A parable of sorts (about the music business, I feel obliged to point out)

Dolly the cloned Sheep

The year is 1823. Nathaniel Burrell, sheep farmer, has stumbled upon a method for duplicating sheep. To cut a long story short, after years of essentially random cross-breeding he now can produce new sheep on demand at no cost. A quick twist of the tail of one of his miraculous cross-bred sheep and you’ve got a brand new one, just the like the old one, just standing there, blinking.

Burrell keeps the news to himself and makes a handsome turn selling the newly-minted sheep at the local livestock market but pretty soon people notice the smart new horse and cart in the drive and start to wonder where all the extra sheep in his fields are coming from and then a lad spies the whole process from behind a hedge and soon enough everyone knows you can get free sheep up at Nathaniel’s place.

To begin with it’s just the local miscreants but fairly soon everyone’s up there, day and night, picking up free sheep and herding them back to their own fields or back yards or box rooms. Of course, it’s not long before people figure out that the duplicate sheep have the same ability: quick twist, new sheep. Blimey.

So now everyone’s got their own and they’re busy making more for their friends. Nathaniel is pissed off. As far as he can tell, these people are stealing his stuff. “These sheep are mine!” he yells as the vicar and his wife lead four fluffy new sheep down the lane. “What do you mean, they’re yours? They’re free aren’t they?” “Yes, but they’re mine! They’re my invention, my thing!” “Does it cost you anything when I make a new one?” asks the vicar. “Well, no, but they’re still mine. And besides, I make my living from selling these bloody sheep. Nobody’s buying them now are they? Not now they can just twist-and-go!”

“I see your point, friend, but I think you’re barking up the wrong tree. Sheep are free now. I think you’re just going to have to get used to it.”

There follows a period of disquiet, during which Nathaniel makes a spirited effort to persuade the world that these free sheep are all really his. There are ups and downs. He wins a few small victories – various slow-witted judges are persuaded that the duplicate sheep actually belong to farmer Burrell, some people are even punished, although transportation seems a bit rich for the theft of a sheep that even its legal owner doesn’t actually need and even wise judges sometimes changed their minds.

Farmer Burrell even invests a few hundred guineas in an elaborate and annoying system of padlocks and sticks, which he calls SRM (Sheep Rights Management) which is meant to protect his rights by stopping people from making copies of his sheep. But the system is awkward and some people can’t get it to work at all (and it hurts the sheep) so it’s soon abandoned. Nathaniel’s not really winning the argument and the whole time people are just making more and more copies of his precious sheep.

An economist friend comes round one afternoon: “the problem with your sheep is that they’re not rivalrous any more and they have precious little excludability. They’re basically a public good now.” His friend encourages him to give up on the law suits and the nasty letters and the increasingly desperate efforts to stop people from copying his sheep. He’s just banging his head against a wall. The world has changed.

In the meantime, of course, the price of an ordinary sheep, bought in a market or at the farm gate, has fallen to a fraction of its pre-Nathaniel value and a lot of people have decided there’s no point trying to sell them at all. They’re opening innovative lamb restaurants and sheep-based circuses and generally adding value to their essentially worthless livestock. Some are given away free with another recent invention: the newspaper, some are fluffed up and sold as ‘premium sheep’ for ‘sheep collectors’. Nathaniel is resigned.

After a few years, Nathaniel has given up on making money from selling his sheep and now specialises in a range of sheep-themed experiences: a theme park, a line of clothing, club nights. It’s a blast – and he’s even making some money. And since farmer Jackson came up with a way of copying cows and farmer Finch pigs, the whole space has got a lot more competitive and everyone’s more-or-less forgotten the days when you used to have to pay for your sheep. Pay for your sheep!

Pic by Notcub.

“Obscurity is a far greater threat to authors and creative artists than piracy” – Tim O’Reilly

I’ll join the throng bookmarking this cogent defense of file sharing from publisher Tim O’Reilly. Tim is the man who made a fortune by selling his early portal, the Global Network Navigator, to AOL and has been able to pursue the life of the Libertarian Gentleman Publisher ever since. His books (with their beautiful Dover Press animal woodcuts) are the backbone of the geek culture and his conferences and events increasingly organise the whole geek mindset.

Sublime Audio

Here’s a piece I’ve just written for The Guardian about music.

For ordinary human beings, music is the closest we come to the sublime. The history of recorded music is the history of better and better access to the sublime.

We have the recording industry to thank for this. In little more than a hundred years, the stable musical universe of Church and hearth has been blown apart. Music is everywhere and anyone in any reasonably developed place can be exposed to hours of new and varied music daily.

Much of the music we listen to now would not even have been possible without the recording industry. Music and recording technologies have worked together.

As a result, the contribution of the recording industry to the fund of human happiness cannot be underestimated. Which other business can claim ‘bliss’ as a day-to-day value? There can be few better examples of the role technology can play in social and cultural change. Music, and our lives, have been immeasurably improved by the efforts of the music business. So it’s doubly disappointing to watch the recording industry missing an epic opportunity, perhaps on the scale of the recorded music revolution itself.

The latest giant misstep involves a new CD format called ‘Super Audio’. To understand why Super Audio is a misstep you need to understand how the listening habits of music fans are changing. And for this purpose I’m going to invite you into my kitchen. On the counter by the breadbin is a two year-old Macintosh computer with a flat screen – our ‘Kitchen Cube’. On the Cube Apple’s excellent iTunes MP3 application cleverly catalogues over 35Gbytes of recorded music – 23 days of continuous music, it tells me. Almost all of this music has come from the big stack of CDs now gathering dust in our sitting room. To call this Macintosh our jukebox is to hugely understate its meaning to us. To this machine my wife and I have entrusted 8,000 tracks by hundreds of artists – a vivid summary of our lives as influenced by music.

The kitchen is the social hub of our home. We spend most of our time there and since we’ve added music to the room we listen to more of it, from a greater variety of artists and sources than ever before and we listen to it in very different ways.

It takes a while for old musical habits to fade. In the early days, choosing something to listen to would be much like choosing a CD. Think of an artist, flick through the library for an album. Double click to play. With time, though, new ways of selecting sounds emerge. How about dialling up a mood or an ambience? Type ‘happy’ (65 tracks by 47 artists) or ‘light’ (37 tracks) or something more abstract like ‘you’re’ (32) or ‘red’ (24) into iTunes and see what you get – a playlist linked across genres, periods and artists by a loose, often surpising, theme – creating unexpected connections. Tighten the theme for something more specific or just ‘shuffle’ the entire library for one surprise after another. Or play only the tunes you’ve listened to most in the last few weeks – or only the ones you’ve never listened to. This is a radically different way of encountering music and one that I don’t need to tell you is not possible in any other format.

So we, like millions of others, are busy inventing a new relationship to music, weaving it more tightly into our lives. Remarkably, though, all of this has been done despite the recording industry – it might even be illegal. And Super Audio, the latest development in the ongoing drama of ‘geeks vs. suits’ is a particularly insidious twist. You see, Super Audio CDs won’t play in a PC so I can’t add the apparently pristine sound from these discs to my library. So, as the ‘digital hub’ takes hold and early adopters reorganise their musical lives around MP3s, the industry is planning to take us down a new technological dead end. Instead of adapting to new habits – coming up with a way to charge for file sharing, for instance – they have devoted millions to a spurious enhancement to quality inaudible to ordinary music fans and left the next generation of eager consumers out in the cold. Far from bringing us closer to the sublime, the record business is ready to close it down.

Is this what they call creative destruction?

(This is a longer version of an article written for The Guardian) The music and tech industries have been locked in mortal conflict for decades with no resolution in sight. This time around, will the all-powerful rights owners snuff out innovation and consumer choice or will the maverick geeks and their friends in the tech industry impoverish the artists and record labels? Neither.

Hilary Rosen runs the Recording Industry Association of America – the American music industry’s trade body. She’s become a (Time Magazine, CNN, New York Times, MSNBC etc.) media celebrity because of her practically mediaeval hostility towards file sharers, downloaders and other copyright miscreants. This is not an obscure tussle between corporate lawyers but a very public war between the net and the music biz – involving one of the most powerful corporate lobbies in history, the brightest geeks of their generation and up to 100 million people – the file sharers themselves. Both sides see this as a battle for survival.

The latest round of hostilities focused on file sharing is the most intense yet. Rosen has upset so many people and created such a poisonous atmosphere between those nearly-friends the net and the music biz that it’s easy to read the episode as a disaster for all involved. Walls have been erected, businesses shut down, millions of customers alienated. Right-thinking people everywhere shake their heads. But why is all this happening? Is there reason in this apparently senseless conflict and could some good come from it? Yes and yes.

The origin of the conflict lies in fundamental differences between the two warring industries: music and the net. The net is a new industry. In new industries almost all value is created by new ventures raising new capital for new projects (let’s ignore the crash for a minute, shall we?). Everything about a new industry is expansive, creative, positive. It attracts innovators and entrepreneurs, creators, people who like new stuff. The psychological profile of the entire industry is up, optimistic, open. Net people don’t understand defensive, negative behaviour. It makes them anxious. But new industries are not a good proxy for the wider economy. Out there, in the older sectors and businesses – where growth is slower, change more measured – value is created in a pretty even mixture of creation and protection.

Music businesses produce value in two ways. First, they invest money in new assets. This is the risky part – most new acts fail, most releases don’t cover their costs. Second, they operate back catalogues from which they hope to wring steadier, longer term returns to balance the high risk stuff. Music businesses have to balance both within one organisation: the hothouse – producing value in the creation phase, regularly betting the farm on a faint promise – and the more conservative rights management function – defending the tail end of an asset’s productive life. Rosen has well-developed defensive instincts: this is an industry where firms employ thousands of staff solely to defend rights.

So, given the instincts of the rights owners, the battle was always going to get nasty. But can any good come from it? When the dust settles will we be left with the status quo or, worse – as the net-heads fear – a compromised net industry and a pumped-up music business newly-empowered by silly new laws everywhere? Probably not.

If music lovers had shunned file sharing when Rosen told them to, it might never have come to this. Unfortunately for her, the consumers aren’t returning her calls. File sharing is now a mainstream habit and new evidence suggests that it’s started to dent record sales. It’s only once sales really start to suffer that the music industry’s attitude will change. This is as it should be. In established businesses, almost all change is resisted at first, often by brutal means. It’s a simple calculation: even an expensive and drawn-out legal battle with a new entrant can prolong the exploitation of an established line of business profitably. It’s almost always a good use of an established industry’s cash pile to mash up the new guys. Only when change is inevitable do the big guys cave in and adapt – often with surprising enthusiasm – sometimes turning a new technology from an existential threat to a profitable new line of business over night.

So the bloody battle of the file sharing minnows and the music industry dinosaurs is programmed behaviour. Do not panic. Do not leave your seats. It will soon be over. This also explains why the experienced business people now running the surviving file sharing firms haven’t given up in the face of Rosen’s withering siege. They know that the accommodation is coming. Their bet is that they can stretch their resources and their patience until it does.

A chink of light for file sharing

The FT reports that, in one market at least, file sharing may finally be damaging CD sales. In the US, three years after downloading became widespread and a year after the total number of tracks downloaded first exceeded the number sold, CD sales are down only 5% – the jury is still out. In Germany, though, sales are sharply down (9.2% year-on-year against a European background of increasing sales) and CD burning looks like it’s become a national hobby (a quarter of households has access to a CD burner).

Assuming that the German numbers are real and that cause and effect are established (not a done deal), this is big news for the music industry in its war of attrition with the file sharers. The people of Germany are replacing their CD collections with MP3s – real, mainstream economic substitution is under way. History tells us that once a new media technology becomes popular the terms of engagement must change – from pitched battle to subtler combat and ultimately to accommodation. This has been true for all of the existential threats perceived by rights owners – from the gramophone to radio to minidisc. The people who run media businesses are not stupid and, once the customer has spoken, the damaging legal phase of the battle must end. Product and business innovation must now take over. The labels will quickly adjust to what is becoming a mainstream consumer activity. Although nothing can be taken for granted and you probably shouldn’t bet your last tenner that any viable media businesses will survive the MP3 era, precedent is eloquent. Record labels (and movie studios, for that matter) will survive, adapt and thrive.

No real good could ever have come from this period of conflict. Now that it’s coming to an end, we should see more cool applications ? an ocean of legal content organised and interconnected by the tech upstarts’ clever code ? and more humility from the RIAA. Incidentally, Universal Music just announced an extension to their downloading experiment. They’ll permit their eMusic subscription service to distribute a thousand neglected albums from the label’s back catalogue. This makes sound, undogmatic, commercial sense. Back catalogue was always going to be the starting point for the next wave of digital distribution – returns have withered and investment is long finished so commercial risk is low. It’s directly analogous to the way the movie studios created a new source of revenue by packaging movies as VHS tapes. Is this the beginning of the end of the file sharing wars? It’s a start.

(you may need to be a subscriber to see the FT article).