Digital Music Trends – Episode 55

This week on the show an exclusive feature on the company Music2Text that only officially launched last week. The interview with Denver Thomas – the CEO of the company – is pretty extensive so for this week I’m going to forgo with the usual in-depth news coverage and I’ll just go for a ultra-quick scan of the most compelling headlines instead, with links to the relevant articles on the show-notes.

If you’re at all interested in mobile distribution this feature is one you can’t miss: we discuss mobile distribution, the need to streamline user experience in mobile, business models and tools to communicate with the fans and ways to monetize that relationship. You can also click here to download a PDF of the interview.

You can actually try out the service – if you’re in the UK text EAGLE to 60444 and you’ll receive a link to the Eagle Rock Entertainment campaign, bear in mind that this number works in the UK only so if you’re somewhere else in the worlds and still want to have a look at the mobile site type http://m2txt.com/eagle in your mobile browser.

Press play below to stream Episode 55!
 

Music2Text is carving a new path in mobile music distribution.

Music2Text is a mobile music distribution company that only officially launched last week but has already gathered an extensive list of clients amongst high profile labels and artists. Denver Thomas – the CEO of the company – has been working on this project for years now and in this interview he shares some of his thoughts regarding the challenges of mobile distribution, the need to streamline user experience in mobile, business models and tools to communicate with the fans and ways to monetize that relationship.

AL: So What is Music2Text?

DT: Music2Text is mobile distribution. Just the concept of “Mobile Distribution” to the industry is confusing: we’ve taken something very complicated and simplified it. We give record labels the ability to upload their content into a web interface with a three step wizard driven process and the end result is a mobile store that is as easy to use as iTunes and that they can then directly push on to their fans.

 

If a label wants to get their content on a mobile music store like Vodafone they need to go through an aggregator but by the time the content gets there they have lost up to 60% of the revenue.

 

With our mobile music store they upload the content directly onto our platform – that is cleared on all UK networks and works on all phones –  and keep 100% net of all of their sales. We also go one stage further and enter the world of direct-to-fan: we have integrated data capture features into the mobile store so that it automatically creates a database of fans that the labels can use to post-market via SMS.

AL: In the mobile space, carriers in the UK have tried to develop their own mobile platform in one way or another but they have not been a roaring success by any means: why do you think it’s so hard to provide a mobile store with a great user experience?

DT: The problem lies with the mobile networks themselves, they are entering an area of broadcast where they are the gatekeepers of the mobile web but there’s a lack of government regulation in this space. These networks are holding back the music industry, the film industry and other e-commerce industries within the mobile web. They have cut deals with the major labels that suits their corporate interests and not the music industries or consumers.

 

The problem is that everyone is forced to follow this major label fixed policy where all the content ends up with portals hosted by the mobile networks who are in league with one another and where tracks that cost 59p to download from a computer are priced £1,50 on mobile. The frustration is that technology in mobile is advancing very rapidly and trying to monetize content so aggressively in this economy is not sustainable.

 

Consumers don’t want to pay £1,49 for a mobile track when they can go online and steal it on P2P networks, so the major labels are shooting themselves in the foot. The bottom line is that labels care about money first – how can they survive. It boils down to money, access, distribution, control of the distribution and royalty chain and control of the data capture. These are all aspects that Music2Text aims to streamline since we’ve asked the industry from the start what they needed.

AL: And let’s talk about Music2Text’s two business models: on one side how do you make money and on the other how does the band make money?

DT: As an artist I’ve been through that side of things and I’m now working on the business side of things so I understand what the artist needs from a label perspective. On the business side of things – as a company – our challenge was to build a system where we could abstain from the revenue chain. If you want to upload a single track, podcast a ring-tone or a video we will charge the label £3, and that applies even if you sell a million singles.

 

But we make our money through data capture, we capture the mobile number of the people who sent a text and host it on a page that is in the Direct2Fan part of the service. We then charge 4p per message when the label wants to get in touch with the fans directly via SMS. There are fixed costs of 3p to send that message so we’re only making 1p per text. We are just a delivery system and we’re gambling on the fact that there’s a long tail market out there of labels that want this service.

 

The system also automatically associates a keyword to a number – for example fans can text SONG to 60444, they then get an SMS back with a mobile link and by opening up that link the content automatically downloads. Labels are free to set their own prices on these downloads and through this process they know exactly how much we’re making. If they want to renew that keyword after 30 days that costs £25, if they want to upload an album that costs £20, and after that whether you sell hundreds of thousands or ten well fair play, the important thing is the data capture and the post-market opportunities are in place for them to be able to monetize the content and create new revenue streams.

AL: And from a band perspective, how do the figures break down in terms in terms of how much a label actually receives from what they charge for each download?

DT: For example, if the label sets the price of £1, the mobile networks take in England an average of 25% of the money, there’s nothing we can do about that. Their view is: you’re using our network, we want a piece of your ass. Then you have PRS fees and that’s 8%. Then there’s a Merchant ID charge of 6%, that’s where the reverse bill money comes in from the mobile networks from one Merchant ID account to our Merchant ID account and banks charge money for this cash to be moved so we have to pass on the charges to the rights-holders.

 

In our view though this charge should be closer to 3% so we’re looking to review it but at the moment we’re under contract and we can’t alter those contracts until January 1st 2011. We’re very transparent about our revenue streams. We’ll also have an additional revenue stream from mid-September since we’re going to be the first independent mobile operator that has been granted direct chart reporting.

 

It has taken us years to get here, this is not a project that has been dreamt up overnight by individuals who don’t understand the wants and needs of the industry both behind the scenes from a B2B perspective and also on the flip-side of that of how music is being accessed and distributed from the label to the consumer across all media channels – they are all changing but they are converging quickly towards mobile.

We also give labels training in how to market mobile music– we don’t allow them to sign with us and say “we’ll figure it out ourselves”. We always want to give them at least 15 minutes to explain how they can use the service to make money.

As a company if you truly want long term partnership with the labels you also have to hop into bed with them and explain to them how you are supplying solutions.

 

We’ve had interest from Stevie Wonder, Ingrooves, Universal (who have accepted us to be on their retail panel thus exposing our technology and company to close to 4,000 labels worldwide) and Playground Music who are the biggest distribution players in Finland, Denmark and Sweden. We also have Imogen Heap on board and we’ve done a recent mobile campaigned for Bashy – there are hundreds of labels looking to work with us.

AL: Can your system integrate with the distribution systems of other labels and become part of their digital supply chain? I’m thinking especially about larger deals that could involve hundreds of artists/releases.

DT: Absolutely. A great example is Playground Music, they are a physical distributor but they are also aggregators and a record label. They handle the interests of the Beggars group and Domino in that part of Europe. They met us at AIM’s Music Connected for which we were headline sponsors, it wasn’t even on my radar but they asked us whether we could take our technology to another four European countries so we have been discussing that.

 

Another company called  in Japan wanted to talk about how to develop our technology there with them as they think it would work well there. This surprised us since our immediate focus has always been to get it right in the UK first. We are members of the BPI, AIM, FAC and we’ve been working with the Music Manager’s forum.

 

We’re not just interested in making money, we really want mobile to work. That’s why we encourage labels to take half an hour to listen to us and look at our site and the material on there. This way – so far – we have not lost a client. As a company we have spent close to a million just to get to this stage before we actually launched and I think the care that went into the development is why we are getting these super-star deals from the start and these massive integrations. There’s a lot more that I’d like to talk about but at the moment I can’t as I’m under NDAs.

AL: Just yesterday Amazon announced that they made one billion dollars this quarter just from people buying goods on mobile devices, which is a really incredible figure. Is this something that encourages you as a company?

DT: Sure, but we’re talking about America where mobile commerce is far more advanced in psychology – the way that Americans take to that medium is different. In Europe it’s still a fledgling industry. there’s a massive mobile penetration here and so there is a gold-rush push by amateurs to try and conquer that market but like with any gold-rush there will be some successes and some casualties.

 

Smart companies have already been developing this three, four, five years ago and we’re one of them. We’re able to offer advice that is historic and common sense with a no-bullshit attitude: in this business you can either deliver or you can’t.

AL: And in terms of the payment systems you were talking about the charges of the mobile operators and that’s a really interesting point: is that absolutely the only way you can get payment for these tracks or do you think that there are going to be technologies developing in the next few years that will allow you to bypass the operator and use something like – for example – Facebook credits
?

DT: There are several issues that prevent companies to step into this space right now. Say for example that Facebook was to step into the music industry and act as a label or as an aggregator delivering content – on paper it looks like an attractive proposition but at Facebook they are well aware of the intellectual complexities of the music industry, meaning that if 99% of labels want chart reporting you either understand that industry very very well or you don’t.

 

Facebook understands social media very well and that’s why they are huge but if they want to step into the music industry they are going to step into a pile of shit unless they know what they are doing.

 

It’s not easy – for the consumer the process of buying a single is very easy but for us business heads there could be ten to fifteen people intellectually attached to that recording and that’s how the music industry functions. Other industries don’t understand how this functions and that’s why they are not getting involved.

 

How often have you seen a social network link to itunes that’s their get out of jail card but they appear to offer some form of music offering that only adds another layer of confusion to an already confused industry.

AL: One of the things that strikes me about Music2Text is that it’s really a platform: it can be used in so many ways by the record labels or by the artists. It can be a marketing tool with free downloads, it can be a vehicle to sell singles or albums or even a way to sell live recordings, anything can happen on the platform. Do you actually suggest to the labels or to the artists what mobile marketing is or do you let them explore how they can exploit your service to their advantage?

DT: We tell the labels: you can explore if you like, but go and read our mobile marketing pages. Once they do they are blown away and we then we are happy to offer them a half an hour or an hour of bespoke consultancy on mobile marketing. If they absorb that information they can integrate it into their artist’s PR, monetize the music and create a new revenue stream.

 

So far no one has said no. For example, most labels think: I’ll get a text code, my band will be playing to 6,000 people so all the singer will have to do is stop before the encore is say “Hey, text Jim to 60444”. You’d think it was that simple but there’s actually science behind it and we’ve been around 5 years quietly for a reason. To monetize text Jim to 60444 properly you have to really commit to the right mobile strategy.

 

The band, especially if not already popular, should start handing out flyers right from the sound-check, talk to the engineer and get them to put the band’s logo and the text code on the venue’s screens if available, find half a dozen girls before the gig and ask them to help you giving out flyers. The new music industry is about the artist interacting – and it does not matter if you’re Mariah Carey or an unsigned band , the principle is the same. If you don’t work at your career offline and also interact with your fans across social, mobile, digital and in all the new ways in which kids want to access music you will falter.

 

Look at Christina Aguilera’s tour, she had to cancel it. Do you know why? Because she wasn’t prepared to lower herself to the reality of how the public wanted to be personal with her. She can’t just be a diva anymore she has to communicate with the public in the way that Taylor Swift does superbly for example.

The same is happening with radio and BBC Radio 6 is a testament of that. People are starting to want to listen to DJs who really have something to offer, and Radio 6 is reaching out to people who are sick of this mainstream bullshit.

 

We don’t know what’s out there that is going to be the next golden age of cultural revolution but it will happen on the mobile web, not on the online web because it would have happened already and it hasn’t.

 

The reason why it will happen on the mobile web is simple: people are on the move with their mobile phones 24 hours per day and they don’t switch them off, that is the new media. I don’t care what industry you’re in, whether it’s a pharmaceutical company, a media company, a film company, a music company: if you don’t have some sort of mobile strategy in place now see what the future brings you in the short term. You’re going to have a huge problem by 2011/2012.

AL: You’ve been researching into the company for years now: are you still prepared to find surprises in the way labels will use this service or do you think there’s a way to predict how the public is going to react?

DT: For me you need to take that prediction back a bit to where the labels are. For the music industry to evolve and change you have to change the industry itself. Forget the four major labels, the independent sector is now more than open to look at different options and they are exploring.

 

Kerry Harvey Piper from Red Grape Records said: I don’t want to pay x amount of money to deliver and SMS message. Six months ago we were charging 6p per message and she said: that’s too much money: I want to pay 4p or less.

 

I am confident that music2text will scale into the long tail we decided to go there. We did some due diligence, found as SMS aggregator that was willing to provide the service for 3p and we said we were happy to keep just 1p. Kerry also gave us an idea asking us whether we could develop a technology down the road where there could be a third party sponsor for the text message that will pay for that text.

 

For example if I have a deal with Ford or McDonalds I could include the message:  sponsored by x and y with a link to an offer. That could be a mobile analytical tool working in the background of our system where for example if McDonalds were to give away a free burger with the offer and the person turned up and bought fries and a milkshake with that, the label could get a revenue share for the extra purchase. I’m thinking outside the box but someone has to and it may as well be us.

 

In that situation we would be earning from the label revenue chain & we’d be happy to only charge around 15% to manage the process so for the label it’s win-win. They are sending the content out to fans, this down the road can be monetized by a third party and they can potentially earn additional revenue from that campaign for conversion. So our system is set up to do those things because we’re listening to our clients.

 

 

All the public cares about is that you grab their attention in 2 seconds, otherwise forget it!  Our mobile music store is very easy to navigate we’ve asked 8 year olds, 25 year olds, 55 year olds and everyone understood what this is and how to use it. If you can’t deliver the content to mobile in 2 clicks you should not be in this business, don’t bother.

AL: So I was browsing the demo version of the mobile service the other day and there’s a link there that can be used by the fans to get in touch with the band directly. So how does that work and are there any costs involved in the service? 

DT: Reply2Band is very simple, in the mobile music store there’s a link that says Reply2Band, From that link the fans can send free messages to the band right from the mobile product page.

 

These messages go to the artist’s Direct2Fan page and we charge 4p for the bands to send messages back to the fans, but they can also monetize that message up to £1.50 for a single track or up to £5 or even £10 for an album.

 

To us it was a no-brainer but it took a year and a half to develop the technology. It’s really simple to use, our system is all about data capture so that the labels can have their cash registers directly connected to the consumers.

 

It’s a great viral tour as well – the artist Bashy was pulling in from the latest tour with Chipmunk about 600 to 700 fans on each date and he now has 7,000 fans out of a 9 date tour. Now he can send any content: a track, album, video podcast as well as free content to the 7,000 fans or advertise his next tour. 

AL: Finally, the company has only just started in terms of being launched officially. On the one side you’re going to be looking at having as many artists and labels on the service as possible and on the other side you must have a road-map as to how you’d like to develop the service in the next six months. Is there anything you’d like to share with us in terms of where you’re planning to take the service from here? 

DT: We’re planning some sort of official launch at Midem 2011, in the interim we already have a strategy in place to go into 14 countries by January. We’re a very secretive company and believe in PR only when it’s needed. When you’re developing something you either hype it and monetize it along the way or you do it the organic way, you develop it slowly, you build brand loyalty and your partners evolve with you because they feel you are part of their system – we are not part of their revenue chain so there’s a lot of communication/trust with the labels there.

In that sense we act more like a media-marketing company. Using the service is very easy for the labels and for the fans and all we do in the middle is advise and manage those digital processes for them. It’s ambitious and we’ve had many investment opportunities – a Canadian company recently offered us 15 million dollars so there’s a lot of investment interest out there.

This is mainly thanks to a company in London called Lansdowne Capital. One of the senior owners of this company is called Orla Dargan, an investment banker that has been guiding our fortunes quietly for the past two years.  We’re in very good hands in the city and as far as we’re concerned this isn’t about money, we want to make sure we have the right kind of funding to build a strong brand that the industry from an independent perspective can depend on.

We feel that we’ve developed a very well thought-through product and service that the industry needs and it has been developed by both artists and business leaders.

AL: Music2Text is something that in the UK scene especially but I’m sure in the International scene as well is very much needed as no-one else is creating this sort of technology.


DT: Well in the US we’re actually members of A2IM and that is our next market – we have been developing our opportunities there for the past 2 & half years quietly. 
I’m passionate about the industry – I love music –  I just want to see the real music that’s out there come to the fray – and it will. 

Interview conducted by Andrea Leonelli www.digitalmusictrends.com episode 55

Subject: Denver Thomas Ceo/Founder music2text

And now as promised a super-quick overview of this week’s news!

Italian Major label representative FIMI this week announced that for the first time in 11 years sales of music in Italy grew by 7.7% in value, with digital music increasing by 15% over the same period last year and CD sales growing from 45 to 50 million euros.

http://www.rockol.it/news-145297/Italia,-crescono-le-vendite-di-Cd–non-succedeva-da-11-anni-
(in Italian)
http://www.billboard.biz/bbbiz/content_display/industry/e3i3639278d2189e4ef9c31b5e41f5125f9

Music streaming service MOG has finally launched its mobile application for both iPhone and Android, giving its users a three day trial after which they need to subscribe for a fee of 9.99$ per month. The functionality is very similar to that of Spotify’s mobile app with the option of caching songs into the mobile phone to listen to them on the go. The videos show a very slick and usable app, one that should have Spotify pretty worried just about now – if MOG started to build a real customer base in the US those would all be customers taken away to a potential US version of Spotify.

http://techcrunch.com/2010/07/20/mog-iphone-android/
http://www.musicweek.com/story.asp?sectioncode=1&storycode=1041912&c=1

HMV – the only high street music chain left in the UK today launched a revamped version of its digital store called HMV Digital – the store allows users to download tracks very quickly and easily and to play them on any device. There are some launch offers at the moment with some cheap tracks and albums on the site so if you are in the UK and fancy a digital bargain go and try out this new service.

http://news.sky.com/skynews/Home/Business/HMV-Music-Download-Service-HMVDigital-Offers-Top-40-Singles-For-40p-In-Battle-With-iTunes/Article/201007415670809?

At the new music seminar, Pandora announced that they now have 60 million listeners, up from 40 million in December 09. If if they keep up this growth rate they could be reaching 100 million users in the first half of 2011.

http://techcrunch.com/2010/07/21/pandora-stats/

Musician Amanda Palmer has managed to sell 15,000 dollars worth of music and merchandise in just three minutes through the start-up Bandcamp. The platform, that acts like a distributor, allows the artists to sell physical and digital music through their artist pages. The service, that bears some similarities with the established Topspin, h only launched quite recently and naturally this exploit by Amanda Palmer was a great way to kick-start the company. Amanda Palmer launched her new EP – consisting of Radiohead covers played with a ukulele – in a variety of different physical and digital formats, from the simple download to super-elaborate physical packages. Pretty much all physical packages are now sold out on the site.

http://www.billboard.biz/bbbiz/content_display/industry/e3ic0d7c3a6d02f0164bcfeb5c76180e2e7

Well, that’s all for this week, I really hope you enjoyed the show! Don’t forget to email me or @me with feedback or ideas – the email is digitalmusictrends@gmail.com and the twitter handle is digimusictrends. Also don’t forget to visit the website for links to the feeds, itunes store and the vaults of Digital Music Trends featuring over forty interviews with digital music experts.
Have a great week and ’till next time!

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