Tech Mediums

So there’s a service called slydial.  It’s kinda cool.  Basically, you can go straight to voice mail. 

So the kinds of people you want to use the service on…

This “Issues” Chick

So if you met that chick at the club that looked hot, but then you found out she has some “issues” and you wanna break it off…

The “Investment Banker” Dude (or Ass depending on the depth of annoyance)

What about that dude, same club (it’s a weird club), who said he was an investment banker, but you wonder why he’s ALWAYS home, break it off.

Here are some more situations to use the service.  Hilarious. 

These can be done drama free.

I can see this service doing well.  Too nervous to ask the VP of business development for a job, you can leave a voicemail.  But whoever is sitting at their desk and the voicemail light blinks, he/she might just think you’re a punk because you couldn’t actually call.  So the service will be limited.

I would’ve used the service, but I like the people I’m around.  Seriously, I’m reluctant to give out my cell number b/c it might get sold to telemarketers.

The company behind slydial is MobileSphere.  They have a couple of more cool services including Joopz, which allows you to send/receive text messages b/t website and cell phones.

This is hilarious.  What’s funny is that my wife and I just passed a sign promoting Kenny Loggins in concert yesterday. 

One notable remark from “America’s Finest News Service”:

Analysts speculate that the sector-wide layoff was a result of multiple factors, including redundancies in the singing-songwriting division, rising rehab fees that have cost the group millions, and a 34 percent decline in jump-kicks since 2003. In addition, some of Aerosmith’s younger, more ambitious employees, such as Joe Perry, 57, are willing to sing and play an instrument at the same time, often for half the salary.

 Come on!  Gems, I tell you, these are gems.

Here’s the link to the article.

So, Guy Hands, the CEO of private equity firm, Terra Firma, which purchased EMI in 2007 for $6.4 billion is having a hard time making EMI work.   

There were two things that stood out from the NY Times piece on the deal.

1. How bad recorded music is and how profitable music catalog is
2. How difficult it can be for a private equity guy to handle highly nuanced businesses like music

 What’s more profitable, Recorded Music or Publishing?

So Hands points out that he paid about 80% of the $6.4B for publishing and the rest for recorded music – the music side he says he feels like he overpaid for. 

I’ve heard this so many times before - recorded music is horrible and the only profitable line is publishing.

But it makes me think…isn’t publishing’s value partly (or predominantly) derived from the recorded side. 

Think about it.  If you have a go-nowhere artist, the value of the publishing is nil.  But if you a multi-platinum artist like the Notorious B.I.G., then the value is exponentially more.

So the cost a company puts into recorded music will ideally be recovered by the stream of revenue from publishing.  Economically, the costs are shared, since the value is shared.

There needs to be a model that will help predict this, especially since there’s so much historical data.  Something like an algorithm that factors in popularity of the artist and number of records (or downloads) sold/acquired.

 Private Equity and Entertainment, eh?

Stereotypically, business types and creative types haven’t mixed well.  That’s what partly explains why the EMI deal isn’t going over well.  An analogy is AOL and Time Warner…young, tech folks, mingling w/ old media.  It also reminds me of how superficially ludicrous Carl Icahn’s interest in Yahoo is (superficial because he seems more suited to bothering ExxonMobil or Chrysler, not new media companies).

I can see what Hands wants to do – should be able to wring out cost, although growing top line revenue is more difficult.  Just that music isn’t a business for finance types, not yet at least.  It doesn’t run like a creative tech company (which can be very querky and moody…like me), nor a typical non-tech company.  In other words, it relies HEAVILY on intuition. 

I don’t particular like music for this reason.  I like a more predictable business model - one that uses a little intuition and a lot of hard core facts to build a sustainable business.  That’s why I wrote about the potential for using predictive models in developing a business model for entertainment companies.

 What’s Funny?

What’s funny is that if people were still buying music like they did in the 90s, I don’t think this would be a problem.  It’s just that, now, the business model has to change and no one has figured it out yet.

It makes me think of stocks.  So, in a bull market, the average stock picker looks great.  Many use intuition and it works (like in the late 90s).  After the crash, you saw the great pickers do well.  They used a methodology, a system, that works when the market is more rationale. 

Don’t know if this has been talked about a lot before, so here it goes.  There are flaws in the logic so hit me back if there’s a better way to think about this…koe@TechMediums.com.  

What if traditional media companies were able to use predictive models to lower their inherent risk profile?

 The Risk Profile

So, think of media companies (like Disney, EA, Bad Boy) as a series of formal start-up ventures, where the business model requires the constant formation of start-ups (e.g.., new artists, games, movies) to make money. 

However, unlike normal start-ups, each media start-up utilizes common administrative systems like legal, accounting, marketing, etc., and, for the most part, they are more efficient, since this is what they do day-in and day-out.

Some of these businesses already have a library of content (franchises like Madden, or Disney’s Classics) that they milk to lower the risk profile – making the business model more like software - build it once and charge “rents” and/or offer updated versions for a fee.

But unless you have people who consistently pick out winning “ventures” (Diddy, Clive Davis and DJ Drama come to mind), then you’re at a much higher risk.

 Predictive Models

So what if predictive models (PM) could be used to lower the risk profile by refining the kinds of potential audiences, venues, alternative media, (like video games for film or music), price points, additional merchandise that could be sold to fans? 

Predictive models use a series of data (like whether someone buys a product on sale, what day, what kinds of products, etc.) to anticipate future behavior, like other products they would buy or what day they’d buy in on.  It’s a way to drastically improve the click-through rates of customers.  Obviously, the most widely known models are the ones used by Netflix and Amazon.  Insurance companies have been doing this for years, though, in determining likelihood of getting into accidents or dieing.

  Application to Media?

So how can it be applied to media?

Example questions that can be answered:

·        Music -

o       What extras, if any, should be given away with the CDs?

o       Should CDs even be made?

o       Would demand increase by offering the music for free (then charge for concerts and merchandise) or charge for music, lower price for concerts or no change?

o       What kind of merchandise should be sold?

·        Movies –

o       Should advertising be 100% online? 

o       What other product tie-ins could be developed?

o       What products should be licensed?

·        TV -

o       Which shows or episodes should be broadcast on internet only?

o       What other product tie-ins could be developed?

o       What products should be licensed?

Notice that none of these deal with content.  Entertainment is such a different animal.  You can do all the right research - type of movie to produce, the actors and directors to hire, etc, - and still fall flat because the actor didn’t put in his/her best performance, etc., etc. 

Nonetheless, constant research, polling – on and offline, are critical to gaining as much detail as possible.

 While many of these questions have already been answered, to varying degrees of success, PM (like the one developed by Proclivity Systems) seeks to maximize the effectiveness of the marketing, product development, licensing, etc., and lower the risk profile of the business (not necessarily eliminate it).

As reported by the Onion, America’s Finest News Source, consumers can buy back their own home videos from Steve Jobs’ Apple iTunes for only $1.99.   Apple will not edit the videos, save for the Apple logo in the lower right hand corner of the video, which is done so Apple can help prevent piracy of its content.    “Ladies and gentlemen, the future of home-video viewing is now,” Apple CEO Steve Jobs said at  a media event Tuesday morning. “As soon as you record that precious footage of your daughter’s first steps, you’ll be able to buy it right back from iTunes and download it directly to your computer and video iPod.” As typical of Apple, the technology that captures the video directly from the creator’s camera is top secret.  When asked about the technology behind the video capture, Jobs only mentioned that they have proprietary technology that is referred to as NUTs (nano ware, underwear and Tupperware combined). 

One thing’s for sure, ot offers people an easy way to distribute content using the latest technology to a massive amount of people and not make a dime off it…and you’ll have to pay Apple like everyone else.  It’s better than WeMix.com, Global Grind, YouTube, Veoh, StreetCred.com, Funny or Die, iMeem, iFilm, Google video, MySpace, Blip.tv, Metacafe, Yahoo! Video, PodShow, GrindTV, et.al.

In a move to increase its page views it offers to advertisers looking to reach the African-American demographic, Radio One, through its digital arm, Interactive One, has worked a 5-year multi-million dollar deal to exclusively provide advertising to AllHipHop.com, one of the most popular hip hop/urban focused sites on the web.

The deal allows Radio One to exclusively fill AHH’s advertising with its inventory.  The press release reports that AHH has more than 500 million pages a month from more than 4 million unique visitors per month. 

In April 2008, Radio One also acquired Community Connect, which owns social networking sites BlackPlanet.com and AsianAvenue.com, among other social networks for $38 million.  That acquisition provided Interactive One with millions of page views.  According to Community Connect, in 2007, BlackPlanet.com alone served over 400 million pages views and averaged 4 million unique monthly visitors.

The deal makes conceptual sense (barring analysis of financial terms).  The demographic for Radio One, which is one the largest holders of radio stations and the largest that focuses on African-Americans, crosses AllHipHop’s audience very well (although a p[orto.  Further, AHH has been on the internet since 1998 and has the kind of brand and digital footprint that will allow Radio One to distribute its advertising inventory quickly.

These kinds of deals, presuming they financially make sense, definitely make sense conceptually for traditional advertising based media companies was mentioned before.

Here is the press release.

Before we get into piracy, a word from McLovin (of SuperBad) on the topic.

Matt Mason, in his book “Pirate’s Dilemma: How Youth Culture is Reinventing Capitalism” discusses a fascinating look into what is very possible a mega trend…piracy in other forms – not just music but everything, how technology is making piracy easier and how, on some level, it should be embraced.

As far as the first two points, sure, there have been bootleg BMWs, watches, software, but Matt’s talking about a world where it’s becoming much easier.

An example, is the 3D printer, which has been talked about for a while (heard about this at about the same time I heard that someone built a PC accessory that could replicate smells over the internet).

As far as it being embraced, I remember an old professor of mine, Pete Fader, a marketing professor at Wharton who’s known for his patented rants, arguing that file sharing was actually good for copyright holders (primarily record labels and their artists). It created buzz. Matt also talks about this in that the demographic who would get pirated material is not the demographic who would actually buy the material. Fader argued that the labels were wrong when saying that they lost $X amount in revenues due to pirated materials. “That’s ridiculous!” Fader said. Just because you can’t get something for free, doesn’t mean you’ll buy it otherwise.

While thinking that copyright laws should be updated, Matt likes the idea of piracy (mentioning that he can’t wait for his book to be pirated).

I actually agree, in concept. I like the idea that new business models need to emerge. That’s why I like open markets. It forces companies, and thus, products, to evolve.

But if I spend a lot of money to make intellectual property, I deserve the right to protect it, regardless of borders.

That notwithstanding, I also think some forms of IP can be seen as marketing materials for a greater thing. Classic example is music. Because of the amount of music put out yearly and the lack of distinguishing characteristics of some tracks to others, music seems more like a commodity. As such, it could be effectively used to market the artist. Artists can let viral marketing take over, bootlegged or not. In fact, in this scenario, you want people to pirate it because it costs you nothing…free marketing to create demand.

The model that I favor is a controlled “open” IP.

Software companies have been doing things like this for a LONG time. Adobe let people get Reader (reads pdf documents) for free to help create demand for Acrobat (to make pdf), for which it charges.

This model might be able to be used consistently for all IP and is a direct link to revenue– that’s why I like it.

Here’s Matt’s video. Enjoy!

Thanks to ProHipHop.com for the video.

“Don’t call it a comeback, I’ve been here for years.” - LL Cool J’s “Mama Said Knock You Out”

I gotta give it to MySpace!  Looks like they are coming up with a way to unlock the value in the site.  Based on a lot of feedback from current and former MySpace users, the current model was getting stale.   The new venture is ripped (in a good way) from the page of how to unlock intrinsic value while protecting your ass from current and future lawsuits. 

The Quicks: MySpace is spinning out its music service as a separate venture with minority shareholders being 3 of the 4 major labels: Universal Music Group, Sony/BMG and Warner Music Group (there’s some speculation that EMI will likely join given that the other 3 are in).  The deal was made on Wednesday after UMG agreed to drop its lawsuit.  The ad-supported site will offer free music and video streaming, DRM-free downloads for any device including iPods, concert ticket sales and merchandise and social networking features such as sharing customized playlists with friends.  Check these sources for more info: NYTimes, Tech-Ex and Yahoo News.

So why would they do this?  Among a few, here are three:

·        creates a formidable competitor to iTunes,

·        aligns record labels interest with MySpace’s, and

·        unlocks some value within MySpace.

 The iTunes Play

It’s no secret that iTunes is enormously popular.  In 2007, iTunes became the largest music retailer overtaking the behemoth marketplace that is called Wal-Mart.  Since iTune’s primary format is digital, then it has a pretty enormous share of the digital download market – the only part that’s actually growing (increase of 21% to 29 million downloads in 2007).

So it’s not exactly rocket science that the majors want to help mitigate the impact of one company’s (Apple’s) influence over the market. 

 The Align Interest Play

“Keep your friends close and your enemies even closer.”  That pretty much sums this one up.  With the labels having a stake in the company, their interests are aligned with MySpace’s.  Thus the threat of another Label v MySpace lawsuit is significantly reduced.  Each can make money on the mega trend of streaming content, and, at the same time, creating value (enhanced by litigation reduction – see Value Reason Play below).

Thus, it makes sense for the labels to partner with MySpace in spinning off it’s music division, since it already has a large footprint (about 30 million uniques/month and 5 million artists).  It also diversifies the labels revenue stream, which I’ve argued for before.  This is smart!!!

 The Value Reason Play

Often, spinning out a division of a company unlocks the real value of that division (i.e., the sum of the parts is greater than the whole).  Think of it this way…RJR Nabisco had tobacco and food divisions.  Tobacco, because of the litigation, limited the growth of the company’s stock price.  Consequently, the value of the food division was hindered because of the tobacco.  So RJR spun off the foods division into a separate company.  Corporate raiders of the 80s did this kind of thing all the time (buy a company on the cheap and sell off the parts and make a killing).

So maybe this is what’s being done here.  Outside of this deal, MySpace’s growth prospects weren’t looking so good.  We sampled 20 non-artists who have MySpace pages and asked if they still used it.  If not, what social networks do they used?  17 of them didn’t check their MySpace pages frequently (generally going to it once every 2-3 months).  The social network that’s grabbing 15 of them…FaceBook.  Artists still use MySpace as I found out at the Urban Network Summit a few weeks ago.  It’s still a great platform to showcase their wares.  Just that the fans don’t seem to be clamoring for MySpace the way they used to…so outside of this deal, MySpace was dieing.

So the good thing is that MySpace has a stake in the new venture that will enhance it’s own valuation. 

 What about Independent Artists?

The one thing that MySpace did was help even the playing field for independent artists.  With the majors owning a stake in the new venture, what does that do for the indie artists?  This wasn’t clear in the MySpace press release.  Logically, the labels will want to have their artists featured, but it’s the indies that really made MySpace what it is.  There’s a LOT of them and their enormous fan base.  I wonder if they’ll have to fight to get exposure.  You know?

 Btw -

I presume that the labels will not exclusively distribute their content on the MySpace music site.  I can see arguments either way, but

 Facebook

FaceBook has always been rumored to be talks with the labels to establish a similar music service.  It already has music services, but nothing to the extent of a full-feature music service (the current system is more of a application). 

We’ve written about 360 deals before.  The much rumored deal between Jay-Z (aka Shawn Carter) and Live Nation is expected to finalize this week along those lines. 

The NY Times reported that the deal is valued at $150 million.  The short of it is that Jay-Z gets what amounts to an investor in Live Nation for future ventures that he creates.  These would include record distribution, merchandising, concert ticket sales and merchandising.  Live Nation will annually fund Jay-Z’s umbrella company (that will partake in the venture) and share in the profits thereof.

The deal reflects the kinds of 360 deals that we’ve talked about, where more and more mergers and acquisitions will happen along the vertical: record labels, distribution, artist management, merchandising, advertisers, promoters, etc. 

The inevitable ‘why’ comes to mind.  Because CD sales are down, more music is becoming free or low cost, but demand appears to remain strong. 

So the best business models will seek to diversify and capture different streams of revenue, presuming that core demand is still there. 

 What’s more interesting is that LiveNation is positioning itself as the ‘GE’ of music. 

Live Nation could have its hand in just about every aspect of music (rather entertainment).  Investing in Live Nation could be like investing in a mutual fund for entertainment.  Distribution, concert tix sales, merchandising, promotions, the whole nine. 

 Logical Next Step

What would be interesting is to see Live Nation partnering/acquiring a company in the web 2.0 space, like a distributive media company (e.g., widgets), a virtual world like Doppelganger’s vSide or the next FaceBook kind of social media company. 

It would make sense when looking at the mega trends of more people spending time online, TONS of dollars going in online advertising, online services, etc.

Live Nation appears to be building such a model.  It acquired Music Today, a one stop shop for merchadising, fan club building and more for artists.  Live Nation has been partnering with several companies to develop its online presence, like Last.FM.  Full acquisition might be the next step.

.

Further, it is marking its territory to become the better record label model.  It already wooed Madonna from Warner.  Now, Jay-Z is leaving Def Jam.  This is particularly interesting since Live Nation has historically focused on rock and country.  

I asked a couple of record labels about possible acquisitions as a revenue strategy, but maybe it could be basic business strategy to ward off companies like Live Nation.  Most said they really hadn’t thought it through.  But a few are realizing the game is changing and it’s not really about entertainment, but a basic business policy that creates allies everywhere to further the mission of the company.  I’ll write more on this later. 

Fascinating!!!

On an industry panel, I made the comment that copyright holders, particularly young, independent artists, should focus more on distributing their content on all available platforms, rather than on DRM (digital rights management).  Not that DRM isn’t important…but at this stage, it’s not as important.

Consider a DRM free model.  For an independent artist this is invaluable.  People can freely distribute that content on any and all platforms.  But get this…it doesn’t cost anything.  It’s free promotion without the artist having to do a darn thing.  If you consider the potential for lack of royalties because of the DRM infringement (as an opportunity cost), then consider this cost as a cost of marketing.  How much would it cost the artist to get that content in front of people who can’t hear the music because of DRM?  I don’t know, but do you want to take that chance of the content not proliferating to the full extent possible?

This is at a very critical stage now.  The internet has been THE go-to platform to distribute, play and search for content by all stakeholders (artists, fans, labels).  Being a copyright holder who makes it easy for anyone to hear/see that content will continue to win…because it gets it in front of the maximum amount of people possible. 

Sure, no one wants to get hosed on losing control of the content, but it’s that very control that can limit exposure.  The focus shifts into brand building and creating demand…