CMW ’09 Opening Keynote

Cory Ondrejka, SVP Digital Strategy

three topics for this morning

•  who I am
•  what led me to EMI
•  thoughts on music after 8 months

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beware

it will be an eclectic path

3
so, we’re going to talk about

history

4
so, we’re going to talk about

history
second life

5
so, we’re going to talk about

history
second life
the net

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so, we’re going to talk about

history
second life
the net
alien abductions

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so, we’re going to talk about

history
second life
the net
alien abductions
long tails

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so, we’re going to talk about

history
second life
the net
alien abductions
long tails
participation

9
so, we’re going to talk about

history
second life
the net
alien abductions
long tails
participation
virtual concerts

10
so, we’re going to talk about

history
second life
the net
alien abductions
long tails
participation
virtual concerts
some math (pretty graphs included)

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so, we’re going to talk about

history
second life
the net
alien abductions
long tails
participation
virtual concerts
some math (pretty graphs included)
babies

12
so, we’re going to talk about

history
second life
the net
alien abductions
long tails
participation
virtual concerts
some math (pretty graphs included)
babies
change

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so, we’re going to talk about

history
second life
the net
alien abductions
long tails
participation
virtual concerts
some math (pretty graphs included)
babies
change
innovation

14
so, we’re going to talk about

history
second life
the net
alien abductions
long tails
participation
virtual concerts
some math (pretty graphs included)
babies
change
innovation
rush
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rush?

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you see…

I grew up in Milwaukee, WI

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(for the Americans)

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(for the Americans)

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(for the Americans)

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so

for me, living in Milwaukee in the 80’s,

music meant…

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22
so flying into YYZ was damn cool

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30 minutes, 211 slides

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30 minutes, 210 slides

now I start talking fast

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30 minutes, 209 slides

you’ve had your coffee, right?

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now, a quick test

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now, a quick test

this week, how many of you have:

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now, a quick test

this week, how many of you have:

sent/received an SMS?

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now, a quick test

this week, how many of you have:

sent a tweet?

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now, a quick test

this week, how many of you have:

sent an IM?

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now, a quick test

this week, how many of you have:

updated your blog?

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now, a quick test

this week, how many of you have:

played a videogame or mmo?

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now, a quick test

this week, how many of you have:

downloaded a piece of digital music?

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now, a quick test

this week, how many of you have:

listened to web radio?

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now, a quick test

this week, how many of you have:

watched TV or a movie online?

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because

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because

your fans did

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on the other hand

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on the other hand

how many of you have have

an assistant printing out email?

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on the other hand

how many of you “know someone” who

has an assistant printing out email?

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if so

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remember what happens to dinosaurs

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just to be clear
I am not a technological determinist
New technology changes opportunities

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and most relevant to us

Nowhere is this more true than

in communications technology

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so, while we aren’t technology companies

Lack of understanding means we miss chances

It means we do less for our artists and fans

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so bringing this back to me for a moment

Nearly 20 years ago I was:

•  Driving nuclear submarines
•  Doing [redacted] for the NSA
•  Building [redacted] for Lockheed

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more recently

arcade games
video games
Second Life

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all of these intersected music

m:tg – all original music

rr64 – civ, the mermen, sugar ray
second life – music as the killer app

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I have to ask…

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I have to ask…

Who has heard of Second Life?

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I have to ask…

Who is a resident of Second Life?

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relevant to today’s discussion

Second Life is a user-generated, online world

An online game without the game part

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a synthetic place

Create
Work
Play

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quite different from the web

Real-time, collaborative creation

Dialog rather than monolog

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many distinctions blurred

Creators, consumers, and critics intermingled

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on a vast scale

Millions of people
Billions of creations and events

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or, if you’d rather count dollars

Economy generating over US$1 million per day

Employing thousands of people in hundreds of
businesses, all over the world

All built on microtransactions

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a few things to keep in mind

Second Life enabled cheap experimentation

It lowered the cost of trying and learning
Advertising has not been a significant driver
Value of niches has – more on that later

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so, emi

Innovation lead me to EMI

Specifically user-led innovation
Platforms empowering users

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taking that innovation beyond sl

Ability to create markets

Collaboration at a distance
Participation

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which took me to Singapore

A nation extremely focused on innovation

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image (c) 2007 peter s.y. du
resulting in the obvious

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resulting in the obvious

I tried to hire him

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resulting in the obvious

He tried to hire me

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resulting in the obvious

We failed

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resulting in the obvious

(Fortunately)

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because, a few months later

Douglas joined EMI

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because, a few months later

Douglas joined EMI

I left Linden

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because, a few months later

Douglas joined EMI

I left Linden
I received a simple SMS

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because, a few months later

“Do you like music?”

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this lead to some scheming

How would the lessons of Google and

Linden apply to the music industry?

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and I joined in late May

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because one key idea applied

Music was the killer app in SL

50+ live music events a day

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because even when you could do anything

It turns out that

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it’s all still about people

and connections

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and friendships

and nothing connects people like music

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even better, music is a gateway drug to

technology and participation

communities
entrepreneurship

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because music matters

to people

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because music matters

to people
to our memories

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because music matters

to people
to our memories
to our emotions

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so, people engage

and all that technology, community, and

entrepreneurship leads to something else

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innovation

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what do we mean, exactly?
innovation can be tricky to define
innovation is productized knowledge
drives per-capita growth
leads to exponential curves

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in other words, to dramatic change

although not all

change is good

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and it certainly doesn’t play favorites
As Schumpeter, Christensen
and others have shown

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and it certainly doesn’t play favorites

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and it certainly doesn’t play favorites

buggy
whip
sales
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tends to lead to interesting times

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tends to lead to interesting times

In the Chinese proverb sense

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where interesting means unpredicted
because we predict linearly

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where interesting means unpredicted
because we predict linearly

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where interesting means unpredicted
because we predict linearly

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where interesting means unpredicted
because we predict linearly
but reality is exponential

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where interesting means unpredicted
because we predict linearly
but reality is exponential

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where interesting means unpredicted
because we predict linearly
but reality is exponential

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where interesting means unpredicted
because we predict linearly
but reality is exponential
so we’re often really unprepared

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where interesting means unpredicted
because we predict linearly
but reality is exponential
so we’re often really unprepared

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consider the it revolution

Moore’s
Law

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which talks about transistors on a chip

Moore’s
Law

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but really means

Moore’s
Law

Radical
computing
cost drops

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which enabled the internet

Moore’s
Law

Radical
computing
The
cost drops Internet

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and the computing horsepower for mp3

Moore’s
Law

Radical
computing
The
cost drops Internet

mp3

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driving a bunch of good things

Moore’s
Law

Radical
computing
The Broadband
Adoption
cost drops Internet

Zero
mp3 Marginal
Cost

iPod
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(which you know better than I)

Moore’s
Law

Radical
computing
The Broadband
Adoption
cost drops Internet

Zero Canada broadband penetration: ~85%

mp3 Marginal
Cost

iPod
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with unanticipated results

Moore’s
Law

Radical
computing
The Broadband Friend
Adoption
cost drops Internet Networks

Zero
Online
mp3 Marginal
Groups
Cost

iPod
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and even more

Moore’s
Law

Radical
computing
The Broadband Friend
Adoption
cost drops Internet Networks

Zero
Online Niche
mp3 Marginal Dominance
Groups
Cost

Trust
p2p Friends
iPod Darknets Not
Experts 107
driving the need for more innovation
even as we start up the next exponential

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problem is that innovation is hard

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problem is that innovation is hard
we want ready, aim, fire

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we get random walks
with lots of missteps along the way

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and we see lots of false patterns

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and we see lots of false patterns
beware correlation causation errors

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but innovation is still what we need
because exponential change happens
it either can happen to us
or because of us

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so, the hard question becomes

how can we drive innovation?

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let’s start with what we know
innovation relies on knowledge collisions
participation
communication
learning

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collisions at the edge
all about disjoint knowledge together

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and making it easy to try
lots of communities
sharing knowledge
creating together

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bringing us back to the web
and lessons we can learn

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and some graphs

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and some graphs
several of them ugly

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and some graphs
maybe

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first, recall

Moore’s
Law

Radical
computing
The Broadband Friend
Adoption
cost drops Internet Networks

Zero
Online Niche
mp3 Marginal Dominance
Groups
Cost

Trust
p2p Friends
iPod Darknets Not
Experts 123
radical drops

computing, bandwidth, storage

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communities are another

connecting
learning
creating
collaborating

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enabling new models

cheap computing
+
communities
=
crowdsourcing
collaborative filtering
niche fulfillment
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and changing the balance of power

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and changing the balance of power

(and “changing” isn’t a strong enough description)

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consider

image cc by:nc 2007 esther dyson

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the gray lady

image cc by:nc 2007 esther dyson

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and craig

image cc by:nc 2007 esther dyson

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on the one hand
1851
98 pulitzers
1.5m circulation
$4b advertising(1999)

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versus
1995 1851
0 pulitzers 98 pulitzers
sf classifieds 1.5m circulation
incorporated(1999) $4b advertising(1999)

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historically, this looks pretty one-sided

image cc by:nc 2007 esther dyson

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physical economies of scale

Control of distribution
Control of content
Existing mass of subscribers
Vast capital and leverage in the market
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competing with craig looks pretty easy

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except

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story has a twist
2008
advertising down 63%

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despite being very web savvy
2008
advertising down 63%
$500m from nyt.com

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and the little guy?
2008
advertising down 63%
$500m from nyt.com

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and the little guy?
2008 2008
#1 classified ad source on Earth advertising down 63%
30 million new ads per month $500m from nyt.com

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and a different perspective
2008 2008
#1 classified ad source on Earth advertising down 63%
30 million new ads per month $500m from nyt.com
“little interest in maximizing profits”

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better grasp the power of new models

cheap computing
+
communities
=
crowdsourcing
collaborative filtering
niche fulfillment
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or others will

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they’re driving a transition

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one that thrives on niches

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nichification

finding what you want is valuable

friends are more trusted than others

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this shouldn’t surprise anyone

ebay
wikipedia
youtube
flickr
google
second life
etc 148
and we’re seeing it in music

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and we’re seeing it in music
35% overall market drop

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and we’re seeing it in music
35% overall market drop
50% drop in top 200

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aka “the long tail”
where we spend lots of time focused on the top
but fans are connecting with artists along the tail

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an aside
Chris Anderson made assertions about total value

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an aside
Arguing top of tail…

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an aside
Arguing top of tail…
is about equal to the rest

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and we see some of this
we can look at EMI us digital weekly sales

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as long we’re talking about the tail

nearly perfect power law among the top 1,110 artists

which is already a much longer tail than we’re used to

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as long we’re talking about the tail

but the long tail is pretty weak

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not really my main point
I’m more concerned with attention
Where fans are looking, connecting, and spending

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that they’re moving out of the mass market
recall the drop in top 200 revenues

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of course we still want hits

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of course we still want hits
(duh)

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but tail is scary if we focus on hits

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because tail is scary if we focus on hits
we can’t build our models assuming everything
will always be here

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how do we handle fans exploring the rest
how do we help artists and fans trying to connect down there?

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and let me scare you a bit more

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three recent media transitions

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01100100 01100101 01100001
01101100 00100000 01101110
01101111 01110111 00100001

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vinyl to cassette

50%: 12 years
90%: 17 years

01100100 01101111 00100000

01100100 01100101 01100001
01101100 00100000 01101110
01101111 01110111 00100001

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vinyl to cassette

50%: 12 years
90%: 17 years
50-90%: 5 years

01100100 01101111 00100000

01100100 01100101 01100001
01101100 00100000 01101110
01101111 01110111 00100001

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cassette to cd

50%: 12 years
90%: 17 years
50-90%: 5 years

50%: 13 years
90%: 18 years

01100100 01101111 00100000

01100100 01100101 01100001
01101100 00100000 01101110
01101111 01110111 00100001

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cassette to cd

50%: 12 years
90%: 17 years
50-90%: 5 years

50%: 13 years
90%: 18 years
50-90%: 5 years

01100100 01101111 00100000

01100100 01100101 01100001
01101100 00100000 01101110
01101111 01110111 00100001

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cd to digital

50%: 12 years
90%: 17 years
50-90%: 5 years

50%: 13 years
90%: 18 years
50-90%: 5 years

50%: 9 years
01100100 01101111 00100000
01100100
01101100
01100101
00100000
01100001
01101110
90%: ?? years
01101111 01110111 00100001

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want to bet this will be 5 years?

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01100100 01100101 01100001
01101100 00100000 01101110
01101111 01110111 00100001

50-90%: ??

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but fear is the mind killer

because there is a secret

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niches monetize better

(if you let them)

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after all…
what do you think drives eBay?
or Google?
or Second Life?

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but it is a change

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to a brave new world

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with new opportunities

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to create value in the connections

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and connections spring from experience

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and what is more experiential than music?

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experience leads to participation

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leading to user-generated content
distributes costs of production
allows creators to engage with their craft
and new creators to experiment

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or the unexpected bits

image (c) 2003 w. james au

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or the really unexpected bits

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niches plus communities are powerful

and they are engines of creation

underestimate them at your (our) peril

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ask britannica about wikipedia

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or the newspaper industry

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or some people in this room

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but, upsides as well
for those who explore the medium

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katy perry

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the myth of overnight success

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new insights into our fans

“I Kissed a Girl” released

May 6

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and where trends emerge from

perez hilton
yahoo! music

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but still a long way to go

what happened here?

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more ways to connect artists and fans
stems released on blog
djs make remixes
final version released on iTunes

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more ways to connect artists and fans
stems released on blog
djs make remixes
final version released on iTunes
100k mentions of iTunes release
200k downloads in first 4 days
Highest charting release of West’s career

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web users expect participation

in many different forms

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see this in second life
meeting performers
meeting other fans

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during the election cycle
current.tv and twitter

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artists on tour

making connections

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because people are still connected
in some ways more than ever before

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through new connections
2.2 million people played Lily Allen’s flash game
Average of 4.3 minutes of play
Over 500,000 click-throughs

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through new connections
2.2 million people played Lily Allen’s flash game
Average of 4.3 minutes of play
Over 500,000 click-throughs
It’s Not Me, It’s You debuted #1 in Canada, UK, Australia
#5 in US
In US, 63% of her first week album sales were digital

205
and new devices
In October, Tap Tap Revenge players bought 50,000 copies of the
featured track “Hot N Cold” by Katy Perry

Led to collaboration with Tapulous

Premium version, Tap Tap Dance features Moby and Daft Punk

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new engagement

Debut of the iTunes Pass

Delivery of singles, videos, and exclusive content to fans

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not to mention

If we’re talking experience…

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the beatles rock band

209
paid demand is falling

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overall demand increasing

211
canada particularly good example

in 2008, overall market down 8.5%

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canada particularly good example

in 2008, overall market down 8.5%

digital up 58%

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not to mention

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massive growth in digital downloads

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1033 days to first billion

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157 for 5th billion

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slowing?

6th billion took 202 days

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more can listen than ever before

> 1 billion internet users

> 3 billion cell phones
over ½ of the planet

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who want to listen

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in a new world

with costs going to zero

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so…

billions of fans
technical costs going to zero

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that’s my kind of market

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especially when compared to my last job

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especially when compared to my last job
put 10,000’s of cpus online
enter a universally unsuccessful market
explain what a virtual world was
get people to buy virtual real estate
rely on users building the entire world
create an economy based on virtual businesses...
completely built on digital items...
paid for with a virtual currency

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seriously

226
life might not be this simple

227
but, think about the experience

do any of you really

believe that the
experience of music was
the transaction around
pieces of plastic??

228
we can innovate on the old models
1998: massive attack album streamed
1999: David Bowie’s “Hours” via download
2007: High quality, DRM-free mp3s

229
we can understand our market
Who are our fans?
What are their attitudes about music?
How we connect them to music in better ways?

230
we can think more broadly

Who pays for the music?

What part of the process do they pay for?
How do the right models get found and applied?

231
there is a path

Fans more engaged than ever

Digital helps us identify and connect niches
Allows for more artist and fan connections
We can really understand our markets

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making it a great time for music

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and a great time to be in music

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stop talking now

thank you very much!

cory.ondrejka@emimusic.com

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