6 Roadblocks to the Digital Future

It is sure not the consumer getting in the way of the coming digital content revolution.

Consumers are gobbling up Apple products, Android phones and all types of digital content as fast as they come to market.

It is more than significant that outstanding content producers are struggling to make new media pay off for them. Apple has found a way – make the cool products that consumers will scarf up even in a prolonged recession.

But Verizon hasn’t come up with a good idea nor have the other cell phone operators beyond what they fell into which was text messaging at $20 per month. And who can live without text messaging?

The digital future is more than texting, apps and iTunes.

Apple isn’t even going to go there. Steve Jobs is smarter than that. Apple will continue coming up with the products and infrastructure and will charge content providers a distribution fee. And while some publishers have complained about Apple getting 30% of their subscription take, there has always been a distribution fee.

Radio stations have to maintain towers and transmitters and engineers (except at consolidated stations where they’ve fired most of them). Newspapers have printing presses. TV isn’t cheap to produce – production takes people and costs money.

For content providers, then, new media companies and traditional ones like publishers, radio, television, music and even film – there are some significant roadblocks in the way.

1. Royalties

Unless and until the record labels work out a fair compensation structure for the use of their music, there isn’t going to be a digital revolution in content. The labels remain under the mistaken belief that they can get away with forcing content providers such as Pandora to pay draconian royalties, but as long as they persist they are actually hurting themselves.

Once resolved, I can see radio and TV personalities using the iPad as their “transmitter” as they fully integrate music into what previously might have wound up on the airwaves. The sooner a deal that is better than streaming media has happens, the sooner we can get on with the digital revolution and in fact the labels can prosper. (I'm going to spend some time on this at my upcoming Media Solutions Lab).

2. Pay vs Free

Get used to paying for Internet content because as paywalls get erected, content that is unique, compelling and addictive will be an option for consumers. There will always be free. And I expect a lot of traditional-minded media companies to offer clunky paywalls that will fail. Inside Music Media switches over to a paid subscription model probably this week if final testing goes well.

Did you hear what Apple may be doing?

Offering a new subscription plan to newspapers that also see the iPad as the future printed newspaper replacement.

The speculation is that Apple will take its customary 30% fee for delivery and a whopping 40% share of all advertising from the publisher’s apps. And yes, Apple will relent and share its readership data with partnering newspapers. For that price, why not? If you’d like to read more about the Apple speculation, click here.

3. Failure to see that all digital must be built around social networking

This is a huge mistake. Simply aggregating good content, slick pictures, video and marketing savvy sites is no longer enough. We used to call that building a website.

Today, content providers must start with a social network and super serve that network of supporters who will want to talk to them and each other. It’s a different mindset. If it isn’t optimized for an iPad – of which 21 million more are expected to be sold to consumers in the year ahead – then it’s just a website and websites are out. That’s my prediction.

4. Monetization

I am often reminded of the late management guru Peter Drucker telling one of my media conferences before his death that the Internet will be successful – in 30 years! Why so long? Now we’re beginning to see why Drucker was the modern management genius he was. There must be an adequate way to monetize the Internet.

Porn sites found a way before Google sold search ads. There are web ads everywhere these days with success defined as one or two percent of viewers actually clicking on them to connect to the advertiser’s message – a low standard, indeed.

There are three ways to monetize the Internet right now. Ads. Paid subscriptions. And event marketing -- one of my favorite because few know how to do it and yet it is perfect for social networking.

I can see bloggers holding live events that have sponsors once or twice a year so that they will be able to charge less or nothing for their content. Of course – and let’s say it together -- compelling, unique and addictive content is a must.

5. Lack of adequate WiFi and finite cellular bandwidth

Bandwidth is being gobbled up by consumers using apps on devices that are becoming hogs. A few providers are charging more for bandwidth and if that continues you’ll see a slowdown of the digital content revolution we are all expecting.

WiFi must be universally available in a car, almost everywhere. The spectrum to make that happen may be coming available, but without "everywhere WiFi" and tons of available bandwidth from cell carriers, the revolution remains stymied.

6. Misunderstanding the next generation

No matter how many times I say it, only Steve Jobs does it – take the lead from consumers developing products and/or services. In the past, media companies had a monopoly on delivery. In essence, they guessed or in some cases researched their way into business. It is scary how little billion dollar media companies actually know about consumers. They know what they think they know and that isn’t usually accurate. To the student of students, success will flow.

Often we assume the digital future as a given.

This morning, you see the challenges as well as opportunities that lie ahead to content companies looking to go there.

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NAB’s Phone-y FM Chip Diversion

Before this piece is over I will try to offer you some rational and strategic conclusions about the current National Association of Broadcasters plan to needlessly expose radio stations to $1 billion in added music royalties annually to settle with the RIAA.

I’m going to name names.

Delve into possible motivations for you to consider and then offer a prognosis for what is likely to happen.

First, an update.

Any legislative action on this issue is dead while Congress returns home to campaign for reelection.

What’s ironic is that what the radio industry is likely to observe after election day is a Congress more sympathetic to the interests of the radio industry. Of course you know that, right now, Congress is about split evenly between defending the interests of local radio and standing up for the music industry.

Here’s what is likely to unfold:

You see NAB CEO Gordon Smith stand up before the NAB Radio Show and champion FM chips for all cell phones. Now that’s a popular issue with radio execs. FM chips are already in many cell phones and would have to be unlocked.

But the Consumer Electronics Association is bandying around a new study that shows “most” consumers surveyed are not interested in having FM tuners in phones and 80% do not support a government mandate to force manufacturers to put these chips into mobile devices.

I’d say the CEA got their money’s worth out of their own study. However, I’d prefer to use mine.

Look around.

See which young (or increasingly older) mobile device user is craving an FM chip in their mobile phone. Where some carriers offer it, it is not making a big splash. Where Apple features it on the Nano – the earth has not moved.

Can it hurt radio to have an FM chip on mobile devices?

Probably not.

Will it make even a small difference in radio listening?

Not likely – for all the reasons we discuss in this space not the least of which consumers use their phones differently than a Walkman and have different attention spans than portable radio carriers of the past.

And I’m not even mentioning the tremendous tide of repeater radio, syndicated and voiced tracked non-local programming. I guess I just did.

But the NAB under one of the most dangerous CEOs it has ever had – former Senator Gordon Smith – has retreated from his public insistence that radio had better make a deal with the record industry before the evil CRB gets involved.

That went over like a lead balloon with radio people – the vast majority of whom are against the extra royalty tax even if they can’t find one leader with the balls to stand up for them and lead the fight.

The NAB knows this.

Sly Smith is going to deliver a favor to his old buddy, Senator Orrin Hatch, because in my opinion Smith has more loyalty to Hatch than he has to a radio industry he hardly knows and certainly doesn’t understand.

Sly Smith is an able opponent.

That in and of itself says a lot. Your NAB CEO is radio’s opponent.

What’s up with that?

Thus, the talk you are hearing and reading about to divert attention away from this unpopular maneuver to settle with the music industry on radio’s dime by waving the FM digital chip flag.

Radio broadcasters are desperate for help to get into new media. They erroneously think streaming music on a cell phone is the way. The NAB is fueling that desperation. This guy Smith is good – at politics.

Gordon Smith is playing the FM chip card to divert attention to what he and the NAB are really going to do.

Here are my predictions – and they are in print and available until the end of time over the Internet. I’ll stand up. Hold me accountable. So let’s see if I am reading the politics and strategy right.

1. The FM chip issue will get nowhere in spite of the rah-rah talk by Smith and the NAB at their convention.

2. The move will be on to make a deal even as Congress leans more in the direction of radio’s interests after the November election.

3. No radio leader will step up to rally the industry’s interests – they are all weak. Advantage: Interloper Smith.

4. The NAB will cloak a vote on this issue with their executive board as being democratic by asking their "duly" elected representatives to poll their constituents. The NAB will never allow a direct vote by all radio owners using a third party accounting firm (NAB represents only 50% of America's radio stations) because the issue of more royalty taxes will overwhelmingly lose with radio people.

5. Cumulus, Clear Channel, Citadel and the other not too helpful owners will suck it up and support their man Smith. These highly leveraged companies can simply throw it on top of the other expenses that they routinely take on such as Farid Suleman’s new digs in a high-end Miami office building – even as he is squeezing the last penny out of employees and firing talented people.

6. The NAB will purport that the people’s will shall be done and that the radio industry wants to make peace with the record labels and then you can start looking to pay your share of the $1 billion. Did I say $1 billion? Read on.

7. $1 billion will go up to $2 billion and beyond once the cat is out of the bag. Bank on it.

The NAB has turned on its own before – successfully.

At the last minute, they helped attach a provision of the Telecommunications Act of 1996 which was aimed primarily to regulate the phone business. That add-on that even very aware radio people didn't see coming was the legislation to make radio consolidation happen. You see where that got us.

So, I call out the NAB for being the Benedict Arnold's that they are even if they like to hold warm and fuzzy radio conventions and rally the troops around patriotism, motherhood and FM chips in phones.

And I say this sadly but with all due respect – I really do – the radio industry has only itself to blame for allowing the NAB to hijack their future (again) without even a whimper of opposition from any radio executive resembling a leader.

Shameful.

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The Next Generation of Listeners

I recently heard former Governor Howard Dean analyze the present political atmosphere as the establishment’s last stand.

Politics is politics and I’m going to try to put that aside in looking at something he went on to say that rings true if applied to the media business.

Dean, a Democrat and former presidential candidate, was criticizing his arch rivals the Republicans and the Tea Party movement. Again, not looking to get involved in all that for this purpose, he went on to say that the next generation would reject any attempts to restrict gay rights or attempts to impede immigration.

These are certainly two super charged issues and Dean’s comments reminded me of working with college students at USC.

We often look at the world through our own eyes and experiences. Radio people think there will always be 24/7 radio and record labels apparently think they can get the same high profits for selling music that they once earned for selling vinyl or CDs.

The generation that is now coming of age – Generation Y – is reshaping everything. It is strong in numbers at about 70 million and the last Gen Y’er has already been born but hasn’t made it to college yet.

If you’re looking for a political fight, you’re not going to get it here. My mother, a Democratic ward worker in her day, always reminded us that you’re not likely to talk anyone out of their political beliefs.

But there are some things worth considering about the next generation as it pertains to media.

1. They, indeed, have more open attitudes about immigration because they have likely embraced immigrants who are their friends in person and on Facebook. As a professor I can tell you that college students care very little about racial divides that talk radio obsesses over. They see the world in one color of humanity – a characteristic of which we parents should be very proud.

2. Sexual preferences are personal decisions that are openly supported in large part by this generation. Of course, there are exceptions. There is more lesbianism on campuses, more gay relationships. Gen Y is just fine with this. Listen to their music which is the soundtrack of their lives and “I Kissed a Girl” is more than a song, it is a marker of change.

3. Number one and two above means that the kind of issues – political and societal – that are the fuel of talk radio stations will never compel the next generation to become a listener. Howard Stern, radio's famous shock jock, means nothing to Gen Y. If they want shock, they’ll kiss a girl or dress like Lady Gaga or be Rihanna. This is fundamental to content providers who want to find the next way to engage an audience. Politics, intolerance that surrounds the immigration issue and restricting sexual behavioral choices will likely not fly with them.

4. The listener of the future is also very civic-minded. I have said this many times and yet media executives make short shrift of it. The next generation cares what their stars, singers and friends are willing to do to help the environment, lend a hand to others and build a better sense of community. Look no further than Facebook founder Mark Zuckerberg who gave $100 million in Facebook stock to the troubled Newark, NJ public school system after getting to know charismatic Mayor Cory Booker. As The New York Times put it, Zuckerberg has “no particular connection to Newark … But in July he and Mr. Booker met at a conference and began a continuing conversation about the mayor's plans for the city, according to people familiar with their relationship." The Harvard dropout did have a particular interest in civic issues.

The point being that understanding our own business is not going to be as critical in the emerging digital media world as being an expert at understanding the changing consumer.

To do so would mean adapting to their interests which are polar opposite from older talk radio listeners.

Extend this further and any station playing music is competing (poorly) with an iPod unless it provides live and local people that can relate to Gen Y the way baby boomers and their parents were able to relate to radio, TV and journalism people.

Steve Jobs – who took one college semester before dropping out – is the gold standard as far as I am concerned for understanding the next generation. He’s a complex man and no personal role model other than to see how he has built at least three businesses (including Apple twice) by having a better understanding of the youth market than any one else.

Jobs may have this ability in his DNA.

I am suggesting that the rest of us can acquire it by more keenly observing this revolutionary new market than only channeling the views and policies that worked before 2000.

Success in the growing mobile Internet is directly proportional to how willing we are to see it through the eyes of a young generation that has singlehandedly redefined much of society through social media and the Internet.

Former House Speaker Tip O’Neill is famous for saying “all politics is local”.

To adapt that memorable phrase to a media industry on the verge of monumental change, “all media is live and local” and must reflect the social, political and civic differences of the next 70 million listeners and viewers now coming of age.

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The New Listener’s Hierarchy of Needs

In psychology there is a theory called Maslow’s hierarchy of needs.

Abraham Maslow’s 1943 paper A Theory of Human Motivation identified self-actualization, esteem, love and belonging, safety needs, physiological needs.

As today’s consumer morphs and technology spurs alterations in their behavior, it has occurred to me that the media needs of humans has not only changed but their needs and priorities are changing – important for content creators and marketers who want to follow them to the digital Promised Land.

It’s fair to say in the past -- say 1960’s and 1970’s – a consumer's media need primarily included radio and television. To have a radio to be connected to their rock and roll music and news and information. And then a TV to enjoy arts and entertainment as it developed in color.

Even in the 1960’s reading a newspaper was optional compared to, say, the 1940’s when consumers bought newspapers on the street corner to read “Extra” editions to learn about the latest war news. It’s debatable whether radio or TV would be first on the 1960/1970 hierarchy of needs list but suffice it to say they were interchangeable.

I thought you’d enjoy my view of today’s consumer’s hierarchy of needs in light of the digital revolution, new media, the Internet, filesharing, social networking and the like. Keep in mind I am observing the next generation because at 70 million strong and coming of age this is a bellwether group.

So here are Del Colliano’s Hierarchy of Media Needs as of this moment:

1. Text Messaging

Take away any other device, any other connection to today’s world of communication and a Gen Y’er could probably survive. Take away their cell or smartphone with its ability to text message and you have created tremendous anxiety.

Interestingly, text messaging is not content creation such as radio formats or that magazine articles offer – it’s a way to stay connected. Moreover, I believe texting is a replacement for telephone conversations in this generation. Parents of Gen Y’ers please observe, wouldn't your children rather text you then call?

The voice call is a goner. Skype with video is a keeper. FaceTime, the new Apple iPhone feature makes mere voice calls seem like communicating by antiquated telegraph.

The customary mobile carrier texting charge of $20 is assumed and accepted by everyone even if their parents are paying the cell phone bill. In other words, without the ability to text, today’s consumer is anxious and disconnected from their peer groups. Mobile carriers fell into this one because they provide nothing but connectivity and the next generation does the rest.

Still, text messaging is your silent competitor.

2. Facebook

One could argue that Facebook trumps text messaging and I would be up for that debate, but to live without Facebook in the world today is like living on a desert island all alone. Facebook is simple and because everyone is on it, it provides a means for communication that is extraordinary.

Facebook is texting institutionalized.

Facebook also allows for the self-absorption that permeates our society today and in fact promotes it.

Example: by counting and displaying how many friends one has. In reality, I have only had a handful of best friends in my real life but lots of acquaintances in my virtual world. Yet by counting and displaying the number, it redefines what "friend" really means.

Also, sharing pictures is simply the modern way of showing someone else a picture album or making them sit through a slide show – a digital improvement to say the least.

Facebook defines Gen Y and even though its founders have opened it up to everyone on the planet (over 65’s are the biggest group of new Facebook accounts currently), Facebook is the pivotal communications point.

By the way, when you look at the percentage of membership to Facebook compared to say MySpace or others, number two is a very distant number two.

Social networking will define Gen Y – not the technology that enabled it.

3. Filesharing

Record labels don’t have to be ashamed that they had their ears pinned back by an entire generation that broke into the record store and stole their music.

Filesharing has helped quench Gen Y’s thirst for music discovery that was not being fed by music radio stations. You’ll remember short playlists have been a staple of radio program directors to get ratings. When you sell out the listener for the audience research company’s methodology to win ratings, you wind up with unhappy listeners.

Don’t look now but the radio industry is doing it again – pandering to People Meter drive-by ratings knowing full well that listeners can find plenty of music on their own online and at the iTunes store.

4. The iPod

Before Apple invented the iPod, portable MP3s were not a threat to the record industry or radio. Apple made them cool, portable and intuitive. Apple's iTunes store was where music lovers could buy legal music for a reasonable price – 99 cents. Now, iPods are loaded with all kinds of music from differing destinations.

They are a portable jukebox or to the next generation what a Walkman might have been to the rest of us. The big difference is an iPod user is in control of the playlist -- when the music plays, if it plays and for how long it plays.

And no commercials.

5. The Laptop and Internet

The base station for all the above needs reside on laptops and connectivity to the Internet. From there, websites will go mobile on iPads and other portable devices. The iPhone and android clones have become enablers of the needs described herein. Without a computer and the Internet, arguably the rest of today’s needs for Gen Y could not have developed.

Before we end, look at what did not make the new consumers Hierarchy of Needs list.

Radio – it hurts, but only in RADAR studies can you find tons of radio listeners. In the real world, they are casual listeners at best just as station owners have in fact become casual programmers cutting live and local programming for financial savings.

CDs/vinyl – the record or CD is dead. Music is alive. The labels don’t seem to know the difference. The need is not for CDs. It is for music discovery.

Print – No way. Gen Y and many of the rest of us have become as disinterested in print publications in direct proportion to how interested publishers are in cutting expenses and firing reporters.

Someday soon you may see iPads on the Hierarchy of Media Needs. It is the killer app. Wait until you see how many iPads Apple sells at holiday time and next year (Full disclosure: I am an Apple shareholder). Still, iPads are on everyone’s holiday gift list.

In the end, let’s not make this the last time we actually think about today’s consumer’s hierarchy of needs because understanding it allows our creativity to be inspired and energized to meet them.

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Consumers Now Spend 50% of Their Day With Media

In the 1950’s and 1960’s radio and television broadcasters and publishers could never imagine a public whose appetite for what they do would be so great that it consumed half of their waking hours.

Today we have evidence that the Internet, cell phones, Apple and social networking have created addicts out of people of all ages.

In fact, all of this growth in media consumption has happened within the last two years and far exceeds media demand for three decades prior.

There are hard cold facts to back it up.

A new Ipsos OTX study of 7,000 online consumers spanning a wide age range of between 13 and 74 confirms that among those surveyed people are now spending half of all their waking hours with media and have increased their media consumption by a whopping hour a day over the past two years.

To put that in perspective, they spend more time consuming media than working or sleeping.

What’s more, eliminate the 74 year olds from the study and focus on the younger demographics and the media consumption number would likely be over 50%.

I want to take a look at the ramifications for content providers, but first let’s just put the facts in perspective:

• 24% of those 7,000 surveyed own a web-enabled smartphone as cellphone ownership declines from 81% to 65% since last year. Obviously, you see why I have proclaimed this decade the decade of the mobile Internet. Consumers always show us the way if we will but observe their habits.

• TV, an industry that I warned is next to feel radio’s generational growing pains, is in big trouble. As of this writing, about 33% of primetime TV viewership takes place online. What’s worse is the TV industry thinks selling short ads is the answer and fails to understand what would make a more profitable subscription model work. Watching TV is now influenced by TiVo and DVRs as well as online video – an increase of 49% over last year.

• Social networking sites – the kind you and I have discussed here in this space every week – are driving the consumer appetite for all kinds of media. Traditional media execs have a hard time swallowing the concept that Facebook visits, game playing and even texting are their competitors.

One more thing.

This survey was conducted only a couple weeks into the start of the iPad era. One could probably assume that the iPad sales that ensued and the addiction that usually results will help create a nation of media zombies who are always connected and rarely engaged in what I call the analog world. This has serious sociological repercussions most of which Steve Jobs and media executives could care less about.

Light-emitting devices such as computer screens, cell phones and iPads disrupt sleep patterns which eventually lead to a decrease in melatonin that promotes healthful sleep and produces Serotonin that affects our moods. Antidepressants are often used to increase Serotonin in depressed individuals. How will such rabid media use affect society? I’m interested in this and if you are we’ll revisit the topic another time.

Back to the 50’s and 60’s.

Imagine if a radio program director back then could find a way to hook their listeners up to a transistor radio and have them communicate back and forth, never turn it off and have a direct channel into their psyche.

That’s what we have today.

We thought that Clear Channel was the ultimate neurotransmitter and that network television was the medium civilization could not live without.

But not so anymore.

Our lives may have been changed more by Apple than any politician, mentor, teacher, role model or scientific advance because Apple makes the devices we crave and feeds the need for content through its iTunes store. Other electronics firms and cell carriers then follow and the trend proliferates.

So let me lay it all out for media companies and future media entrepreneurs in content and music:

1. The new gold standard is 30 minutes -- if that. You’ll have to make your content ready to be interrupted or it will be discarded by a distracted consumer.

2. Someday soon, all content will be offered up in modules – short models (read number 1 above). Consumers will have to choose whether they want to hear a personality’s bits divided into options and then decide which ones to hear on-demand. It’s now about the sum of the parts – not the whole.

3. Commercials as we know them are dead. So are print and Internet ads, but don’t tell Google – a traditional media company if there was ever one disguised in new age concepts. Social networking will track down consumers so you had best work on that concept rather than broadcasting messages consumers will increasingly ignore. Pandora can reach you in Dover, Delaware on your mobile device.

4. Everything you do will have to contain video, audio and text.

We are moving to a world where there will be no more television, radio or publishing as we have known it.

The rules are changing.

The question is -- do you want to stay ahead of these rapid consumer changes or try to grow the status quo and put major media businesses in peril by the time next year's statistics will become more compelling?

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The Future of Rock and Roll

Great, great piece in The Sunday New York Times Magazine a few weeks back by Rob Walker writing in the “Consumed” column where he asked the question, “Can the value of music reside in a lamp (or stickers or a sculpture)?"

Walker’s piece to me begs the question should artists get rich by selling stuff just because music sells stuff?

The author asserts that the future of rock and roll is merch.

If he is correct, the record labels are in big trouble because as Pogo says, “I have seen the enemy and it is us”.

The labels are adequate at best with merch and arguably leaving a lot of money on the table because they don't understand the new consumer and their devices.

Walker makes his case by pointing out:

“The Ramones sold more T-shirts than albums (and you can buy a T-shirt that says so). And box sets for superfans have become increasingly elaborate and pricey artlike objects. But merchandise is gaining momentum, and it’s not hard to imagine a time when a fan buys a sculpture, home décor item or other tangible good and gets the music as a kind of free soundtrack accompaniment”.

That according to the vice president of Sub Pop Records, the value of shirts, caps, key chains and other items may be worth more than the recorded songs themselves.

Nine Inch Nails is a group that is king of the expensive boxed sets, rap artists are coming out with clothing lines as quickly as they can, and Walker reveals that Stones Throw Records actually sells an espresso blend in the image of rapper Madlib.

There is jewelry (DJ Irie) and sex toys (Rammstein, the German metal band).

Don’t forget magnets, buttons, stickers and remember that Lady Gaga is skilled in all areas from singing, performing and product placement.

So Rob Walker concludes:

“In other words, the aura of music has been imbued in objects (and services, cruise lines, life insurance, etc.) for years. Artists know as well as anybody that music sells stuff, so why shouldn’t they sell the stuff too?”

If the future of rock and roll is merchandise, then only a handful of artists get rich and the rest struggle or continue to starve.

But then again, that’s how it has always been in popular music – the few get the maximum reward for their talents and the rest get teased to continue seeking their dream.

If we continue to judge music by platinum “records” that do not even exist in reality and by a few cash-savvy entrepreneurs, then the music industry is indeed doomed.

I see it another way.

The value of music to the consumer is about the cost of one single text message.

I can prove it with a little help from the labels. Price all your music at 5 cents and consumers will have no downside to paying for almost everything they sample. You'll get rich on volume if you could get over the 5 cent part.

There would be no downside.

No reason for piracy to exist although peer filesharing would and must continue because free tasting is as old as marketing itself – a good thing.

The dream of many rock and roll artists that is in reality achieved by only a few is exactly what is wrong with the music industry and has been for decades (unless of course, you’re one of the few who makes it big).

In the age of the Internet, mobile access, filesharing – and even in the absence of affordable 5 cent tunes – everyone again has a chance to be judged on his, her or their talent.

If Michelangelo painted the Sistine Chapel for merchandise opportunities or on the needle in a haystack hope that he would get wealthy beyond his dreams, then civilization would not have enjoyed his work of beauty for all the many decades it has survived.

So, don’t look to how to continue the paradigm of the music – that you wish to make it big in order to make your music.

Indeed, it’s the other way around – and the digital world we live in is finally going to help correct the inequity.

Yes, a few artists will always find a way to merchandise themselves into riches, but now the playing field is level and everyone has access to the music loving consumer.

The labels no longer dictate who gets that chance.

Radio does influence which three new artists get their chance to get airplay every week when a new playlist is drawn up. But radio is less critical than ever to popular music. Certainly not what it was just ten years ago before the digital revolution.

iPod-toting consumers are in the process of taking back popular music and to look to the old model of fat cats making artists wealthy beyond their dreams is as old as the notion that young people wait for Tuesday to hear those three new songs a hit radio station adds to their playlists.

To paraphrase the Danny and the Juniors song of the 1950’s – Rock and roll is here to stay, it will never die. It was meant to be that way – though we now know why.

The artists.

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RIAA to Radio: $100 million now, $2 billion in 10 Years

Mitch Bainwol, the Chairman and CEO of the RIAA, is out of touch with the NAB.

NAB CEO and former senator Gordon Smith is assuring the radio industry that if station owners settle their suit with the music industry now instead of fighting to keep radio free of additional royalty taxes, that the radio industry will only have to pay $100 million – only.

That the $100 million would be safely protected in a legislative statute and that the Brooklyn Bridge is also for sale.

However, Bainwol isn’t making it easier for Smith to schmooze his new constituents.

He shot off his mouth to a Nashville audience recently and I quote:

“Ten years from now we will have $2 billion in revenue from [radio] listening.”

To borrow a phrase from Agatha Christie's super sleuth Hercule Poirot, "Please to reread the last line".

Who do you want to believe?

Smith, who is disingenuous at best when he allows the labels to pick your pocket for $100 million a year.

Or Bainwol, who arrogantly and accurately knows exactly what he is talking about.

Recently, I wrote a piece about how Italian radio stations were bamboozled into going for the 1% royalty tax solution. Their initial deal expired with the labels who now want – you guessed it, 2% in new radio taxes.

That was fast!

There are many issues on the table, but the important ones are:

1. Record labels should pay radio for exposing their music for free.

2. In the alternative, radio stations should charge labels to play their music if a tax is imposed by the NAB and RIAA announcing the legal phrase that pays – “Paid for by Universal Music” after every song. When labels get airplay for free, they think the airtime is not worth anything. This will change all of that.

3. Consumers want to test music – that’s what music discovery is all about on the Internet. That’s why music will be free until the labels can price it for what the market will pay. I suggest that number is 5 or 10 cents a song – the cost of a text message – and make money by volume.

4. The NAB needs a radio woman or man as CEO – someone who knows how onerous paying even $100 million a year is to most medium and small operators -- who can’t do as large consolidators can easily do -- absorb the expense as part of more debt. To consolidators, $100 million here or there is nothing – that’s why so many have been bankrupt or in financial hot water.

5. Gordon Smith is a former senator who has more compassion for his dear friend Senator Orin Hatch than he has for the industry he supposedly serves. Hatch, a musician of sort and advocate for the music industry wants a deal and look who is coming to dinner – his new favorite lobby group headed by Smith. (Remember, the beer guy who ran the NAB off course. He preceded Smith. This is not brain surgery. Get a radio person to run the radio lobby).

6. The CRB as bad as it is, is not the bogeyman that the NAB says it is. True, the CRB imposed draconian royalties on streamers. Pandora pays 50 cents of every dollar for music royalty and that’s just not right. But for years the NAB has told its members that hundreds of Congressmen are on the side of local radio operators. Even came up with some cockamamie Local Radio Patriot Act title to win support. Now, were they lying? Did they lose the support of Congress for local radio? Or does Gordon Smith unilaterally (with the help of a small group of NAB board members) decide the future for the radio industry? Either way, Smith should be fired for selling radio out the first full year he was on the job.

7. Be suspicious – very suspicious – as to why the NAB is pushing this thing now when Congress is about to change hands in November arguably electing more representatives who would be more favorable to radio's concerns. Why now just before a critical election that will likely bring more support to radio's long held position that it should not pay this new music tax? I reiterate: can you say Gordon Smith loves Orin Hatch more than he does radio.

8. Piracy is the labels' issue – I’m not feeling sorry for them. Many young performers can’t even have a shot at making it in the music industry the way the labels run things. Piracy to the labels is free promotion to artists. Ask my friend, the credible record industry analysts Steve Meyer who hit it on the head in a recent newsletter: “The only thing that will reverse the downward trend is more albums by more artists that can sell multi-platinum quantities. More Eminems, more Taylor Swifts, more Lady GaGas, more Lady Antebellums, more Susan Boyles, more Justin Biebers, etc. Imagine how much worse album sales would be down if it weren't for those artists and others who sell in big quantities. It's obvious that people still buy a lot of music in big quantities when they find value in buying an album that has more than one or two good songs. It's also obvious they have no problem BUYING hit songs in huge quantities online either. Ask the Black-Eyed Peas who have sold more than six million downloads of "I Got A Feeling (Tonight's Gonna' Be A Good Night)"”.

To word it in a way a politician like Gordon Smith might understand:

“Gordon Smith, wrong about royalties, wrong about the CRB and wrong for radio”.

And in terms the rest of us would understand, there is Rudy’s Dan Devine pumping up his Notre Dame seniors before their last home game:

“Remember no one, and I mean no one, comes into our house and pushes us around."

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Where Is Apple’s Music Cloud?

Steve Jobs made a lot of product introductions this week.

He relaunched Apple TV. Refreshed the Nano line. Launched Ping for iTunes, a social network all about music. He’s on fire.

But the one thing you didn’t hear from the Zenmaster is news about the launch of Apple’s new cloud delivery system for iTunes.

In a recent chat with an Apple store employee, I talked about the cloud and said I can’t wait for Jobs to introduce it. As most of you have frequented the Apple store know, employees cannot discuss what Steve Jobs may or may not do. They’ll cut you right off and move on to another topic.

But this young person told me he would be surprised if Apple came out with the cloud now or anytime soon. I was taken aback until I heard his reasoning. Basically, until WiFi is everywhere seamlessly, launching cloud delivery of music content would have to depend on the inferior AT&T mobile network and therefore it would be a failure.

Let me be clear.

Steve Jobs did not buy Lala and close it down to waste upwards of $75 million. Apple bought Lala to get at its cloud technology. Believe me, the day will come when Steve Jobs will stand up in his jeans and mock turtleneck and announce that the cloud has arrived.

But not now.

Traditional thinking is that the record labels are holding the announcement up because they are unwilling to adjust music license agreements already in place with Apple. I’m not so sure. I am certain that the labels don’t get it, but that doesn't mean Jobs cannot legally launch the cloud under the existing agreements. The cloud will allow iTunes users to access their music and more from anywhere without having to do a time wasting download.

What is fascinating to watch is that Apple can do almost anything – except Apple TV, it seems – and succeed because it has won the faith of consumers who are more tuned in to a Steve Jobs sales pitch than the president of the United States speaking from the Oval Office.

This creates quite a problem for streaming media companies like Last.FM or even wannabe subscription plans like Spotify. Ironically, consumers seem to reject Rhapsody and other paid all-you-can-eat streaming services so why could Apple be the one to pull it off?

Some 160 million iTunes customers who have signed up and frequent the music site are at the ready for anything Apple does. And as I previously mentioned, there is a lot of goodwill between Apple and their customers which makes new product introductions have an air of credibility from the start.

What fascinates me is that Rhapsody and Spotify deliver everything in recorded music to subscribers for a monthly fee but Spotfy hasn’t really launched here and Rhapsody is experiencing declining subscription numbers. Even Rdio, the most recent hopeless case in paid music streaming, has launched to a thud.

That would lead a reasonable person to conclude that in the world of the mobile Internet there is free and nothing else.

That appears to be true. Consumers do not want additional monthly fees to saddle them. Why not free music because it is so easy to steal.

But Apple might do what Rhapsody, Spotify and Rdio have not been able to do – get consumers to pay for access to the cloud.

Yes, Apple starts with 160 million prospects.

And, who wouldn’t like to hear their iTunes library anywhere instantly from the cloud?

True, Apple customers are used to paying a reasonable fee for all services Apple. This would be another service and if priced right could succeed.

While free is easy, using Apple’s paid intuitive interface is easier.

Apple could get consumers to do what they have thus far refused to do for any other streaming subscription service.

There is no competing with a company with that many prospects. If Apple made it cool as well as easy, the chances for success would increase.

Apple is in a very good place.

They are working behind the scenes on a cloud approach to delivering iTunes stored content to consumers, but Apple almost always does not do what it cannot deliver. That would be suicidal.

The coolest rock star of all, Steve Jobs, is really an old time salesman.

He knows that to do repeat business you have to win the confidence of your customers. Solve their problems. Make things right. Make them believe everything you offer is the latest and greatest.

Apple more often that not exceeds its customers expectations because it does not introduce products that are not yet ready for prime time.

Such is the case with the game changing cloud availability of music through Apple’s growing and dominant online music store.

But when the day arrives, Apple's customers will have already said yes a thousand times in their own minds.

It reminds me of the master sales trainer Tom Hopkins who taught that when a prospect asks, “do you have it red?” to not answer right away but to say, “would you like it in red?”. Hopkins goes on and advises that if you get a “yes” on that, don’t just break out the red whatever, but say, “Let me make a note of that”.

Building up desire is part of closing the sale.

When it comes to cloud computing, Steve Jobs is always busily at work building up desire for what surely will be a music revolution.

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How Italian Radio Fights Royalty Taxes

The other day when I was writing about the NAB plan to surrender to the music industry over a radio tax, one of my readers wrote to tell me about what is going on in Italy in a similar situation.

I thought you might be interested.

It might also serve as an example of how the U.S. radio industry can stand up to the RIAA that has suddenly crawled into bed with your very own NAB.

Mark my words, a handful of “elected” NAB board members are going to saddle the radio industry with $100 million in new royalty taxes after employing a fear campaign that is, sadly, being led by Gordon Smith, NAB’s ex-senator and soon to be ex-NAB chief if that royalty tax goes through.

Over the past few months hardly any new music from Italian artists has been played on Italian radio stations.

WHAT?

I know we Italians can be stubborn.

But the principled (now that's a better word for stubborn) Italian stations are shutting the new artists off the airwaves to protest the exorbitant rights fees that the labels are asking radio stations to pay.

Sound familiar?

The tax part -- not the station reaction to the tax.

I am told by a source:

“From what I understand a rights fee has been in place to labels but the agreement ended in'06 and no new agreement could be reached. Here is where it gets interesting: The Italian labels that are subsidiaries of global labels have had their International label counterparts not allow Italian Radio to play any music or to interview international artists, including all of the International artists touring in Italy.

“So when Train was recently in Rome they were told during the interview by the station talent (who is bilingual) that they were not allowed to play their latest single because the label prohibited them in retaliation for their protest to rights fees, so Italy has not heard their new song.

“The Italian label PR guy went berserk that the talent shared the label ban on playing any new international artists. So the band said if you can't play our songs we'll give you the OK to play us singing the song live...Gotta love the labels that are holding artists hostage to radio stations without the artist knowing about it...”

Our NAB is playing with tempest in a teapot with fear mongering that the CRB will come get them and that the industry is wasting its money fighting this futile fight. Wasn’t it the NAB that reassured its members for years that it had everything under control and Congress was on their side?

This is not a retreat. It's a surrender.

So in Italy the entire local radio market has ground to a halt when it comes to breaking new artists while negotiations get nasty between the sides.

Contrast this to Benedict Arnold Smith, a radio outsider at best, asking a “town meeting” last week how long does radio want to spend its money fighting the music industry when it can pay a real low, low price like $100 million to settle?

To Smith apparently all of a sudden fighting against the royalty is no longer cost-efficient. That may work for an ex-senator with no radio background, but owners know better.

Now look closely at the Italian situation where that danged 1% solution that Smith is throwing around has come back to burn radio stations. Once the Italian stations gave in to 1% -- guess what? Now the labels want 2%. Funny about that since the NAB sweeps that possibility under the rug.

Both sides in the Italian dispute had an agreement where the stations paid the same 1% of their revenue that NAB CEO Smith wants you to pay to the collecting society representing labels and recording artists. That deal expired in 2006 and since then the Italians have stepped up the fight and turned off access to their stations.

After all, radio is promoting music acts for free and breaking new ones. Why should radio be taxed beyond the publishing fees they already pay?

In spite of what the NAB says about their new best buddies, the RIAA, that 1% tax is now going to 2% if the labels in Italy get their way.

The Italian stations laid down “a claim” disclosing the record labels to claim no royalties at all on new releases that are sent to stations as promos. The outraged labels then decided to cut off their noses to spite their faces by not putting out any new releases.

I guess the lesson is you never want to get an Italian mad. Read this account of how the radio stations there are fighting for what is right.

EMI calls it all blackmail.

Call it what you like but there are a lot of lessons for American radio stations here.

1. Don’t let the NAB negotiate this deal. Gordon Smith appears to be buddying up to his old senate pals who support additional music taxes. To a man who has never run a radio station his NAB is playing with the house’s money – your house!

2. Radio really does have the upper hand. Don’t play their music and the labels cannot survive. This issue goes away that quickly.

3. Not one – not even one -- radio CEO is standing up in public to challenge the NAB or to lead his or her brethren to resist the screwing they are about to get.

It is so obvious that radio doesn’t deserve this tax.

Doesn’t deserve to be sold out by the NAB and the ex-senator running it.

But it is happening because until this moment no one is willing to lead.

Sound familiar?

That’s how consolidation took root.

So I ask – is there one radio exec out there willing to stand up and fight like the Italians?

One?

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Music Second, Pay First

Sooner rather than later, terrestrial radio stations will be paying what I call the NAB Tax – that special new fee for being allowed to help record labels expose their music for free while they make all the money.

We can cry about it if we want, but a royalty tax is coming to a radio station near you thanks to NAB.

Big consolidators can absorb the cost and write it off as debt, but mid-to-smaller operators are going to feel it on their bottom lines – certainly 5-10% erosion of profits in some cases.

As irked as radio people get when the labels come after them for fees, they also roll over and play dead when it comes to getting tough on airplay.

I can’t imagine that radio stations will want to sit still for this botched initiative by the NAB and then go passively into the night exposing the record labels’ best product while being charged an additional tax for it.

Auto dealers make a profit when they sell cars. Retail clothing outlets earn a profit for that which they showcase, sell and in some cases even advertise.

Only in radio, will this raw deal exist. You help the labels make money and get to pay for it.

Well, I’m about to be sick (again). In the past I have hammered away at giving the labels a taste of their own medicine. Perhaps now, we’ll be committed to fighting fire with fire.

The Del Colliano Plan should be inspired by the name MusicFirst which is the group leading the very successful negotiating fight for the record labels.

So let’s call our radio plan, “Music Second, Pay First” – kind of catchy, don’t you think? Maybe we can make it hit home to our friends in the music business. Now that we have a name, let’s see if we can come up with a basis for our strategy. Feel free to add to this on our Facebook discussion today.

1. Radio will gladly play the necessary big hits for record labels at no cost to them. We choose which songs these will be and we’ll dump them after they hit peak popularity.

2. Young people are not as nostalgic for “recurrents”or “oldies” so once a hit is done, it will be as if it never existed (for the purpose of selling the labels’ catalog, that is). May I show you a rate card for additional airplay?

3. Radio stations will play no licensed new music the day that a terrestrial radio tax is actually imposed without receiving payment for the plays. Let’s see now. In streaming, the labels charge per listener per performance. I like that. Let’s do that. And let’s charge an extra fee for mentioning the name of the artist. Okay. Okay. I’m starting to sound like a greedy music industry executive.

4. Radio stations will begin to integrate music using their best instincts from artists who are not licensed and who expressly give them permission to play their music for free. As long as they do, the stations can feel free to continue to air the music.

5. Start a Sunday night radio show devoted to all new music in your format’s genre. That is, with a real music authority and with interviews. No record label artists allowed even if they pay.

I’m just getting warmed up.

I started out writing this piece as a joke – you know to let off a little steam as I do from time to time when I feel outrage, but you know, it has kind of empowered me.

See, to their credit, radio people never thought like record execs – even when they were down and out (which many are). Radio could never have been serious about charging for airplay. Hell, we hardly got much legal paid advertising when the labels owed us more of that out of sheer gratitude.

And now that I have brought up the topic of gratitude – let’s put it out there. The labels have turned on radio to save their bacon. But ironically enough, whatever they extort from the radio industry in new fees will be offset by the many, many other poor decisions record industry execs have made over the past ten years.

They couldn’t see the importance of Napster.

Still don’t believe bullying consumers with lawsuits isn’t a deterrent to theft.

Wrong about paid monthly music services.

Ditto on getting ISPs to charge consumers for all the music they can eat.

And wrong about taxing radio to help them help themselves to profit.

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Hold Out for This Radio Royalty Plan

The recent dust up over the NAB’s negotiation with the RIAA over more music fees for terrestrial radio stations has caused a lot of concern in the industry.

The NAB argues that the radio industry is under Congressional mandate to come up with a settlement for radio stations with MusicFirst which represents the record labels.

You can understand the angst on the part of radio broadcasters who have driven the sales of music through free radio airplay for many decades. And it is not as if you can expect owners to go down easily because whatever fees they agree to are likely to go up. This can be done by future legislation.

What’s really eating a lot of broadcasters is that they have been assuaged into believing that the NAB had taken care of the forces in Congress pushing for a radio tax. I am told by a source close to the NAB that radio never had a royalty tax exemption. I was surprised to hear that. Perhaps you are, too.

As I have written recently, the NAB got a little ahead of itself, in my opinion, trying to float a trial balloon to the industry and press when they hastily called a board meeting to report on the negotiations that I am told took place some six months prior with the RIAA.

While the NAB points out that there is nothing inevitable about the proposed settlement, I firmly believe that a tax on terrestrial radio is now inevitable and the NAB did not do its job in protecting broadcasters. On the other hand, the music lobby earned its dues by more effectively winning the very Congressional support that is now forcing the radio industry to its knees.

What’s more, it appears radio broadcasters are going to be made to feel – by its own NAB – that the deal it is currently negotiating is the best solution totally ignoring the fact that they are actually negotiating a costly surrender.

Lew Dickey doesn’t care. He and Farid Suleman, John Hogan and the other greedy consolidators can simply leverage the extra expense into their next inevitable loan at whatever high interest rate they settle on.

No, the burden of the NAB’s failure to defend its industry against this outrageous tax is going to fall squarely on the shoulders of radio operators – the mid-sized, small and local types who are the only backbone radio has left.

When it became apparent the NAB was losing the fight, I suggested in this space that they might want to explore ways to negotiate a deal that would give radio very favorable digital fees going forward. But the deal the NAB recently floated is about getting out from under Congress in one piece.

No fight left.

Keep in mind the new NAB CEO Gordon Smith is a former US Senator.

In a 1998 issue of CounterPunch, a political website, this is how they implicated our new NAB CEO with Enron:

"In Oregon, Enron lavished contributions on the state's congressional delegation, supporting both Gordon Smith and Ron Wyden. Neither senator uttered a critical peep about the Texas takeover of Portland's electric utility".

In all fairness, Smith later attacked Enron when it became apparent that Enron was going down, but never returned the money.

I'm not saying Smith is sympathetic to the RIAA, but the reverse -- that he is insensitive to the needs of radio operators other than the handful of fat cats who have backed his royalty capitulation. Peter Smyth stuck his head out of his corner office to back the big guy -- see it here.

In the meantime, Smith and his small negotiating board have won you a radio chip if you really care (or at least help in getting one from manufacturers) to appease Emmis CEO Jeff Smulyan. It’s an awful idea on its face if you look at how consumers use mobile devices in this country. Nonetheless, politics are politics and the NAB is in Washington.

Another NAB sales point for this awful deal: The AFTRA issue goes away allowing local radio stations to play AFTRA commercials on its local streams.

Another questionable victory.

Radio should be creating separate commercials for online advertisers not crying over AFTRA rates. Make money not excuses.

The big talking point you’ll hear in the NAB spin is that jurisdiction would move away from the CRB which has made a mess of streaming royalty rates in a draconian and unfair fashion.

And, of course, the rate is at 1% -- to start – which is the lowest they could go to trigger reciprocity in Europe.

If you like that deal, go for it because 35 NAB board members are likely to decide the fate of the terrestrial radio industry – at least when it comes to another $100 million in expenses from radio's profits. One CEO told me the NAB is polling its regional members on the plan. That's how out of touch the NAB is. Inside Radio did a poll that showed 85% of radio people do not support it.

I rest my case.

But I think there is a better way and I have communicated it to the NAB negotiating board. If you like it, you may want to give them their instructions instead of the other way around.

I get that the NAB lost the battle and a new tax on radio in inevitable. Don't rush to do a deal. When the new Congress is seated, there should be more support for radio.

But if radio people want to pay royalties then at least get something meaningful in return for it.

My major points are:

1. Terrestrial rate of 1% guaranteed for ten years and then changeable only with Congressional action. However, this is not the year to punish radio with the NAB’s failure to protect their back. The 1% rate would have to start one year from the agreement date. Medium and small market stations are dealing with a recession.

2. A much better rate than the 10% reduction in the current streaming rate which was all the NAB could get which amounts to .0017% per listener per performance rising to .0025% at the end of five years. Not good enough. You want an agreement with terrestrial radio, then you’ll have to do better.

3. No agreement will be finalized unless or until all radio station owners get to vote by proxy through a third party accounting firm on whether they agree with it. This is too important an issue for 35 people and an ex-senator to decide.

The NAB pushed for radio consolidation by tacking on language in the 1996 Telecommunications Act, a bill not intended for the radio business. It was done with the NAB’s help in the dark of the night as this performance measure is being commandeered.

Fool me once, shame on you.

Fool me twice, shame on me.

RIAA wants a deal. Needs a deal -- now.

NAB's version of the radio industry is rolling over and playing dead.

Oh, and by the way, I favor a little Jersey negotiating which would come in handy here.

While MusicFirst plays strategic games, how about the NAB getting together a group of the best and brightest communications lawyers to come up with a legal plan to charge record labels for airplay on their new artists.

Give them a taste of how hardball is played before the game is over.

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A Record Label Against Performance Royalties

One of my former USC music industry students, Meredith Jung, sent me a quick note the other night to tell me that a Nashville start-up music label has come out squarely on the side of the radio industry in its fight against paying a music tax.

I thought you would appreciate the logic and clear thinking of this entrepreneur and hope that it will get everyone including the over anxious NAB to stand back and take a much needed time out.

The NAB for years has been selling soft soap about how the radio industry has nothing to worry about in the music industry's attempt to tax the very radio stations that give them free airplay and exposure for their new acts.

Then, all of a sudden with the hiring of a former United States senator (Gordon Smith) as NAB head and pressure from a handful of lawmakers on radio (not the labels), the NAB appears to be turning tail and running from this fight.

The NAB now says, in my view, never mind what we’ve been feeding you, we had better make a deal with the evil record labels before they send us to the big bad wolf (the CRB) and we lose control of what we’ll actually be paying.

While imposed rates are a possibility, I must tell you that I cannot find one person close to this situation who thinks radio needs to settle right now this minute. The NAB says all it is doing is floating a trial balloon, but even The New York Daily News a few days ago was making it sound like a deal is near.

This is curious because what gives the NAB the power to negotiate for an entire industry and then impose the new tax? It represents only 50% of all radio stations.

Second, the 1% additional that stations are supposed to be giving up to the greedy labels can easily be 5 or 10% of profits (that’s profits not revenue) at a time when profit is hard to come by.

One more quick point before I tell you about the record label that is on the side of radio broadcasters in this fight.

The record industry should pay radio – and I’m going to offer my plan for your inspection next week.

The Savannah Music Group is against its own trade association, the RIAA, the way radio should be against its own trade association on this matter, the NAB, arguing the proposed additional royalty tax that would force radio stations to pay performers and record labels would have unintended consequences for struggling artists – namely less chance of getting radio airplay.

Now, that record label is talking the way radio stations should be talking.

That’s what the NAB should be selling the RIAA in negotiations instead of treating the royalty tax like a health care compromise.

Independent and new artists could suffer from this tax thus making the benefits of a quick radio tax outweigh the risk of making it harder to break new acts.

Radio hasn’t been an easy place to get airplay over the past decades. The labels and program directors have kept the playlists tight. However, some stations may wind up augmenting their lists with non-licensed music and other measures that would make the labels rue the day they hit their brethren with this levy.

RIAA is anxious to get a deal done. Its constituents are in short pants. RIAA is leaning on Congress where it is fair to say it has done a better job than radio’s NAB rallying support. If I am wrong, then why is this sellout even being considered?

Especially now as fall elections will likely change the mix of lawmakers to perhaps a more favorable radio core of supporters.

Look at this quote in The Nashville Business Journal:

“It’s tough enough now to get songs on the radio as it is,” Savannah President Dave Gibson said. “We’re trying to get this company off the ground, and the smaller the playlists and the more stations that switch formats, makes it harder.”

Gibson wants an “opt-out” provision.

For record labels!

“Should a performance royalty be mandated by Congress, artists and labels must have the opportunity to opt out. If not, the major record labels win, and the songwriters and artists lose."

How about Dave Gibson for CEO of the NAB!

This guy makes sense and if this label exec can so effectively articulate yet another reason to give radio a break on royalties, why isn’t the NAB embracing him? March him up to testify before Congress. Think he may open a few eyes?

Instead, the fix is on to do a deal that radio will never live down.

The Internet didn’t kill radio.

Neither did Steve Jobs.

The NAB has done more to cause the mess that radio is in today than anyone else.

Consolidation – it helped tack it on the Telecommunications Act of 1996. Most radio executives never saw it coming.

And now, the gift that keeps on giving radio’s profits to greedy labels.

Lew Dickey can write this tax off as something else to finance and so can the other selfish radio groups among us.

But if the radio industry is smart – better rise up against your own trade association like Gibson is doing – the one selling you out while smart people everywhere from music industry students to independent label execs know that the music royalty tax for radio doesn’t just hurt radio but hurts everyone who isn’t a big four label.

If you want more of what consolidation brings you, sit and wait for a deal to be made.

If you want to take the decision away from Farid, Hogan, Dickey and the NAB, it’s time to not just sit there -- do something!

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What’s Killing the Concert Business

Billboard calls it the “Cruel Summer” because ticket sales are down and tour dates cancelled. It asks the question, “Can the concert business bounce back?”

Only a year earlier it looked like it was defying the economy providing the music industry with a rare glimmer of hope of late.

Billboard did a concert-goer survey again this year with the results unremarkable.

You know, concert-goers saying they hear about upcoming concerts from online/social network sites (63%) instead of radio (13%). Softball questions about how easy the ticket buying experience is (33% say easy and convenient, only 25% said a hassle but worth it). No tough questions about Ticketmaster and how much people dislike it.

That being said, the concert business is in real trouble.

The music industry is in bigger trouble and virtually everything music execs have done over the past ten years has backfired from suing consumers to stop pirating (it has actually increased every year) to seeking another music tax on the radio industry, the very people who made them rich for decades with free airplay.

Not to break anyone’s bubble, but radio programmers and savvy music people know that the universe available to attend live concerts has always been comparatively small. Even before Live Nation, the concert experience was a giant ripoff – the kind only a parent could support financially on a regular basis. The fees. The markup.

And in reality, the number of concert events even the most rabid fans attend is relatively small. In other words as big as the concert market has been in terms of dollars, it was that small when you factor in how few people out of the music loving population actually attend a live event.

Live Nation hasn’t made a consistent profit since it was purchased from Clear Channel, a consolidator that didn’t really know what it was doing when it bought into the concert business but sure knew when to get out. And the numbers are not paltry, Billboard claims last year Live Nation reported $2.5 billion in grosses – almost three times of closest competitor AEG and 41 million in attendance and 5,000 shows worldwide.

Nothing to sneeze at.

Yet, consolidation has failed another industry with two companies doing most of the visionary work and about all they can see is the traditional model – high fees to talent, large profits for themselves, too much reliance on a handful of superstars because the concert business doesn’t work without superstars. That, in and of itself, is a problem they don’t see.

If I hear Irving Azoff’s name one more time I’m going to be sick. Nothing personal, but can anyone think besides Irving? The concert business is an old man’s game and obviously long in the tooth. It could come back next year when the economy gets better but whether it will be a growth business again is what I question.

The music business is the same – same old white men. The concert business is down to a handful of old schoolers who are looking to the business they want to be instead of what consumers may want to support.

It’s business.

Not show.

It used to be show business – both.

The smartest dude in the world was Bob Sillerman who peddled SFX, the original Live Nation, to Clear Channel for about $4 billion so he could concentrate on Elvis. Has anyone ever noticed how fast and profitably Sillerman unloads companies that all have the “X” in the names?

Here’s what I think folks are missing.

The consumer has changed.

Just as in radio, print and even television traditional media folks do not understand that there is a new generation that holds the world in their hands most of the day. See how many pictures in People of celebrities photographed with their cellphones in their hands.

Tech gadgets are more important to them than even clothes or appliances. I know it’s true because The Wall Street Journal said so.

Seriously, there is a major shift in priorities for this generation and that may help explain why Apple has not had a recession when most other categories have. But the most deadly attitude traditional media companies can have is that once the recession ends…

You know the drill, things will get better as the economy gets better.

Yes, things will get better (duh) but a major sociological change has happened albeit during a prolonged recession and we’re missing it.

Even ballgames, sporting events and other venue driven activities are also subject to these major changes. One major market NFL team is producing an entire digital event for the people who attend their games almost as if they recognize that those attending the games are for a few hours an accidental social network. Smart.

There will always be a market for public events, but the nature of those events must change to cooperate with the inevitability of old tired concert venues running out of steam.

The music industry embarrasses itself by trying to force the same retro products on consumers who have enthusiastically and willingly embraced the mobile Internet and social networking.

Therefore, I conclude, if the concert promoters want to get people to attend live events they must change a multi-billion dollar business that is starting to erode. That’s not about to happen.

Some of my music industry students when they come of age may well have the answer if they keep their eyes off of Irving and focus on the consumer who would rather buy a mobile device than a new pair of jeans.

Or go to a concert?

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How NAB Threw Radio Under the Royalty Bus

Remember NAB CEO David Rehr’s reassurance to his radio constituents that the NAB had their backs on paying more royalties to the music industry?

Turned out that his assurance is as gone as he was when the NAB Board fired him.

Radio likes to hear happy news. It’s in our blood. But in the case of music royalties the results are about to be fatal.

I'd like to share with you the rest of the story.

After the Radio Music Licensing Committee successfully negotiated an $80 million saving in ASCAP, BMI and SESAC rates for a financially-pressed radio industry, it appears the NAB is now going to give it all back by caving to MusicFirst and their demands for an additional performance tax.

What’s more, insiders who are familiar with the works of the NAB, politics and executive board say the recently announced plan that has a good chance of becoming a reality, was done in behind-the-scenes maneuvering in which some board members were not even consulted.

The plan appears to have been created by current NAB CEO Gordon Smith (a former United States senator) and Steve Newberry. I’m told that the fatal plan that will for the first time require broadcasters to give up their performance tax exemption has been derisively called “The Newburial Plan – the one that keeps giving forever”.

To be sure, not all NAB board members are in agreement with this.

It was supported by Cumulus CEO Lew Dickey who reportedly felt that radio needed to nail down this agreement so that capital markets can open up to radio.

Fat chance of that.

Entercom’s David Field, according to sources familiar with the action and requesting anonymity, is characterized as saying in effect if the board doesn’t support the “Newburial” plan, they shouldn’t be on the board. So much for free and local NAB elections.

The NAB plan is loaded with radio pork.

FM on cell phones to win the support of Emmis CEO Jeff Smulyan who is the loudest if not loneliest voice calling for a chip in every iPod or mobile device. Betcha lots of AM operators love the FM chip idea. Forget that consumers don’t use mobile devices like these used to use a Walkman. And most stations have a suitable workaround called an "app".

Still, the FM chip was to win Smulyan’s support.

On the surface, the announced blueprint of the royalty deal late last week was portrayed like a bargain -- $100 million a year for life. No increases.

Until of course that eventual day Congress votes to increase the rate.

As one informant put it,

“But the real thing is that broadcasters, when the legislation passes, will have legitimatized performers (actually record labels and they, eventually, will get the bulk of the rights) ....and just like ASCAP,BMI and SESAC, music first can now go to any store, restaurant, dry cleaner, dairy queen, etc that plays radio and demand a license for public performance”.

Presto, great minds think alike.

Look at this story in the Sunday New York Times on the music copyright enforces who will soon be given more tools to extract money from local businesses – you know, the ones that advertises on radio – to collect music licensing fees from them. Thanks a lot radio!

So much for democracy at the NAB as a small group apparently pushed through this plan without board understanding. Some state directors reportedly knew before the board did. More on that in a moment.

The former Senator Smith, your new NAB CEO, has to be admired for his dealmaking and political savvy. Let’s hope he knows what is best for radio because this appears to be a smoke filled room deal at best.

This is not just a $100 million giveback to the record industry.

Not just 1% of a reduction on streaming fees (which is how the NAB bought Clear Channel’s support).

You could say the fees are a percentage of free cash profit that some top executives think is more like 5-10% of their profits.

More inside details on this sell out:

Supposedly months ago Senator Orin Hatch, a friend of Gordon Smith) advised to just give him something”.

Of course, as you know, Congress looms large over this issue and radio does not have enough legislative support (thanks again to the NAB) to avoid having this tax imposed in a painful way.

There were rumors that the negotiation committee had a brainstorm to just put all the royalties paid to ASCAP and BMI on the table and tell Music First to divide them up however they wanted.

But, they forgot SESAC, a third party to radio copyright rates.

ASCAP and BMI went nuts or as one source put it “batshit” when the NAB proposed this. The idea was then dropped. ASCAP and BMI are mandated under consent degree to negotiate with Radio MLC to determine rates. I’m told as a third party that when Smith was reminded of this he saw no problem in the strategy of passing legislation that overrides the decree.

This gets messier.

Some group heads were contacted to discuss the settlement ideas. I know of some who were not contacted.

In essence the slick political strategy of Smith and Newberry pushed the need to settle or else threaten that Orin Hatch would change three words in the CARP bill and radio would windup in the dreaded Copyright Tribunal.

When word leaked that the NAB called to the state directors without all board members knowing, some state members denied knowing about it and later recanted that there was no deal.

The political strategy by Smith was brilliant if you're into political strategy.

According to a source:

“So.....in strategy...NAB executive committee started "calling" NAB Board members (now this was after the NAB called each director and told them of a mandatory meeting in DC...no phone call...an important meeting....no agenda and no topic announced till you get here)...each call was tailored made for the individual director

"You will only pay $2,500 per station"

"We will throw in ownership caps in this legislation"

"We will make this bill solve all open issues in radio".

This proposed settlement also makes radio look silly to the 261 Congressmen and 27 Senators who said they would fight for radio to keep its performance tax exemption.

And why settle now when Congress is changing – perhaps more favorably toward fighting the tax.

In the end, the board held a more than 3 hour meeting late last week and the negotiating committee gave them just two options: “break off negotiations” or “allow us to continue”. If I get that list, I’ll share it with you. You have a right to know how your local representative voted.

The NAB represents only half of all U.S. radio stations but the same trade association that helped pass consolidation on the tail end of the Telecommunications Act of 1996 aimed at telephone companies continues its destruction.

Let me be clear.

Radio stations should not be paying an additional tax to the music industry for all it does and has done to promote music, artists and sales (of which radio does not share in the profits).

Radio already pays adequate music licensing fees to publishers.

If a deal were to be made, to start by paying an additional $100 million a year on the backs of small broadcasters who can ill afford to pay it, you would think the NAB would go to these small broadcasters first and get significant concessions in return instead of what most radio broadcasters got.

Screwed.

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The Promise of Cloud Music Streaming

Talks are on again between the record labels and Spotify, the European streaming music service looking to expand to America.

Billboard is reporting that after previously failing to persuade the labels to license music for the Spotify service using the “freemium” model, the major labels are all ears to see if Spotify can convince them to do a deal for an end of year launch.

The labels never really cared for Spotify’s free model and Spotify is desperate to get started in the U.S. because Apple has its stream coming in the not too distant future and services like Spotify have not done well.

Spotify is so desperate that they claim to be open to a short-term deal with the labels. That’s a deal I wouldn’t make. But they have no choice. The labels are playing hardball.

The hardball matches their hard heads that may also get in the way of allowing Apple to offer music on the cloud. There is considerable debate as to what is going on with Apple and the labels over this issue. You’ll note that Apple relented on its long-held one-price (99 cents) for all downloads policy and the labels got their way – or as I like to call it, fewer downloads for less revenue.

Apple’s stream – the one I believe Spotify fears most – is likely to make a consumer’s personal iTunes library available anywhere at anytime through various mobile devices. That is, the music is there for the taking.

The real question is whether Apple needs a new agreement with the labels to do this. Right now, the labels are so destructive you cannot point to one single strategic decision any of them have made in recent years that was good for them individually or collectively.

Spotify has more than 7 million users around the world with only 500,000 of them paying about $15 per month for the premium version.

Rhapsody, which also has a more traditional subscription service, is down to about half a million subscribers at this point and declining.

This is not exactly a boom waiting to happen.

Unless, Apple can convert many of their iTunes users into streaming fans for a monthly fee.

Look to the way Apple handles the consumer cost of being connected to the Internet on the mobile iPad platform.

AT&T again, but iPad users only need to subscribe to the service month-by-month. No long-term commitments or discounts. I get an email telling me the next month’s AT&T iPad service is about to kick in and I have time to cancel anytime if I’d like. This may be part of the Apple strategy with streaming audio.

Pay as you go.

Don’t pay and you can’t access your music library on your mobile devices, but you still own what you bought and can listen on other devices.

I think Apple is up to other things, too.

I would not be surprised to see the iPad become a Crestron or TV remote that eventually works with Apple TV. Now that move could make Apple TV go from a Steve Jobs admitted hobby to yet another big business.

So, we would be able to watch TV on our iPads but also communicate with Apple TV and watch our television shows and movies on-demand right there on a big HD screen.

Apple TV right now is burdensome. I don’t like it. Takes too long to download content. But with a stream, all that changes. Buy “Gossip Girl” and have it available for your viewing pleasure anywhere and on any device that can access that stream.

You own it, but you store it on the cloud.

That’s the future and it explains why Spotify is so terrified of not being able to launch in the United States in a timely fashion.

A bigger issue is whether Spotify is necessary at all?

My view is that Pandora survives anything Apple comes up with because it uses a well thought out music genome to identify a listeners musical preferences. That in and of itself is cool and will never go out of style.

For everyone else there is choosing your own music and storing it on the cloud.

I can tell you from working with young people that while they like their iPods, they are also bored with their iPods. Ask and they will tell you.

If this isn’t a wakeup call to the radio industry to reinvent itself, I don’t know what is.

Consumers need another music service like coffee drinkers need another Starbucks.

Pandora is golden.

Apple’s cloud will eventually be a smash hit.

Now who is going to entertain people on mobile devices with short-form, personality and expert-based content?

Music.

Talk.

Information.

It is likely not going to be a radio company because they can't see this, but radio is the perfect incubator for new media content.

I’ll bet you some former radio employees will jump into this void and see the next growth business ahead – mobile entertainment not just music available everywhere on-demand.

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