Ignoring The 95 Percenters: Can Beyond Oblivion Serve Industry & Music Liberation?

Will October 10, 2010 be the date we will look back on as the moment the music industry was saved… from itself? Maybe. Those familiar with this column will remember that I already have suggested December 8, 2009 – the date VEVO was launched – as a nominee for the industry’s updated ‘this day in history’ calendar (see AllHipHop.com Dec. 1, “Viva La Vevo! A Re-Birth For The Music Business?”).

But later this year, 10-10-10 to be exact, Beyond Oblivion, an intriguing new service is scheduled to debut. It raised eyebrows last month when news came that it had received funding from Rupert Murdoch’s News Corp. (which owns MySpace). It already had received funding from investment bank Allen and Co. and a strategic partnership between Sony Corporation & Philips Electronics, N.V.

What is Beyond Oblivion?

Beyond Oblivion self-describes as “a music service that combines the stickiness of a social network with unlimited life-of-device access to the largest music library on Earth, within a vast ecosystem where content owners are paid per-play no matter if the original music file was ripped, bootlegged or legally or illegally downloaded.”

In a simple 14-part multi-frame presentation on its official website (http://beyondoblivion.com/) the company describes its future place in music industry history and how the functions it offers can make time stand still:

“The entire history of recorded music has already been ripped, shared, and & downloaded. We are never going to get those files back. The International Federation of the Phonographic Industry (IFPI) estimates a GLOBAL piracy rate of 95%. Consequently copyright owners make the few [5%] pay for the digital music consumption of the many and overprice digital music; reducing demand for devices and services. We monetize all digital music files, paying for every play of a ripped, shared or downloaded digital music file – delivering Music Liberation.”

Styling itself as all things to all people (fans, record labels, mobile phone makers, music subscription services) the company is spreading itself thin (generalists rarely succeed in business), but does make a good first impression that it’s got what we need.

In my March 10 Hip-Hoppreneur ™ commentary “Netflix: The Future of The Music Business” I wrote:

“The music business has three problems. First it simply won’t accept that music is a commodity now and it doesn’t know how to make music a complimentary ingredient in a larger offering. The second problem comes from the 1st one – because the industry wants to keep selling ‘music,’ alone, it wastes its time trying to determine its price by dominating the supply of music, trying to make it harder to get, in a world of technology that makes it more and more available and easier to produce (for more on this see my Hip Hopppreneur commentary, ‘The Free Era: Music As Ingredient, Not Main Course’). The third problem is created by the second – because the industry tries to limit the supply of music in order to make it more valuable, it has ended up fighting technological platforms – mp3, satellite radio, streaming Internet media – that would have allowed it to bundle music as part of offerings where it would become more valuable, not less.”

Beyond Oblivion, if as good as advertised might solve problems two and three.

The Financial Times recently reported in an article on the service, and its British CEO Adam Kidron (bold emphasis is mine):

“…Mr Kidron tried to calculate ‘all the [digital] plays in the world’. He came up with a figure of 4,000bn a year, concluding that if everyone paid something each time a track played, the industry would be far better off, and could “do away with piracy”. The challenge was “to charge people in a way they don’t even know they’re paying.“ Mr Kidron, a serial entrepreneur, has a disarmingly simple argument, that “charging 100 per cent of people a little is better than charging 5 per cent of people a lot”. With an estimated 95 per cent of digital tracks downloaded illegally and just 100m digital music consumers compared with 2.3bn CD buyers, the music industry’s $3.7bn digital revenues last year were ‘appallingly small’, Mr Kidron says. Yet its pricing – typically 99 cents per track – “overtaxes the 5 per cent for the consumption of the 95 per cent”. His Beyond Oblivion system revolves around a license for digital devices and services, which gives their users access to unlimited music without further payment. The cost is invisible to the user, with the service built into the device’s price like with a computer’s operating software. The pitch to device makers is that Beyond will boost sales of handsets and laptops. Beyond will charge different rates for devices ranging from car music systems to netbooks, and in less developed markets such as China or Latin America licensees will pay a fraction of the sum charged in North America, western Europe or Japan. Once a user registers with Beyond’s web-based system, it can create high-quality protected versions of any file already in their hard drive, whatever its origin. Where it identifies unlicensed music, Beyond will clear it with rights owners, legalizing pirated tracks.”

If it hasn’t developed the perfect service, it certainly has articulated a near-perfect description of much of what ails the industry and what might save it.

Beyond Oblivion, with a growing marketing campaign and partnerships direct with MySpace, and Sony is on its way to gaining the support of the major record labels which is essential to providing the content that people will demand. In addition by seeking to pay record label licensing fees directly and then charge device makers and internet service providers rather than consumers – Beyond offers some clarity to the confusion over who is a legal or authorized ‘distributer’ or ‘retailer’ of music. One of the biggest mistakes the record labels have made over the past ten years is in attempting to control every aspect of the music business – creation, marketing, distribution, and retail – rather than forming relationships with specialists.

It is one of the areas in which music is light years behind the movie industry which cooperated with, rather than resisted, the emergence of a distribution and retail specialist like Netflix.

In my Feb. 16th ‘The Free Era: Music As Ingredient, Not Main Course,’ I wrote of music, “For it to move out of its current commodity status it will have to be combined with other commodities, products and services. The immediate future of music, I hate to say it, is now something like butter, garlic and onions. Very few of us buy these items to eat them just as they are (although garlic and onions are believed to have medicinal and healing effects). But when combined as ingredients, they add and create value.”

Here, is where Beyond Oblivion has no clear answer, in the elements of its business model that we can see so far.

Fred Davis, one of the company’s consultants proudly explains in the FT article, “Beyond is shifting the value proposition of music from ownership to usage, and there’s exponentially more usage than ownership right now, so that’s a model that excites the music industry.”

That model may excite the ‘industry’ but it certainly does not excite the ocean of consumers – including illegal downloaders – who are still willing to pay for the value of music, just not the way it is currently being offered.

Beyond may be making a mistake if it thinks only in terms of the “music industry’s” suppliers and that the primary value it can create is in making music available for free, more efficiently or more ‘legally.’ In a sense, Beyond Oblivion is potentially only helping the music industry come to terms with the obvious – people aren’t paying for downloadable music made available only in a per unit format. Beyond enables the industry to monetize revenue from that reality, not from consumers, but from device makers and websites (who according to Beyond’s model are more likely to pay it than a record label) who want to use music as bait to sell their other offerings. But with device makers (like Apple) and internet service providers already able to license music, distribute and retail it to various degrees, it is not clear just how much market share Beyond will take from the iTunes, Rhapsodies, and Spotifys of the world, much less those who already get music free anyway and very efficiently (why someone joins the Beyond revolution when they are already part of the LimeWire revolution or another underground file-sharing music download service is not clear yet, to me).

Perhaps the music industry has already prepared to rally and close ranks around Beyond (would Rupert Murdoch and Sony have jumped in at this stage if that wasn’t already decided?) as its primary licensing intermediary and will begin to price competitors out of the marketplace.

Why it is clear what the record labels get from the new service it is not clear what the ‘value proposition’ is for the consumer. And that is why I believe Beyond Oblivion only partially addresses at best the three problems the industry has. Beyond does 1) make music a complimentary ingredient in a larger offering (as it will be used to push mobile devices and laptops) 2) keeps the industry from wasting time trying to determine the price of music, by controlling its supply and 3) helps end the era of fighting between music labels and Internet platforms (like the legal episodes with Napster, You Tube etc…). But it does not respond to the aspect of the problem that is universal – how to bundle music in offerings that consumers would be willing to pay for – in any format (download, CD, streaming).

Beyond deserves respect and applause (which aren’t the same as money) for the powerful critique it has given of what is wrong with the music industry’s business model but it will need more to prove its up to the task of ‘Music Liberation’ and value creation. Like any other business it faces many challenges beyond raising money. Glenn Peoples of Billboard magazine recently wrote, “Nothing is known about Beyond’s proprietary technology that would enable its business model. All we really know is that expectations are already being mismanaged: Kidron says it’s possible that Beyond’s agreements with device manufacturers could ultimately generate $10 billion for the music industry. Luckily he also gave a more realistic figure of $100 million within five years.”

With 100 million digital music consumers to 2.3 billion CD consumers, and streaming media satisfying more and more of both, the value creation solution is not simply giving up on suing (which was ridiculous to begin with), charging the 95 Percenters who illegally download; or simply ‘taxing’ them according to how much music they use rather than ‘own’).

In mainly seeking to make a backward industry more efficient, Beyond seems to be leaving a lot of money on the table.

No, the ultimate solution is not giving up on charging people for music, or only using it to sell other people’s hardware. It has been, and always will be packaging music in ways that people will pay for it, and ending the outdated per-unit (single or album) sale point.

That can best be done by a better bundling of all music-related properties – music, interviews, live and archived concert footage, documentaries, reality footage, merchandise – and distributing them via fan club or subscription services like Netflix, which enable one to enjoy creative work in an old (disc) or new (streaming) format.

If Beyond can facilitate that, then maybe it can ’set us free.’

Anything else may be reform, but it’s certainly not revolution or liberation.

Does Beyond want the entrepreneurial adventure its capable of (serving the 95 Percenters) or just a job from the music industry (middle man to help someone else sell mobile phones)?

Cedric Muhammad is a business consultant, political strategist, and monetary economist. He is also a former GM of Wu-Tang Management and a Member of the African Union’s First Congress of African Economists. Cedric is author of the book, ‘The Entrepreneurial Secret’ (http://theEsecret.com/). He can be contacted via e-mail at: cedric(at)cmcap.com