Category Archives: business

netlabels and webcasting contrasted with on-demand

Here are David Porter’s calculations on the health of webcasting as a business:

Internet radio revenues, however, were estimated at a mere $92,000,000 — not so impressive. A quick bit of math is revealing: $92m/4.85bn = $0.0190 per hour. That is to say, revenue/hour was just shy of 2 cents. Unfortunately, the rate for digital sound recording performance royalties (the thing I wrote about a lot last year) is $0.0011 per performance (per track, per listener). Based on an average of 14 tracks/hour, this equates to an hourly cost of $0.0154. In other words, the sound recording royalty by itself consumes 78% of advertising revenues.

Assuming these figures are accurate, the internet radio sector is paying the labels a 78% share of their revenues. By contrast, traditional (aka terrestrial) radio pays 0% of their revenues — nothing — to the labels. And satellite radio pays 6-8% of its revenues to the labels.

For internet radio services, the remaining 22% of their revenues must be divvied up between the musical composition royalty (probably 4-5%), bandwidth, employees (which is typically the most expensive component of cost), overhead, and, well, profit. Or not. The math doesn’t work.

David’s data is flawed, but the overall picture is about right. The internet radio business is pretty sucky. It’s not miles underwater like the on-demand business, but it’s still not very sensible.

OTOH, consider David Porter’s comment on the Silicon Alley Insider piece:

The $10 eCPM argument is one I’ve made a lot over the last couple of years. The tough thing with ad-supported on-demand is that with ubiquitous broadband wireless (not quite there yet but getting closer), such access is increasingly substitutional for music acquisition (purchased or not). While I see your volume angle, it seems unlikely that the labels (the majors, at least) would consider an on-demand rate in an range supportable by advertising.

While it just got a lot more expensive, the radio rate under the US compulsory license is the only type of delivery that’s at least close to being sustainable for a free/ad-based model. And, arguably, this style of delivery (passive, programmed) lends itself to advertising more so than the hunt-and-peck required for on-demand access.

That is, as bad as the webcasting business is, it’s still better than the on-demand business.

Now consider that internet music businesses have to compete for investment capital with internet businesses that don’t pay royalties. Craigslist, Google search, and Twitter do nothing but move bits around!

Lastly, returning to the conversation about netlabels the other day, I want to point out that netlabel and other net-native music doesn’t have a lot of listeners, but as long as it stays clear of copyright infringement it can have economics just like Craiglist, Twitter etc. Maybe not at that scale, but definitely at that level of profitability.

And I know that people on the business side of internet music see net-native music as a joke. That’s right big shots, I’m talking to you specifically. Make free and legal music popular enough for your traffic to scale and you can have the grail — an internet music product that makes sense as a business. Which is exactly what Phlow-Magazine is working on by slicking up the presentation of those sources.

reactions to ad-sponsored music

My earlier blog entry on the economics of ad-sponsored on-demand music was reblogged on Silicon Alley Insider.

One thing that I should point out is that SAI did some rewrites and though these were mainly improvements to tighten up and clarifying the writing, the new headline is something I would never say: Ad-sponsored music won’t work. Blame the labels. I don’t think either of those statements is true. I think that the future size of the recording industry is determined by how much of the online ad industry it can slice off, with a bit of upside for soundtracks and per-unit sales. I think that the labels are caught in their own very real economics and contractual obligations and are making plausible business decisions within their constraints.

The comments over at SAI are an excellent in-depth discussion from industry notables, and are worth reading through to get a more detailed view of the situation. There were two that I want to respond to here.

Michael said: If an ad supported music business wants to experiment they should pay for that, otherwise plenty of time for labels to wait until a viable business emerges. So really no pressure there to make a deal.

This is a very significant consensus within the recording industry. It means that the labels are just waiting for some internet music business to survive the gauntlet. They cash in here and there, losing value in tandem, and patiently working through round after round of dead internet music startups until one is hardy enough to last. What this means for on-demand ad-sponsored music is that, as I said in the comments at SAI, I think that iMeem etc can’t sustain at the current rates, and we’ll have to wait for the next generation of royalty rates (and possibly startups) before ad-supported streams are an important business.

Devon Copley said:

In the near term, though, I think the relative “success” of iTunes — in Western markets, anyway — makes it difficult for the majors to embrace such a model for on-demand. There’s just too much likelihood of cannibalization. How many of those 700 plays actually substitute for an iTunes purchase? If that number >1, then they’re going to need to see more than 700x revenue per play — maybe much more.

The issue of volume is crucial. Two things have to happen. One, an internet music product has to be cashflow-positive on plays, so that growth doesn’t kill it. Two, listeners have to embrace ad-sponsored on-demand plays for catalog that they wouldn’t pay for at all, so that completely unmonetized listening becomes monetized. (For example, by doing on-demand plays of weaker album cuts that nobody is buying at the iTunes store).

song page manifesto

The place for a dedicated song page is in the media player. Media players need to be extended to have the ability to show a web page associated with a song; they should always show the web page, and shouldn’t require the user to take action. Listening to media in a media player should come with a series of auto-loaded web pages, one per song.

Manifesto

Bare audio files are pretty crappy. All they have room for is bytes describing waveforms. Waveforms are part of music, but not all of it by any means. To come alive a piece of music needs a lot more.

Of course, a song needs a title, and the name of the musical act, and some more facts like the name of album and the length of the song. But even though these facts are part of music, they also aren’t enough to bring it alive.

What every song needs is a web page.

The web page might be anything. It might be a single graphic, similar to how album art is currently used. It might be a series of images, like a slideshow. It might be song lyrics. It might be guitar tab. It might be a list of Myspace friends. It might be Creative Commons licensing information. It might be a pledge drive for future releases or a tip jar for this release. Who the hell knows that the web page is; what’s important is that a web page is powerful and flexible enough for the demands of the music.

Application flow

So what does the software look like?

There would be a chunk of HTML associated with an audio file. It could be saved for offline usage or — easier to implement in the first generation — it could just be a link that was loaded when the user was online.

The HTML would be used everywhere album art is used. In offline media players like the iTunes client-side software, here would be a pane in the media player which displayed it while the song was on. iTunes cover flow would display a screenshot of the page while you’re flipping through your collection and switch to a live grab while the song is playing.

Non-graphical offline media players like VLC would have a button to open the web page in a browser window. They might also be able to enslave a browser window which would be constantly updated during the course of a playlist. Console mode players would display the link for easy copy and paste.

Online media players (in the browser) would give a section of screen real estate to the page. A player like FoxyTunes would give the entire document window over, while a player like XSPF Musicplayer would only give a badge-sized portion of the window. The JW FLV player, for example, would put an HTML window where the video is.

How would the HTML be associated with the audio file? The easiest way to start is with an ID3 tag in MP3 files. (Leaving the issue of how to do it in other media formats aside). There already exists a standard tag designed for this purpose — the WOAF field, which is defined as The ‘Official audio file webpage’ frame is a URL pointing at a file specific webpage. This is very easy to implement, adoption is the only hard part.

What would be in the page

Romancing the music. Providing esthetic context with imagery and text, poems, animations.

Factual information. Song title, copyright data, album name, a list of performers.

Social features. A friend list, a signup for the mailing list, fan chat.

Advertising. Musicians could release a free download and earn ad revenues on a page view per play.

Performance resources. To play along, sheet music and tablature. To sing along, lyrics. To remix, source files. These would encourage listeners to pull the music into their life.

Upsells. Concert listings, merchandise like t-shirts and hoodies, ability to purchase a high-res version of the audio file, ability to purchase the entire album. (Imagine how the ability to purchase the whole album would work: you grab a single song from a filesharing network or pay per download site; you’re listening and digging it; there before your eyes is a big link to get more music from the same artist — go!)

It matters

There is a lot to gain.

Listeners would enjoy the music more because the musical experience would be better. They would have better metadata; for example, context-specific data like the featured soloist in a concerto could be given. They would have a ton of artwork, rather than a little postage stamp. They would have interactive and social features. They would be able to see concert listings auto-generated by geolocation. Rather than a media player that is a spreadsheet for metadata, the media player would an explosion of web experiences.

Commercial musicians could turn free downloads into money much more easily. Right now they rely on a user noticing a song, taking action to do a search, and following links in search results until they came to one that could convert the listener into a customer. With the new way, the user would just have to notice the song and glance over at the web page being displayed. The old way is ten clicks, the new way is zero clicks.

Record companies could develop branding for baby bands, and they could own the URL for their artists rather than letting Myspace have it. They could turn casual listeners into customers by making sticky services like a mailing list one click away from the listening experience.

Avocational musicians could get connected to lead sheets and remix sources more easily.

Developers could extend the musical experience much more easily and to much better ends. It is nearly impossible to extend MP3. It is easy to build on web pages, and the frontiers are being extended every day.

What next?

In the comments on the post that started this, Ian asked: where does this go next? And how do I package/distribute the end result? The answer is to start working on broad adoption of the WOAF ID3 element in MP3.

  1. You could sketch out wireframes of application flow. Help to visualize the user interface. Help create the conventions of this new functionality.
  2. You could do a Songbird plugin which loaded the contents of the WOAF field into the document window. Songbird was frakkin born to do this job and would excel at it.
  3. You could do a VLC extension which opened a browser window to the URL in the WOAF field.
  4. You could document how to do this functionality in the Ogg container format.
  5. You could figure out how to get the contents of the WOAF field in an AJAX app without needing standard media plugins to be changed.
  6. You could evangelize this method to the developers of standard media plugins like Flash, Quicktime and Windows Media Player, and convince them to expose the WOAF field to AJAX developers.
  7. You could evangelize this method to leaders in the recording industry, and get them to help apply pressure to vendors of leading media players.
  8. If you’re on the artist development side, you could make sure that the WOAF field is set in your free downloads.
  9. If you’re a client-side software developer, you could make an easy tool to set the WOAF field.
  10. If you’re a blogger who knows why this is retarded, you could spell it out and help to fix the problem.

To summarize: a web page for every song, a page view for every play.


Background conversation

Here is relevant conversation from the comments on my post about a dedicated page for a song.

Jay Fienberg:

Someday, I’d like to be able to just put http://soupgreens.com/froginthewell/ in my “music player” and have it all in my library–which needn’t be just a collection of music files on one computer, but could be a very multi-medium, multi-source, multi-network, multi-device interlinked library of and about music.

[…snip…]

For Err or Man, besides album covers and the lyrics for each song, each song itself also has 2+ pieces of visual art. And, more a/v may come in the future. So, for each of these songs, I need to create not only a song “page,” but a song “(mini) site.”

But, this is the web, so it’s straightforward to create these kinds of multifaceted / relational collections of the mixed-medium info that make up what we call a “song.” What’s missing is the music player / web browser hybrid that understands the song as existing in this kind of interconnected context.

Crosbie Fitch said:

Let the page be the AUTHORITATIVE source for that work. Ensure the URL has the ISBN, or if that isn’t relevant, the MD5 digest of the FLAC (for integrity checking). Would be good to have a standard for indicating authoritative URIs for digital works.

Make the page the PermaLink for the work.

That page (with the artist’s domain in the URL) is gospel for the work. Encode the page’s URL in all metadata for all files.

Bung metadata in the page’s HTML.

As for a tip jar “I would have gladly paid $n.nn for this, let me rectify that now”, yes, you could put that on this page.

Pledging is a matter of chipping in a small amount contingent upon the production and release of future work, either any work or a specific work. So you could have a pledge button on the artist’s page “I’d like to pledge a quid to you for your next work, hopefully to be released soon” (qv http://www.quidmusic.com). You could also accept requests, and create pages for frequently requested works not yet embarked upon “I think you could do a great rendition of song X, there’s $N from me upon that fine day”, or for your suggestions of things you could do “Yup, I think your ideas of doing work along those lines would be worth exploring, I’ll chip in 50 cents for that”.

NB Pledges are not tips or charitable donations, but commissions/bargains/purchases/patronage, the new deal: art for money, money for art.

Your audience wants to pay you – you do not need to charge them for ‘possession with intent to supply’ on penalty of copyright infringement with 5 year jail terms and million dollar fines.

clean netlabel highlights

The site Phlow-Magazine is a slick compilation of activity in the netlabel scene.

The netlabel subculture is growing a layer of editorial filters around the inner core of musicians (who came first) and publishers (who came second).

I wonder whether a bigger market would be reached by emphasizing or downplaying the idea of “netlabels.” Emphasizing it helps the site stay connected to a healthy existing community, but is a turnoff for people who don’t identify with that scene. And if not “netlabels”, what? Is there some other way of thinking about this music which is more intuitive?

When are the MP3 bloggers going to discover the netlabels? Why do they still draw on releases primarily intended for the offline market? Who reblogs Myspace, YouTube and blog bands? Or is this already happening and I just don’t read enough MP3 blogs to see it?

ad-sponsored music and the major labels

What are the economics of ad-sponsored streaming music services like iMeem? Labels want some amount, most commonly quoted as a penny a play, and the question is whether this price makes sense, or if not what the price will have to be.

A song lasts 3.5 minutes. The majors have been asking $.01 for it. The site pays for the play by selling advertising. Let’s say the site shows a new ad every time the song changes. To break even the site needs to sell one ad per song at the rate of 1 penny a song, which gives you an effective CPM (“eCPM”) of $10.

A $10 eCPM isn’t feasible. Sites don’t earn that kind of rate with 100% sell-through. Even if were feasible it leaves no room for the rest of the business. They have other costs. They need to earn a profit, and it has to yield a return on investment comparable to web businesses that don’t pay music royalties; otherwise investors will move their money out of music-related products into royalty-free products like search engines.

A $1 effective CPM is closer to the mark, meaning that Myspace, Google, Facebook, etc need a 10X price reduction from the labels to make this business work. The labels see this as unreasonable. They’re already lowering prices from what they earn at the iTunes store — why should they keep going to accomodate third party businesses at their own expense?

The alternative business for the labels to be in is selling music by the piece. The majors gross about $.70 on a download at the iTunes store, 70X what they are proposing for an ad-sponsored play; $.01 is only 1/700th of that! So naturally the price change is freaking people out.

Volume

But of course price is irrelevant by itself. Profit is a function of price, marginal costs, and volume. In the recording industry marginal cost is close to zero, and fixed costs like studio time don’t go up with volume, so the basic equation is price*volume.

Music plays which feel free because they are sponsored by advertising should get a lot of plays. If you could search for a song and play it right there, without all the friction of paying for a download or even downloading at all, you’d be more likely to go through with the transaction. Price would be lower, but there would be more transactions. And the only question that matters is whether the number of ad-sponsored transactions would be high enough to make up for the lower revenues per piece.

If the price is 1/700th, there needs to be 700X more transactions. A gold single with 500K sales would need 500K*700 = 350 million plays to get into the black if all those sales were converted to ad-sponsored plays paying a tenth of a cent per play.

What’s the likelihood of this working for the labels? Will ad-sponsored plays be at least 700X more popular than sales at the iTunes music store?

Almost nobody buys CDs; only 15% of the population; and the number of people who buy singles from iTunes is miniscule. But almost everybody listens to the radio. Ad-sponsored plays would extend the reach of monetizeable events to people who don’t buy CDs and to people who aren’t committed enough to a particular release to buy it. For the fan club members who listen to a CD over and over again, every play would be monetized. Plays in an incidental context like background music in a sports site would be a worthwhile business. Ad-sponsored plays in the browser would replace much filesharing, because they would be so much more convenient, and this is a gargantuan pool of monetizable events.

So the volume is indeed likely to be very high. Because these numbers are very fuzzy there’s no way to say whether the volume growth will be 350X, 700X, or 1400X. Still, they’ll easily get into the right range. The necessary volume isn’t guaranteed but it is realistic, and there is plenty of upside because of the possibility that volume growth will blow way past 700X.

Internet strategy

But there’s one other issue in addition to volume: compatibility with the web. The web is almost everywhere, and it needs music to be able to flow with no more friction than any other content. It can do this with or without the majors on board, and unless they choose to get on board it will leave them behind.

Sites that try to comply with label requests repel users and soon go out of business. There is no way users are going to stop for a paid download whenever there’s a need for a song. First of all, acceptable page load times are in the range of a few seconds, and when you add on the time to acquire a download the load time goes up to minutes. Monetizing via ads is the only way for the labels to support acceptable load times. Second, interrupting the user to incorporate a paid download into page rendering creates fatal usability problems. Users will get confused and leave the site. Third, there’s no way to enforce the use of paid downloads without restricting available music to what the iTunes store will carry, and this is not a web-scale design. Because these are fatal problems, successful sites route around the labels by having users of music-related features fall back to filesharing for provisioning.

Can labels counter filesharing networks without moving to an ad-oriented revenue base? It depends on how advertising compares to other revenue sources. Labels can sell complementary products like concerts and merch, but other businesses already occupy those niches. They can earn a cut of a music tax to cover filesharing, but that’s a wildly speculative idea which the labels don’t support because it would undercut their per-unit sales. They can take part in other experimental blanket licensing schemes, but they don’t support those because they undercut per-unit sales. Labels can get paid for subscription services like Rhapsody, but these are and will always be a small niche. They can earn a living on CD sales, but these won’t support a very big recording industry. They can earn a living on download sales, but these aren’t growing fast enough to replace CD sales.

The only bright spot in this picture is that online advertising is thriving. It can generate the revenues the labels need. In addition it makes technical sense, since ad-sponsored music can flow as easily as ad-sponsored text, and ad-sponsored text is the majority of the web. This model works.

I don’t mean to say that per-piece sales will go away: fans will keep buying them here and there. Providers like eMusic will continue to exist. But this business will be an adjunct to the ad business, just like all premium services on the internet. The only thing that will save the major labels is to embrace ad-sponsored plays as their primary revenue source, and that requires them to drastically lower the royalties they’re seeking.

collateral damage of no-embedding policy

In reaction to my posts on music video embedding, Greg commented:

What about the labels ability to recruit and retain artists? If the effect of preventing embeds is to reduce videos’ viral impact and hence the sales/attention driven by that impact, labels that follow this policy will find themselves less able to develop new artists and less able to stimulate new interest in catalogue artists.

And labels that are inclined to follow this ‘enforcement’ strategy are likely following it across the board rather than just in regards to music videos, i.e. they’re working harder to bust mp3 bloggers, p2p distributors, and all of the other new web-scale promotion channels.

Unless all of us who believe in the efficacy of these channels are totally crazy, in the long run, the artists on these labels should see reduced success: fewer fans, smaller sales numbers, less traction with live audiences.

In a separate but related post on common digital marketing mistakes by record labels Lucy posted on the underlying mental habit:

If we let people embed and distribute our content it will dilute our brand

No, actually, it will make your brand more pervasive and more relevant.

I know of several large corporations who do web 2.0 completely half-assed. They want to be down, so they create, for example, video content and destination sites, but they are so afraid of losing control over their content and brands that they do not allow embedding of their content. In other words they want to work exponentially harder just to get people to go to their site and “interact with their brand”, when they could have thousands of people working for them and spreading their brand to every nook and cranny of the internet by simply enabling users to copy and paste videos into their blogs, profiles and emails.

Here’s a couple of culprits:

Def Jam blocked embedding of their video content

Universal prevented their artists from uploading full length streams of songs to MySpace

Victor commented on damage to the music video business as a whole:

I was working in the video promotion dept. of CBS when they pioneered the 30-day MTV exclusivity deals. Before that, my job involved pushing videos to dozens of video outlets – after the MTV deal, that job didn’t exist anymore. Within months there was only one channel showing music videos.

The MTV exclusivity deal turned out to be a disaster for the labels. MTV stopped showing music for the most part — they mainly do lifestyle programming now — and with the other distribution points for music videos gone there was simply less promotion as a whole. So this is a problem with the majors’ internet strategy. By orienting their embed policy towards negotiations with a few major distribution partners like Myspace and Yahoo, the labels are putting themselves in a precarious situation. The internet changes fast. In five years there will be different providers at the top, and if those providers didn’t come up with music videos it’s unlikely they’ll switch over. Five years ago Myspace and YouTube didn’t exist, and if the majors had been able to cut an effective exclusivity deal with the megasites of the day they wouldn’t now be benefitting from Myspace and YouTube.

The internet does not work by 1-1 deals. There are too many players and the landscape is too fluid. You set a blanket policy that can be negotiated using internet standards and let the best startups take advantage of automation.

Per gurdonark:

The use of the technology in viral media spread evolves so quickly that the traditional record companies have to make very quick decisions on a market which changes so rapidly as to make past experience a dubious guide.

It’s a tough dilemma, which requires solution if the record industry is to avoid complete marginalization, as I do not think that consumer demand for flexible media which can be shared will abate.

And Greg:

Unless all of us who believe in the efficacy of these channels are totally crazy, in the long run, the artists on these labels should see reduced success: fewer fans, smaller sales numbers, less traction with live audiences.

In a world where distribution is free, the only value the labels provide is the power of their promotion engines. Denying themselves access to the promotion outlets with the fastest growing reach seems like a serious long term strategic mistake in these conditions. If all of the artists jump ship in order to take advantage of these new outlets directly (or in favor of new enterprises that will help them do so, as has already happened in a number of high profile cases) what will the labels be left with?

business impact of requesting to disable embedding of music videos in label channels on YouTube

A top pop star comes out with a new music video. The video is played on television, where a fan records it, digitizes it, and posts it to YouTube. The video is also posted on YouTube in the star’s label’s channel. The version in the label’s channel has disabled embedding by request. The version in the fan’s channel has not.

Someone sees the label version and likes it. They want to embed it in their Myspace page to tell their friends about their discovery, but they can’t. Someone else sees the fan version and decides to embed it in their Myspace page, and this time the embed works.

A friend of the embedder visits their Myspace page. They watch the video. They decide to add it to their own Myspace page. A friend of theirs visits their Myspace page and sees the video. Etc.

The net effect of blocking embedding is to move views from official label channels to unofficial fan channels. Also, it reduces overall views by preventing viral spread from views within label channels; most fans won’t bother to find an un-official embeddable version.

Who is the label punishing? Itself? The star? Myspace? YouTube? The fans?

Their intent is to punish Myspace. Specifically, the goal is to get Myspace to cut a direct deal with the label. (Myspace is just an example here; this is a hypothetical situation). So what does the label get out of this, and how does that compare to what it loses?

The label reduces the number of monetizeable views in several ways. It prevents viral spread, which can be a massive source of traffic. It pushes traffic to unofficial sources, which are harder for YouTube to identify for the purpose of paying royalties. (And their agreements with the labels may not include royalties for fan-supplied content). It also pushes traffic to other stars and other labels.

As far as direct revenues go, the label is moving less units (where a unit is a paid play of the video) so has to make more per unit. In terms of the deal it cuts with, for example, Myspace, this means that it has to earn *higher* royalties per view. But that’s unlikely because the deal terms for major distribution points will always tend to parity. Google, Myspace, Yahoo, etc all get more or less the same deal, eventually. So the label and star are probably losing short term revenues by blocking embeds.

The label also has contractual and marketing benefits from blocking embeds: it wants to keep the Miley Cyrus video off of sexxxylolitas.com. These sites can still embed the fan version of the video, but at least the label can say that it tried. This seems like a clear win for the label and maybe for the star.

To the extent that the purpose of music video online is to spur CD sales, the reduction in viral spread reduces CD sales. These CD sales go to other stars and labels. (Probably to Warner, which is the only one of the four majors not to block embeds).

What about long term revenues? What’s the strategic benefit? I have no doubt that the labels see negotiations with major distribution outlets like Myspace, Google, and Yahoo as a primary business opportunity. In the same way they relied on a few major retailers in the 20th century, they will soon rely on a few very large ad-sponsored web sites. The potential upside is massive.

So overall I would say that requesting to disable embedding is about negotiations with the web behemoths, and it’s a deliberate tradeoff of short term revenues for long term potential.

embedding permissions #3: strategic dominance

Among the problems that have led 3/4 of the majors to block embeds in third party sites of their videos on YouTube is the strategic need to maintain strength in negotiations. In a comment on the first post in this series, Jay Fienberg articulated the issue this way:

Adding to your leverage item: the labels are likely concerned that any very successful site or combination of sites becomes a primary interface between fans and recording artists, i.e., that takes the record labels out of the equation, or at least makes them only a small factor in the transactions between artists and fans.

The success of sites like YouTube potentially give these sites and/or artists and/or fans leverage over the record labels. For example, an artist can get a video seen on YouTube without a big label-type marketing budget, and so that fact could potentially weaken a labels’ negotiation in a record deal. Or, YouTube could become like a radio station and seek payola from labels to promote certain artists, etc.

The labels must want to curtail especially singular successes, like iTunes music store-type successes. These sites could become so big as to become more or less like monopsonies (buyer’s monopolies), where they have more power over the labels than vice versa.

embedding permissions

Official music videos on YouTube from three out of the four major labels can’t be embedded in third party sites. You can embed Warner, you can’t embed UMG, Sony BMG, or EMI. If you use unofficial versions of the videos posted by a third party you can embed them, but not the official versions posted in the labels’ channels.

The back story is that the labels spent the last few years having a huge fight over royalties from user-driven video sites, and successfully got YouTube to pay for rights. (I’m don’t know for a fact that YT pays, but from what I know about the industry I’m sure it’s true.)

The issue of embedding has nothing to do with whether or not the labels get paid. They get paid on embedded plays. (Again, I haven’t see any contracts on this, but I know enough to have confidence).

But now they want a secondary benefit — to control distribution. Allowing third parties to embed videos from YouTube frees them from having to do 1-1 negotiations with the labels, and the labels want to be able to negotiate with each and every site that shows music videos.

I imagine the majors have three motivations. One, to be able to charge different rates depending on the site, so that they can raise rates depending on how deep the embedding site’s pockets are. Two, to be able to meet various contractual and marketing requirements. For example they may have morals clauses for wholesome artists like Hannah Montana, which would be both a legal and a marketing issue. Three, they have other negotiations in which they want to be able to use music videos as leverage. For example they might have an ongoing negotiation with LimeWire in which LimeWire wanted the ability to show YouTube music videos along with the ability for users to share MP3s. (In reality the labels’ desire there would probably be just to freeze out LimeWire completely).

Imagine a web in which every relationship had to be negotiated by hand. It would be the opposite of the internet.

soundcloud

Soundcloud is a really well-defined product. Limited in scope, easy to explain, original, and immediately useful. They have given themselves a strong chance of winning just by picking their battleground well.

It’s good to see a high degree of craftsmanship at that level of the development process. The product definition is the most important part of a project, and usually it’s the weakest part.