Music labels finally getting a clue

Interesting piece by Brad Stone in this morning’s NYTimes on the music labels’ shift away from imposing punitive terms on digital music start-ups in favor of terms that might let them stay alive long enough to actually create some business for the record companies.

imeem-universalStone uses as his hook the recent experience of Imeem, which was on the verge of shutting down because its ad revenue could not begin to cover the millions it owed the labels in licensing fees, but was given an 11th-hour reprieve when Warner Music Group agreed to forgive Imeem’s debt and both Warner and Universal Music modified their licensing terms with the online music service. That allowed Imeem to raise new financing and stay in operation.

“We are trying to figure out how to restructure partnerships and develop a healthier ecosystem where entrepreneurs can continue to innovate,” Warner Music’s Michael Nash told the Times.

That’s a sea-change in the labels’ world view and a welcome one. Not just because the labels are making peace with a popular online music service but because it suggests the music companies are, at last, starting to think constructively about applications.

Ever since Napster appeared in 1999, the music labels, like their colleagues on the video side, have generally regarded applications development not just as a threat but as inherently illegitimate. Developers of P2P platforms, music streaming or Web radio apps were seen as little more than “pirates,” out to “build their business on the backs of” of labels’ intellectual property by letting people “steal” music.

Regardless of the actual merits of that argument, it should have at least clued the labels in to the fact that there was business to be had in new applications, that applications were the key to creating new value propositions around recorded music online.

The challenge, then, was not to discourage their development or force them into penury, but to figure out mechanisms to allow the labels to capture a fair share of the value being created by new apps.

As we all know, of course, that’s not what happened, for a thousand sad reasons. But having now been all-but hollowed out, the music industry may finally be coming around to seeing applications developers as potential partners instead of potential pirates, as seen with Imeem and the industry’s cautious embrace of Spotify.

The most useful things the Digital Strategy senior VPs at the labels could do now is start building bridges to the VC community that nourishes tech startups so the labels could get in on the ground floor of new apps. They should be hiring coders to create development tools to help third-party developers build new, business-friendly apps around recorded music. They should continue developing flexible licensing programs to give startups time to mature. And they should forget about DRM.

Will any of that really happen? I don’t know. But to their credit the labels have lately come a long way in their thinking about digital platforms. They should be encouraged to continue along that path.

Incidentally, if I were a newspaper publisher I’d assign someone to pay close attention to what’s going on in the music business right now because the two industry’s face very similar challenges with respect to applications development and value propositions. You don’t typically see those two industries lumped together in terms of their business models. But I think the solutions to the current challenges each faces will be quite similar. More on that in a future post. — PS.