"Basically, I think we're all nutters, but somehow it works."
Paul McGuinness on Music Piracy
July 25, 2010
The following is from the August 2010 issue of the UK version of GQ magazine.
Even after three decades managing the world's biggest rock band, I have a lifetime hero as far from the world of U2 as you could ever get. He was a feisty 19-century composer of light orchestral music. His name was Ernest Bourget.
It was Bourget who in 1847, while enjoying a meal in a Paris restaurant, suddenly heard the orchestra playing one of his own compositions. He was startled -- of course he had not been paid or asked permission for this. So he resolved the problem himself: he walked out of the restaurant without paying his bill.
Bourget's action was a milestone in the history of copyright law. The legal wrangling that followed led to the establishment of the first revenue-collection system for composers and musicians. The modern music industry has a lot to thank him for.
I was thinking of Ernest Bourget on a January day two years ago when, in front of some of the world's best-known music managers gathered in a conference hall in the seafront Palais de Festivals in Cannes, I plunged into the raging debate about internet piracy and the future of music.
I had been invited to speak by the organisers of the Midem Music Convention -- the "Davos" of the music industry -- where, along the corridors, in the cafes and under the palm trees, the music industry's great and good debated the Big Question that dominates our business today: how are we going to fund its future?
My message was quite simple -- and remains so today. We are living in an era when "free" is decimating the music industry and is starting to do the same to film, TV and books. Yet for the world’s internet service providers, bloated by years of broadband growth, "free music" has become a multi-billion dollar bonanza. What has gone so wrong? And what can be done now to put it to right?
To my amazement, my speech was splashed across the world media. Partly this was due to the timing -- President Sarkozy of France had just become the champion of the global music industry, tabling a new law requiring the telecom companies to finally crack down on internet piracy for the first time. But there were other reasons too.
Well-known artists very seldom speak out on piracy. There are several reasons for this. It isn't seen as cool or attractive to their fans -- Lars Ulrich from Metallica was savaged when he criticised Napster. Other famous artists sometimes understandably feel too rich and too successful to be able to speak out on the issue without being embarrassed.
Then there is the backlash from the bloggers -- those anonymous gremlins who wait to send off their next salvo of bilious four-letter abuse whenever a well-known artist sticks their head above the parapet. When Lily Allen recently posted some thoughtful comments about how illegal file-sharing is hurting new developing acts, she was ravaged by the online mob and withdrew from the debate.
Nevertheless, Bono has stepped into the argument. Quite unprompted by me, he wrote an op-ed piece in the New York Times in January and he pulled no punches. "A decade's worth of music file sharing and swiping has made clear the people it hurts are the creators...and the people this reverse Robin-Hooding benefits are rich service providers, whose swollen profits perfectly mirror the lost receipts of the music business." Bono is a guy who, when he decides to support a cause, does so with enormous passion. But even he was amazed by the backlash when he was mauled by the online crowd.
You have to ask how these inchoate, abusive voices are helping shape the debate about the future of music. I rarely do news interviews but when I spoke to the influential technology news site CNET last autumn I was set on by a horde of bloggers. One of them was called "Anonymous Coward." I'm not worried about criticism from Anonymous Coward. But I am worried about how many politicians may be influenced by his rantings. The level of abuse and sheer nastiness of it was extraordinary. Without Anonymous Coward and his blogosphere friends, I think many artists and musicians would be more upfront about the industry's current predicament. They might tell the world what they really feel about people who steal their music. But it's understandable why they don't -- and that is partly why I don't mind filling the vacuum.
It is two years on from my Cannes speech. Some things are better in the music world, but unfortunately the main problem is still just as bad as it ever was. Artists cannot get record deals. Revenues are plummeting. Efforts to provide legal and viable ways of making money from music are being stymied by piracy. The latest figures from the International Federation of the Phonographic Industry (IFPI) shown that 95 per cent of all music downloaded is illegally obtained and unpaid for. Indigenous music industries from Spain to Brazil are collapsing. An independent study endorsed by trade unions says Europe's creative industries could lose more than a million jobs in the next five years. Maybe the message is finally getting through that this isn't just about fewer limos for rich rock stars.
Of course this isn't crippling bands like U2 and it would be dishonest to claim it was. I've always believed artists and musicians need to take their business as seriously as their music. U2 understood this. They have carefully pursued careers as performers and songwriters, signed good deals and kept control over their life's work. Today, control over their work is exactly what young and developing performers are losing. It is not their fault. It is because of piracy and the way the internet has totally devalued their work.
So how did we get here? How is it in 2010, in a world of iTunes and Spotify, of a healthy live music scene and hundreds of different legal sites, that making money fairly from recorded music remains so elusive?
It is facile to blame record companies. Whoever those old Canutes were, the executives who wanted to defend an old business model rather than embrace a new one, they left the business long ago. Last year, more than a quarter of all the music purchased globally was sold via the internet and mobile phones. The record companies know they have to monetise the internet or they will not survive.
If you had to encapsulate the crisis of the music industry in the past decade, it would be in one momentous word: "free." The digital revolution essentially made music free. It is now doing the same with films and books. For years we (and by "we" I mean the music business, musicians, creative industries, governments and regulators) have grappled with this new concept of "free." One minute we have fought it like a monster, the next we have embraced it like a friend. As consumers, we have come to love "free" -- but as creators, seeking reward for our work, it has become our worst nightmare. In recent years the music business has tried to "fight free with free," seeking revenues from advertising, merchandising, sponsorship -- anything, in fact, other than the consumer's wallet. These efforts have achieved little success. Today, "free" is still the creative industries' biggest problem.
In America there are no more Tower Records or Virgin records stores and many independent stores are just about hanging on. Consumers now buy CDs in a bookstore such as Barnes & Noble or Borders.
The good news, I think, is that we have woken up to the issue. In the early years of the decade, it felt almost like heresy even to question the mantra of "free content" on the internet. But attitudes have changed. Today we take a far more sober view as we see what damage "free" has done to the creative industries, above all to music. Governments around the world today, led by Britain and France are now passing laws that, if effectively implemented, would dramatically limit the traffic of free music, films and TV programmes. This is progress even if it comes years late. We are, I hope, beginning to understand what "free" really means for the world of music and creative work.
Numerous commercial strategies have tried to deal with "free." Today, many believe music subscription is the Holy Grail that will bring money flowing back into the business. I agree with them. A per-household monthly payment to Spotify for all the music you want seems to me a great deal. I like the idea of the subscription packages from Sky Songs too. These surely point the way to the future where music is bundled or streamed and paid for by usage rather than by units sold. Why should the price paid not correspond to the number of times the music is "consumed"?
Spotify is the service capturing the headlines. But it's just as potent an example of the difficulties of fighting free as any other initiative of the last decade. Spotify came into being as a free-to-user service funded by advertisements. It can never survive that form in the long term and now has the tricky task of converting free users into paid subscribers. I wish it success. Clearly the revenues currently flowing through to artists are not sufficient.
There are clever minds working out how the business model of "music access" is going to work. Perhaps this year Steve Jobs, the genius behind Apple, will finally join us. Jobs is a man of decisiveness and surprises. Bono and I did a deal with him, sitting in his kitchen in Palo Alto, to launch the U2 iPod in 2004 -- I still have the notes I scribbled down in the back of my diary. Jimmy Iovine was there, too, and I remember he said of iTunes, "This may be the penicillin!" Sadly it turned out not to be. Steve is the guy who has always magically known what the consumer wants before the consumer even knows it. I wish he would put that great mind and that great corporation of his to work devising a model that finally allows artists and creators to get properly rewarded for their work. Maybe he's working on it right now. I hope so.
Newspapers and magazines are trying to reinvent their businesses to deal with "free." It started with a honeymoon while mainstream titles opened up websites and attracted vast numbers of online readers, dwarfing their physical subscriptions. But the honeymoon has come to a miserable end. Newspaper circulation and advertising revenues have fallen sharply. Rupert Murdoch has re-introduced the "paywall" for some of his flagship newspaper titles such as the Times and the Sunday Times. Murdoch has great influence -- his empire straddles all the businesses with stakes in the debate -- from the social network MySpace to the Wall Street Journal to Fox Movie Studios and the broadcaster Sky. I'm disappointed that he didn't take a closer look at the music industry's experience and see the dark side of "free" earlier.
Tougher strategies have been tried against free, too. Suing and prosecuting iconic businesses like the Pirate Bay, whose operators were fleecing creators, does not look pretty in the media, but it has proved necessary, and it works as a deterrent. Newspaper proprietors and book publishers today are doing battle with Google to protect their revenue from the free flow of news and literary works.
But litigation has its ugly side, too. Suing consumers is not a good strategy. Some years ago record companies in America and elsewhere launched tens of thousands of legal action against individual file-sharers. I never supported them. Even as a measure of last resort, the lawsuits were cumbersome, deeply unpopular and ultimately ineffective. Headlines about a grandmother being fined hundreds of thousands of dollars did not properly present the big picture, and they were terrible PR for the industry.
It was with this mixture of semi-successful and failed strategies to fight free in mind that I took to the stage in January 2008. I felt the music industry had to unite around a stronger position on the whole issue. Managers of well-known bands generally do not like to do this -- like their artists, they worry about alienating fans. Many managers I know have the cosiest private relationships conceivable with record companies, yet publicly will refuse to acknowledge that music piracy is a problem. Great artists need great record companies. They can be big or small.
So what's the answer to "free"? It starts by challenging a myth -- the one that says free content is an inexorable fact of life brought on by the unstoppable advance of technology. It is not. It is in fact part of the commercial agenda of powerful technology and telecoms industries. Look at the figures as free music helped drive an explosion of broadband revenues in the past decade. Revenues from the "internet access" (fixed line and mobile) business quadrupled from 2004 to 2009 to $226bn. Passing them on the way down, music industry revenues fell in the same time period from $25bn to $16bn. Free content has helped fuel the vast profits of the technology and telecoms industries.
Do people want more bandwidth to speed up their e-mails or to download music and films as rapidly as possible?
I'm sure the people running ISPs are big music fans. But their free-music bonanza has got to stop. That will happen in two ways: by commercial partnership, with deals such as Sky Songs' unlimited-streaming subscription service; and by ISPs taking proportionate responsible steps to stop customers illegally file sharing on their networks.
I've done a lot of debating on this issue in the past two years. I have walked the corridors of Brussels, learned about the vast resources of the telecoms industry's lobbying machinery and encountered truly frightening naivety about the basics of copyright and intellectual property rights from politicians who should know better. More than once I have heard elected representatives describe paying for music as a "tax."
I am convinced that ISPs are not going to help the music and film industry voluntarily. Some things have got to come with the force of legislation. President Sarkozy understood that point when he became the first head of state to champion laws to require ISPs to reduce piracy in France. In Britain, the major political parties have understood it, too. Following the passing of new anti-piracy laws in April's Digital Economy Act, Britain and France now have some of the world's best legal environments for rebuilding our battered music business.
At the heart of the approach France and Britain are taking is the so-called "Graduated Response" by which ISPs would be required to issue warnings to serious offenders to stop illegal file sharing. This is the most sensible legislation to emerge in the past decade to deal with "free." It is immeasurably better than the ugly alternative of suing hundreds of thousands of individuals.
Two years into my odyssey investigating this whole debate, I find a curious mixture of optimism and pessimism about the future of recorded music. I was back at the music industry's annual Cannes shindig in January -- this time in the audience, listening to luminaries like Daniel Ek, the quietly spoken 27-year-old Swedish dynamo who runs Spotify. Spotify could be the future model, but it will have to demonstrate that not only can it collect revenue from its users and advertisers, but that it will fairly pass on those sums to the artists, labels and publishers. The fact that some record labels are shareholders in Spotify makes it an urgent priority that these transactions be transparent.
On the whole, though, I want to be optimistic. I'm convinced there are sunlit uplands for the music industry ahead. What will those sunlight uplands be like? The truth is, I don't know -- but I like to imagine them. It will be a world in which the norm will be for artists to get paid for their work when it is downloaded or streamed off the internet. A world of millions of micro-payments, paid daily and triggered by technology that will track every use of a song, identify the rights owner and arrange instant electronic payment.
Music subscription will be the basic access route to enjoying tracks and albums, but by no means the only one. Households will pay for a subscription service like Spotify, or they will pay for a service bundled into their broadband bill, to an ISP such as Sky and Virgin Media. But many customers will also take out more expensive added-value packages, with better deals including faster access to new releases. There will also be a healthy market in downloads to own and premium albums. iTunes will be fighting its corner in the market, probably with its own subscription service. And a significant minority will still buy CDs, coveting the packaging, the cover designs and the sense of ownership.
Sound quality will once again be a huge issue. People are cottoning on to a dark little secret of the digital age -- MP3 files sound terrible. The online "lossless" audiophile movement is gathering strength with one label. Interscope, creating a new master source file, that will ensure that the efforts of musicians and producers in the recording process are not wasted when the sound gets to the listener. Jimmy Iovine and his team at Interscope/Beats Audio Sound Solutions hope this super-file will become ubiquitous. They are also working on a variety of headphones and better sound chips in HP computers to improve the listener experience. Most listening nowadays is through tiny ear-bud headphones.
In the future I envisage every piece of music will be licensed to be available at any time on any device. All music will be transferrable between computer and portable device. ISPs will be reporting significant revenues from their "content ventures." These are the added-value businesses that over time they must move into as their flat-rate broadband business reaches saturation point. This is not fantasy: an independent survey by Ovum recently predicted that ISPs in the U.K. could earn more than £100m in digital music revenues by 2013. In the beautiful future of my dream, every record label and every ISP will be joined in commercial partnership, sharing revenues and strategies to get their music to as many millions of people as possible.
There are politicians, ISP chief executives and government ministers in my dream, too. They speak with renewed respect about intellectual property rights and the copyright of creators. Copyright infringement by internet users will be dramatically reduced. The ISPs will be working seamlessly with rights-holder groups to warn the most serious infringers to stop. No minister will ever -- as in 2009 did David Lammy, Britain's minister of state for higher education and intellectual property -- compare illegal file-sharing to taking a bar of soap from a hotel room.
We have some way to go until my dream world comes true. But we're making progress. Governments, not just in France and Britain, but also in South Korea, Taiwan and New Zealand, are tackling piracy and adopting new laws. The mindset regarding free music is changing. Managers and artists I meet take the issue far more seriously than they did before. Newspaper editors no longer think the problems of music are from another world -- they actually ask our advice on how to address them. More artists are talking about piracy hurting their lives. Film-makers and actors can see that they are next.
I think we are coming to understand that, across all businesses that invest in and trade in creativity, "free" comes with a price -- and in my business that means less investment in talent and fewer artists making a living from music. If this point really is sinking in then we are making headway. It may be that the crisis for music has now got so bad that the issue of "free" is really being properly understood for the first time.
Of course, we're never going to convert Anonymous Coward to our cause -- but at least we're finally standing up to him.
If the engineers who built the iPhone, the geniuses who made Google reach every home in the world in less than a decade and the amazing talents behind Facebook were to apply themselves to our problems and help, what a wonderful world it would be. Great work being made, distributed efficiently and everyone in the value chain being fairly paid.
© Conde Nast, 2010.