I was stopped in my tracks this morning when I read in CNET that Universal Music Group was quietly planning to charge online music sites for the right to host and serve music videos to their audiences.
Why did that stop me in my tracks? Well, it's early evidence that my Grand Unified Theory of How The Internet Changes The Music Industry might be valid. And maybe Universal Music is already feeling the early effects. I wish I could ask someone at Universal why they'd risk losing airplay just to recoup a tiny amount production cost, when they have to make the video for MTV and VH1 anyway. But since I can't, and since this is my blog, I can speculate. First, some background:
- In the future, people will buy more of their music on the Internet and less on albums in stores because it costs less online to buy track-by-track, using previews to select only the tracks they want, and ignoring the rest;
- No sense making songs if nobody's going to buy them. The industry will respond by no longer packaging songs in album format on the Internet and taking fewer of an artists songs to final production. They'll do the audio equivalent of movie 'test screens' and then complete only the songs that test well. The demise of the album, and possibly the EP. The future of music is singles;
- Fat margins on CD music from Top 20 artists can support enormously expensive marketing campaigns, including lavish music videos, TV/print giveaway campaigns, point-of-sale promotions, publicity, and excesses on tour. But gone with the album model goes the fat margin, and therefore, the fat marketing campaign for each album. How much can anyone afford to spend on marketing a single if it is not supporting an album? Not much.
- "Not much" doesn't pay for a music video unless you've got a Top 10 single (in the Australian market, it better be Top 3).
- If you can't afford to make a music video to promote a single, it better have some commercial value of its own.
- This is what Universal is about to test - the commercial value of a music video.
How big a story is this? Does it really matter that Universal is doing this? I think so. Universal Music claims the company is number one in worldwide music sales, with 23.6% of the worldwide music market. Their labels include Barclay, DreamWorks, Interscope Geffen A&M, Island Def Jam Music Group, Lost Highway, MCA Nashville, Mercury, Mercury Nashville, Motor Music, Polydor, Universal Motown Records Group, Universal Classics Group (which includes Decca, Deutsche Grammophon, Philips and ECM) and Verve Music Group. If they've even got half the marketshare they claim, that's a big impact on music videos online.
If labels want to charge for them, why would portals like Yahoo! and MSN still want to stream music videos? Partly because they assume music videos online perform a similar function to music videos offline - they help sell music - and the portals stand to make a cut of the online music retailer's album sale (a model which depends upon selling a physical CD and mailing it to the customer - if the customer is only buying an MP3 or AAC single and there's a licence fee for playing the video, fuggeddaboudit.)
Most of the portals also make some money the old-fashioned way ('old-fashioned' in the internet sense of the term, meaning '5-6 years ago' and referring to online advertising). They wrap the music video up in an online promotional campaign for the label that features the artist and album, and also includes ad banners, editorial, photos, website links, email newsletters, homepage stunts and instant messaging ads. One good way to sell online advertising is to bundle up a lot of inventory of questionable value and utility, and then whack one big sticker price on it. Most of it is stuff that you should be getting for next-to-free, but when it's in such a big bundle, you feel like you "own MSN Music for a month" and that makes you look good with your boss. You don't have to understand Internet marketing to spend money on it.
Which is just as well, because portals are also hoping to prove to the record labels that promoting an artist online is more cost-effective, more targetted, and easier to associate with the sale of an album than, say, getting VH1 to play the video. I believe it is. But fifty years of the relatively easy life selling popular music has, shall we say, not bred the brightest marketing minds in the music industry. Some music industry marketers I know still have trouble using email, much less understanding the new and intimidatingly geeky jargon of internet marketing. Getting their assistants to print out their emails and dictating their responses, they are like Diplodoci - by the time they get their massive bulk turned around, something will have flashed by and bitten their arse off. Though sales are down across the industry, they have a way to go yet before evolution starts picking off the dimmer bulbs.
So what is the commercial value of a music video streamed to an Internet audience? It's going to take a while before the results are in because, according to the story, Universal is going softly-softly about changing their commercial relationships with Yahoo!, MSN, AOL, etc, trying to quietly negotiate deals that don't alarm the online publishers too greatly, as that would disrupt the album sales Universal needs to protect in the meantime. The price will start low and trend up, but the relatively frictionless economics of Internet music will establish a stable market value quickly. Universal plans to hurry things along by only advertising on music sites that agree to pay-to-play terms on the music videos. You don't have to understand internet marketing to play hardball.
There will be a nice feedback loop, as until now, the portals have been happy to encode, stream and store as many music videos as the labels can provide. But if they're paying, the portals will take a long, hard look at all the Universal-owned video content in their libraries, to make sure they're not paying for any crap nobody watches, and to make sure that the good stuff everybody enjoys gets all the exposure. That must lead to a smaller roster of artists' videos appearing on the online music sites, and that reduction in promotion might speed up the shrinking of artist rosters in general (see above.)
An alternative future, but one less likely, is one in which we see the birth of a new kind of mass entertainment product. Still called, for the moment, a "music video", but changing from an album sales marketing tool to a standalone commercial entertainment product. A new industry in its own right. The best music videos have already proven that they can be as engaging, entertaining, and creative as any other form of modern media. Perhaps all they lack is a market in which to be traded. Fat music labels producing videos as marketing for generic urban albums and giving them away to MTV and AOL is a value chain of sorts, but it has way too many intermediaries. However an artist, or an artist and director, or an artist and a production company, producing music videos intended only to entertain and sell to an audience... maybe that's a viable market? It's no stranger than people paying to see an opera. Will our kids all want to work for a 'music video production company' when they grow up?
And is it synchronicity that handheld video player technology is nearing a tipping point at the same time? A music video marketplace needs its equivalent of the LP and the Sony Walkman. It'll be a while yet - the current generation is clunky, and Microsoft is making it clunkier by sticking its big clumsy boots in to try and control it. But watch this space. And while you're watching, here's a nice music video, meant to lure you into buying that song, which unfortunately comes on an album with a lot of other cruft on it you'll only listen to once. But that may soon change...
Disclaimer: the author owns a small independent record label with one band on its roster and one album, which currently has one single, with one music video, which you can watch online. It's not La Boheme, but it's a narrative, and not half-bad, made by the very talented Sean Kennedy, and it's only there until someone at Yahoo! remembers to remove it. The author also used to work at Yahoo!, owns an iPod, and wishes he had bought Apple stock when he sold all his Yahoo! stock. Or maybe not sold all his Yahoo! stock quite so soon.