Pay Per Use

I bought my first copy of Exile on Main St. in 1980 at Nuggets in Kenmore Square. It was played so much in the Lounge that I had to get a second vinyl copy in the mid 80s which I still own. Then when I got a digital music system, I bought Exile on CD and ripped it and put the mp3s on my music server. I am listening to those mp3s at this very moment.  Shake your hips babe!

I've paid a total of about $27 for these three copies of Exile. The first copy was sub $5 because I bought it used. The second copy was about $12. And the CD was about $10 on Amazon.

And I can tell you that I've listened to those 18 songs at least a thousand times, probably way more.

I paid more for my single copy of The 50 Greatest Love Songs by Elvis Presley which I think I've listened to once.

Here's my point. The analog method of selling you music in a physical package which you can use to your heart's desire is not artist friendly or consumer friendly. The Rolling Stones and their marketing partners should have been paid way more than $27 for my consumption of Exile on Main Street. And Elvis' marketing partners should have been paid way less for my consumption of The 50 Greatest Love Songs.

Bill Erickson sent me an email last night suggesting I get a book called Out of Control by Kevin Kelly. This book was written in the mid 90s and is about what is to come in our society. I've added it to my books to read list on the right sidebar of this blog.

In Bill's email he quotes from the book:

While contemplating the possible market for OOP objects that were sold on a "per use" plan, Cox uncovered the natural grain in networked intelligence: Let the copies flow, and pay per use. He says, "The premise is that copy protection is exactly the wrong idea for intangible, easily copied goods such as software. You want information-age goods to be freely distributed and freely acquired via whatever distribution means you want. You are positively encouraged to download software from networks, give copies to your friends, or send it as junk mail to people you've never met. Broadcast my software from satellites. Please!"

Cox adds (in echo of Peter Sprague, although surprisingly the two are unfamiliar with each other's work), "This generosity is possible because the software is actually 'meterware.' It has strings attached that make revenue collection independent of how the software was distributed."

So back to Exile. We already have worked out what the price of on demand listens delivered over the Internet are. The service offering those listens pays the rights owner $0.01 per listen (a penny per listen). So at that rate, the Stones and their marketing partners would have been paid at least $180 for my consumption of Exile and Elvis' marketing partners would have been paid less than $1. And I would have paid that $180 over a long period of time (almost 20 years). That sounds like a better deal for everyone.

Let's go back to The Future of Media post for the four rules.

1 - Microchunk it - Put the songs out there in mp3 form. That's a done deal.
2 - Free it - Get the damn DRM off of the music.
3 - Syndicate it - Let the music "flow freely"
4 - Monetize it - Track the listens and pay the royalites that are owed. Monetize via subscriptions or ads or both.

That's the "free music" model I've been talking about in the past week. It's going to happen and it's good for everyone. Pay per use is way better than pay for packaging.

UPDATE: I went for a long bike ride after posting this. And I'm back sweaty but with some additional thoughts. Artists can and should continue to package their music up for collection. I hope that the arrival of ubiquitous free digital music delivered over the Internet will move the music marketers back to higher quality forms of music packaging for those of us who want to collect the music. Maybe vinyl makes a comeback. I sure hope so. I am having a terrible time finding a particular vinyl record for Tony and Jackson. And the digital files that are sold to collectors should be super high quality lossless formats like FLAC. MP3 should be relegated to the world of the internet where it belongs. If we are playing the music locally, there are many better choices.

Comments

[Berkay Mollamustafaoglu]

Just wanted to second the "Out of Control" recommendation. I had read this book in 1994, hard to believe it's been 13 years.
It was a survey of what is to come and had dozens of provocative ideas.
The annotated bibliography had kept my reading list full for quite some time to come. There are many books in my library that spawned from reading this book.

[Peter Warne]

Agree with everything you say. There needs to be (I think) an added complication - if I want to send you a track to listen to, I should be able to and pay less than if I wanted to buy it (because it would only last one play and then delete). Then if you wanted to go and buy it, you should get a discount on that piece of music.

[john]

Doesn't your own example of the listened-to-once Elvis album suggest that these things balance out? There are certainly people listen to "Exile" only once or just a few times . . .

Plus, shouldn't you be considering the amount that gets paid to the music company or band? I.e., that $5 you paid for the used album isn't the relevant number, but rather however much the original owner paid for it.

[Toby Murdock]

As you know, I couldn't agree with you more. Hopefully the music industry will have the courage to see the upside to this model as well.

Your "UPDATE" section was particularly interesting. In talking to Chris Blackwell about this, he had just the same thought. He really laments the loss of audio quality since the demise of vinyl, and he foresees the same dynamic: music becomes free for the quality we are accustomed to today, but another, super-high quality format arises that people purchase.

He doesn't see any of the current technologies as having the right quality / compression yet. Maybe a start-up that develops that is another to invest in . . .

[Ric]

I like the pay-per-use idea better than ads, but I suspect that it's technically more difficult - I'd like to see it chased down a bit further. On the higher-quality downloads - Linn Records (the people that make the turntables http://www.linnrecords.com ) grok that idea - although the artist roster doesn't look like anything I've seen here, perhaps the meme will spread.

[Derek Libby]

Does the fact that this is not technologically possible not bother anyone? I seem to remember an alternative DVD format back in the day that had a pay to play scheme or something like that. It died a predictably quick death.

[Tom Nixon]

Love the idea but not sure how you can monetize on a pay-per-play basis without DRM. Aren't the two inextricably linked?

[Tom Nixon]

Hi Fred, thanks for your email clarifying that you're talking about streamed music rather than downloads. I'm still not quite getting it yet though. Even if the music is streamed, a player could still cache the music to play again later, unless there was some kind of DRM. Am I missing something?

[Mike]

What happens when I burn it to CD...or even record it to old school cassette and play it like that. What happens when I play it on my iPod or Zune or Sony DiscMan or all three? What happens when somebody steals my iPod/Zune/DiscMan and then plays the song over and over? Who gets the bill?

It is a fun way to think about charging, but not really practical.

[jackson]

Whatever.......You guys do your thing. I will continue to do mine which is to listen to music that sounds good on a system capable of representing that sound.

Have fun with your ad supported ones and zeros.....

[mark]

Fred -

i am in the second year of my hunt for the next music model to invest in. Still no luck. I reccomend a book called 'the future of music' by a berklee music school professor. Not hugely ground breaking but does articulate the tectonic shifts occuring quite well.

One point that stuck with me was their description of how music was traditionally a service - became productized by corporate predatory forces - and is in the process of returning to its home - as a service.

[kid mercury]

out of control is a truly outstanding and visionary book, i find it unbelieveable that kelly wrote that book so long ago. fyi, the wachowski brothers, writers and directors of the matrix films, made it required reading for cast members of the first matrix film.

although, IMO, kelly's true masterpiece is new rules for the new economy, which only gets more and more true with each passing day. it's also a lot thinner and easier to read.

[Joe Agliozzo]

I keep wondering when someone is going to do a "high quality" (lossless, whatever) streaming radio service. I would pay for it, and if there's enough people like me, you get enough $$ to pay the DJ/Programmer and the royalties - win/win for everyone.

Think about a Radio Paradise that's high quality streaming. I was listening to Radio Paradise all day yesterday and the programming is exceptional, with an added bonus of high quality streaming, I think this business model works.

Other than the most avid collectors/enthusiasts or those with a lot of time on their hands, most people just want someone else to "play good music" for them - the streaming radio station model fits that bill.

[Mike Masnick]

Hi Fred,

I think the key points are correct, but you're still a little too narrowly focused in your view. The "monetize it" step is incorrect, because you're looking at the wrong product. You're looking at the content, rather than the *benefit* of what's being sold, which is the enjoyment people get from music.

Then you start to realize that you don't need to monetize the *music* directly, but use the music to make other, complementary, scarce goods, much more valuable. Then you sell those goods, and free the music to pump up the value of those goods.

Don't worry about monetizing the music, look at ways that the music can make more money for other things (concert tickets, fan clubs, private events, sponsorships, the creation of new songs, access to the band, etc, etc, etc.).

Focusing on monetizing the music directly is like asking how you monetize a TV commercial.

Mike

[peter boot]

Can anyone refer me to the source of the $0.01 /listen for onDemand and $0.001/listen for Internet radio that have been quoted here and on TechCrunch ? Or is this just anecdotal reports from people who have done deals with the labels ?

[Marco Hansell]

This is very interesting...and maybe slightly more interesting than the ad supported model. I'm just wondering like many others how this would really be accomplished...and how it could be integrated cross-platform. Also I'm under the impression that the fight to monetize the music itself is slowly dying and as Mike said the focus will shift towards the alternative revenue streams like touring, licensing, merch etc.

[mark]

not being funny but that has already happened

Concert tickets = livenation, last.fm tix, stub hub etc
Fan clubs = any music social networking site
or sites like tourb.us

all of these ancillary channels are being exploited and 2.0 techs have helped tremendously.

There is a more strategic solution to the new music paradigm and it has to involve a hybrid myspace - or way out in the future version of myspace, where a band or artist are provided with a comprehensive set of tools with which to manage their 'business' From social netowkrs (fan clubs) to control of ticket sales, to all kinds of merchandising, venue booking and negotiation, BRAND, peer reviews of new work and so on.

If you looked at it through the artist hourglass, a service that would bring all of these readily available tools together has to be highly appealing. Not to mention that if an artist can consolidate a pool of high interest in a social network of sorts, the chances that this group will 'contribute' or pay for new material certainly goes up.

All in - the service could be a key piece of the new world order that is the music industry.

[NICCAI]

Mike reiterated my stance on this - the music is a loss leader to larger sales, promotional opportunities, etc.

With that said, pay per use or even downloads need to better leverage economies of scale. The pricing is out of whack. Even a penny per listen is wrong at the end user level, but may be more correct via a richer service offering. Pay per use might have more traction if it were to cap also.

In the end, I think a company like gracenote could be in a great position - that is if more can be done to/adopted into ID3.