Oblivion, But Not Beyond January 2, 2012Posted by Bill Rosenblatt in Music, Services.
Last week, the music startup Beyond Oblivion ceased operations. The shutdown happened after three years of development and shortly before the company’s service was to go into public beta. The news was leaked to Engadget last Thursday and became “official” when it was reported in the Financial Times on Saturday.
First, the disclosure: I consulted to Beyond Oblivion throughout much of the company’s existence. I’m proud of what we did, privileged to have worked with its top-notch management team, and sad about what happened last week.
I’ll leave it to others to chew over the amount of cash that the company burned through or why the company shut down at this particular time. Instead I want to talk about the company’s vision and business model, which — if it had seen the commercial light of day — did in fact have the potential to change the online music industry for the better. Although Beyond Oblivion did get some press coverage, its unique model was never fully explained.
At a basic level, Beyond’s model was a hybrid between download services like iTunes and streaming services like Spotify. It was based on the concepts of licensed devices and play count reporting. Users could buy new Beyond-licensed devices or purchase licenses for their existing PCs or other devices. They could download tracks from the Beyond catalog to their licensed devices (a la iTunes) and listen to them as often as they wanted. The Beyond client software would securely count plays and report them for royalty purposes (a la Spotify).
Users could also add their own music files to their Beyond libraries using a process that is now called “scan and match”; Beyond would report plays of those files too, even if the original files were obtained illegally. We had also designed a way for users to add music to Beyond’s music catalog (we called it “catalog crowdsourcing”), with permission of rights holders, which could have resulted in the world’s largest legal online music catalog.
There would be no limit to the number of tracks a user could download to a licensed device. Furthermore, Beyond users could freely share their files with other Beyond users; a Beyond file could play on any Beyond-licensed device (within a given country).
Beyond Oblivion had two signed major-label deals with others in the works, and over seven million tracks in its catalog at last count.
Now here’s the real differentiator: users would pay neither monthly subscription fees nor per-download charges for the service. Beyond’s business model was to charge device makers or network operators the license fees, with the expectation that they would subsidize these fees or perhaps bundle part of them into users’ monthly network charges. If users wanted to add Beyond to their own devices, they would pay a one-time charge, expected to be well under US $100, for unlimited downloads for as long as they owned the device.
Whenever anyone knowledgeable about digital music asked for a quick explanation of Beyond’s model, I would answer, “It’s like Comes With Music on steroids.” (Comes With Music was Nokia’s attempt to create a subsidized music model for a few of its own devices.)
The problem with device maker subsidized models is that they are limited to new devices from that maker. Instead, Beyond’s intent was to build a large, global ecosystem of subsidized music that would work on a wide range of devices and networks. It would be an intermediary between device makers and network operators (license fee payers) on the one hand and music copyright owners (royalty recipients) on the other. Beyond’s pitch to the former was simple: here is a chance to eat into Apple’s market share for digital music by offering a service to users that “feels like free” but is completely legal.
The Beyond concept was based on a fundamental insight by founder Adam Kidron, a serial entrepreneur, former pop record producer, inveterate frequent flier, and spreadsheet Jedi Master. In fact, his business model began on a spreadsheet. He figured out that if he could count every play of a digital music file and pay a small royalty to the copyright owners for each one, he could make a profitable business by charging device licensing fees — essentially trading off device license fees against those “micro-royalties” — and still offer legal music for much less money than anyone else. His model took into account factors such as the expected ownership lifespans of certain device types such as PCs and mobile handsets.
Kidron determined that technology companies were the only remaining entities in the digital music value chain where revenue could come from: users are being led toward expecting to get music for free, and ad revenue has been disappointing. Thus, we tried to define a model and features with enough appeal to tech companies to get them to pay the licensing fees.
But Beyond would only have had industry-wide impact if it could sign up a critical mass of network operators and device makers at launch — a process that would require a lot of salesmanship, faith-building, and delicate discussions about exclusivity versus the power of the ecosystem. When Kidron first approached me three years ago about helping the company and explained the model, my initial thought was, “This might actually work if someone threw enough money at it.” Then he proceeded to explain the funding plan. I was impressed; he had thought it through. He didn’t just want to launch yet another music service, he wanted to move the music industry “beyond oblivion.”
The company did raise large sums of money in order to seed the entire ecosystem. It was in advanced talks with companies worldwide. A few name-brand device makers were considering putting out new Beyond-enabled models of handsets, tablets, and other devices. Wireless carriers in several geographies were considering launching services for Beyond-enabled devices. Major record labels signed licensing deals. But even with cash in hand, the negotiations among the various constituencies proved to be a long, hard slog.
Yet Beyond’s impact on the music industry was potentially much wider than mere profitability for one business. To understand this, it’s useful to look at its economic model in light of various recent governmental attempts to get network service providers to assume more responsibility for curbing copyright infringement. These have boiled down to operators paying for three different things: technology to monitor activity for possible infringement; per-user levies for use of content, and “piracy fees” to cover copyright enforcement costs.
All of these models have serious drawbacks. Levies are inaccurate in paying copyright owners according to actual use of their content and unfair in that they charge all users the same amount regardless of their use. If network operators paid for their own piracy monitoring, they would do it in the same way that device makers have implemented DRM: at the lowest possible cost, with little regard for efficacy, and in ways that benefit them instead of copyright owners, such as customer lock-in. And “piracy fees” are the most inequitable idea of all.
A market-based solution that enables network operators to offer functionally rich access to legal content in a way that feels like free seems like a much better approach — a carrot rather than a stick. It can entice people away from copyright infringement while compensating rights holders fairly and accurately. Given the choice, a network operator ought to want to compete on offering the most attractive music service rather than be forced to pay a “copyright tax” as a cost of doing business. (By the way, this is not my retrospective view; it was all part of the original thinking.)
When Beyond was starting development, users had strong preferences for file ownership over streaming. We started with a download model and figured out a way to reconcile file ownership with usage reporting. We also designed a mechanism for determining (with reasonable accuracy) when a device changed owners, so that it would not be possible to sell a Beyond-licensed device on eBay (for example) and have the second owner inherit the music rights along with the device; “lifetime of device ownership” was key to making the numbers work.
Since then, streaming has become more popular. Yet on-demand streaming services like Spotify and Rhapsody have business models that were originally based on monthly subscription fees; they face the choice of living with a “freemium” model in which only a fraction of users pay subscription fees (Spotify, Rdio, MOG, Deezer) or persisting with an all-pay model against the rising tide of freemium (Rhapsody, Slacker Premium, Sony Music Unlimited). Either choice may be hard for those services to sustain financially over time.
In contrast, Beyond was designed to be a scalably profitable subsidized pay-per-use model from the beginning. As such, it could have had better long-term prospects than those other services.
However, three years is a very long time to be developing any kind of online business in today’s world of iterative development-and-release a la Google. Many of Beyond’s innovative features started making their way into the market through other services during the past three years. For example:
- Catch Media launched a service in the UK in 2010 that counts and monetizes users’ plays of MP3 files regardless of their origins, although the service costs users £30 per year.
- Spotify, Deezer, and Rhapsody have gotten a few bundling deals with wireless carriers, though none of these are full subsidies.
- Spotify also recently introduced an API for app developers, another feature that Beyond included from the beginning.
- The small US mobile carrier Cricket Wireless launched MuveMusic a year ago; it is an unlimited-download package bundled with Cricket’s wireless service. It has attracted over a quarter million users, although the service is limited to five handset models (mostly Android-based).
- Several services have introduced scan and match features that download files from servers to users’ devices. Apple and Catch Media offer this, while others offer it through streaming instead of downloading.
Yet only Beyond put all these features — and more — into a single offering. Apart from the business model and concepts, I can attest that its user experience was terrific. Its interface, responsiveness and sound quality on mobile devices all beat Spotify. It’s a real shame that this highly promising service did not get a chance to make the impact on the music industry that it could have.