now be extended to daily deals with specific offers for particular days in particular places. The trials are likely to be in a few US cities intially. What FB seems to be offering is a direct rival to Groupon.

Groupon launches in 2008 and is reported to be earning $US 760 m, mostly from the fees it charges participating retailers and venues. It trades all over the world and is said to have 30 million signed-up users. There was speculation last year that Google had bought the company for $2.5bn, though the rumours were unfounded. With Groupon users sign up to received offers based around their local city: each day they are offered money-saving products and services from providers locally: typically cosmetics and personal care (Body Shop has been involved across the UK), restaurants and hotels and similar services. There are currently nearly 50 cities in the UK linked up in this way.


This type of location-based social media marketing (also known as geo-location marketing) is one of the hottest topics in e-Business right now.


Another hot property is FourSquare which is a location-based service with 7 million users allowing users to check into places for offers and 'points'. As you can see, this is what Facebook started offering with Facebook Deals. Orange is now also getting in on the act, but with a difference. Their service allows users to check into TV programmes they are watching - with the idea being that lucky users will get their 15 seconds of fame on TV.

All of this seems to be part of Facebook's strategy of focusing more on mobile users and less on PC-based traffic. With their recent acquistion of Snaptu they are investing in technology to enable feature phone users to have a positive FB experience, as well as reportedly developing FB branded mobile phones themselves.

Smartphones market growth


Reports in the media this week that sales of smartphones are likely to reach 500m this year, a 58% growth on 2010. Gartner's well respected study says that sales will reach 1 billion a year by 2015, driven by falling prices. The largest operating system is Android, with the prediction that they will have 50% of the market by end of 2012. Nokia's Symbian is currently second and may grow as this is replaced by the tie-up with Microsoft. Apple has between 17% and 19% of the market, which still accounts for somewhere between 1.5 million and 2 million iPhones being sold every week.

The biggest surprise has been the success of Taiwanese handset maker HTC which is now coming within striking distance of iPhone and Blackberry, according to the FT this week. HTC is now bigger than Nokia in the smartphone market.

Students hooked on social media

According to a study widely publicised around the world, students are addicted to social media and suffer emotional and physical distress when deprived of their 'drug'. The study looked at students across 12 universities in 10 countries, including the US, China and the UK. When taken away from social media and gadgets for 24 hours words such as fretful, confused, anxious, irritable, insecure, nervous, restless, crazy, addicted, panicked, jealous, angry, lonely, dependent, depressed, jittery and paranoid were used to describe the feelings. Students described the need to be digitally connected, even with people who were physically close by.

Of course this is in a long line of FaceBook and internet media scare stories: here are some earlier headlines from the Daily Telegraph:"Facebook generation suffer information withdrawal syndrome" (02 Jan 2011); 'Internet is a threat to our brain' (15 Sep 2010); Computers could be fuelling obesity crisis, says Baroness Susan Greenfield (13 May 2009); Schools 'should be the cure to children's Facebook addiction' (16 Oct 2010); Students brains 'rewired' by web (11 Feb 2010); Rehab clinic for child web addicts (18 Mar 2010).

While we're on the subject, a study released last week from Oxford University showed that children who play computer games rather than reading achieve significantly less in life: fewer go to university or get top jobs, the study says. This particular study is based on over 30 years of tracking studies and finds that reading (books) seems to be the key to intellectual and social development.

Adaptive advertising

Marketing people get excited about the 2002 film Minority Report. In the film advertising media interact with individuals, which they identify via iris recognition to deliver highly targeted advertising. There are clips of this from the film here and here.  
Recently there have been reports that, based on trials in the US, this form of targeted advertising could be a reality within 12 months. A new report by the Centre for Future Studies calls the new ads 'Gladverts' and predicts that advertising technology will pick up on and adapt to our moods through emotion recognition software (ERS). 
However, this is not a new story, as this clip from a newsreport over a year ago shows. The NEC technology reported here limits itself to simple demographics: gender and age. ERS is altogether more experimental. The new Centre for Future Studies report was commissioned by 3MGTG, a digital advertising agency.