THE LEFSETZ LETTER: Streaming

Ownership is for losers.


Oh, don't e-mail, you same people who said we should save the album.
Notice what a few years do? Radiohead says no more albums, Rush the same thing. So, when your favorite acts give up on the long form format, don't you too?


I know you do. Because you've stopped sending me hate mail in quantity. If I write the album is history, I now only get a couple of e-mails complaining. Whereas I used to get hundreds!

How many years until when I say streaming is the answer that I get the same miniscule response? How long until you nod your head and say I'm right?

The major labels are confused. They were for streaming a decade ago, then they were for ownership, and now they're afraid somebody's gonna come up with a streaming solution and become the new MTV and have all the power. But maybe not all the profits, the majors are investors in Spotify.


Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

But it's no longer solely about Spotify.

It's about MOG.


It's about Deezer.

Yes, while you're fiddling with apps on your iPhone, investors are spending millions to try to find a solution, to be the answer.

I don't think LaLa will be the answer, because I think by track sales are not only history, but the wrong way to go. You don't want people making a million cheap decisions, you want them to make one big one, ten bucks a month. How are you going to do this?

MOG is going to charge five bucks a month. Which Napster presently does and has no traction. You can't get people to pay first, that's twentieth century thinking. You give them a taste now, and then get them to pay. Which is why you can listen to so much for free online already. If you're not making your material available to be listened to online for free, at least in a streaming format, you're managing your career with your arm behind your back. We live in an attention economy. It's almost impossible to get people to spend time with you. Make it easy for them! Convince them! Then get them to spend money.

That's the Spotify model.

I just spent time with Daniel Ek in New York. It's fascinating sitting down with him, because he's so damn smart! So different from traditional record business, where it's about winning through intimidation, throwing down enough dollars to emerge victorious in a bidding war. It's like the traditional music business is GM and the techies like Ek are Lexus. A streamlined Japanese company that has solved the basic functionality issues and is adding usable components.


While other sites are focusing on social features, Spotify is trying to be your hub. The place to manage all your music. They want to sync to your iPod, manage your playlists and have social networking components. Your Facebook friends appear in the application, you can notify them of what you're listening to, you can add their playlists instantly in your Spotify app. All these things are interesting, but the killer is mobile.

Let's be clear. The problem is the free app. Rights holders are skeptical. But if Spotify launches with a paid subscription model, it will be dead on arrival. Why should it succeed when Rhapsody and Napster have not? But if the rights holders can see that you entice first with free, we're gonna have a revolution. Because free on the desktop leads to paid mobile.

That's what Deezer's research says. Deezer, a Spotify competitor in France, found out that 80% of its uses were keen on getting mobile access. ( http://eu.techcrunch.com/2009/11/05/digital-music-startup-deezer-debuts-desktop-client-premium-offering) And with Spotify, you've got to pay for mobile access.

And here we have the nexus between the iPhone and Spotify.

The app already exists. I've used it. I've got it on my iPod Touch.
Which limits me to wi-fi, but not really. I can stream anything via wi-fi, but I can download 3,000 tracks to my iPod Touch, for playability anywhere! The top of Mt. Everest if I can hike that far…

And do you know any iPhone users? They're insufferable! They think they're
gods! That they're better than the rest of us! Do you think they're not going to pay $10 a month for Spotify Premium?


Of course they are! Just so they can show it to you and demonstrate their superiority! People are gobbling up the Spotify iPhone app where it's legally available, no advertising, no nudging of desktop users is necessary. Because people need it!

The same way they need to own the new car the day it comes out. The same way they line up at the Apple Store when the new iPhone comes out.


It's about the iPhone.

The Palm Pre is already dead. No apps. And with no apps, you don't have a user base.

Will an Android phone compete?

The Droid is coming out on Verizon tomorrow. Both David Pogue and Walter Mossberg said it was pretty good. After all, it operates on a far better network! But there are only 12,000 apps compared to the 100,000 on the iPhone platform. And you're limited as to how many you can put on your phone.


In other words, the iPhone has a giant head start. The iPhone platform could be the new Microsoft Windows. Dominant, irrelevant of whether anything better comes down the pike, sheer user adoption insures this.

But Spotify is making an Android app anyway. And a BlackBerry one too.


But the key is the iPhone.

Spotify is into charging. It's just a question of how you motivate people to pay! They think it's manageability. I say look at Apple products, the remote comes with almost no buttons. The consumer doesn't want features, the consumer wants usability! And right now, the Spotify app looks essentially like iTunes, works almost the same way, and iTunes is the standard. In other words, there's no learning curve for Spotify!


So the rights holders can play along with Daniel Ek, or

forestall the future for a few more years.


I'm not saying Spotify has to win. I'm just saying it's the most advanced platform today. History tells us one application wins in the Internet world, there's one Amazon, one iTunes, but I don't think there's a problem if MOG succeeds, or Deezer too… They've all got the same basic business concept. For a little money, you get to hear everything!

Which you can already do if you're savvy online.

But how savvy are you on your mobile handset? Are you using BitTorrent on your smartphone? Managing playlists? It's easier to pay someone else to do this for you.


So, mobile streaming with the ability to store tracks when out of cell range is the killer app.

Do you get this? It's Google! We are now here! It's just a matter of whether the labels and publishers agree to play ball!


They already have in the U.K. and northern Europe.

And once they do here, we've got a whole new ball game.

People will be paying for music. Maybe not everybody at first, but so many, there's going to be a whopping revenue stream.

And the focus will no longer be about enticing people to pay. It will be about getting their attention, getting them to stream! In other words, in the old days, if a person bought something and didn't play it, the industry didn't care, they still thought it was a hit. Now, it's going to be about how many actual plays you get! That will
determine your popularity! And ultimately, your financial success.
Not only will you be paid by the streaming company, you'll get fringe benefits, like live and merch revenues.


Let me restate.

The technology is here.

First issue is rights. They have to be granted.

Second, the initial online service must have a free version. Maybe with ads, but the key is to get people to check it out. Believe me, they'll spread the word! Nobody ever says a bad word about Spotify, they use it and rave about it to all their friends!

Third, convert users to the pay model. Sure, you want people to pay for desktop usage. But you've got to jump ahead, go in through the mobile door. Everybody's got a cell phone. Remember the year 2000, when everybody finally bought one? Kind of like 1995, when everybody bought a computer to play on AOL? 2010 could be the year of the mobile music app. The product is just that enticing. No one complained about the price of cell phones in 2000 or computers in 1995. No one even complained about the twenty-odd dollar AOL subscription fee. They wanted to be involved!

People want to be involved with online music streaming. They just don't know it yet. Because they haven't tried it. But once they do!

This is not Pandora, listening to what you don't want to get to the stuff you do.

This is not iTunes, same prices as CDs, just buying the tracks one at a time.

This is a newfangled music model! Not a newfangled model… Hell, not only did AOL make you pay by the month, your ISP makes you do so now too! And you pay by the month for cell service! And for those who pay as they go, streaming music apps will be an incentive for them to upgrade to post-paid, the model carriers prefer!

This is a win/win/win. A win for right holders, retailers and users.
It's a no-brainer.

Argue with me. Tell me I'm wrong. I'm not listening.

I've seen the future. And it's not being purveyed by Doug Morris, not even Jimmy Iovine. But by techies who can run intellectual circles around them who are not in it to rip anybody off, but to make tons of money for both themselves and the rights holders.

It's a new age.

Get ready.