UMG digital, iTunes, DRM, and Android
A Rio Caraeff failed to come up in the music business scouring clubs and honkey tonks for gifted new acts.
Caraeff, executive vice chairman of Universal Music Group’s eLabs, has a background in mobile technology and software.
Nevertheless , he just could be the prototype for the label exec of the future. Unlike more standard industry suits, Caraeff does not believe litigation is the solution to robbery. He does not believe in copy-protection software. He does not believe the music biz wants to discover a strong rival to Apple to flourish. He has a belief in the power of mobile devices to sell music ( he is saying Google’s cell phone, Android, is turning out to be a strong music-buying tool ). He seems to be right in at least some of his ideology as Universal, the home of U2, Akon, and the Black Eyed Peas, is coming off a productive year. For the 1st 9 months of 2008, Universal claimed that cash was up 3.5 p.c to virtually $4 bill and digital sales grew 33 %. Maybe the best illustration of how Universal and the remainder of the music biz is beginning to catch on is the disappearance of digital rights management, the software that tries to block unapproved music duplicating. DRM, which didn’t do far more than divide those that acquired music legally, was done away with last week at iTunes–the state’s largest music retailer. Last month, the lobbying group for the 4 largest labels claimed it was heading away from suing people for file sharing. Caraeff concluded to communicate with CNET not long ago. Q : The music biz was arraigned for attempting to kill digital music instead of understand it. Compare the industry’s angle then to now. Caraeff : I suspect we’ve definitely learned tons over the previous couple of years. And we are reacting to what the market is asking us for both re what buyers desire as well as what our distributors and artists need.
It’s obvious that fans like to stream music on the web. We needed to work out the way to make a financial model to permit audio to be streamed on a free-to-consumer basis on the web. Before we had an ad supported streaming model for audio we had a subscription-based program for streaming audio and that is essentially a bit of people that are prepared to pay for that. But we observe the scale and size of the break so we made a new model to permit audio to be streamed in full-length high quality on demand fashion. We put those deals in place with everyone from Last.fm to iMeem to MySpace and a selection of other sites where you can stream anything you would like on requirement for free. The removal of DRM on songs and albums is also a major example of how we’ve modified, both in terms in enabling existing shops that works on devices like iPods. We are saying we are going to change, we are going to evolve, we are going to hear what the market is asking for, we are going to accommodate. These are some little examples of how we’ve modified.
Our culture across our management, across our labels is pretty much in tune with making new business models, widening where our money comes from, listening to what people desire to do with music and coming up with methods to support that rather than suppress that. Q : What about piracy? Do you fellows just let the RIAA handle that? Or do you direct some of the technique there? Personally I suspect the sole long term solution is a marketplace based solution, you address the requirements of the buyer to give them what they need when they desire it. If we don’t there are more services that do not have the same rules who will. They don’t have any licenses they need to take, no rules they need to accept, no geography with which they must be nervous about. You must battle with that in a marketplace based model.
I do not believe we are ever going to ever eliminate robbery with the most progressive and aggressive digital policies. There’s always going to be folks who have more money and time and the buzz of by-passing the channel is what its about.
Our goal is to give the mass market each chance to consume music wherever and whenever they want in a convenient and simple way so it’s just not worth it to become involved in a grey or black market.
You come from that sector and you clearly believe it’s true much. How have you men profited from handhelds? I joined the company in 2005 with an explicit remit of building a giant mobile business for Universal.
My history is in wireless and software. So over 2 years I made a very big mobile business, well in access of $100 million. We built relations with each wireless operator and each device manufacturer.
We built channels of distributions so we’d be able to put our content thru to each one of those partners. We started developing new content so it wasn’t just ringtones or re-purposing old content for mobile.
We started widening away from ringtones. We launched ring-back tones, we launched voice and video tones. We launched full-length music sold over the air to the mobile handset. We launched mobile video services that were both paid and free to buyer under ad models. We also combined our mobile group with our online group spotting the world is changing. The purchaser does not wish to have a mobile only experience. They want an all digital multi-platform experience.
They need to consume music on their mobile handset but have parity on their Computer and other online platforms. Partners like Verizon and ATT would have liked to have multi-platform online experiences too. It did not make sense to have a silo approach.
Now at Universal, we do not have a mobile business. We equalized our pricing so it costs an identical quantity of cash to get a song on a cell telephone as it does on a PC. These are things that make sense on a buyer perspective. Other stuff we included were helping Amazon to launch its music shop. It is an incredible amount of consumption that we are seeing when you integrate it neatly into a user experience that is sublime and simple to use. It is not the 1st example of where we’ve integrated a music shop into a cell telephone but the example is once the device becomes more full specification with the user experience it gets easier to use. Once the platform develops, you will see music consumption truly begin to skyrocket.
Q : How gigantic is mobile inside your digital business? About forty ( % ) to forty five percent of our overall digital business is coming from mobile channels like Verizon and ATT. Q : So this is the new distribution method? I believe you are right, but the future for us is about lots of unique cash streams and plenty of different products.
On much of our new front line Pop or RB or Urban release–everything from Fergie to Rihanna to Pusscat Dolls–were seeing mobile comprising twenty ( p.c ) to forty five p.c of the revenue for those artists, which is a vast amount. Does the undeniable fact that they do not have a device hold them back from competing with Apple? I don’t’ think not having a device is holding them back as such but I suspect that there is a thing to be declared for a stylish and integrated solution, a total thought so to communicate that Apple has breathed into the market. The complete ecosystem of an exclusive player and a dedicated store and a seamless integration has been a really strong thing for our industry and for Apple. On the other hand, I believe many of us already have devices. They have iPods, they have mobile telephones that play music. It’s truly about getting the Amazon store to work neatly with the devices and software you already have or getting MySpace services to work fine with the services you already have.
I don’t believe having more devices and more exclusive software or hardware in the market is the right answer.
Microsoft has been making an attempt to do that now for some years with their Zune ecosystem. It is sublime, it does work fine, but lots of exclusive silos I do not believe scales well either.
Q : Talk to me about YouTube as a music center.
If you look at where the bright spots are in the music biz, actually in the year the upward thrust of free-to-consumer ad-supported video has become a particularly heavy part of our business coming from a number of areas. YouTube is driving a particularly giant quantity of that, but about 70 p.c of that growth is coming from outside of the US YouTube is a huge driver of that outside of the US too.
It is really coming to fruition I suspect in part due to YouTube’s current target monetization and truly trying to drive cash around premium content much more than they have in the history of their short existence.
They have eventually turned the focus on ‘How do we turn this into a business’ and that is benefiting the complete ecosystem of content owners too.
It is a dominate source with which customers and music fans go to learn about new music and to sample music and consume music to find out content, to take part in a community around video and so it is become more than a store and it isn’t like radio or Television , but it is become fundamentally a particularly tough place with which our record corporations work with our artists to drive awareness and drive links back to their site and drive general selling and promotion and distribution of our artists. At the same time it’s intrinsically income generating. It is a revenue stream, a commercial business. It is up nearly eighty % for us year-over-year in the States re our cash from this category. We’ve a great relationship with YouTube, and the future for us will be more than with YouTube than we are doing today. We are working with them on a number of new ideas and new companies to take the groundwork we’ve done in the year and half and do a load more with it.
I would not expect to see us just conduct business with YouTube like we used to do. You will see us get nearer to YouTube to do stuff we’ve never done before and try and increase the quantity of income and the reach for our videos and new programming we would like to create around our artists. Q : So you are seeing some good money from this YouTube deal? It is early days but it is definitely many millions of bucks at that point. A gigantic part of my job and an enormous part of our method is figuring out a way to derive money from everybody who consumes music when only a tiny subset of folks that opt to purchase it. A large amount of that ties back to a long term plan shift about how will we shift from a cash per unit model to an income per user model where the metrics for success and the metrics for how we outline and grow our business are driven by what kind of cash we are getting from each user who accesses the network, each user who has a music-capable handset. We’re asking how will we build new business models which will let us get paid by many millions of folks if they buy music or don’t buy music vs getting paid by people who opt to pay.
It’s actually about do we need an enormous piece of a tiny pie or a smaller piece of a much bigger pie. That is truly about looking out 5 years ahead re how we transform UMG from the company we used to be to the company we want to be.
That is how everyone at our company is approaching the business. It’s actually what gets me pumped up about coming to work in the morning. The change and disruption in the music biz and plenty of other industries as well is personally gratifying and drives an incredible amount of excitement. It is the chance to change and transform. Conversations with partners like Google, Apple, or Comcast, or Nokia are slow take a bit of time to come to fruition. We are actually not about how can we get everyone to buy CDs again. We are much targeted how will we segment the market so that we will be able to derive money from everyone and not just the folk prepared to pay.