Warner Music's Led Zeppelin in Concert

Warner Music Group’s decision to take down videos and music on Google’s YouTube reflects the music industry’s frustration that video sharing on the Internet still isn’t paying off.

Warner Music, says the Wall Street Journal, had expected to garner more advertising revenue from the video site — proof once again the big audiences doesn’t necessarily guarantee big revenue. YouTube earns only about $200 million this year, a tiny fraction of Google’s total revenue.

Google pays licensing fees to music companies when users click on advertising content. But clearly, online video has a long way to go before it pays its way for Hollywood content.

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Nokia is rolling out a new “all-you-can-eat” music service this week in the U.K. that’s a prototype for a service it plans to roll out worldwide.  “Comes with Music”, currently marketed only by U.K. retailer Carphone Warehouse,  lets users download as much music for one year on their Nokia phones as they want –and port it to their computers –, but there’s  a catch: they can’t move the music from their devices or their computers. If they want to add more songs after the year, they have to buy a new device.

Nokia will cover the royalties it’s paying to three of the four major labels by adding a surcharge to the phones, according to officials at the CTIA wireless show in San Francisco. They insisted the service is not an experiment, but a prelude to what will soon be offered in the U.S. They didn’t specify a time frame.

Any expansion of the service could be problematic for Nokia’s relationship with wireless carriers, who are rolling out their own competitive music services.

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I’ve been writing the last few days about the Hobson’s choice faced by TV networks and other content providers: either cannibalize the revenue from your TV programs  by airing them with less profitable ads on the Web; or keep them on TV — and watch users copy them and post them for free on the Web.

At the 11th Annual Milken Institute Global Conference on Monday, I’ll have a chance to flesh out the paradox on a panel with Eric Feng, Senior Vice President of Audience and Chief Technical Officer, Hulu.com; Albhy Galuten, Vice President, Digital Media Technology Strategy, Sony Corporation of America; Andres Jordan, Vice President, Innovation, T-Systems (Deutsche Telekom North America); and Gene Meieran, Senior Fellow, Technology and Manufacturing Group, Intel.

Hulu.com – NBC Universal and Fox’s joint venture that offers full-length episodes from more than 50 broadcast networks and more than 250 TV series, from The Simpsons to Miami Vice – has clearly decided a good offense is better than a play-scared defense (a la record labels). 

Sony’s Albhy Galuten –probably the only Grammy-winning songwriter who’s equally at home in high technology – knows better than most the trade-offs content creators must consider to survive in the digital age.

You can sum it up as surfing: put out enough free content to make sure you have a stake in whatever business model comes down the pike; but not so much that you destroy your core business.

A suitable analogy for a Southern California conference.

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Nokia and Sony BMG’s announcement today that buyers of select Nokia phones will get complete access to the Sony BMG’s entire music catalog is a model that’s likely to be repeated over and over in the years ahead.

Financial details weren’t disclosed. But presumably Nokia — which signed a similar deal a similar deal with Universal Music Group earlier this year — is paying a hefty licensing fee for this interesting marketing vehicle: $20 (my number) for every phone sold? Not a bad idea.

Traditionally, music executives have decried the idea of allowing their songs to be "loss leaders" for other products, arguing that music is "devalued" if customers don’t pay for it. They’ve now suffered enough pain that any payment mechanism has to look attractive.

This one still has holes: users can’t burn the songs to CDs or iTunes, the two most popular ways of listening to digital music. But they do get to keep the music they download after 12 months.

If you think about it, there aren’t too many consumers products that wouldn’t work for free music downloads, so long as consumer products companies are willing to pay the freight — and the labels take the plunge.

See Also

• Sony BMG joins Universal in offering catalog on Nokia phones

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Google’s China plans could end up having a big impact on the music industry.
    The search giant is reportedly planning to join with China’s Top100.cn to provide free, licensed music to the Chinese masses – a direct swipe at home-grown competitor Baidu, which controls more than 60 percent of China’s search market and turns a blind eye toward the millions of users who download pirated content.
    Google would cover labels’ royalty fees by selling advertising and offering premium services such as tickets or ringtones through Top100.cn, according to the Wall Street Journal.

    Google’s goal, of course, is to increase its meager 66 percent share of China’s search market. But it could also the biggest test yet of whether ad-supported music can be profitable.
    Pay-per-download’s future is dim at best for a simple reason: no one has to do it. Even if every pirate in the world were shut down, you’d still have upstanding citizens trading their music libraries freely over the Internet and using every imaginable storage medium. The halcyon days of CDs are over for good.
    So the old music industry arguments that free or low-priced songs “devalue” their best product just don’t hold water. It’s hard to see how free songs that make the labels money devalue the product more than overpriced CDs and downloads that are slowly driving them out of business.
    Google will be able to amass invaluable information about the Chinese public by the music they download and tailor its search ads accordingly. That could finally make music a profitable endeavor in China. More importantly for Google, it gives consumers a reason to hang out on Google instead of Baidu.
It’s the same logic that drove Target and Wal-Mart to start selling CDs. They certainly don’t make much of their money from selling the discs (although it was enough to bankrupt the record stores). But people browsing for music are likely to buy something else on the way out.
That’s not devaluing music, anymore than listening to jazz while catching brunch at a restaurant devalues jazz.
Universal, Sony BMG and EMI – the three big labels that will probably accompany Google on its Chinese adventure – have a low-risk opportunity to test the feasibility of ad-supported, free music in a market that’s already stealing their product anyway. How ironic if the country most vilified for music piracy helped validate a system for making money from free music at home.

See Also

• Google Aims to Crack China With Music Push

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The music industry is broken. Any business whose main product is stolen far more than it’s bought can’t be considered anything else.

But how to fix it? Online and mobile music sales are still in their infancy; and it’s still unclear whether the vast  majority of people will be willing to buy songs for

their iPods they can simply download from their friends’ hard drives.

That’s why ad-supported music deserves a look.

The very idea probably seems heretical to music purists. But how obtrusive is putting banner ads on a music site? Even putting short ads in front of songs is not as unseemly as we might think; that, after all, is essentially what radio is.

Imeem, a fast-growing social community built around music, video and other media offers a hint of what music’s future might look like.

You can stream as much copyrighted music as you want for free. Banner ads by Discover, Microsoft Live Search and other advertisers help cover the royalties Imeem pays every time someone listens to a copyrighted track.

The concept has taken Imeem from zero to 18 million unique visitors a month since March 2006.

"We’ve signed three out of the four major and stream their entire catalogs," says Director of Business Development Ethan Applen, who is speaking Tuesday at iHollywood @ AFM in Santa Monica. "Our entire business model is built around given them a share of the ad revenue."

Users who wish to download music are directed to iTunes or Amazon to buy; Imeem gets a percentage of the revenue.

Labels or studios may also choose to pay for ads themselves to call attention to an act or movie. Members can also place their own material for free on the site. If enough users enjoy it, Imeem posts ads on the page and gives the content creators a share of the ad revenue, too.

Undoubtedly, you could poke plenty of holes in Imeem’s business model. But isn’t it nice to find someone in the music industry besides Apple who actually has one?

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When I picked up today’s morning latte at Starbucks, I also picked up a free iTunes download of Brandi Carlile’s Turpentine.

From Oct. 2 through Nov. 7, Starbucks is handing out 1.5 million "Song of the Day" cards, including Carlile, Bob Dylan, Joni Mitchell and many others. Not surprisingly, you can also download the entire albums — at a cost.

Starbucks is also demo’ing the future of the music business.

As retail music sales continue to decline, record companies and artists will become increasingly open to the idea of packaging their products as add-ons to other products — coffee, perfumes, groceries, anything.

And just as websites turn free customers into paid subscribers by first offering them free content, artists and labels will need to give away free songs to entice customers to buy.  

This is a concept I’ve heard repeatedly ridiculed by music industry executives as cannibalizing CD sales and destroying the "value" — whatever that is — of their artists.

That’s silly. The ultimate value of artists lies in how much people enjoy their work; people will always be willing to pay for something once they decide they love it.

Starbucks, which gives customers free tastes of new coffees, knows all abou that. Hopefully, the music industry will also take the hint.

See Also

• Starbucks to offer free iTunes Song of the Day
• Complete artist lineup for the Starbucks/iTunes giveaway
• Dave Goldberg to Record Labels: No DRM, Please

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The big winner in Led Zeppelin’s announcement that the band’s songs will be available digitally is Verizon.

The phone giant will get ringtone and similar mobile rights first. On Nov. 13, Verizon will get full digital rights to classic songs like "Stairway to Heaven" and "Money", along with iTunes.

It’s still hard to find a kid who listens to songs on their mobile phone (my son does, but he’s a self-proclaimed geek).

Verizon is quietly building for the future, much as Microsoft takes initial losses against rivals and survives by virtue of its heft to attack again.

Verizon is a triple threat: it sells mobile phones; it sells Internet; and its TV service is expanding into millions of homes. Make that a quadruple threat: it has a mobile TV, service, too.

There are a lot more cellphones in the world than iPods. Led Zeppelin is just the beginning of Verizon’s plans.

See Also

• Led Zeppelin to Make Its Songs Available Digitally
• Mobile Entertainment Summit

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The music industry’s $220,000 win in its unfortunate suit against a Minnesota woman accused of file-sharing on Kazaa is a great example of how not to win the public’s hearts and minds.

It’s perfectly possible that she deserved what she got; the four major record labels that filed suit claimed she made more than 2,000 songs available online. She says someone else hijacked her computer.

But that’s not the point. In winning the first jury trial in 26,000 lawsuits filed since 2003, the music industry lost far more. It lost the hearts of the minds of millions of young people who think music executives are all rich men who drive BMWs and deserve to have record albums ripped off. Trust me, I’ve heard these kids on dozens of panels. They really believe that.

Jammie Thomas will always be a martyr to these kids, no matter what she’s done.

Let’s get real here. The TV business puts its primetime shows for free online. The Wall Street Journal is soon going to be free online. Most people who use the Internet think their content should be free.

So if the music industry doesn’t want to join the rush to post free, advertising-supported content on the Web, that’s its prerorogative. But must it rub salt in its own wounds by making public examples of the very people who love its music?

I rest my case.

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See Also

• Music Industry Wins Digital Piracy Case

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Way back when, people used to say you couldn’t watch video on a cellphone. “Nobody wants to watch a movie on a tiny screen,” people scoffed at our conferences. “Not to mention the terrible quality of video streaming over the mobile Internet.”

Then along came the iPod Video, and I opined in my blog that the issue wasn’t so much the size of the screen. It was the clarity, and whether the eyes were being tricked into seeing a bigger screen (Remember those cool Sony VR goggles that plug into your DVD player)?

Apple proved with the iPod Video that people would download TV shows to that tiny device by the thousands, and it didn’t look half bad.

Now comes the iPhone, and we have (much as I hate to use this phrase) a paradigm shift.

Forget for a moment the lousy Internet, the indifferent phone service and the lack of a video camera. Here’s what iPhone’s introduction really means:

1) The screen works. The iPhone’s screen is the sharpest, most colorful, largest display ever put on a cellphone. Flip it sideways and you have a fine medium for viewing movies. Not everywhere, not always, but sometimes. That’s huge.

2) It’s a true iPod. The iPhone marks the irrevocable movement of music to cellphones. Yes, it existed before. But as with MP3 players, it didn’t “matter” to millions of consumers until Steve Jobs put his imprimatur on it. Music on phones is now a fashion statement.

3) It’s a computer.  With features such as a  mini-Safari browser, YouTube, Google maps, and a surprisingly usable virtual keyboard, the iPhone is  – or soon will become — a general purpose device. That’s what launched the first Apple computers in the 1970s.

4) It’s a blank canvas. There’s something about that big, blank, buttonless screen that says “use me”.  How long until people scribble notes, take voice memos and use their iPhones as remote control to their TVs? No buttons means all the functionality flows from software.

5) The competition is watching. Just as the first Apples spurred IBM to create the PC and Microsoft to create MS-DOS, the iPhone will spur every phone and computer company to try to create something similar. Clunkier, but competitive. It’s already happening. At a cellphone store near you.

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