THE LEFSETZ LETTER: Virtual Goods

Would you pay a dollar to evidence you were at Lady GaGa's gig at the Cutting Room?

Hell, I didn't even know she performed at the Cutting Room. I had to read the "New York" profile (http://nymag.com/arts/popmusic/features/65127/) to find that out.

Music has forever been about hipsterism. Knowing who's good and bad and being there first. Everyone says they were at Woodstock, but how many have the original three disc vinyl set on Cotillion? How many bought that set just to belong?

Belonging. Where you are on the social ladder. These have been key elements in society forever. Why not codify them, why not charge people to evidence how hip they are?

	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.

For the last ten years, the music industry has been repeating the mantra that people must pay for music. What if this is the problem. What if music SHOULD be free?

Huh?

Think about this…

Or let me make it simple, ever notice that you can get a mobile handset for free?

You want to get people in the game. And then charge them to PLAY the game.

Have you been following the stories about FarmVille? And Mafia World and Zoo World?

I'd never even heard of the latter two until recently, but I do know that selling virtual goods to the players of these games is now a billion dollar business. According to "BusinessWeek", one Nita Flores pays $20 a month for cat outfits and a stable for her horses in FarmVille. And let me make this clear, none of this really exists. Nada.

As music has become free, those who used to be in control, the major labels, are releasing fewer and fewer projects, targeted to an ever smaller number of gatekeepers and listeners. This would be like Comcast deciding they were only going to sell three channels, whereas the real money's in the other four hundred fifty outlets.

And the touring business has become about charging more and more for an ever-decreasing number of stars. How is this a recipe for a healthy business?

In other words, how do we get the public interested in more acts and going to more shows.

Maybe we have to make discovering music a game. That you have to pay to play and get status for winning. You really saw that band at the Whisky? Prove it! Go to my Facebook page, you can see the badge I bought when I went to the show! Yup, the ticket might be $15 online, but for an extra buck you get the icon, showing you attended. You say you've seen hundreds of shows? Where are the icons on your page? You're lying! Now you're motivated to pay for the badge, just to maintain your honor.

When did you discover GaGa? When did you discover the next big thing? If you could buy a badge demonstrating your first listen, that would be worth something to you.

And let's say, at the end of every year, every act gave a free show for the fans who were there first. Make it a week-long event in Vegas, a national affair. Hell, I'm going to see Justin Bieber, I'm sitting in the first row, and you can't even buy a ticket!

All of the foregoing requires a change in mind-set by labels and concert promoters. Suddenly, they truly have to be in bed with their customers, they just can't be paying them lip service, they must be seen as being on the same team. No one wants to play with the enemy.

And once you get more people involved, you make more money, even if you lower the price dramatically.

Maybe it's even like virtual pets, if you don't log in every day, you lose your status. Meanwhile, purveyors market to you every time you log on.

Virtual goods are not a fad. This is not Second Life. Just check in with the gaming industry. Giving away now to sell later is the new paradigm. It makes no sense to old wavers, who believe you've got to pay first, then again, isn't Facebook free?

Let's not muddy the waters. Let's just say the music business needs a complete rethink. The goal is to get everybody involved, everybody paying a little to participate. The end result is we get more people wanting to play music, because there's more money in it, and practicing harder, working harder to create something fantastic, to win. I mean come on, who's going into music now? Those not smart enough to code? College students making obtuse music before they go to graduate school? Snookis who only want to be famous?

We've got to add a layer of structure. That radio and major labels once did, but no longer do.

Entrepreneurs have focused on licensing the music itself, which has been problematic since Napster. Avoid that. Create value in the EXPERIENCE! Rights holders will play. And so will the public.

Who Wants to Buy a Digital Elephant? – Sales of virtual goods are taking off. And it's not just kids who are buying): http://www.businessweek.com/magazine/content/10_10/b4169064668421.htm

Money for Nothing: The serious business of pretend products: http://www.newsweek.com/id/235170