Canada’s Place in the Digital Music Universe

Greg Nisbet, CEO of Canadian digital music firm Mediazoic, recently spoke to students at renowned music business school Nimbus in Vancouver about how Canadian innovators can compete more easily today on the global stage than ever before. This is a transcript of his presentation titled “Canada’s Place in the Digital Music Universe”.

Who here wants to be in the music business?

Well, not much more than a year ago, I was among you, in fact I was probably behind you. A year ago, I didn’t know a damned thing about the music business. All l knew was that I wanted to be in it. Now I know a lot about the business, and a lot of the people in it, and I’m even managing to scratch out a living from it. I’m going to talk a little today about what I’ve learned and hopefully you’ll take away something that educates and hopefully even inspires you.

Just a little about me. During my twenties, I bummed around the world and made a living doing a whole bunch of different things, from taking out safaris to busking to tending bar. A little before I hit thirty, I had a young family and needed to settle down, so I started an English language school, then another. Had a great time doing that for about ten years, sold those, helped build an ecommerce site, but then forty hit and I had what I call dual epiphanies, within a few weeks of my 40th birthday. The first was that music had been such an important part of my life, that it didn’t make sense that I wasn’t in the music business. The second was as I was sitting out in my backyard by the pool chatting on the instant messenger with a friend of mine. We were talking about music, and I realized that there was no good way for us to do digitally what we’d do if she’d been sitting with me by the pool, which is to listen to music together as we talked. So, I set about creating something, and about a year ago, I left a very comfortable career and started from square one in the music business.

But as you know, music is not an easy business to break into. It’s so sexy, the lifestyle just exudes cool, and the rewards can be immense, what’s not to like. But anything that good is going to have an establishment of people who like the way things are just fine, and establishments can be hard to break into. And, just to confuse matters, on top of the old establishment, there is a new music establishment developing and, just like the old music establishment, they practically all know each other, if not personally at least digitally. For an outsider looking in, where do you start?

Well, I started by just listening and learning, and most of the listening and learning I did, at least at the beginning, was online. I learned a lot and I came across an incredibly diverse array of creative ways to make money in music. There’s no way I could possibly get into detail about all the interesting digital music ventures out there, and what I learned about them, but what I’ll do is post a list of some of my favourites just for this group and I’ll send out the link. Also, I’m leaving lots of time for questions, so if you’d like to ask about any specific ones while you have me here, I’d be happy to answer them.

What I’m going to focus on today is some of the broad issues facing the realm of digital music, first as challenges, and then how to exploit those opportunities not necessarily exclusively in digital music, but using the digital realm.

One of the things that excites me about the digital music universe is that opportunities are pretty much limited only by imagination. The computer screen, or smartphone screen, isn’t all that different from a movie screen, and we’ve seen from Avatar recently what incredible things can be accomplished on a screen when imagination meet vision, determination, and resources. Where imagination is being applied now in the music space has a lot of people thinking that, before long, there will be no need to own music at all. Where people used to have to buy a record or a CD or a song file and keep it, the rise of “music in the cloud” services such as Rhapsody and Spotify mean that you can hear pretty much any song you could imagine without having to own (or steal) it. Typically, the primary revenue model on which these services are based is a mix of advertising and subscriptions but, in fact, we’re seeing as many different ways to make money as there are services. What I want to say to a room full of folks who hope to get paid for making music, is that all the digital music folks I know are working to build models that include the ability to pay musicians and the people who support them. Have all of them figured out how to do that yet?

Not even close, but my view is that selling any product, scarce or otherwise, is about building up value in the eyes of your constituency. Figure out who will pay for your services, whether en masse or one by one, and you have yourself a business model. Most of what the digital music space is doing now is just trying to figure out who that constituency is. The answer may seem simple, but it isn’t, because the constituencies have changed, and there is almost always more than one.

The first solution to this dilemma is that, if one group of possible customers won’t pay, find another group. I recently came across the story of Matthew Ebel, a singer in Boston who started building a fanbase by doing everything he was supposed to – playing live, giving his music away for free, and actively participating in social networks and other sites. Except that he still couldn’t get signed, and he wasn’t making enough to support himself without having a day job. So, being a bit of a tech geek, he came up with the idea to start regularly performing in Second Life. Smartly, he collected data about his listeners and their likes and dislikes and, after analyzing this feedback, he decided to set up a “subscription” backstage pass offer, whereby fans could pay $5, $10 or $15/month to get various benefits, including access to new songs every couple of weeks, as well as having new recorded shows sent to them. Ebel soon discovered that he was making enough so that music is his full-time job, with subscription revenues represent nearly 40% of his income, which is about equal to live gigs and sales of CDs and digital songs combined. In other words, one constituency wasn’t recognizing value, so he switched to another one that did.

This story also happens to be a great illustration of the value of data to better understand your customers. Everybody in the music business needs data to make money, from radio stations to record companies to managers for their bands, and the digital music landscape is data nirvana. Topspin is a great service that provides great promotion tools to bands and labels. In an interview recently, Topspin founder Ian Rogers said that, according to Topspin’s customers, data is the most valuable part of their service. Unlike the days when you walked into a record store and anonymously made a purchase, now there is a drive to find out as much as possible about you and your preferences. What makes platforms like Facebook so powerful is the ability to paint a picture of you, socially and informationally, and target you with stuff you’ll like. For any digital music model to have a chance of being successful, it will have to learn the same lesson.

A digital music discussion wouldn’t be complete without saying at least something about file sharing. I’m not going to talk about the morality of it, as I’m sure there are even enough diverse opinions even just in this room to spark a riot. The question I’m most interested in as an entrepreneur is “it exists, so what am I going to do about that current reality?”

A great example of going with the flow in recognizing and analyzing an existing reality is the story of online radio service Pandora. Like yourselves, Tim Westergren of Pandora studied recording technology, and also managed a band. You might want to note a good piece of advice he dispenses, that managing a band is great practice for running a music startup, in that dealing with creative personalities and attracting and retaining great people is the most important key to the success of the business. Anyway, Pandora originally thought they were building a technology tool that they would license to companies. They raised a bunch of money, built a great system, ran out of money and were broke for three years, but never stopped believing in the underlying idea. Finally, when they managed to raise a second round of funding, they hired a new CEO who told them that they were selling to completely the wrong people, that the explosion of available music occasioned by file sharing created the need for better music discovery and recommendation among the music consuming masses, so Pandora switched constituencies and are now on the cusp of great success.

I’m sure your production teachers tell you here at Nimbus that you should make every recording as if it were going to be listened to forever, because in some cases it actually will be. This is truer than ever now when we think about the oft-mentioned concept of the long tail. The long tail is an idea you’ll need to be familiar with as more and more music lives online. Whereas at any one time most of the sales activity occurring is based around the “hits of the day”, once that music disappears from the charts, it becomes part of the long tail of content, accessible anywhere at any time. An important digital trend that affects the long tail of music is that this content can then be repurposed or reawakened, as when an old song is picked up to run on a popular television commercial, which means that one single song may provide continue to provide revenue for a long time to come. So make it great the first time!

The long tail concept applies for almost everything you do online, because the Internet is a tool for distributing not only music but music services. Not surprisingly, it’s a tool that you master just like you have to master tools for making music, by practice. Those who use it uniquely, smartly and creatively can do very well. Any Luddites out there, who just want to focus on making music and don’t want to worry about all this Internet stuff? Because not understanding the digital realm in my eyes is almost like saying you’re not that interested in really being in the music business. It’s like playing gigs – when you put yourself out there, you seldom get exactly the reception you want, but you almost always get something, and it’s what you make of that something that determines your success.

For example, you can use the internet to meet practically anyone who you want to meet in the music business. Once you’ve identified who you want to work with, start by doing your homework and mapping out relationships of people who know that person, then work back along the chain until you find someone you can access. Crazed Hits and Larry Leblanc’s newsletter for Celebrity Access are two fantastic resources for mapping out relationships inside the business. Once you have the knowledge, build a profile for yourself that takes into careful account how you will be perceived by the people you want to reach.

To illustrate my point, let me tell you how I did it. When I’d finally managed to get to stage where I’d turned my idea by the pool into a working demo for Mediazoic, I made a list of a dozen or so people in the music business who I thought were smart enough, tech-savvy enough, and open-minded enough to grasp where we were going with the company. At the top of my list was a guy you would know, a internationally renowned Canadian working at the highest level of the music business. Problem was, I didn’t know anybody in the business, let alone the guy who had produced some of the world’s greatest music artists. So, I worked backwards along the chain. I found an article that had written about this guy, and contacted the journalist with comments on his article. I then learned that a company with which the journalist was associated had access to a database of contact information for people in the music business, so I contacted the company expressing an interest in becoming a customer of theirs (which was a little sneaky, as I didn’t have any money). I hit the jackpot when they called and offered me free access to the database for 3 days as a trial, so I spent the next three days contacting anyone who was close to anyone on my “top dozen”. As it turned out, the high-level guy I mentioned was the first person to get back to me, probably within an hour or two of when I’d send the email.

The lesson in that story is about always starting local, which in my case meant Canada. Canadians are everywhere in the music business, in very successful roles, and they tend to be approachable. They also embody a great Canadian trait we saw recently with Haiti – they like to help. This school is a great example, of Canadians who have had success in the music business wanting to help a new generation of Canadian music professionals. People speak of digital culture as a culture of sharing and openness. This dovetails perfectly with how Canadians are, and makes me believe that the digital universe is therefore one in which the Canadian mindset will thrive.

Of course, anybody who has ever tried to raise money in Canada knows that the Canadian mindset doesn’t always make for great business. Anybody notice that there are so many world-famous Canadian musicians but not many world-famous Canadian music companies? Any thoughts on why that is? If we can have a technology success like Research in Motion, why can’t we have a similarly successful music company. Well, I believe we can, because we’re smart and creative enough, but great patience is required with our investment culture. As investors, we’re not risk-takers, and music is an industry that thrives on risk, but my sense is that, once someone manages to convince our music investors to take that risk, the “Canadian diaspora” will kick in and the sky will be the limit.

For the entrepreneurs in the audience, who hope to create that next great Canadian music company, the necessity for such great patience can be quite a challenge, but it isn’t insurmountable. My last story is about a smart Canadian digital music company that struck out on the investment front but turned around and leveraged existing local relationships to seal an important international relationship. LyricFind is a Canadian company that provides song lyrics to many of the world’s best digital music services. After striking out with a who’s who of Canada’s investment community, they went looking for customers instead. They managed to leverage some good local relationships to get into serious discussions with a big music service, their ideal first client, but in order to close the deal, the client wanted a face-to-face at their offices, which, at the time, were just two cubicles in someone else’s space. They convinced their lessor to change their signage for the meeting and moved all of the CEO’s stuff into one of the private offices, and they “staffed” the surrounding cubicles with friends and supportors. The bigwigs came in, things went well, and they closed the deal. I love that story because it’s all about leveraging the quality of existing relationships to build a single, important new relationship, and doing whatever is necessary to make it bear fruit.

Mediazoic’s story is not all that different. From that idea by the pool three years ago, we’ve managed with extremely limited resources to assemble an amazing team of brilliant people and build a great piece of software that is now being tested by a who’s who of today’s music business. Any time we’ve run into obstacles, we’ve re-focused, listened to smart people, and developed relationships with those who understood our vision.

The digital universe is filled with people, information, and tools that can enable Canadian talent of all kinds to showcase its value internationally. Though regional challenges over investment, publishing and licensing still exist, there are vastly more options today than when Jack Richardson mortgaged his home and set out for New York City to break the Guess Who out of backwater Winnipeg. That said, many of the same principles apply, and you’d do well to remember them. Do great work, do whatever you can to get it out there, collect and analyze great data, and, most importantly, build great relationships with great people.