Music Ally

Universal Music Group International’s VP of Digital Francis Keeling took to the stage at The Great Escape conference in Brighton this morning, to discuss digital music business models, and how music consumption is likely to change in the years ahead.

Music Ally boss Paul Brindley was the man firing the questions. Keeling’s role at UMGI is on the dealmaking side, working with digital music services and stores around the world (everywhere outside the US). Everyone from Apple, Nokia and Vodafone through to the new breed of music startups like Spotify.

“Being the biggest [label] does bring responsibility,” said Keeling, saying UMG is keen to encourage as many business partners as possible, trying new models. “We don’t want lots of businesses launching the same old service that’s in the market though,” he says.

Keeling also said UMG is keen to speed up the licensing process, so startups don’t have to take six months to a year to get licences for music. “That’s what’s stalling our industry,” he said, referring to the time it takes to get licensing deals if you’re a music startup.

So, should we be optimistic about the future for recorded music? Keeling says yes, pointing to growth around the world. “Optimistic? Yes. Turned the corner? No. We’re still in the transition phase, where we’re fighting a very large battle against piracy… We need to get more retailers on board, solve licensing issues. There’s a huge number of issues that need to get sorted.”

Brindley pointed out that UMG just announced this week that its digital revenues were down slightly in the first quarter of this year. Has digital hit a ceiling?

“In terms of our results, look at us year-on-year,” he said. “Year-on-year the growth is very positive and strong, and we’re very pleased with that.”

Keeling said that UMGI is seeing encouraging growth internationally, as it signs new deals, particularly in countries where there hasn’t been a big digital music market before. An interesting point: in the US, iTunes is UMG’s biggest single music retail partner, in terms of generating revenues for it. In Sweden, it’s Spotify.

What new models is UMGI keen to support? “Subscription services are the future for us, and it’s very important that people around the world are supportive of subscriptions,” said Keeling, who went on to say that while people buy music a la carte from digital stores, “they don’t buy on a regular basis”. Which is why UMGI likes subscriptions.

Keeling also pointed out that some of the label’s partners – mobile operators and ISPs – already operate subscription-based businesses, so applying this model is a good fit. Or would be, if the licensing issues are solved.

“Spotify has been a big success,” said Keeling. “It works off this freemium model, which was always a big jump for us – to let consumers access music for free, and get them off pirate services, with the aim of getting them up the ladder…”

Brindley asked why the conversion rate from free to paid users hasn’t been as high as the labels had hoped in some markets. “It’s absolutely heading in the right direction. The freemium model is certainly working at moving consumers from pirate services to legal free services.”

An interesting contrast to WMG boss Edgar Bronfman Jr’s recent comments on ad-supported music – to paraphrase, Bronfman thinks subscriptions are the way forward, but is significantly more negative about the ad-supported free services.

Keeling said the most important thing UMGI looks for in new music services is the consumer experience. “Spotify is an incredible consumer experience,” he said, saying that its new Facebook integration is particularly impressive.

However, he also praised experiments from companies like Vodafone in bundling music, where people pay a monthly fee for a certain number of song downloads.

Brindley turned the conversation to UK ISP Virgin Media, which has yet to launch its planned unlimited MP3 downloads service, more than a year after announcing it with UMG. The other labels haven’t signed up, so what’s gone wrong?

Keeling said that two years ago Universal made the strategic decision to work with Virgin, and praised its determination to “not just be a dumb pipe”. The deal involves unlimited DRM-free downloads for customers, and at the same time a commitment from Virgin to implement anti-piracy measures across its network.

“We remain extremely supportive of finding the right service and solution with Virgin, and hope in the coming months they’ll have something coming to market that will fulfil both our ambitions,” he said, playing a straight bat.

Keeling played up Virgin’s anti-piracy promise though, saying it showed their commitment to launching a legal music service.

Moving onto the Digital Economy Act, which passed in the UK recently. Now there’s a new Conservative-Liberal Democrat coalition government in place, is the law threatened?

“Funnily enough, I don’t think it’s been high on their agenda!” he laughed. “The Tories have certainly been openly supportive of the bill, the Lib Dems less so. With the new members of the cabinet, it looks like they’re going to remain supportive of the bill. Now it’s going through the details.”

He said that “there is a lot more fighting” in store, as the DEA was just the framework for anti-piracy measures. Now ISPs and rightsholders have to bang their heads together to make it work (my words, not Keeling’s).

Keeling also talked about possible technical measures that may be taken against persistent file-sharers, pointing out that sanctions haven’t been decided yet, beyond the initial notification process where ISPs will send warning letters out to customers who’ve been caught file-sharing.

“Are you going to stop piracy? No you’re not. Can we make piracy socially unacceptable? Yes we can, and that has to be the ambition around the world.”

Keeling called for the notification process to be “persuasive”, with an initial “educative” letter explaining to people their responsibility not to illegally file-share, and pointing them to legal services. He suggested that subsequent letters might be more to-the-point though – and that ISPs may even go beyond letters.

Keeling also talked about “browser redirect” as an alternative to warning letters. For example, the kind of technology used for hotel Wi-Fi hotspots”, where users are redirected to a payment page when trying to access the internet. He thinks ISPs could use this instead of a warning letter – ‘notifying’ customers when they try to access, say, a torrent tracker site.

“We believe that solution could work extremely well as a method of notification,” he said, fending off a question about whether this would cost more than sending letters out. “We hope that the ISPs will look to more effective solutions, because ultimately over time they will reduce costs.”

Brindley asked about transparency in the digital world – and whether artists are making as much money as they should from sales (and streams) of their songs. He related this question to advances paid by digital music services to labels – including equity stakes such as those offered by Spotify.

Keeling replied that UMGI wants partners to “demonstrate that they’re taking it seriously and are going to make a success of it” – which is why the advance fees – “and clearly when royalty fees are due, they will be shared with our artists”.

Questions from the audience – someone asked about the idea of extension of blanket licences. “For us it’s unnecessary,” said Keeling. He admitted that it’s important that labels and publishers are licensing as quickly and efficiently as possible.

“Blanket licensing is not something that’s going to support that, and it’s not in many cases what business partners want, because they want to have a relationship with these companies… Blanket licensing doesn’t provide competition, and doesn’t provide for good market growth.”

Jez Bell from PRS for Music posed a question from the crowd at this point, asking if labels are being more flexible in the types of deals that they provide for upcoming services, and what barriers remain for new music services looking to get licences.

Keeling replied that “publishing is providing a major hurdle” citing Germany as a big example. “GEMA are stopping everything we have… they need to fix the problem, and they need to fix it quickly.”

Another question focused on this week’s summary judgement against LimeWire in the US. Will labels start to rely on that and the Digital Economy Act to “not be creative” – i.e. rely on anti-pirate legislation and not put enough effort into innovative new legal services.

“I hope not,” said Keeling. “The focus has to remain on new service development.”

Tags: Francis Keeling, the great escape, UMG

This entry was posted on Friday, May 14th, 2010 at 11:21 am and is filed under Digital Music News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.