Digital Music Summit 2005

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Digital Music Summit 2005

Presented by the Canadian Music Publishers Association

(www.MusicPublisherCanada.ca)

Toronto, Canada

“I’m here because it IS voluntary to pay for music. Technology has overrun

the forces that we are responsible for and it has made paying for music a

choice.” – Jim Griffin

Keynote address

by Jim Griffin, CEO Cherry Lane Digital

Presented on February 10, 2005, Toronto, Canada

I want to start out by thanking Mike McCarty (President, EMI Music Publishing Canada) for having

me here. Mike is an unusual guy in the music business because traditionally we in the music

industry tend to circle our wagons and then shoot inward. Mike is unusual because he knows

where the target is and he shoots out. And that is really the goal here, not to blame each other,

not to call songwriters obstructionists for not moving forward or to yell at sound recording

companies because they won’t go there. Mike truly sees the future and he wants to bring people

together so that we can talk about it and move on. Peter James (former CMPA Executive

Director), too, I thank you for putting this together and having me here.

It’s fair enough for you to know my perspective. Cherry Lane is a music publisher and although

I’ve never written a song, I do think like a songwriter because Cherry Lane represents

songwriters.

It’s also important for you to know that I’m not here to present you with a balanced presentation.

I’m an advocate. I not here to pitch you with a compromise. My father used to tell me, ’I’m not

raising you to be balanced, I’m raising you to contribute to the balance.’ There’s always going to

be somebody on the other side who looks at things differently and presents their views really,

really forcefully, and that’s my goal today.

The reason I’m here today is because it has become voluntary to pay for music. Now, I’m not

going to defend the proposition that it is or should be legally voluntary to pay for music; that’s for

other people to discuss, the lawyers and judges and people like that. Legally, I’m not saying it’s

voluntary.

And I’m not here to tell you that morally it should be voluntary to pay for music. I work with

songwriters; I’m not sure that it should be voluntary. But I’m here because it IS voluntary to pay

for music. Technology has overrun the forces that we are responsible for and it has made paying

for music a choice. And if that’s not true for everyone in this room, it’s true for our prime

demographic, those people who like to buy our music. They make a choice as to whether or not

to purchase music, they could get it other ways.

And that’s a very, very difficult circumstance to be in. Now, perhaps you’re thinking, gee, if he’s

right—and probably it’s true that it is voluntary now to pay for music—we’ve got to deal with this.

Those peer-to-peer guys, something’s got to happen, it has to come to an end. But in fact, it’s not

the peer-to-peer guys who are responsible for it being voluntary. If I was to recite all of the

reasons it’s voluntary to pay for music it would sound like a scene out of the movie Forrest Gump,

in which Forrest and bubba Gump are describing all the ways to make shrimp.

I could start out by talking about piano rolls and how it represented a new way to get music, and I

could talk about disc copying. And how about that disc copying? Is peer-to-peer really your worst

problem? Is people sharing music your worst problem? I think disc copying is probably the worst

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problem. You get the exact replica of the thing you can buy at the store. But it doesn’t seem to me

that anybody cares about disc copying anymore. Not since Sony and Universal bought Roxio and

got into the disc copying business, since then we’ve started to forget that disc copying is one of

the main reasons that paying for music is voluntary.

Clearly we’ve got audio TiVOs coming. The notion that we broadcast music digitally and we can

record that music and hold it. So disc copying, sharing music over peer networks, audio TiVOs;

we could have an endless list of the reasons it has become increasingly voluntary to pay for

music. I’ll simply posit to you that we increasingly live in a time of the first use dilemma.

The first use dilemma is inescapable. It is that on the one hand we’re very reluctant and rarely

ever buy music that we’ve never heard. It’s a very unusual event when a person buys a song

they’ve never heard. But on the other hand, in a world of good digital copying if you can hear it,

you don’t need to buy it. It’s quite simple, if you can hear it you don’t need to buy it and if you’re

going to buy it you have to hear it first.

If we were to truly protect our music and allow no one to hear it, then no one could buy it. We’re in

a very, very difficult dilemma. And it all leads to the notion that paying for music is voluntary.

Now, the shocker—and this is a shocker for most of us, I think—is that in the future it’s going to

be more and more voluntary to pay for music. And no matter what we in this room do, next year it

will be more voluntary to pay for music and the year after that it will be more voluntary and 10

years from now it’s going to be more voluntary. And nothing we’re going to do is going to stop

paying for music from being a more voluntary act, more of a choice. I think it’s fair to say that we

won’t be able to code or contract or litigate or moralize friction back into a world that is

increasingly friction free. That’s not going to happen. And this is where I remind you that I’m only

the messenger, I don’t feel particularly gleeful about this.

Now, you might ask, ‘Why is this happening?’ We have Bill Gates on our side, he wants people to

pay for software, surely we’re going to find some way to stop this. And I’ll tell you that’s not going

to happen.

Furthermore, what underpins it, is if you have trouble thinking about technology or the digital

world, you think of it as being bionomic. That’s not a cult, bionomics, it’s a book (Bionomics:

Economy as Ecosystem) by Michael Rothschild. His suggestion is that many of us imagine

technological advances as a force of nature; and so it is that the rising tide of digitization is much

like a rising river, it cuts an ever-shorter path from source to destination. It does this inherently.

And we are caught in a bionomic flood of digitization. And it will inevitably continue and grow

dramatically, not only over wires, but into a wireless world. And by the way, you think the music

business has changed over the past 10 or 15 years? We haven’t seen anything like the kind of

change that’s going to come when the wired world exhibits the same characteristics that the wired

world has taken on. I say that because the revolution as we see it, in a way, hasn’t even really

started yet.

I was talking to a teenager in Finland and he said, “This vision of the future that you North

Americans have, I’d have to be grounded by my parents to enjoy it.” His point, clearly, is that he

doesn’t fancy being stuck in his room at the other end of a copper cable or a fibre optic cable. His

world is about being in a car or on a beach or in a shopping mall, moving around. For him it’s a

wireless world, not a wired world. What we see now is happening simply because some of us

know how to plug all these different cables in and eventually take that stuff with us wherever we

go. But mark my words, music is for the mobile, not for the person sitting in a room.

When I go to the offices of music executives I see them looking at TVs or computer screens and I

ask them, “When do you listen to demo tapes?” And inevitably they answer, “When I’m driving in

my car.” Because when we are moving we need our eyes for safety and we use our ears for

recreation, at least most of us do.

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Music, auditory stimulation is for the mobile person and if you think you’ve seen change now, you

haven’t because we don’t live in a world of ubiquitous, wireless, digital connectivity yet. But it’s

coming. The tipping point, what you should be watching for as far as change in our business, is

when we can get roughly 64k at a reasonable flat fee, ubiquitously, on a wireless basis. We’re not

there yet but it’s coming. And by the way, when 64k does come, it will be roughly 18- to 24

months before we’re at 128k. And 128 k means you can listen to CD quality music wherever you

go at a reasonable flat fee. At that point you have no reason to carry it around with you or to

download it onto a devise.

So if you think you’ve see change, if you think our business has been beset by technological

forces, you haven’t seen anything yet. And when that day comes, our business changes so

dramatically that we will laugh at the thought that in 2005 we thought we were confronting forces

that we could not control. Increasingly it will be voluntary to pay for music and it will be the rare

person who elects to download music, holds it and carries it around, who seeks to take

possession of it. That will be seen as highly inefficient.

Indeed, if you look at supply chain economics, which is remarkably good for understanding the

digital world, wherever you see a warehouse you’ve got a sign of supply inefficiency. Federal

Express has taught us that the best way to deliver something is ‘just in time,” in a customized

fashion. Inventory management says what you need should arrive precisely when you need it and

no sooner.

Likewise 10 or 15 years from now, the music audience will realize that they don’t need to be

carrying a hard drive loaded with songs around, not when they can access whatever song they

want, wherever they are, and whenever they want it. These are some of the changes ahead for

us and there’s not much we can do to stop them. It is a bionomic circumstance.

You can put up all the sandbags you want but the flood still comes into your house through your

toilet and ruins your house. This is the dilemma we face. With all of our best lawyers, our best

technologists, our best preachers, no matter how many elected officials we get in our pocket, we

are not going to change the fact that every year when we meet like this, it is going to be more

voluntary to pay for music.

That creates an alarming circumstance that wehave got to address in some way. It seems to me

that the current theory, with the lawyers and technologists, is that we are approaching the third

act of an opera and even though the stage is in flames there’s a deus ex machina—a machine

from the gods—to lift us off the stage at the last moment. And I say deus ex machina because

clearly we believe that it will be a machine that will rescue us from the machines. Well, that’s not

going to happen.

We are making speed bumps, yes, but technologists are primarily focused on making engines

that go faster and faster and faster and shock absorbers that don’t care about speed bumps. In

fact, the level of connectivity is going to rise dramatically and the level of digitization is going to

continue to find a shorter path from source to destination and no matter who many lawyers we

hire or technologists we employ, we are not going to return friction to a world that is bent on

becoming friction free. That is absolutely where we are headed.

Now, it almost sounds like I’m reveling in this, like I wish I could live an extra 40 years just so I

can take part in it. But in fact, I’m going to remind you that yes, I do work with songwriters and

rights holders and others. I’ll also tell you that a civilized society cannot long tolerate voluntary

payment for arts, knowledge or creativity. Or put simply, we can’t survive on a tip jar. That’s not

going to work.

It’s somewhat abhorrent to think that a child’s access to music or movies or books or the stuff of

life, should be conditioned on the size of his or her parent’s wallet. We are surely on the horns of

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a dilemma. We can’t survive on purely voluntary payment and at the same time, neither can we

condition access to life based on the size of our wallets. That is a very, very difficult situation to

be in.

And here’s where I want to start to turn towards a solution. But first I want to pay some homage

one of the greatest thinkers on the subject of modern media, Marshall McLuhan. McLuhan said

that we are no more capable of understanding the media of our time than a fish can understand

the water it’s swimming in, or we can understand the air that we breathe.

McLuhan said that if you want to understand your media you should take a look into the rearview

mirror of history. And I think McLuan was absolutely right. So I went the library and started doing

some historical research that lead to me to a realization that McLuhan was spot on. I saw that the

changes our society underwent from the 1900s through the 1920s and beyond, were far more

savage to our knowledge and creativity than anything we face today. Put simply, acoustic

becoming electric was far more savage a transition than we face today with electric becoming

digital.

In an acoustic world artists controlled their art with their feet; if they weren’t in the room, you

couldn’t see them or hear them. Save for the piano roll, which came along at the end of the

1800s, which sort of gave us a vision that music could become portable, once the 1920s came,

dramatic change occurred. It makes our 3,000 or 4,000 days of dot com fever look silly. Because

in the 1920s electricity spread around the world in a dramatic fashion that changed the way artists

understood their art.

If you lived as an artist in the 1920s, you confronted the fact that loudspeakers could suddenly

transmit your music to crowds that were larger than you could count. And if that wasn’t a big

enough shock, then came radio. The idea that people in London could be listening to you while

you were in New York was so shocking, that not only couldn’t you count the size of the crowd,

you couldn’t even see them. You had no idea how many people were enjoying the art you called

yours.

In the 10 quick years of the 1920s television was invented. A colour television signal was

transmitted in 1928, across an ocean. So if you weren’t shocked by loudspeakers or by the arrival

of radio, now your image could be transmitted along with your words, thousands of miles. So we

think we’ve got it rough? Our thought process has already processed the notion that we can no

longer control the quantity or the destiny of our art, our knowledge, our creativity.

The 1920s were a time of enormous change that dwarfed the changes that we are seeing in our

society. If you look back into that rearview mirror of history in a McLuan-esque way, you have to

ask, ‘How did we pay for music that was broadcast through loudspeakers? How did we deal with

that?’

To put a fancy term on it, we replaced actual control with actuarial economics. It was really that

simple. We came to accommodate the change, we learned to accept that actuarial approaches

could substitute for real control. There are two pillars in an actuarial approach, a pool of money

and a fair way to split it up.

The methods were fair, not perfect. When radio came along we applied this approach and asked

radio stations—which we at first called crooks, much like today—to pay into a pool of money.

Likewise, when television came along we did roughly the same thing; and on to satellites and

cable and our response was the same. As recently as the past 10 years, webcasters came

knocking on our doors and said they wanted to enjoy the same rights that radio broadcasters

enjoy, and likewise we created a pool for them to pay into and we have a roughly fair way to split

it up. We still debate how fair, and what the fairest methods are, but none of us expects it to be

perfect.

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The way we addressed our problems historically—and the way we will end up addressing them in

the future—mirrors other industries that happen in a roughly similar way. Imagine that your

problem was that your invention, your creativity, killed and maimed 1-million people per year, as

the automobile industry does.

Cars came along at roughly the same time as electricity and in fact, they still kill and injure

countless numbers of people every year, and our safety system, for all that we really believe in

safety, is still five feet and a white line that we recommend you not cross. And we advertise our

vehicles travelling at extraordinary speeds with inordinate amounts of freedom. Our best vehicles

will go three or four-times the speed limit and yet we have this thorny problem that they kill and

maim 1-million people per year.

So how does the automotive industry deal with this thorny dilemma? Do we make a predicate for

vehicles that they kill people? No we do not. What is our system? Five feet and a white line

combined with a pool of money and a fair way to split it up. Yes, you can hit a school bus full of

children going home tonight and still sleep in your own bed. Why? Because you pay into the pool

of money and that pool is going to take care of those children.

So remember, there are others who face the same kinds of problems that we face, only a lot

worse. By employing actuarial methods like insurance, the auto industry is able to obviate their

problems and continue their industry. So I think we’re going to do just fine. I think it’s fair to say

that actual control, as with vehicles, for us, is increasingly impractical and inefficient.

To drive the point home, and make it very, very clear to you, an iPod, which today can hold

10,000 songs, is not going to cost $10,000 to fill. And when that iPod’s hard drive doubles in size,

it’s not going to cost $20,000 to fill. If it was, no parent would let their child take it to school. That’s

not a business model, that’s not where we stand when we look at the future. Our answers lie in a

pool of money and a fair way of splitting it up.

Our last best chance to impose an actuarial approach is as digital becomes wireless. Because if

we wait and we adopt a reactive approach, we are going to encounter extraordinary resistance

from those who already have the devises without paying the fee. If we are so enlightened and

surprise ourselves by circling our wagons and shooting out, rather than in, then we are going to

get together and learn how to impose this fee ahead of time, we’re going to learn how to license

to the wireless world, not out of reaction but out of pro-action. Out of having studied the past and

understood how it can apply to our future.

If you are among those who still believe that somehow the deus ex machina is coming, that Bill

Gates is on your side and that the technologists and lawyers are coming to your rescue, consider

that our problem is not just the law or the technology, it’s that we live in a world that increasingly

competes for the customers wallet in ways that are actuarial.

We have learned to give people their internet access on a flat fee basis, their theme parks have

gone flat fee, their cable TV is delivered in much the same way. And those are the same services

we’re competing with for their wallets. And at best we have an opportunity, a moment in time

where we get to compete. And that time is now. This is our chance to attack the motive for what

we call piracy and not its mechanism. And that motive is economic, it is not granular. We have

never done well, we owners of intellectual property, making our charges or our economics

granular. Bundled price has always been our best shot at the customer’s wallet. We know that

selling a song for a dollar is not enough to build an artist’s career or low enough to compete with

voluntary payment. Our best hope is not granularity and $1 per song, but a bundled price with

unbundled choice that mirrors, rivals and competes with cable television, theme parks and

internet data. That truly will attack the motive for piracy and not its mechanism.

And so it is that we, in the wireless world, are living today in 1992. The wireless modem is still

9.6, maybe 14.4, but it’s getting faster. And if we’re near a WI-FI hot-point, it’s a lot faster. But

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unfortunately that doesn’t travel with us in the car, but it will soon. So we need to think now, what

would we do if we could go back to 1992 and address the issues ahead on the horizon? We have

this moment in time.

An increasing concern that I have, and a bigger problem for those of us in this room than piracy,

is that we are moving from a world of channel we to a world of channel me. This really is the

biggest threat we face. I’ve long been convinced that we want what we want where and when we

want it. That we want pull, that in some ways the iPod represents the ultimate form of channel

me.

I’ve begun to become very, very concerned that we are rushing towards the world of channel me

without thinking deeply, very, very deeply about the great benefits of channel we. If there’s a

problem we in this room face, it’s that those who are spoon-fed their content, who live in a niche

and wear white ear buds, are not receiving information outside their niche, they’re not hearing

new songs, they’re not exposed to the community megaphone that many of us grew up with.

Radio is increasingly inefficient, it’s a shotgun in a world of laser guns. Advertisers and the mass

audience, want this pull, not our push.

I have a great respect for the people in this room who helped build our business by selling

records from the trunks of their cars. And it is an alarming change for me to tell you that you

should take a piece of money that’s been based on an actuarial sample. But let me tell you

something, if you can’t deal with that change, then you’re going to have to confront irrelevance. If

you don’t like change, you’ll like irrelevance even less. It’s not a simple economic problem about

how we get paid, it’s that increasingly the ways we deal with our audience are antiquated and

irrelevant. And if we don’t stage something of a stand that supports a community megaphone, a

kind of channel we, then we are making an enormous mistake.

This is a very real concern. There is a new medium that some of you may have heard about that

just four or five months ago, didn’t exist. Podcasting is the delivery of radio broadcasting to iPods

and it has already caught on to the point where hundreds of thousands of people are using their

music players to get what you might call radio programming, except it doesn’t come over the

radio. The difference is that the inventors of this technology refuse to use any music that’s

licensed by major recording companies. Because they know that it’s not possible to get a license

and it won’t be possible any time soon. These are truly sound recordings because they are

downloads but they act as if they were radio shows.

When you listen to one of the 8,000 or 9,000 different Podcasts available right now, they

advertise the fact that they use no music from RIAA member companies, because they know that

they can’t a license for it. In their world we are irrelevant because of the way we license. Those

who live in channel me are increasingly not exposed to our music at all. And what new music they

do hear comes from the pool of music, which we can’t license. And this is just one example of the

concern I have about channel me.

The means by which we expose people to the new music that we depend upon them getting, are

increasingly turning into a channel me that we do not know how to address. A world that moves

from broadcasting to narrow casting is seductive to the user who gets what they want where and

when they want it.

A small, crowded radio dial is being replaced by a couple of satellite services with hundreds of

channels. Digital radio brings hundreds of niche channels, there are a multitude of new ways that

people get content like Podcasting and downloading and so forth. As channel me continues to

gain ground and overtake channel we, our challenge won’t be about how to get paid, it will be

about reaching our audience at all, to let them know that we’ve got a new song they might like to

hear.

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Our real challenge is staying relevant in a world that increasingly finds the methods by which we

license our content irrelevant to the new technologies they embrace. And we can address both of

these challenges through enlightened licensing, through allowing our content to flow through

many channels, through different channels, new channels, channels that may not adopt the rules

that we think they should to do business with us. Because in this future we are going to have to

change the way be do business in order to do business with them. And if you don’t like that

change, your business is going to be increasingly irrelevant.

I don’t want that to happen. I want us to grow a pool of money with fairer and fairer ways of

splitting it up. If we’re waiting for actual control to be restored by the lawyers and technologists

then we are going to find it’s simply not going to happen.

If we put half as much energy into getting ISPs to pay as we put into suing 14-year olds, I think

we’d be a lot further along. Increasingly, as an industry, we’re insecure. We feel small compared

to telecommunications companies and technology companies and in some ways we are. And so

we pick on someone our own size or smaller, which in this case is the user, because we doubt

that we can win this battle.

First of all, it’s a much better struggle to work on changing the law that immunizes ISPs from

paying. But secondly, I don’t even think you need to change the law; while it would be useful—

because as copyright owners we love laws that build walls around out stuff, it’s what we rely on.

We’re a little bit lazy that way, we’d like government to give us a monopoly to do business. But we

don’t necessarily have to have a law to go to an ISP and offer what I’ll call a voluntary licensing

regime. That’s one of the places where we’ve fallen down.

Our approach needs to be one of sharing the financial burden and not trying to pin them with the

acts of their users. There’s no question that ISPs—and what I’m about to say is even more true

for wireless ISPs than it is for wired ISPs—wireless ISPs would love to be able to offer a flat fee

music solution; it could be legal to do with them what it’s illegal to do with someone else.

We have to circle our wagons and approach those digital providers with voluntary solutions and

not rely upon government to force them to pay a fee. A lot of the criticism of blanket licensing, of

pool-based licensing, are quite valid. And those criticisms come about because we almost always

think that it involves government to get it done. Our best approach is a voluntary approach that

has us approaching them with a solution that benefits those who license and penalizes those who

do not.

We do better when we seek to persuade than when we seek to compel. I think it’s a question of

approach. Which comes first? Those who want to license or the license that’s offered? I think in

this case it should be us that’s offering the license.

I’ve never met a music publisher who wouldn’t cut a license. It’s the rarest thing for a publishing

or a performance based society not to cut a license. If you sit down with the guys from ASCAP in

the U.S., they’re quick to tell you that they licensed Napster. You don’t find publishers saying no

very often. But you do find sound recording companies saying no. The problem is that when we

circle our wagons, we shoot in. Our battle in some ways is between sound recording companies

and music publishers over who gets what cut of the money. And frankly they are a lot of tall guys

leading us short guys into a stream and hoping we’ll drown. We are a key component of the cost

of a sound recording and if this stands in the way of progress then we have only ourselves to

blame when we see our money shrinking.

I could argue passionately as to why songwriters should get 50 per cent of the value of a song,

but if you even gave them 25 per cent it would be like a 400 per cent raise. In other words, we

have got to address this imbalance. The sad part is that songwriters are being painted as

obstructionists in the digital world if we won’t cut a license on the same basis as we’ve always cut

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them. And the irony is that we’re the first ones to get out of the way in order to license in the

digital world.

If it looks like I’m pointing the finger at sound recording companies for standing in the way, I am.

Because they’ve consolidated in times of difficulty and refused to license because they’re world

has been based on the actual control of the quantity and destiny of sound recordings. And by the

way, their income is flat to down, whereas our income is up. Our income is up because we’re a

service based world and we understand that control is not the answer.