A New Medium?

Robbie Williams released his Greatest Hits album on Monday, which was released on a multimedia card (MMC) format for the first time.

Is it the time to get excited?

Well I’m not entirely convinced. The point is that MMCs can be put into Palm PDAs, phones and a lot of other portable devices. But then again, all EMI have done is sold an MMC and the encoded album on it with a couple of extras.

MMC 64MB-1.JPG
New media or same stuff, different day?

So why not actually just sell a downloadable version of the album with all of the bits and pieces on it, lower the barriers to pricing by not having to sell people the actual card and sell more? The thing is, if you make people buy a card AND the album then it makes it very difficult for people to purchase it without having a very involved decision – it more expensive than buying the copyright in isolation.

On the other hand if you allow people the ability to buy the album online and download it into their iPod and their mobile or their MMC or their MemoryStick then it can be cheaper and more flexible. MMC is also not used in a majority of products anyway? Why did they choose MMC over any other format? Why go exclusively to MMC?

They may well be doing this already, I don’t know. If it is one thing that is good, it is that in the UK, the album will find a new, huge retail chain (Carphone Warehouse) who are selling music where previously they weren’t. That’s a positive.

A thought about the modular economy

I had a thought about the “modular economy”. Look at the entertainment industry, where large groups of totally outsourced skills come together to work on a project – no permanent infrastructure, largely modular, with almost granular participants – single people coming together on massive projects.

This sort of “network economy” or “modular economy” has been going on since the beginning of the film and music industries. The question being, how did other people in those industries actually find out who did the good work? The simple answer, CREDITS.

At the end of every film, on the liner notes of every CD, you see the names of the people who put it together, mainly so that they can get jobs as a result of their good work on that project.

So – what of the future? The current trend in outsourcing is that many companies are adopting this “network economy” framework. Some things, such as web design, are clearly credited on many company websites. But what of integrated back end outsourcing in industries such as call centres, logistics, payroll management and royalties?

We may well see an entire movement towards orgnisations decoupling their businesses into discrete units. Might we see a complete disaggregation of skill sets, following Michael E Porter’s “Value Chain” – where organisations adopt a mix of people, process and platforms (digital tools) to outsource vast swathes of their functions beyond the obvious ones.

What of builders? We often see signs on building sites which relate to the plumbers, electricians and tilers. What of permanent credits? Are we going to see the names of workers etched into concrete (literally)?

The irony of outsourcing (although a great thing), is that while it costs less to have a firm who does nothing but one task handling that task on behalf of your business, the thing is it could result in those firms having to adopt marketing and administration infrastructures just to get follow up business, thus lift the costs…

The Rich Get Richer and the Poor get EVEN RICHER!

Shout it from the rooftops.

The rich are getting richer in Australia – but the poor are getting richer quicker!

According to this report, average income in the bottom 20 per cent of earners rose 18.5 per cent from 1997 to 2004, compared with a rise of 17.5 per cent for median income families.

So what does this mean? Simply that globalisation, outsourcing, free trade, labour market flexibility, tax reform, competition policy and all of the multiple developments in the Australian and international economy ARE RELATIVELY BETTER FOR THE POOREST PEOPLE IN THE ECONOMY!

So why is it that socialists whinge and moan about the “injustices of globalisation” and “fair trade not free trade”? Because they have no understanding of the realities of economics.  Only the hype of capitalism-hate.

What a fantastic result. To freedom!

Kyoto will be bad for energy prices and the economy

Mark Latham has been talking about a “secret tax” on energy to fund renewable resources.

A concern – and not necessarily something to be believed.

The Coalition doesn’t (and shouldn’t) believe in Government discretion and the levying of taxes on markets to distort outcomes. The MARKET can achieve this without the Government doing it.

So using the example of renewable energy, if people want to put solar panels on the roof and buy “green power” from their electricity retailer, then they can do it. They, the market, the consumers can do it of their own free will. If they believe so strongly in the environment, then they should sign up for green energy at home. If they don’t want to, then they shouldn’t have to. (As an aside, how many Greens have actually signed up for “green power”? You know the old saying that money talks?) For a government to levy a tax just doesn’t make sense, unless you are from the left, in which case legislated theft is utterly normal.

Latham will have you believe that signing the Kyoto Protocol is good for Australia. My view is it will be a DISASTER!

Firstly the key to Kyoto is reducing emissions to 8% above 1990 levels. Australia is currently only 1.8% above those levels anyway, so there’s no real need.

Secondly, and most tragically, if Australia signs the agreement, it will open up international carbon trading. I am torn on this issue. Emissions trading is a great idea in that it attaches a price mechanism to pollution. The Government puts a cap on the total amount of pollution in the air and then everyone is allowed a “share” of that pollution allowance. If someone decides that they will not longer pollute, they get credits worth the difference of their polluting and non-polluting levels.

Then, each credit can be traded worldwide. Currently, such credits, which are measured in tons of carbon dioxide are estimated to be worth between $10 and $700 per ton. Let’s assume that it is a conservative midpoint of around $200 per ton.

What most of Victoria’s coal fired power plants will do is immediately weigh up the profit they make from selling electricity versus the profit they will make from shutting down the plants and reaping the rich rewards from carbon credits and selling them on the open markets. Obviously the environment will improve, but the price of electricity will then SKYROCKET to maybe 8 or 9 times its current price (according to Ken Edwards, the CEO of NextGen Energy), or at least until the profits from the sale of electricity equal the profits from the sale of credits.

If you believe that it’s not so bad if coal-driven baseload energy prices skyrocket – as “we can always cut down electricity usage or get some solar panels”. But the big point, and this has barely been discussed, is that industry, particular Victoria’s manufacturing industry, which thrives on cheap coal fired electricity may have to shut down. One study showed immediate losses of at least 15,000 jobs and a reduction in Victoria’s GDP of 8% in the first year. We are talking a cataclysm, or at least some very serious ramifications for baseload heavy industry.

Toyota, Holden, Ford, Comalco, Alcoa just to name five big manufacturers, will find that their already substantial electricity bills will go through the roof. It will not be worthwhile or economically feasible to operate in Victoria anymore. While we currently have one of the lowest electricity costs in the world due our massive reserve of coal under the LaTrobe Valley (500 years worth at last count), by turning our back on coal and forcing Australians into green we do so at great peril.

Labor’s idea of Kyoto is warm and fuzzy but it is a false economy. Idealistic, but extremely bad outcomes.

For a detailed examination of the Kyoto Protocol and the disaster it promises to be for Victoria, download this report prepared for the Victorian Government.

Aussie Hip Hop – The True School

American Hip Hip is lost. The birth of Hip Hop, the expression of ultimate aspiration against all odds, has been perverted by the new school, bling bling, bullshit, get rich style of contemporary hip hop.

The old days of rebelliousness, of working against the odds and devoting the art of rhyme to the street struggle is long gone. But not in Australia!

Aussie Hip Hop is going through an incredible boom at the moment. The reason can easily be linked to the fact that young males need a musical outlet for their frustration; a voice which they can identify with, a voice which speaks from the position of some disadvantage or perception of a long road ahead with a lot of choices and difficulties. Aussie Hip Hop is delivering this in SPADES while US Hip Hop is rubbish. Bling Bling Nelly and his mates are too busy talking ’bout the Benjamins and driving Bentleys to be writing and singing about rebirth and pride.

Not to be a melancholy old school nostalgist, but Public Enemy used to call themselves “the Black CNN”. Ice-T invented gangster rap not to glorify rap but to show that a criminal lifestyle is “fun in the beginning but it’s pain in the end”. Boogie Down Productions talked about Rosa Parks and the civil rights movement. De La Soul just plain tripped.

But now? The stuff coming out of the US is rubbish. Not since Wu Tang Clan has there been relevant rhyming about the hard times, aspiration and the hope that one day there will be a better life. Honest rap, not the record company advance fuelled, multi-million film clip styling of a boring and irrelevant music industry.

Aussie Hip Hop is achieving this honesty because it is yet untouched by the boring old marketers who are so out of touch they think Fox FM is cool. Aussie Hip Hop is about “wishing I had $50,000 and some land” not rubbish which does nothing to appeal to the true school of Hip Hop fans. US Hip Hop has moved into full on product marketing territory, with songwriting and imaging manufactured to appeal to the latest brainwaves from a polling company’s study of 12-16 year old school girls.

It’s wrong and it won’t be long before Aussie Hip Hop charges into the mainstream of public taste. Hilltop Hoods and their stablemates at indie labels like Obese Records have come close with a Gold selling album, and it won’t be too long before TZU, Fizard and other Aussie acts achieve the same and maybe even the unthinkable – an Aussie Hip Hop success in the US.

Who is going to represent a rebirth of true school hip-hop in the US?  The Pharcyde?  Newcomer Kanye West?  Pray tell readers…

Free trade is music to my ears

The fear and loathing which has poured from the creative industries about the upcoming Free Trade Agreement (FTA) with the US is an ill-informed and ill-performed stage show. The creative industries have got to be less outraged and more aware of what the FTA truly means, as they stand to benefit from such a change in our terms of trade.

There are multiple barriers to entry and distortions that governments all over the world set up in the name of protectionism. However protectionism serves only to destroy economies and harm the ability of consumers to pick and choose the best, rewarding the best and most efficient producers. Protectionism promotes complacency from the protected companies and producers of product and it lessens the ability for consumers to pick and choose goods and services that meet their needs the best, whether from Australia, the USA or any other country.

With the removal of trade barriers, the biggest winners are consumers. We find products at lesser prices, with a greater range. The savings we make on cheaper products we either save or spend on more products. The economy grows and the “dead weight loss” of protectionism leaves us wealthier.

However there are vested interests and arguments that have skewed the coverage of the negotiations. Whether these arguments are spurred by anti-Americanism (hypocritically, while the creative industries have their main source of inspiration and Mecca in the US, they find it easier to mock and ridicule its influence), or whether it is a total ignorance of economics and the advantages of allowing willing and informed people to trade with one another without the interfering arm of Governments standing in the way, or whether it is an unwillingness to stand accountable to investors and critics, the creative industries have been rabid. But much like Governor Schwarzenegger’s most recent films, their argument is a lot of interesting hype and no substance.

The Australian film and TV industry has been particularly vociferous in their argument over the retention of Aussie content on film and TV. They argue for the retention of quotas due to their perceived easy substitutability of foreign product. As their argument claims, TV shows are much of a muchness – an Aussie drama is the same as an American drama only more expensive – therefore we have to protect the Aussie content from being overrun.

Also, because the TV broadcast quotas affect the consumption of the product, that is that TV shows are services and as such are simultaneously produced and consumed and cannot be stored on the shelves and purchased later, they argue quotas are necessary otherwise it is possible that there would be no means for Australians to watch Australian TV shows.

These arguments are totally false in that they assume that people’s tastes are irrelevant and that they will consume what is served up to them, come what may. This is the same stupid argument that is used when people argue against other corporate (read American) behemoths such as Coke, McDonalds and Starbucks.

“Local restaurants will close and all we’ll have to eat are Big Macs,” they proclaim. “My local espresso shop will be driven out of business”. Their argument implies that all it takes for world domination is enough money and geographic spread. The tastes, preferences and simple, plain obvious evidence that people like their local coffee shop or local fashion label or local sport or local TV show because it provides something different and unique at high quality are ignored in this absurd argument.

A similar argument exists in the music industry. Radio quotas mean that Australian radio is obliged to play Aussie music at least 25 per cent of the time. Without these quotas, the music industry argues, radio stations would blindly adopt playlists of foreign radio stations and there would be no Australian music on the radio. This would, they argue, result in the end of the Australian Music industry. However this argument is again fundamentally flawed.

First, what is “Australian Music”? Radio stations that play a new song by Kylie Minogue could barely be playing Australian music, could they? A song funded by an English record company, written by foreign songwriters, published by a multitude of foreign music publishers, recorded, mixed, mastered overseas and sung by an artist who herself lives a majority of the year in the UK could barely be called “Australian content” could it? But it IS! AC/DC, a band that has not lived, nay visited, Australia in years is still regarded as Australian content for radio purposes. As is Natalie Imbruglia, who was signed out of BMG UK (therefore controlled and marketed from the UK) and for all intents and purposes is an English artist. If the basis of broadcast quotas is to encourage Australian culture, then how is it being aided in these instances?

Second, unlike the TV industry, Australian radio content laws apply only to the playing of music in terms of its role as a promotional tool. Unlike TV which has no other means of consumption, music is primarily produced to be purchased, with radio only playing the part of promotional tool (albeit a major one). Even if Australian radio failed to play Aussie music, it would not cause holocaust (just ask George, who were BARELY played on commercial radio and still managed to sell double platinum and win, ironically, the “Best New Talent” at the 2002 Commercial Radio Awards). And when was the last time a commercial radio station played a John Farnham song?

Furthermore, with the explosion of streaming music stations and portable music formats, radio is finding itself largely irrelevant in the discovery of new acts. How can a quota possibly cope with or be relevant in five years time when most likely we will be able to listen to a wireless digital webcast from a station anywhere around the world?

Third, if quotas were removed, local radio stations would STILL have a commercial interest in playing local music. Just as all politics is local, all radio is local. Radio plays the music that the local audiences want to hear otherwise their ratings suffer and their ability to attract advertisers suffers. Just like the earlier argument in the context of McDonalds and Starbucks, people DO want something unique and interesting; they do want things that are local, Australian, part of their community and importantly of equal or better quality than the other product.

New Australian music will still be played on the radio as long as it is better than the next best alternative. The same applies in every venture; people have unique tastes and local people cater better than foreigners – if they don’t then there has been no loss – we could have had the American Idol broadcast here but instead we have had our own!

Fourth, people are huge fans. People who are fanatical supporters of artists, whether Aussie or otherwise, will always support their band through thick and thin. They will not simply “substitute” their affection for one act for another just because they are playing a similar style of music. Something for Kate fans will not replace their preference for “like” bands and accept it as an alternative – they will want to hear Something for Kate.

There is an argument that in the long term bands such as Something for Kate will not exist to create a fan base if not for the quota system. However these bands currently struggle to get airplay until the quality of their songs, the fortitude of their record company and the size of their fan base (built through touring and other means of promotion) is good enough to convince recalcitrant Music Directors.

The point being if young bands are not good enough, then they don’t get played anyway. They have to be just that bit better to play in a free system. They get better by writing more songs, playing more gigs, taking more time in the studio – the outcome being their songs are very, very good when they are launched upon the world. What’s wrong with that? How is that any different to any other competitive environment?

Free trade has thankfully opened up industries which were bloated and inefficient and has created lean, efficient and largely far more successful products than ever before. The Australian car industry is a great example of this. For years we struggled with low quality, overpriced and generally unappealing locally made cars. When tariffs were reduced, car quality got better as the local manufacturers found themselves less “safe”. Yes, some jobs were lost. Yes, Nissan closed its manufacturing plants. But at the same time, Toyota, Holden, Ford and Mitsubishi have found that the utilisation of skilled and creative Aussie labour has meant cars are now made here which are exported all over the world – this never happened in the “good old days” of protectionism! They could have imported 100 per cent of their cars but they realise that not only is Australia a relevant market to cater to but a relevant market to export from. This is the outcome that Australia’s creative industries should be aiming for.

If (and it’s a very unlikely if, but if) the FTA means the removal of quotas it will hardly make a difference. The fact is that if the product is good, it will get a run in any case. The corollary being if the product isn’t good enough to compete, then what’s the point of even pushing it? If it’s not good enough to compete, will it sell? Highly unlikely. If it can’t get on radio by virtue of the fact that it doesn’t cut the mustard with the latest Madonna or Coldplay single, will it mean the end of the act? NO! It will mean an improvement, a greater incentive to provide a better product from the artist and the company. And the better the product, the more satisfaction from the consumer, and we ALL win.

The Dinosaurs of the Recorded Music Industry Must Evolve or Perish

There was a time when music companies objected to the playing of music on the radio. Instead of seeing early radio technology as a positive opportunity for the music business, they refused stations the right to rebroadcast their recordings. It is with the same fear of the unknown that music companies are currently fighting the latest methods of distribution instead of developing new business models to utilise them.

Predicting reduced sales of sheet music and LPs, the early days of radio saw big record companies battling radio stations, until eventually, the former saw the potential in promoting music through the latter. Ironically, today we find a large proportion of cost and effort devoted to radio promotion, driving sales through traditional outlets. The companies apprehensions have now transferred to new technologies such as MP3 and AAC (or MP4 as it is colloquially known). For much the same reasons as they once feared radio. Most music companies have seen the MP3 boom as a mortal threat to their business and have acted with extraordinary vigour to stamp out peer-to-peer file sharing services such as Napster, Australian-owned KaZaA, Gnutella, Limewire and iSwipe, accusing them of encouraging piracy and copyright infringement.

Recently, EMI, Sony and Universal moved into battle mode by entering Australian universities to arrest students who had large numbers of MP3s on their servers. They now intend to spend millions on legal action against these ‘perpetrators’ of alleged piracy and ultimately intimidate other MP3 users in an attempt to stamp out the epidemic of file sharing.

However, in fact the biggest problem facing the music companies is not the spread of MP3s or file sharing, but rather, their own unwillingness to embrace and adapt their business to this revolutionary technology. Indeed, digital music sharing through peer-to-peer networks is proving to be the most efficient method of promoting and distributing music that has ever evolved.

Against a backdrop of rapid change in communications technology and the media, there has been an unmistakable trend in recent times toward a more intricate music culture. A growing number of artists are releasing music to ever smaller captive audiences. The days where a superstar performer or group – Madonna, Michael Jackson, Prince, The Beatles, The Rolling Stones – would release an album destined to dominate not just the music, but also the media and fashion of the times, appear to be over. Even the days of middleweight acts taking the market by storm and hanging around for another album have virtually disappeared. Instead, the tendency is for smaller, more specific releases from artists who are closely in touch with their fan base or subculture. As in other aspects of the emerging world market, we can see a ‘global village’ phenomenon of dispersed groups of people enjoying a product over a vast geographic and economic sphere.

Peter Chernin, News Corp COO, said at a News Corp Conference in 1998:

With big events at one end of the spectrum and niches at the other, what happens to the middle? The answer is that choice and fragmentation are killing the middle, which lacks the grabbing power of the big event or the custom tailoring of the niche. The general interest magazine – dead. The variety show – dead. The all-purpose department store – dead.

Therefore, the traditional record company may be right to feel threatened by this widely used digital technology and the virtual marketplace it has created. Until recently, the music industry was able to manipulate the buyer by placing restrictions on product licensing, aspiring toward a monopolistic control of traditional retail and distribution methods. However, this approach neglected the ability and desire of individuals to be fans, to invest time and effort into enjoying the artist. A key to the promotion of music artists is proving to lie in allowing the public the freedom to find out, to cultivate a knowledge, passion, even zealotry for their musical tastes, and ultimately even to take part in the development of the artist. The resources of rapidly consolidating record companies are stretched too thin to take advantage of such activity.

The costs of the traditional music company are too high to cater to small groups of special-interest fans. But understanding and catering to the fan is crucial to surviving in the changing music industry. The fan will actively research their musical interests, relying on peer-to-peer networks as a tool to do so. This is the same person that marketers refer to as the “80/20 rule”, 80 per cent of profits come from this 20 per cent of customers. This species of music-lover will go to great lengths to download, to explore and to discover. Fans use the Internet as a means of communication, finding outlets in newsgroups, blogs or discussion boards to talk about an act of interest to them, find similar acts and ultimately to invest money in the artist by purchasing music, merchandise, tour tickets, or other paraphernalia related to their heroes. Such fandom is not exclusive to the few major high-profile Madonnas of music, but can just as easily be oriented toward the local band down the road.

Unfortunately music companies whether by structural restraints or ignorance continue to operate as if the messages and news about their artist can be controlled through tightly held relationships with radio stations, music press and music television. In fact, the information to which a fan/investor will have access is far more detailed and varied than anything a Promotions Manager will ever have the time, resources or ability to control. Like any product manager, they are forced to move on once the priority status has passed. The fan, however, will keep ranging well beyond the borders and jurisdiction of local media outlets or a promotions plan.

If this is the way music companies act about the message, the way they treat the product itself is equally outdated. The rise of parallel imports, online purchasing and more important still, MP3s, has seen the territorial jurisdiction of licenses, sub-licenses and territory based record labels becoming redundant. Earlier this year, in a move music magazine NME described as “draconian”, dinosaur-like industry bodies like the Australian Recording Industry AssociationAustralian Music Retailers Association adopted a code of practice that restricts the sale of CDs to persons under 18, based on profanity (Government communiqué on the new Code). This does nothing to deter the fan; instead it drives them to import or download the music, thus restricting the revenue to the artist.

Put simply, digital networks are displacing traditional methods of production, distribution, and retail sales, allowing the customer direct access to music. Downloading enables direct market access for any artist, record label or potential supplier. It removes the barrier of expensive overheads contained in the traditional model. The biggest of these is, of course, the middleman: the record distribution company.

The reason for the music industry’s reluctance to embrace the technology is their realisation that it represents a write off of millions of dollars invested in the traditional infrastructure of CD production, logistics, distribution and retail framework that has been the industry’s sole means of accessing the customer base. There remains a market for CDs, as they still offer a much higher quality of music (for the moment) and a tangible product that fans will buy. But the situation is rapidly changing.

It has taken Apple, with its new iTunes Music Store, to provide the first customer-friendly means of digital music delivery. An outsider to the music industry (albeit one used by a vast majority of music creators and artists), Apple has modified its popular iTunes software to include a window where people can search for, and purchase over 450,000 songs for $US0.99 each. It’s simple, one click and you’ve got the song for $US0.99. It is then possible to share any purchased song with three different computers, download it onto an iPod or burn it to CD. Seemingly this was too much to ask of record companies, who attempted to create online music sales through competing companies, Pressplay and Musicnet. Both proved cumbersome and difficult. Users paid a monthly subscription and were allowed to download a fixed number of songs which they could then access on just one computer, and only for as long they continued paying their subscription. To BMG’s credit, they dared to invest in Napster, hoping it would somehow evolve a viable user-pays model, however this never eventuated and Napster went broke.

In the end, most record companies chose to obstruct the technology rather than adopt and adapt it, bringing us to the current situation of record companies spending millions chasing individual university students. This is not to say that those record companies will necessarily be obsolete in the download world. What might the record company of the future look like? They are valuable sources of A&R (Artist and Repertoire) expertise. A&R personnel find, develop, invest in and refine the image and releases of the raw talent they have discovered in the hope that the outcome will be the creation of great content. The promotion and marketing of this same act is also extremely important in a mass-appeal market. However, the record company should not hold a monopoly on marketing and promotion. Instead, like the rest of the corporate world, each act would be outsourced to specialised marketing and promotion companies which understand the subtleties of each culture and subculture and try to “control” less and “cultivate” more. With lower overheads and better returns on acts, it opens potential for longer life cycles for the bands, and with this a further opportunity to create a true fan base at an international level.

This modular approach of providing A&R, that is continuing to invest in the image, songs and outcome of the musical product, while outsourcing marketing and promotion, would take the role of the music company away from the all-service company, to one responsible for just one or two links in the value chain. Whether by accident or design, Festival Mushroom Records has been the only major Australian record label so far to move towards this model. By enhancing its core competencies in control and development of the copyrights of particular acts, they change their focus to “the good old days” of investing in quality acts and spending time developing them.

Artists under the new model will be able to distribute and market their music within a modular and flexible market, whether purely through MP3 (where cost of sales is virtually zero, allowing for greater returns on lesser sales for a breaking act, for example, Little Birdy’s new release) or investing in production of CDs (for larger, older or deceased acts who are not catering to savvy fans, such as Elvis Presley) or, in a majority of cases, a hybrid of the two formats, MP3 and CD.

Whatever the outcome, these will prove very interesting times for the music industry. Structural problems can be disguised as competitive pressure from computer games and DVD sales or continue to be blamed on “downloads and piracy”, but some of the major players are yet to react to, or even admit to, the real problems facing the industry. While it may be a few years before we see an act independently break by selling digital music over the internet, unless the music companies find a means of focusing their role in “filtering” good acts and creatively developing great content, as opposed to limited distribution networks, it seems they will be left behind.