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Oblivion, But Not Beyond January 2, 2012

Posted by Bill Rosenblatt in Music, Services.
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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.

Comments»

1. John Erickson - January 2, 2012

Thanks for this post and “Happy New Year,” Bill!

It’s unfortunate that Beyond did not see the proverbial “light of day.” Given that together the services you list at the end implement (presumably) most of Beyond’s feature set, perhaps we’ll see market leaders evolve toward those features — no doubt in part through acquisitions and fire sales…

2. James Gardiner - January 2, 2012

I had a idea I blogged about a very long time (4-5 years) ago that was along these lines. I came to the conclusion after some years that, even tho you could come up with an idea that was likely to make everyone money.
The political hurdles and the nature of any of the the parties trying to abuse the situation would always bring it down.

My cynical view these days is that producer to consumer is the model with the business models used since entertainment started.

Make your art. Jump and shout. Hold your hat out. If you are good enough you get to eat that night…

We are like the Borg or a hive mind. We are all connected all the time. (Smart phones with cameras etc) Once a performance is done, it is turned into bits on the internet. If people like it money will come to support it.

James

Bill Rosenblatt - January 2, 2012

Hi John,

Happy New Year yourself.

Beyond did have a couple of features that are still unique. One is the catalog crowdsourcing feature. I probably shouldn’t reveal the details of it, but it would result in lots of obscure music and “digital holdouts” being available on the service. Another is certain user experience elements that hadn’t made it into the alpha releases I got to play with – really cool. We started patent applications on some of this stuff. The first one of these has high barriers to entry; the second was just a function of Adam’s design creativity; ergo neither are likely to be duplicated in the foreseeable future.

3. John Erickson - January 2, 2012

I think we’re seeing a possible trajectory for the music industry being modeled in another major segment of Big Media, by an 800-lb gorilla named Rovi. Rovi is essentially making non-music content extremely easy to license in a variety of ways for a range of intermediaries, essentially API-izing the transaction of a wide array of rights. Rovi’s customers are not end users, but rather developers, device makers, web service providers and other portals, etc.

As I pondered Bill’s post and other thinking on the future of the music industry it occurred to me that the natural course the market must be toward an agile, highly-scalable music transaction infrastructure. The natural course towards this has been impeded by the music industry’s historic inability to embrace new transactional models, creating a vacuum (in meeting consumer demand) that piracy-driven solutions have filled.

The music industry can continue to exist by contributing in a natural, organic way to the creator-to-user value chain. One role may be for it to provide rights API aggregation services, giving (e.g.) developers and device makers a Rovi-like equivalent they can “plug into” to reliably and efficiently get music services.

Notice that I said “API aggregation” and not “an aggregated API.” That’s because I believe there is room for boutique rights players; a Rovi-like music licensing infrastructure can provide developers, etc. with a selection of choices, some of which might fit their business model.

I’m not a Rovi lap-dog. But I do think they provide services that a range of media re-users find highly valuable. Stakeholders in the music industry must similarly see their role as making it easy for participants in the value chain to do the rights thing…

Bill Rosenblatt - January 2, 2012

Um, John,

Maybe you’re talking about a different company, but the Rovi I know (and with which we at Beyond Oblivion did business) does not license rights to content; it licenses rights to metadata about content. (And its URL is rovicorp.com, not rovi.com.)

Furthermore, if you want to see an encouraging glimpse at the future of rights aggregation services, you should look at what WIPO is doing with the International Music Registry, which I wrote about back in October.

– bill.

John Erickson - January 2, 2012

Bill, you are (obviously) correct on all counts; I need to refrain from late-evening comments!

Indeed it was researching the entertainment metadata business that I first encountered Rovicorp…

Bill Rosenblatt - January 2, 2012

And BTW the IMR project (as I understand it) does indeed take an aggregated approach, as you describe it. It assumes that several local or specialized rights repositories will exist. In contrast, the Europe-based Global Repertoire Database project has intended to build a single global rights database — an approach that both I and the folks at WIPO believe will not work, for reasons you state, among others. The IMR approach is analogous to the approach to enterprise content management that I advocated in a white paper back in 2002.

4. airborneruark - January 4, 2012

This is why music startups/artists need to step back from the ‘costly’ label deals and rather look to work around the creative commons license.

Check out airbornemusic.com to see what can be done.

Bill Rosenblatt - January 4, 2012

Excuse me, but this is an apples-and-oranges argument. Creative Commons is a set of rights conferred on the licensee that fall between public domain and the full copyright bundle. It need have nothing whatsoever to do with any consideration (e.g. money) given for those rights. For example, the major labels could conceivably have given Beyond Oblivion (or Spotify, or iTunes, whatever, take your pick) Creative Commons licenses to their music in exchange for money. Commercial content publishers have considered distributing their content under CC… just not (as far as I know) any major record labels.

5. airborneruark - January 4, 2012

Thanks for the reply Bill. Yes the labels could have given any of the services access to ‘cheaper’ or less restrictive licenses that would enabled them to access users from a global marketplace…but they dont currently do so.

“…there are the problems that affect all music startups: an antiquated legal framework, poorly defined rules for music online and desperate music labels trying to find ways to make up for billions in lost revenue since the 1990s.” (Dalton Caldwells talk at Ycombinator)

But yes, I guess it is an apples&oranges argument :P

6. brent bailey cq - January 4, 2012

the only thing unique was making the network operators and device manufacturers pay the freight. ultimately this was also BO’s undoing since the funding was based on getting those deals in place and they couldn’t pull it off. revising history by framing the product experience itself as revolutionary is disingenuous since BO never released a product while the “pretenders” you cite do. it doesn’t work that way.

Bill Rosenblatt - January 4, 2012

For the record, I don’t think I called the “product experience” “revolutionary.” The innovation was primarily in the business model, as you suggest.

As for the user experience, all I can tell you is that the product was in late alpha, I was one of many alpha testers, I tested it extensively against Rhapsody and Spotify, and it was superior to both on mobile (Android, Verizon Wireless, NYC). Spotify has a nice UI but uses an inferior codec (OGG Vorbis, which is freeware) that requires very high, bandwidth-hogging bitrates to get decent sound quality; this results in almost constant dropouts in NYC even on VZW. Beyond uses AAC-HE which offers superior sound quality at much lower bitrates, resulting in almost no dropouts ever. Rhapsody’s Android client has suffered from poor performance, bad design, and many, many bugs. Beyond’s code quality in alpha was better than Rhapsody’s at V2.0. There’s nothing theoretical or speculative about that.

7. brent bailey cq - January 5, 2012

” Many of Beyond’s innovative features started making their way into the market through other services during the past three years.”

maybe it’s just the way this line was written to give BO credit for features that other services actually brought to market.

Bill Rosenblatt - January 5, 2012

Well, I didn’t intend it to mean that. Startups think up ideas and then try to build them. While they are doing this, they have no idea whether anyone else is working on something similar. For example, we thought up what’s now called scan and match on our own. Then Catch Media came out with it some time later. Clearly they had similar ideas around the same time. They brought it to market, but did they think of it before we did? We have no idea. In fact, many Silicon Valley pundits (e.g. Guy Kawasaki) like to say that if you’re really the only one with a certain idea, it’s probably a bad idea.

At the same time, Beyond had a couple of ideas that no one else has brought to market yet. I didn’t mention these because they are confidential and may have some value to someone who might be interested in purchasing the assets.

8. brent bailey cq - January 5, 2012

mspot and others have offered what is known as “scan and match” for years.

Bill Rosenblatt - January 5, 2012

No, it’s not the same thing. What MP3tunes, Mspot, Doubletwist, etc. offer is more appropriately called “upload and sync.” They require that users upload their files to a server, from which they can download or (in some cases) stream the music.

Catch Media and Apple iTunes Match skip the upload part by identifying the file, by looking at MP3 ID3 tags or equivalent metadata in other formats, or if not available, by acoustic fingerprinting. Once the music is identified, these services download or stream their own copies of the music from their services. There is no need to upload your files, a process that could take days or weeks depending on how many files you have and your Internet bandwidth, especially if you have asymmetrical Internet connectivity (fast download, slower upload speeds). The issue is that you need a license from copyright owners to do this, whereas you don’t for the MP3tunes method (AFAIK Michael Robertson’s MP3tunes was the first to do this).

9. Nathan Beck - November 11, 2012

What if someone were to offer the bands free promotion which is a lot cheaper than most people think and then distribute them slowly locally which is slow to be sure but effective in the long run and then just let the artists talent work for itself?

10. Nathan Beck - November 11, 2012

Albeit a slow way to get noticed the payoff in the longrun will be astounding for those with the talent to suceed

11. Nathan Beck - November 11, 2012

I also realize the need for some to make money as quick as possible but the long run efforts of such a move are just to strong to deny.Think of it.Rather than a six month wait for the money to come in with only a trickle down effect in monetary gains from the recording companies,they would have public exposure to reassure them that what they write and play is accepted by the masses and then to go on from there without the music industry executives making the decisions for them they could make there own decisions for themselves as to how to promote and distribute there music as they see fit without any interference from promoters or anyone else.Like I said it would take a little more time to do this but the benefits are undeniable.
A test town would be needed for this but it is only a matter of a little research and then to just get there and play what they want to record then to see the acceptance from the crowd will be enough to know if they will be successful from the start or whether or not they have to go back to the drawing board.Sustainability by the masses it what they are searching for and one small towns idea of them should do the trick to influence there thoughts on their own music.


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