Last week’s alliance between Facebook and Spotify turns out to be a much better deal for Facebook than Spotify. While Facebook declined to anoint any one music company as its exclusive provider, and a dozen are signed up, it has extracted exclusivity from the music companies. Or at least one of them. New sign-ups to Spotify must be Facebook members – the non-Facebook world will have to go somewhere else.

Such is the power of distribution platforms. Facebook has got one, and if you want to be on it, you play by Zuckerberg’s rules. It has always been thus. There isn’t an industry in the world where this ancient rule doesn’t apply. And while people may get misty-eyed about the “open web”, or the “neutral net”, this kind of utopianism was always naive in the extreme.

Deals are made. It’s business, folks.

The Facebook music deal also opens all of your Spotify listening to Facebook users – your listening habits, playlists and history are all shared with a billion others, and you must turn this off manually to regain your privacy.

Spotify users are upset about this, and upset about being herded onto the Zuckerberg Reservation.

Spotify has put out an official explanation using recycled tweets from co-founder Daniel Ek yesterday. And from these, Ek seems serenely oblivious to the implications.

“There’s been a big barrier to sign-up, we wanted to remove that and make it a seamless experience,” he said in one tweet, apparently indifferent to the criticism that Spotify had just erected a barrier where there wasn’t one before.

“We want to remove barrier to sign-up and create a more seamless experience…” he confirmed in a follow-up.

And Spotify collated these into a formal statement, adding this:

Think of it as like a virtual ‘passport’, designed to make the experience smoother and easier, with one less username and password to remember. You don’t need to connect to Facebook and if you do decide to, you can always control what you share and don’t share by changing your Spotify settings at any time.

So what’s in it for Spotify?

Well, Spotify obviously needs the attention that Facebook’s distribution channel can bring. Spotify’s business is selling subscriptions, and to get people into the paying habit, it needs them to try the service first. And Spotify’s new users, who wander in from Facebook, will get six months of free streaming. Universal Music’s digital boss Rob Wells reckons it takes six months of free before users see the value of paying – after which they don’t get bombarded by adverts and enjoy higher bit-rates and mobile access.

(Although in my case, the opposite was the case: after six months of paying, I gained a Zen-like awareness that I could save a tenner a month by cancelling a service I didn’t really use. You can hear almost anything for free anyway, and then decide to buy it or not.)

While Spotify has paid a price for its prominence, it may argue (once it gets its shambolic corporate communications into gear) that, in the long-term, excluding competitors is more than worth it. Those rival music companies will have to work much harder, spending far more on marketing, to match Spotify’s profile.

Already, Spotify claims 1m new users from the deal in just a few days. The gains for the other services are much more modest: just a few thousand a piece, according to reports. So the dominant position is becoming entrenched. So far, so good.

But in the short to medium-term, this is an expensive gamble. Remember the most important aspect to the deal I highlighted last week: there’s no new money coming into the system. The pot does not become larger.

And there are other problems ahead.

Power follows Platforms

In the long-term, the deal confirms Facebook’s dominance over content providers. Remember it has the luxury of dumping Spotify and anointing a new best friend. That patronage is powerful and can make or break them. You can bet that Rdio or Soundcloud or Deezer or Mog (also Facebook music partners) would make the same kind of deal.

But they all face a future in which they’re squeezed, as a commodity supplier. They save Facebook an awful lot of work dealing with music licences and bearing the bandwidth costs. But at the end of the day, they’re less of a platform and just another interchangeable component supplier.

And look what else is emerging, slowly. Facebook is becoming the web’s de facto identity system – the Cabinet Office is mulling using Facebook IDs for authentication to Government services, as we exclusively reported back in June. Attaching credit cards to Facebook accounts will take longer.

Entire business sectors have only come to the realisation that digital distribution platforms matter very late, if at all.

Perhaps because they’ve been smoking the “open web” bong pipe for so long. Remember that the web can be technically “open”, while access to markets is tightly controlled. And doing the “open” thing with your angle brackets doesn’t auto-magically open those doors for you.

With this deal, we see the platform company already “picking winners”, and playing the upstream providers off against each other. Apple is already playing this game – because it can – and we must now add Facebook to the list.

Facebook is well on the way to being able to control the terms on which entire creative industries supply their goods. And these terms will always favour Facebook.

The games industry was smart enough to realise that platform control was important. It developed distribution platforms early, and now favours Steam (a vertically-integrated content company and channel), but not exclusively.

Hollywood’s UltraViolet is a platform play whose debut we’ll see quite soon. But the music industry has pointedly failed to develop its own. Hula is the exception, but that’s it’s just music videos.

There’s little point chafing about conditions on the Zuckerberg Reservation if you’ve handed him the future through your own inaction.

There were many other clever things about it, such as a very slick integration of music news. But the killer feature, one that made it unique, was that you could also drop songs you liked into a little box, and keep permanently. This was genuine P2P file sharing. There were no strings attached – no DRM, no expiry, no locker (your stash was your hard drive) and no additional fees for this feature.

And it was all legal.

The truly remarkable thing was that it wasn’t some UI designer’s fantasy, a mock-up created in his bedroom, but a real service backed by one of Britain’s biggest ISPs. This was the original Virgin Media Music Unlimited. Virgin had invested millions in it, with dedicated servers installed around the UK to bring this world-beating British innovation to the masses.

And then, weeks before it was due to go live, two of the suppliers in the music industry got cold feet, obliging Virgin Media to put the project permanently on hold. As with News International’s Project Alesia, the original VMMU was a great glimpse of the future from the vantage point of the present. It’s a future that will certainly come, but currently it seems a long, long way away.

Last night Facebook unveiled shared music streaming, so friends can listen to the same stream and comment on it. But that’s it. The deep music integration that Virgin Media valued is still missing.

As is something else rather important.

There is no new money is coming into this system.

The potential income available to Facebook remains the same as before, but it’s now divvied up between one more tier of suppliers, who, in turn, divvy it up between lots more people. Analyst Mark Mulligan writes today that “Facebook has made itself into a cable company for music services”, which is quite astute; it’s a platform, of sorts. But if business means creating value, and value creation means getting people to open their wallets for something new, then this really isn’t a “business” at all. It’s a pretend one.
Engineering works

This week Rory Sutherland, in his ever-excellent Wiki Man column in the Speccie, laments that the media is obsessed with communications technology at the expense of highlighting engineering innovation in the physical world.

“Steve Jobs has sometimes been described as the 21st Century’s answer to Edison, but perhaps we need a 21st Century answer to Brunel,” he writes.

He’s right – and it’s actually a lot worse than he thinks. For years I’ve been lamenting the lack of engineering values on the web itself – which many moons ago I described as “a bunch of presentation-layer people attempting to solve infrastructure-type problems”. The result today is the Shoreditch “tech scene”, in which nontrepreneurs stroll between endless “meetups”, avoiding the nasty particulars of creating value, being original, or ever solving a technical problem.

A step in the right direction would be Brunel-type thinking for how to make digital networks better, because half of the internet we need is still missing. It hasn’t been written. The net currently lacks the convenience of many aspects of every day life – and the half that’s missing are payment platforms, credit systems and deep supply side reform of businesses around these. These in turn address lots of deep problems, such as risk and liability and pricing, and allow people to create something with a lot of consumer convenience.

But what Rory really identifies, I think, is more than just sociological, a case of the wrong people being employed across Shoreditch and beyond. What he highlights is a desperate lack of optimism and ambition across capital investment, entrepreneurship and engineering. To make VMMU work required enormous challenges to be met. And a lot of cojones by almost everyone involved, from music suppliers (labels and publishers), the service provider MSP, and the retailer Virgin, who had to worry about liabilities and was ultimately unable to overcome them.

That ambition seems to be absent.

And in its absence, we still have to coo and gasp about how marvellous it is to have music streaming from a widget on a social network. ®

We all know why Facebook has such astronomical valuations. It is already as ubiquitous as Tesco. It is a place a billion people go to: whereas they only ever leave Google search, to go somewhere else. But people hanging around, poking, throwing cows, ignoring the adverts and goofing around doesn’t pay the rent. To increase revenue, Facebook needs to sell more stuff: products and services.

A Facebook music “dashboard” has long been rumoured: it would be a way of tying together disparate offerings such as eavesdropping on what friends are playing, streaming music yourself, or buying songs, ticketing or merchandise. A music dashboard is a subtle and relatively unobtrusive way of turning Facebook into a grown-up retail and services platform; an approach which borrows from the classic (Porter) Tesco philosophy of taking a tiny margin from a large volume of transactions.

So Facebook is expected to unveil many of these, including the dashboard, at its f8 developer conference next week. So far, so predictable.

The most interesting detail to emerge is that in addition to transactions there may also be an arbitrage opportunity. Facebook will apparently permit competing streaming music services (Spotify, Rdio and Mog in the US) to pipe music to users, and “reconcile” the content. So if your chat buddy is playing a song via, say, Spotify and wants you to hear it, you can hear it via your choice of streamer. This has been something of a Holy Grail for service developers – not helped by the music industry’s inability to get its metadata story correct. Facebook can even play one service off against another, driving the costs even lower.

But there’s also a downside.

One is that Facebook’s decision to open itself up as a platform, while this contributed enormously to its popularity, also has a downside. Supermarkets succeeded by putting everything you wanted under one roof. They created ersatz deli counters – but did not host rival delicatessens. Facebook’s willingness to use rivals raises long-term margin issues.

But the bigger problem is that there’s not enough money coming into the system. Three years ago, the conventional wisdom insisted that people would never pay for anything on the web. For some people, that’s going to be true now and forever. But that was before the App Store, and the successful (and porous) New York Times paywall. Facebook absorbs an enormous amount of people’s time. If a fraction (say 20 per cent) of them paid 99 cents a year, then the revenue picture would look quite different. If 10 per cent paid even more for premium services then Facebook wouldn’t be thinking about chiselling fractions of cents from its existing partners.

For all the talk of the web being the font of innovation, it’s clear to me that it lacks some really basic features – paying for things is extremely tedious. These are innovations other businesses have put into the practice. And supermarkets have perfected the trick of making you quite pleased with the transaction. Maybe that’s on the whiteboard for Web 11.0, but I think most web companies haven’t given it a moment’s serious thought.

A Facebook that received predictable subscription income wouldn’t be thinking of selling your data, either. The phrase that best sums up the web today – “You Are The Product” – would become less relevant.

I once proposed this idea on BBC radio, in a debate about privacy. My interviewer looked quite startled by the prospect of money changing hands in the beautiful Garden of Eden that is the web.

“Wouldn’t this violate net neutrality?” he mused.

I demurred.

Then a blessing of unicorns charged into the studio, and I was carried away to be re-educated.
Read the original story at The Register.

More hysterical shrieking reaches us about Apple’s new music feature, I’m afraid.

Earlier this week a lone lawyer said that iTunes Match, which populates an online store with songs you already have, encourages infringement. Well, this one is even nuttier.

It’s actually so spectacularly muddle-headed, I thought it might be is a good time to examine what did and didn’t happen this week, briefly – so we can see through the hype to the reality.

Bob Lefsetz, the shouty publisher of the eponymous industry newsletter, is normally very critical of record labels – often for the right reasons.

“His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to EVERYBODY who’s in the music business,” he says modestly, on his own site.

This week finds Bob barking furiously up the wrong tree. He thinks the labels have sold out the future record industry, in return for a one-off payment of a few dollars from Apple.

Writes Lefsetz:

“For approximately $40 million to the bottom line of each recording company, you know they’re not going to share the revenue with artists, the labels sold out their future.

It’s like Nintendo being paid a bunch of money to never develop the Wii.

It’s like Electronic Arts being paid to never develop mobile games.

It’s a denial of the future.”

Silly Bob.

Paying for Apple’s iCloud doesn’t get you any music you don’t already have – as we have pointed out a number of times already this week. If you want to hear a song you don’t already have access to, you have a number of options. You’re going to have to buy it, or rent it via a subscription service, or wait until it comes round on the radio, or find an unlicensed (aka “pirate”) copy from the Torrents or Rapidshare, or a blog, or some other unlicensed source.

Or borrow a copy off a mate.

In other words, these are exactly the same choices you had before Monday’s iTunes Match service was unveiled. The supply side is unchanged.

All iTunes Match offers us is a universal, multi-directional synchronisation option for our music collections, rather than the bi-directional PC to mobile option common today. Spotify already offers something similar today, but for around six times the subscription fee, you also get access to millions of songs you don’t already own. (Which is then sync’d across multiple devices).

Why is Bob not complaining that Spotify is destroying the future of the music industry? Because it would be silly. But that proposition has more merit than positing that nobody will ever buy another song they don’t already own. That’s the only way Bob’s argument can stand up.

I can’t quite see why this would happen, or how iTunes Match would cause the greatest, and certainly unprecedented, shift in cultural demand patterns in human history.

Plus ça small change

Rather than selling out the music industry, the labels’ decision to license iCloud merely gets them off the hook, prolonging the agony a little longer.

As I argued here, the music business needs to be experimenting furiously, trying all sorts of pricing tests with new services, and giving us new ways of getting to the stuff. These include new kinds of bundles, vouchers, even alternative currencies – all of which reward us paying punters.

If it fails to experiment, and we’re stuck with per-song downloads and rental (of music that disappears), then the value of music will continue to diminish, just as an uncultivated garden gets filled with weeds. And that’s not fair to the people who create it – who will be obliged to adopt what I call PBBMs: Pity-based Business Models.

Bob has great faith in mobile subscriptions, and castigates the industry for being seduced by the Cloud. But this misunderstands the one tiny technological point of the cloud services worth knowing. (And it is fairly tiny, and offers very little to consumers overall). If multiple-device cloud sync takes off, then mobile will cease to command a premium.

Whether the iTunes Match feature takes off is far from certain, though, and really depends on how many people think the multi-sync it offers is worth paying for, over the bi-sync (or no sync) we use today. Some will undoubtedly find instant value in it. For others, it’s a ‘so what?’ feature.

I can see the appeal of all my music being accessible to all my devices too, but I’m not somebody who needs every song on every device at any time. It strikes me as a bit anally retentive. The deal-breaker for me is that I really don’t want my music, much of which was encoded very carefully, chewed up and spat back at me in AAC format. For me, rsync across my home network does just fine. ®

Each year UK record labels send out 25,000 promo CDs. In new research released today it is estimated that the manufacturing, packaging and transportation of these deadly items creates 1,686 tonnes of carbon dioxide. That’s 10 times as much CO₂ as is generated by distributing the music electronically. But only a quarter of promo music is distributed electronically, today, and music groups the British Phonographic Industry (BPI) and the Association for Independent Music (AIM) have called for that proportion to be increased – for all our sakes.

(The research estimates a digital file “emits” 62g of CO₂.)

Former EMI chief executive and current BPI chairman Tony Wadsworth said today that the new research “provides clear evidence for a responsible way forward for all labels big and small. We will be encouraging everyone involved in promotion – labels and media alike – to reflect on these findings and consider how they can speed up the move towards digital distribution.”

Switching all promos to digital delivery would save 240 tonnes.

Just to put that in perspective, underground wildfires in China produce up to 450 million tonnes of CO₂ a year. The amount of CO₂ produced by new build coal power stations around the world, which help millions of people out of poverty, is around 500 megatonnes a year. Total CO₂ emissions from coal are 5,814 billion tonnes of CO₂ , rising to 6,820 in 2035. In other words, we could turn all the world’s coal power stations off for about twelve milliseconds.

Every little helps, though.

The research was carried out by Alison Tickell for her music business environmentalist group Julie’s Bicycle. Tickell is a member of a global warming dynasty. Her brother Oliver earns royalties from carbon offsetting, while her father, the former diplomat Sir Crispin Charles Cervantes Tickell, is credited with convincing British PM Margaret Thatcher of the hypothesis of catastrophic man-made global warming in the late 1980s. By 2003, Thatcher appears to have recanted – and in her memoir Statecraft doubted the warnings of politically-motivated “doomsters” and described their anti-industrialisation policies as “costly and futile”.

Tickell Snr is a patron of the Optimal Population Trust and made an ominous prediction to an interviewer last year: “It’s one animal species out of control,” he said – meaning us, “and the awful thing is that if we don’t control it then Mother Nature will do it for us.”

Bootnote

The music business has done its bit already. Sales of physical CDs have fallen by 20 per cent from the 162m units shifted in 2004 – more than cancelling out the entire promo effect. Or, another few milliseconds of coal-fired power carbon emissions.

Spain provides a case study in how to balls up a levy.

Under EU law, member states may provide an exemption for a person making a copy of a work for private non-commercial use, “on condition that the rightsholders receive fair compensation”.

The Sociedad General de Autores y Editores de España (SGAE) asked for and got a levy imposed on blank media and consumer electronics goods, which has swelled its coffers by over €20m – a 72.9 per cent increase. But it had been applied indiscriminately and set too high.

For example, businesses were charged for making CD backups. Naturally this led to an enormous consumer backlash. Punters felt they’d paid for the work twice – and freetardery became rampant.

The case covers royalties from 2002 to 2004. The Court ruled that only devices or media that can be shown to potentially harm authors may qualify.

The Court agreed that “the person who has caused harm to the holder of the exclusive reproduction right is the person who, for his own private use, reproduces a protected work without seeking prior authorisation from the rightholder. Therefore, in principle, it is for that person to make good the harm related to that copying by financing the compensation which will be paid to the rightholder.”

However: “The indiscriminate application of the private copying levy to all types of digital reproduction equipment, devices and media, including in the case expressly mentioned by the national court in which they are acquired by persons other than natural persons for purposes clearly unrelated to private copying, does not comply with Article 5(2)(b) of Directive 2001/29.”

It bounced a further question, whether the Spanish law was consistent, back to the national courts.

Unlike most EU members, the UK has no private copying exemption. Home taping has never been legal here.

In 2008 composers and songwriters asked for consistency with Europe in 2008, stating that consumers should allowed by law “to transfer music they have purchased on to a portable device, while ensuring that a fraction of the value is enjoyed by those who create music and invest in in its creation”.

You can find the ruling (dated 21 October) here.

Jim Griffin’s bold plan to take P2P file sharing out of the black economy, and into the one that deals with green folding stuff, flopped because it couldn’t explain to songwriters how they’d get paid.

That’s president of the Songwriters Guild of America Rick Carnes’s view of Choruss‘ demise and he says it’s why the songwriters didn’t back the plan. Similar blanket licence proposals have been made by the Electronic Frontier Foundation, and others; but for Carnes these are little more than a rhetorical fig-leaf.

“The EFF doesn’t have a plan, they barely have a theory,” he says on the MusicTechPolicy blog.

Could a similar plan to take P2P legal work? Well, in 2007, the Canadian songwriters proposed a similar blanket licence – creating a “right to remuneration for music file sharing” – one backed by a tax. In their scheme, both end-users and songwriters who don’t like the terms could opt out.

It’s hard to find any other organisation that backs such a proposal, because few volunteers would be found – and the small amount they pay would not compensate for the possible destruction of other online businesses, such as Amazon, iTunes and Spotify. Nor would overseas artists take kindly to a unilateral step.

Nevertheless, it’s won tentative support from US songwriters.

“The SGA will continue to support the initiative as long as there is an opt-out included. Without the opt-out we cannot support them without more discussion about the details of the system. One of the things we tell songwriters is never sign a contract without understanding all the details. We adopt that same attitude in supporting legislation,” says Carnes.

Paul Sanders whose company came within a whisker of launching the first legal P2P service with Virgin last year, says Choruss fell down on the issue of liabilities. A legal P2P offering can’t hope to get every licensee in the world signed up – every owner of master recordings, every publisher and every song writer.

So there will be an exposure to infringement litigation. That’s fair enough if you’re a network owner – an ISP – or a service provider; you can reasonably claim good intentions. Instead, Choruss revived the old client/server model of Napster, this time with a revived AudioGalaxy.

“Once they went to the client model they became potentially liable, in my opinion. You can deal with what you can’t see in a free flowing network much more easily when your software does not actually hold an infringing copy in managed storage,” he told us.

You can read the Carnes interview at MusicTechPolicy.

The proposal had been pending EC approval, which has now been granted in the name of “preserving pluralism and cultural diversity”.

Good news for downloaders, no doubt, and a delight for record companies and publishers. But is it good for the music business in the long run?

A lack of business innovation plagues the music biz, where supply side reform is long overdue. Licensing music is tedious and territorial, and the mentality is stuck on unit shifting rather than licensing. So instead of trying to create new markets, with new and innovative products and services that we can’t even imagine yet – the industry may be tempted to view the taxpayer-funded boondoggle as a permanent handout. From Mystery Train to Gravy Train, if you like.

You also may feel a shudder when a cultural industry starts to rely on bureaucrats and politicians for its income. That’s not very rock and roll – nor is it very healthy for its independence in the long run.

But then this is France.

Google has always linked to other people’s stuff, and stayed out of retailing bits itself. Over time it’s blurred that line, without ever really crossing it. This was a line that Microsoft never really crossed either, although Windows Marketplaces were announced, then came and went phut, as regularly as Service Packs.

Now we can confirm that Google is gearing up for a Music Store – CNet’s Greg Sandoval hears this could be upon us as soon as the autumn, it may decide this high-minded distinction is no longer one worth preserving. The rumours strongly suggest Google will be integrating music into search – no surprise, there – but there’s plenty of speculation that it will go the final step, and retail the music directly.

Let’s put aside for a moment the China experience, where Google – with the full blessing of the major labels – launched a free MP3 download service, entirely supported by ads. This was a very unusual situation, where China’s dominant search portal Baidu was serving up MP3s without a license, hosted on an ever-changing network of obscure domains that nobody else could reach. Rights holders aren’t about to repeat the experience here – and with a market of willing buyers, there’s no reason why they should. So disregard it as a precedent.

The reason for Google’s reluctance to sell digital bits is pretty obvious: its market dominance as a search engine puts it directly into competition with online retailers, and puts them at a potentially crippling disadvantage. If Google is the first port of calling for getting to stuff on the web, why would anyone find a second? Google takes you directly to the checkout. It spells the end for any online retailer without massive scale, and the brand and resources to match.

But you can see the thinking, here, even if you don’t approve. For some time Google has eyed the rise of price comparison sites with some irritation. What value do they add, a Googler might ask? Most are little more than crummy pseudo-editorial sites, in the pocket of the largest vendors. Surely a classic case for intervention by algorithm. Well those price comparison sites are already earmarked for extinction and few will mourn their passing – they don’t really add much value. But then again, that doesn’t mean Google will be pushing out the bits itself. It may simply subsume price comparison into its existing apparatus.

And once again, a Googler might ask – why on earth go the extra step? It’s not as if the Chocolate Factory wants to sell you lawnmowers or TVs, the high-margin end of Amazon’s business. It’s only an MP3. In terms of scale, the world’s music is somewhere between 25 million and 35 million MP3s, but then only a small proportion of that really matters to a mass market retailer – you’ll recall the study that showed that of 12 million songs in (what we assume to be) the iTunes catalog only 3 million sold a copy in one year. Google has plenty of capacity and bandwidth – why not remove the extra step and sell it directly?

It has demonstrated how. Three weeks ago Google unveiled a section of the Android Market that sells music. (Yes, the Android store is Google’s only example of selling bits itself.) From the China experiment, Google knows who to call. Whether it wants to is another thing. For any global operator acquiring rights is a world of pain – the music business is still territorial, and the fragmentation of music publishing rights means it can take weeks or even months of work simply to find who owns what. This is not a problem an algorithm can answer.

Google is now so large it could probably buy the entire sound recording industry for small change – certainly less than a quarter’s revenue. Even if it does, the licensing headache doesn’t go away. So it will certainly be more effective for Google to employ an intermediary to sort this out.

If Google were to employ the same ruthless approach to music as it did with books, Google Music could be a serious challenger not just to every music retailer on the planet, but every producer and rights owner too. We’ll have to see if the company has been chastised by the experience, in which governments eventually turned against the landgrab. I suspect it hasn’t.

And there’s something else unusual. Here’s a group of record companies that are doing well, both critically and commercially, which think the internet has helped them to this success, and can’t wait for the future to get here.

Beggars’ four labels XL, Rough Trade, 4AD and US stalwart Matador Records scooped up a fifth of the Times Top 100 records of the decade. The company recently scored the first indie number one for twenty years (Vampire Weekend), looks to have the critics choice for 2010 sewn up (Gil Scott Heron), and with The Xx has a band whose music suddenly seems ubiquitous, sprouting from every trailer and advert, as well as the BBC’s Election coverage.

Mills himself resigned from the BPI “years ago” and helped set up two powerful industry groups as a counterweight to the major labels: the Association for Independent Music (AIM) and Impala, a Brussels-based business network of companies and trade associations. Impala was crucial in persuading the Courts to overturn the European Commission’s decision to bless the Sony BMG merger. The collective licensing group Merlin, sometimes called a ‘fifth major’, also owes much to Mills’ desire to give more strength to the indies at the bargaining table.

The Beggars setup is also quite unusual, a bag of apparent contradictions. Mills still signs every cheque, and watches the weekly cashflow, but the labels, such as Richard Russell’s XL, have a lot of freedom. The core of the Beggars Group is an operations unit for the labels, but he doesn’t do budgets or ask the labels to do them for him. It’s impossible to predict how music will sell, he says, so why waste the time? In a business that became increasingly populated by suits in the 1990s, this is very unusual.

Mills spends a lot of time thinking about how to make money, but his distaste for “music corporations” is matched by concern about the “corporatisation of the individual”. You can’t imagine a New Media Strategist setting foot in the place, or surviving very long if they did. People work at Beggars for the love of music, and are good at finding it and promoting it.

So there’s a lot of reasons to pay attention to Beggars, and Mills’ thoughts on the future of music. We had a very wide-ranging interview last week covering everything from digital marketing to the Digital Economy Act. A few facts first, though.

The Beggars Banquet label grew out of an Earl’s Court record shop in 1976. Three years later it had picked up Tubeway Army, and found itself with a global pop star. But unlike other indies of the era it didn’t embark on overnight global expansion. This may be why unlike other contemporaries such as Stiff, Rough Trade or Factory, it survived. 4AD was launched in 1979, XL a decade later. It picked up Matador in 2002 and Rough Trade three years ago.

The group now employs around 130 staff worldwide. Between them, the labels invest in 20 new acts a year. Digital revenues are around 50 per cent of the total, far higher than the industry average. The Vampire Weekend number one sold 126,000 in its first weekend, of which 70,000 were digital downloads. In the UK digital is about 20 per cent (up to 30 for new releases, says Mills) while in Europe the ratio is much lower.

There’s also a distinctive profile to the success: Beggars’ labels are much better at selling full-length albums.

“We are four times as likely to convert a fan into an album buyer, rather than a track buyer. It makes a fan that we engage worth ten times as much to us. If you look at The Xx album, they’re selling three tracks for every album, a 1:3 ratio. The industry average is more like 1:10 or 1:12.”

The internet has improved things radically for independents, something borne out by the US success, with its more mature digital market.

“There’s fewer gatekeepers now. We don’t have to knock on a TV station’s door or a radio station’s door and it’s made us far more competitive. We released the MIA film yesterday and within minutes, it was everywhere. We didn’t have to go through a process to try and persuade someone to give it an exclusive. Our ability to get the message out without intermediaries is unencumbered,” he says.

“There’s a wide highway in front of us we can go speeding down, and it wasn’t there even two years ago. It means the majors are looking at a world where only 35 Gold Albums a year are certified compared to ten times that recently. But going above Gold in the US is not a problem for us.”

The internet has revived interest in music, thinks Mills, by encouraging people to experiment.

“It’s made so much more possible – a greater and deeper love of music. It’s re-stimulated my own involvement in music generally, rather than just my business. The links people send you allow you to go off down a path and discover something great.

“People who in their 30s a few years ago who may have stopped listening to new music, or were listening to iterations of music they heard in their late teens or early twenties, are now able to discover entirely new things. You’ve got new artists being discovered by 30, 40, 50 and 60 year olds. You’ll now have a group of friends talking about music and sending links. I think that comes from the integration of the laptop into both our working and our personal lives, the internet is so great at spreading the word.”

It’s also made production cheaper.

“The scale of our investment has changed. Recording is cheaper these days. Film making is cheaper. You can make the raw materials that we invest in miles more cheaply. The excesses of record deals largely disappeared, so we much more able to invest at a realistic level, rather than an insane level, which we sometimes had to do, and sometimes we still do. But we’re probably signing 20 new artists a year across the 4 labels, and investing significantly in all of them. We still spend 20-30 per cent of our turnover on artists. So although it’s at a level more sensible than it was, it’s still very significant, and it’s what we do.”

In recent years, the Beggars labels have had established acts knocking on their door, such as Radiohead. I wondered if this altered the investment pattern?

The artists we’ve done we thought were truly exceptional. We’ve no desire to be where Sanctuary were in their heyday. We’re all about getting a band to a stage where you can see it’s working.”

The reason for the independents singing a different tune to the majors, he suggests, is quite interesting.

“You read the industry is 60 per cent of the size it was ten years ago. But that 40 per cent that has gone is almost entirely the cream at the top. Records that sold two million now sell 500,000 – that’s where that’s gone. At the same time it’s easier to sell those slightly smaller levels.

“What’s called pejoratively ‘the new middle class’ is someone like, say, Calexico or Midlake, who can sell 100,000 plus records every time they put out a record; they can play to 3-4,000 people in 30 or 40 cities around the world. And they can make a pretty good living out of that, doing what they love doing, and can do it on their own terms, and that’s fantastic. We’ve got a bunch of bands like that, they’re not necessarily seeking stardom or riches. That’s incredibly healthy.”

But it’s still recorded music that drives the success, most of the time.

“99 per cent of what you hear about artists who can survive on their own playing live is crap. It’s recorded music that drives success in other areas. Something like Enter Shikari was clearly a contrary example, and Mumford and Sons are something of an exception too – they built a large live following before putting out records – but there are very few exceptions.”
Radical Reforms needed

Despite the sunny outlook, and his belief that its “probably bottomed out, the onslaught of free music is retreating”, Mills says the industry needs to reform itself radically, and lose its fear of commercial experiments. The future is in new services we haven’t seen yet – but it’s still too hard for these services to start selling music.

Some kind of statutory licensing would help the next Spotify or We7, he thinks. Not an open-to-all statutory, where punters could come and help themselves to all the world’s music for a fiver a month – but a B2B experiment – something to help intermediaries obtain licenses.

“We have to make licensing easier and faster, not necessarily cheaper, but easier. We’d like to see some kind of short-term government-endorsed trial structure that we could experiment with for 12 or 24 months, and see the impact of it.”

What would stop some joker turning up, who had no business plan, or maybe even no intention of ever paying for the licenses?

It would need some kind of government agency to approve licensees. But regulators already decide who can run a TV station, or call themselves a bank – there is a threshold. “You’d have a validation process so not everybody who turned up got one.”

Mills says the flat-fee collective licensing of ISPs, touted by some as a panacea with a zeal bordering on the religious, doesn’t have much industry support.

“Peter Jenner has been very vocal about that for a long time. He likes to characterise himself as a crazy eccentric. He’s a lovely guy but there isn’t a huge amount of support in the music industry for something that radical, and it’s not needed. A lot of markets are working quite well. Look at the growth of the download market, it’s pretty healthy. We have 5 to 10 per cent growth a year in digital albums, it’s heading to 30 per cent of the market now.

“Having a single way of consuming music for a fixed amount, that’s same for everyone around the world, is nuts I think. It’s not needed.”

It would also be bad for independent labels who cater to music lovers. By contrast, he’d welcome an offering of a fixed bundle of downloads, via an ISP.

“Unlimited all-you-can-eat offers would hurt us badly. Our market is dedicated high-spending music fans. If you’re Universal, sacrificing the few high-spending fans they have to get many more low-spending fans is probably a good bet. We’re on the other side of the mirror. Much as I would embrace it philosophically, I can’t embrace it practically. There has to be a limit or cap. It would hurt our artists.”

The industry also has to create a global database of repertoire, he says.

“We need a database to track and identify tracks properly and who the performers are. We should have had it ten years ago, it becomes a bigger task with each year. It’s a minefield of partially-attributed rights. When you license a song for a compilation in Australia, you don’t know where the money will end up.”

The Mandybill: was it necessary?

On to the subject of piracy then.

“We know some of our best purchasers are also pirates,” says Mills. “People consume our music in a mixture of ways. Some only pay for it, some pay for none of it, and some do both. We accept that, and don’t want to attack our own fans.

“You’re never going to get rid of free music, partly because we know you can’t, and any time you put a price on a copyable monopoly good, you’re going to get copied, but also because we’re in the business of circulating music for nothing. I can’t remember the last album we didn’t post one MP3 from. We’re using that in a controlled manner, as part of the process of making it available for sale. It’s managed, and it’s what the band wants to happen.”

The argument that P2P leads to purchases has a grain of truth to it, but it’s probably been over-emphasised:

“I think there’s certainly a percentage of file sharing usage, historically, which provided a discovery process that led to sales. There’s also a percentage which was a direct substitute for sales. Now, you’ve got the likes of Spotify and I think that it drives a coach and horses through that argument. You don’t need to file share to discover music now. If you want to discover things and listen to them you can do it legally, though I do think we should make tracks available for sale as soon as they’re being played on air.”

Other factors played their part in the decline of sales, he notes, not just P2P. “CD burning made the most immediate and obvious difference. I don’t believe swapping should remain outside copyright, we should enable private copying in return for a right to remuneration.”

Yet despite Mills’ long-running battles with majors, and a much more nuanced view of file sharing, he welcomed the passage of the Act.

“Your comment recently, that it was an astonishing result in the circumstances, was really right. The forces ranged against it happening were huge and well funded, and completely dwarfed the rights industries, not just the music industry. The government made it happen against the odds. There’s a long way to go, and a lot of it is still undecided, but the principle is now there, and the principle as now supported by Parliament – which is that creators have to be rewarded for their work. That has to be valuable.

“It was not perfect but it had to be done.

“I find it quite hard to understand the right to free music, or the right to an internet connection. If you don’t pay your water bill, you get cut off.

“The BPI doesn’t represent the whole industry. It represents the major record labels. I think that the creation of UK Music has helped – it’s given the industry a more moderate collective voice. The big record companies are hardliners, and they have every right to decide how they want to play the game, but the independents are bit different.

“That said, I think the BPI is more open to debate than it used to be.

“It’s not in anyone’s interests for the majors to do badly; they become defensive. We’re at the mercy of the market leaders, they frame the market, and we have to operate within it.”

Mills stresses that it’s now up to the industry to get better at selling music, in all kinds of ways:

“I’m still astounded that you need a credit card for iTunes, something beyond the reach of most teenagers, while you can’t buy music by text message.

“The last ten years shows the record industry is not able to provide its own solutions – you need an iTunes to do it.” He says the industry has to recognise the skills of retailers again. It’s never been very good at introducing these things, “perhaps understandably, because it’s not their business … majors tend to be about control”.

But he thinks even though music is digital, independent music stores will come back again, as places to discover music again.

It’s unusual to hear an optimistic view of selling music, but Beggars and the leading British Independents point the way to a revival.