As Spotify launched their iPhone app, the crowd cheered. The talented SEO-expert (and comedian) Simon Sundén publishes the follwing graph of Spotify Premium sales that went viral amongst us nerds. Half us us thought is was true, and who knows, it may be.
But even if this graphic joke isn’t true, it illustrates something quiet scary. Something scary that starts with an “M”.
Let me tell you a story to explain:
Chapter 1 – The Music Industry
Think for a minute about how the music industry works. This is an industry that has built it’s entire business model around their monopoly on information distribution. Largely, the monopoly has been built on the control over distribution of plastic circles. In recent years, as silver became the new black in the plastic circles industry, the information started to find other ways of distributing itself over the internet, and the monopoly of distribution started to break down.
Desperately, the record industry tried everything to stop these new an superior modes of information distribution by trying to sabotage them with destructive and inefficient “inventions” like DRM. When that didn’t work (because Darwinistic innovation always gravitates towards the efficient), they cried foul, and tried to persuade their friends “in Washington” to legislate and punish anyone who had the audacity to use these new and efficient modes of distribution instead of using theirs.
Why so desperate, you may ask? Well – this was all they knew. It was not them, but the musicians who created the music. What they, the record industry, had to offer was marketing and distribution. And when their monopolized mode of distribution was suddenly outdated, and marketing was suddenly taken over by the music itself, it’s own viral distribution, communities like MySpace, and crowdsourced services like LastFM, the music industry was suddenly cut out of the loop, unable to provide value. And like the dinosaurs before them, their fate looked sealed.
Chapter 2 – The Innovators
But the file sharing systems, though hugely more efficient than the plastic circles, was not perfect. Billions of redundant copies of the information had to be kept on harddrives where you wanted to access the music, sharing the music meant sending over entire files, and meta-information was incongruent. Instead, thought a group of innovative individuals, one would like to take the route of the semantic web and have ONLY ONE instance of every file, with congruent meta data, stored in ONE place so that we could share it by only sending links pointing to the specific files. Then each of us could have access to all information and create a hugely efficient market for sifting out the very best. A more efficient model to be sure, and as we know, Darwinistic innovation always gravitates towards the efficient. The group of geniuses created and productified this new and superior mode of distribution. And they named it – Spotify.
Chapter 3 – The Cartel
And here, the music industry saw it’s chance. In one of the weekly meetings of The Cartel, the organisation they had set up together “to act for the common welfare of artists everywhere”, one executive stood up and said – “we can’t stop every single individual on the internet, but we can stop one company! We can threaten to destroy their new value, and claim part of it as ransom! We can regain our distribution monopoly by using their own value against them! But we have to act quickly! If more inventive companies emerge and compete, like Chilirec for instance, we will loose this last chance for survival of our kind. Sure, Chilirec will try to sue us, in fact, they already did, but that’s no match for our lawyers. We have our own people in the courts”.
One young assistant’s assistant, who had observed them in silence from the end of the table, mumbled quietly “but what value will we contribute? How will we make things more efficient? Will this not stifle competition and put an end to innovation?”? BE QUIET! Roared an executive at the end of the table. THEY NEED US! THEY WILL SUBMIT OR BE DESTROYED!
Said and done. The Cartel cheered and applauded. “If we all agree to let Spotify use our music, and let Chilirec use none, we can cut any deal we want. They have no chance to do this without us. We can use their new invention to return to the times of the distribution monopoly! We can be rich! Maybe we can even keep all new releases within Spotify and NEVER NEVER NEVER release the files to anyone else! Trying to hack Spotify and batch down these files will be easy enough to stop! We couldn’t control the data on the plastic circles, but we CAN control the data on the Spotify servers! We can even demand to own part of Spotify“! The room went silent as his words resonated through the spines of The Cartel directors like a chilling wind. Own the only source of music… on the planet.
Epilogue
When Apple realized what hit them it was too late. A year earlier, soon after The Cartel’s spirited meeting, Apple had given away their last line of defense and allowed the Spotify client on their iPhone. As the power of the iTunes store faded away, Apple tried in a last attempt to launch their version of Spotify, called iTunes Unlimited. The service was impeccably polished, integrated into their brand new Wild Cat operating system, and could play songs while texting on the iPhone, something that the Spotify client couldn’t. But what was the use of all this if they had no music. Or at least, just enough music not to be able to compete with Spotify. The number of Spotify exclusive songs and artists soared and left the rest of the industry in rubble. A lot of people said that “we should have seen this coming when Spotify restricted the iPhone app to paying premium users”. But now it was to late. The war was over. They won.
At least until the rebels on the far moon of MySpace started their indie music rebellion. But that is a whole other story.
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So what you do say is that Spotify is Darth Vader and will at last return to the good side of the force?
Interesting post BTW
The other way around actually. Before becoming Darth Vader, Anakin Skywalker was a promising young Jedi. Eventually however, Anakin draws the attention of the dark forces and turns to the dark side when he is recruited by the evil emperor to join The Empire. Anakin now becomes the evil Sith lord Darth Vader and is part of the destruction of all musicians in the universe. See the analogy?
Not sure how far to push this analogy, but in case we want to push it further, our hope now stands to the offspring of Spotify (through the open API) to amass a rebellion and save the universe.
Funny how the Stockholm Globe Arena has certain similarities to The Deathstar too.
I think we’ll see an artists’ union emerging as artists realize this problem and inefficiency. It will only take a few years, but the new artists that break through today already understand this. Once they are in a vocal majority they will be able to influence the artists directly, and thus even encourage alternative services that are less evil.
It is of course easy to imagine, and in fact there are already companies (I won’t use the word label) that provide the exact business model you recommend – music as promotion for experiences or tangible things. The young artists of today will understand this and it will grow as some sort of indie/underground movement, which is by the way the exact way that every new genre appeared: independent and wild at first, commercialized later.
All of this of course is implying that Spotify will do evil, which they like Google have yet to do. Personally, I think the deal offered by Spotify today is a fair one, but this might of course change – with great power comes great responsibility. But one of the benefits of the new digital world is that since barriers to entry are ridiculously low, it will be easy for someone better to come along and steal the users away. Just like Apple first got them, and then Spotify & co stole them away. It will be especially easy if you have the backing of the artists themselves.
You are absolutely right of course, except for two things:
1. Barriers of entry are very high since The Cartel are killing off every Spotify competitor as we speak by throttling their access to music. Chilirec is a clear example.
2. Spotify for iPhone requires you to buy a premium account. They could never have done that if they didn’t have the monopoly granted by The Cartel. This is abusive in my eyes.
Walter,
Ususally I think you´ve got some interesting things to say…but this..I don´t understand your point. What´s the problem? the industry finding new models good for them AND the consumer. You don´t have to pay if you don´t want to. The “free-service” is still good but the premium version is even better. Chilirec don´t want to pay for the content as Spotify do. They´re just another parasite. You can choose to publish your free content on myspace or any of those shitty sites where you don´t find anything unless you´re a geek spending hours in front of the computer. Spotify is a thing that MIGHT be good for all stakeholders. If they start making money in different ways co-operating with the business I don´t see a problem. Why shouldn´t the business protect their assets? Now thay found a way making it easier for everyone.
Depending on the premises you start with you can end up with different conclusions. My premises are that record labels are in the business of marketing and distribution and that musicians are in the business of music. The record labels are no longer adding value for anyone and their role is therefore obsolete. Musicians are adding value, and their role is therefore not obsolete. Record labels claim rights to the musician’s value, even though they don’t add any value themselves in the paradigm of digital distribution. Spotify is adding value by hosting and distributing music in a more efficient way. Therefore Spotify is good. But extend your thinking into the future scenario, and you’ll see this:
Companies always make money off of temporary monopolies. What always happens is that other people, let’s call them Hitify, also want to make money and claim a part of this temporary monopoly. To do so, Hitify invent an even better service to take market share from Spotify. And this is exactly what’s so awesome about a free market and competition. We move towards increasing efficiency, less waste and better services for everybody. The musicians (who are adding value to the loop) also get more efficient marketing and distribution this way since music distribution and viral marketing becomes more efficient and less wasteful. Great musicians have nothing to gain from inefficient distribution and marketing. Quite the opposite.
So what if someone who is not adding value has the option to strangle this free market competition? Like, say, record labels who’s only “contribution” to the loop is that they can keep music away from listeners and potential fans by granting rights to “their” music to just one service? Then there is nobody who can challenge Spotify with a better service, and thus, Spotify don’t have to improve one bit. They will have the monopoly anyway, granted to them by the state… sorry… The Cartel. This is destructive for everybody, except those who claim value without contributing any – the record labels. I saw you using the word “parasite” above, and this is where you find the true parasites. (Chilirec is adding value by providing free distribution and marketing to musicians).
And it is exactly for this reason – to keep people from destroying productive competition – that we have legislation against this type of anti-competitive behavior in all free market countries. In other words, creating a cartel like the record labels have done is not only destructive, but also illegal. Chilirec have rightfully sued them over precisely this, and I hope for all of us that they win so that Spotify gets some healthy competition. We will all benefit from this, Spotify included. Even the people at the record labels will actually be better off since they can now move on to some productive activity where they can start creating value again. Parasites cannot be happy.
it's != its
/grammarnazi
Or better yet – “their”!
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