Transcript: Going, going gone? Whither The News Business

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Is the news business going the way of the music business?
A discussion on the future of news gathering in the digital age

Presented by special arrangement with the Bernard L. Schwartz Center for Media, Public Policy & Education, Fordham University, New York City

Steve Gordon, Esq.
Meagan Jaglowski, Schwartz Center
Solana Pyne, Global Post
Spike Wilner, Smalls Jazz Club

Moderated by
William F. Baker, Director, Schwartz Center

For podcast release Monday, December 17, 2012

BAKER: Hello, I’m Bill Baker, and welcome to our Schwartz Center broadcast. Today we ask the question, is the news business going the way of the music business? Starting with Napster in 1999, the recording industry saw its profits decline as digital downloads began to replace CDs. Even though free downloads have been replaced by iTunes and paid streaming services, record companies still aren’t making what they used to. That means the artists aren’t either. And they make less every year.

While the Internet has taken away profits from record labels, it has given music makers the ability to record their own music and sell it directly to a global audience. In the newspaper business, online pay walls are replacing the free access to news that readers have known for over a decade, yet profits from pay walls and online ads aren’t replacing print revenue. As a result, many papers and magazines are closing or moving online entirely. And the number of paid professional journalists gets smaller every year.

Is the news business going the way of the music business? And if it is, what can be done about it? Here to discuss the question is Steve Gordon. Steve is an entertainment lawyer and former director of business affairs for Sony Music. Also joining us is Solana Pyne, senior video producer for the online-only global news Website, Global Post. Also with us is Meagan Jaglowski, an intellectual property lawyer and advocate for the future of professional journalism. And joining us is jazz musician and New York native, Spike Wilner, known for streaming live music to the Internet from his Greenwich Village jazz club.

Everybody, thanks for being here, and Steve, let’s start out with you by saying, how bad is the recording business right now?

GORDON: Extremely. When I was at Sony in 1999, the record business reached its peak with $14.5 billion approximately of money from sales of prerecorded music. And through the years since ’99, it’s gone down and down and down, and we’re at $7 billion now, which is more than a 50% decline, without accounting for inflation.

When I was at Sony, there were five major record labels – Sony, BMG, Warner, EMI, Universal. Now there are three. Sony and BMG merged, and Universal just bought EMI. And the raison d’etre of these mergers is to consolidate to discard people. So there’s news that Universal will be firing a new round of people at EMI. EMI already trimmed its staff. So this is having horrible effects on music industry professionals. And of course there’s less money to sign new artists. The average deal was $250,000 to $500,000, and now I would say those deals are 10-25% of what they were.

So of course if you’re an artist, you’re going to have to make it without a label, at least in the beginning of your career, because those deals aren’t on the table, unless you can create a big following, and then they’ll find you. So the good news is that the Internet has demolished the barriers to worldwide distribution. You don’t need those factories or trucks or warehouses. You can upload from your bedroom and reach a worldwide audience. The bad news is that everybody can do it. So you’re one out of millions out there streaming their music, uploading your music to iTunes through an aggregate like TuneCore and so forth. And it’s tough. The average take-home pay from iTunes downloads for an independent artist is $200-$300 a year. There’s no way to live on that.

But there are some bright spots, and let me just point out two, and then I’ll finish. Amanda Palmer, who’s already had some name recognition, but she was able to raise a million dollars recently on Kickstarter crowd funding, which wouldn’t have been possible without the Internet. Now, Justin Bieber would not have made it if not for his record company, but he was discovered on the Internet. So he was there, he was discovered and found by the right person, and without the Internet he wouldn’t have made it either. So those are some bright spots.

BAKER: It sounds tough. It sounds tough. And the number that you said that paralyzed me is if I’m a musician and want to make it on the Internet, I might make $200 a year. That’s – that number doesn’t sound too good to me. But Spike, you’re an example of somebody who has made it on the Internet and continues to make it on the Internet. What’s your secret? How come you can do it when this whole world of musical people are out there uploading and hoping that somebody will see their stuff or hear their stuff and maybe never catch on?

WILNER: Well, as far as making it, that remains to be seen. But I think we’re uniquely suited. I represent Smalls Jazz Club, which is kind of an institution in Greenwich Village. I became the owner and manager of the club about five years ago, and one of our first goals was to create an online audio archive of every show that’s been performed there, as well as a live video stream of the shows each night. Our goal initially was simply to preserve and disseminate music, because we would have maybe 30, 40 people in our audience, we only have 60 seats, but we wanted to – the music, at least from our perspective, is very high quality and of importance artistically, so we wanted to A) preserve it, B) make it available for people that weren’t at the club.

And what happened was over the period of five years, we started to get a significant amount of traffic to our site, particularly for our video, live video, and our archive. And what it allowed us to do as a small club was to kind of create maybe a new model for looking at record companies, what could be a fresh perspective on what is an old model. The old models for record companies would be to create one star or two stars, promote their careers and sell their products. And in this day and age, that doesn’t really work anymore, and particularly in jazz, where you have quite a number of incredibly talented artists who are not necessarily names. In jazz particularly, you have one or two name names, and the rest are not known to the public.

So what’s happened in our case is our club, the name, Smalls, has become the star. That’s an internationally known name now in jazz circles for quality New York City style jazz music. So our goal now is to create an ever-growing library of recordings, where each artist that’s in this library is going to be paid individually based on the number of times that their music is listened to. So almost like a coalition of hundreds of artists coming together under one umbrella. And then by the name of the club being known more and more, their association with it gives them credibility and accessibility.

BAKER: In a sense, the club becomes the record label, but –

WILNER: We become a record –

BAKER: – and the go-to location. But even though you’ve had some modest successes, they’re enough success yet for any of these musicians to make a living off of what you’re doing.

WILNER: Well, we believe that we haven’t tapped the full potential yet in terms of what we can achieve on a global scale. So in terms of making a living, that’s a very tenuous thing to say. Jazz musicians are used to living in poverty anyway, so if we can make a few hundred dollars a week, we’re very happy. But I believe that the answer will be yes, because based on the traffic that we see, and I think that the current models show that people are interested in subscriptions. In other words, they would be glad to pay a small monthly fee for access to a large body of perhaps exclusive work. In our case it will be exclusive, just to Smalls.

And so we’re hoping that by creating a larger and larger revenue pool, the musicians can be paid. And in our case, we can take the position where the artists and the club are symbiotic in their relationship, in the sense of the split could be much more even and therefore the earnings can be evenly distributed rather than trying to make it a profitable thing for the record company itself. The idea is for the artists and the company together to work together to make a profitable situation for everyone to be known in their art to be.

BAKER: What is your website, just so we can have people know what it is and get on there and take a look at it?

WILNER: Yeah. That’s our club, Smalls Jazz Club. We’re right at 183 W. 10th St., New York City. And the site currently has the audio archive, which is free. It has been free. Our video, now we’re charging a modest subscription fee. But we are in the process of rebuilding our model now, so that for the future we’re looking at some changes that we think are going to make a big difference in terms of how people can interact with us and also access the music.

BAKER: So this is the time to get in now, while it’s free.

WILNER: Well, it’ll be available, but like I said, I’m very excited about the future. The reaction is very strong, and I think it’s going to be a model that hasn’t yet been seen in terms of artists and label cooperation.

BAKER: Good. Much success.

WILNER: Thank you.

BAKER: Meagan. Attorney, intellectual property. Journalism. You’ve been studying journalism, and you understand what is going on in this complicated world of journalism right now, a troubled world, in many ways, of journalism. Is what’s happening in the record industry, what happened to the record industry, what is now happening in journalism, and how serious is that problem?

JAGLOWSKI: Well, I see a lot of the same parallels between what the record industry has faced five years prior and what the news industry is facing now. And the big problem being that it’s hard to capitalize on the content that you’re putting out on the Internet, with so many people pointing to the content and taking away the advertising dollars.

So in my opinion, it is very essential that we figure out a business model that’s going to preserve professional journalism and enable the journalists to be able to make a living, as well as preserving the news industry, for the benefit of society as a whole, because if you have so many people repurposing the content, it’s like playing a game of Telephone. You listen to what one person says, you repeat it, and down the line it becomes something that isn’t factually accurate. And that’s a concern. You want society to have the best information about what’s truly going on in the world, so I think that it’s important to preserve.

And right now, we are on a bad path. I think that maybe legislative action is needed to reevaluate the doctrine of hot news misappropriations. I think there’s other business solutions as well.

BAKER: Have you seen any business solution that appeals to you at the moment, that looks like it could be somebody that’s actually going to make it online?

JAGLOWSKI: Sure. Outside of the U.S. I think that –

BAKER: Oh, really?

JAGLOWSKI: – Piano Media, which is a company in Eastern Europe that has started to expand from Slovenia and Slovakia into Poland, they are able to merge media in different forms. Not just news journalism, but also television. And they have been able to put out a subscription that people are interested in buying. And I think that kind of collaboration might be a partial answer to the news problem in the U.S.

BAKER: Solana, you’re an online journalist. So in a sense, you are making it because you are a working online journalist. Do you think your – explain how your system works and why it may be some example of something that is working in journalism, that employs people and makes something happen and does serious journalism.

PYNE: Right. On a funding level, our income streams, we have three. The main one is still advertising. And so we have advertisers who support our content. We also use syndication, so we have a bunch of partners who take our video, who pay us a fee, usually a yearly fee, for our video or our print content, to run it. And a lot of those are newspapers who are using it online, or the NewsHour is another one of our partners, CBS is another one of our partners. And so we get a certain amount of income that way. And then we also have a membership service, which I believe is the lowest of our income streams, but people can join, and they get some stories that aren’t available to everyone, and they also get the ability to interact a little bit more, to suggest stories that they want covered that we will then assign to our journalists in the field.

But on the other side of this, which is covering the world and providing actual independent actual reporting on the ground, I think we’re also really succeeding, because we are able, with much lower overhead, to – we have journalists, freelance journalists, working around the world, and we’re getting stories from places that conventional news outlets just haven’t been able to regularly get stories from. And we have people who were able to stay in Libya and cover the war there for a much longer period of time than most other conventional news organizations were able to devote a single reporter. And I think it’s ended up providing more voices.

And part of that is also because of new technology. I deal with video, and now cameras and the kind of equipment that you need to produce broadcast video are so much cheaper, that it allows journalists who are good solid real journalists out in the field to do the kinds of reporting that it used to take – one person can do something that it used to take three or four people to do. And in that sense, I think we are managing to fund that. We’re not paying people what the New York Times pays people, obviously. We don’t have a staff of correspondents the size of one of the bigger news outlets. But I think we have been making it, and I think we’re providing a model for getting information that, increasingly, other places really haven’t been able to get.

BAKER: But probably in the end, you’ll never be able to have the kind of very seasoned journalists that an organization like a New York Times or the Washington Post has at that salary level. And it might be, say – and yet, you’re offering a terrific service. How are we going to have both, because certainly a free society needs to have both?

PYNE: I think it’s true. And I wouldn’t say that we won’t be able to. I think, increasingly, we’ve been taking more people on in kind of more permanent basis and paying them more. But at this point, we certainly aren’t, and it’s hard to say what will happen. I think that the New York Times has found ways. We’ll still see, but they’re finding ways with their subscription service to – you still have these big brand names that are managing to adapt and to present their information in different ways online and to use their audience to get that information out. So I think we’ll see (inaudible).

BAKER: Steve, back to music and journalism. Why did this, in a sense, collapse that we see in both journalism and in music happen first in the music business? What caused it to happen in your industry first?

GORDON: It’s about the technology. The Internet is the biggest copying machine ever made, and it allows you to transmit music, as opposed to movies, very quickly. The development of the mp3, which was done in Germany to permit better communication on telephone, accidentally – technology has its whims – wound up allowing Napster to allow thousands and then millions of people to trade music for free. So it’s an accident of technology.

But there is also politics and economics involved, because you had the record companies, which were making $14, $15 billion in the U.S., $38 billion worldwide, facing the telecom industry and the hardware industry, which are trillion dollar businesses. And the copyright owners could not battle these economic forces in the courts or in the parliaments or Congress here in the United States. They wound up so desperate, they were suing their own customers, grandmothers whose kids or grandkids were downloading from Kazaa. It was very embarrassing. They couldn’t make piracy go away, and they couldn’t tame the ISPs or the hardware manufacturers who could have encoded their devices to avoid this. They couldn’t do anything. The technology and the economic forces aligned against the copyright owners and the music business were too powerful.

So that’s how it came about. But the straw that broke the camel’s back was a man named Steve Jobs. Steve Jobs came to record companies, including Sony, in the mid-2000s and said, look, you’re bleeding money, I’ve got the answer for you, it’s called downloading. And you know what? I’m going to give you a bigger wholesale cut off of these downloads of a dollar, 70 cents, than you’ve ever gotten before. So come on with me and you’ll come back. And you know what came back? The iPod. He sold billions of dollars worth of iPod and then iPhones. But the music business suffered, because they were making $8 wholesale from every album sold for years, then they became the recipients of 70 cents for singles, because that’s what iTunes is all about.

They agreed to it. In fact, there’s a story that Tommy Mottola’s chief accountant thought that Steve Jobs was a donkey when he left the meeting. Well, that donkey came out the winner. And the sales of singles have exacerbated the recording business’s plight a great deal. So you have Internet piracy and then iTunes.

BAKER: What about, Spike, what a recording artist could make back in the old days compared to what they’re likely to be able to make now? Of course, you’re in a specialty, a sub-specialty the recording – of the music business, jazz, which never was a high profit kind of a world.

WILNER: Right. I think for jazz artists, and I think also for maybe even for just, say, not popular music, the demise of the record industry is a great opportunity. From the smoldering wreckage of these huge companies is really an amazing opportunity for artists to have their work listened to, found, discovered. The artists themselves now can simply just make their music accessible.

In a lot of ways, I think that the old model of the record industry was – it wasn’t quite a natural thing. It became – because it controlled all the distribution lines and the products themselves were very expensive to make, the industry was so self-contained. And the CD era really was just a rehash of what they had already done. They were just re-releasing material that it already had in another format. So once that bubble was exhausted and the advent of downloads, there was nothing left to sell. The problem now is that the old model of a record company is to sell a physical product to somebody, and of course now there’s no stores to even buy anything physical or any reason to buy anything physical.

But, like I said, what it takes is it’s going to be a paradigm shift in terms of how people see the music industry and, I imagine, the news industry as well. People are online, so the information is coming to them. The question becomes how to monetize that in a way that’s going to be profitable. People still want music. They still need to listen to new music, they still want to listen to music. So there is a – the base of people needing music worldwide is the same as it’s always been. The question is just now how to get it to them and how to create a revenue stream from it.

For us, like I said, we have found that we can – by putting a massive amount of artists together to create a larger body of artists, then you have more of an impact on the industry, in a sense. Instead of just having one star, say Wynton Marsalis or some name star where everyone says, oh, jazz that, we can have one label where you can have 500 artists all signed to the label simultaneously and explore that large library and take what you like. And just based on who gets listened to or who gets downloaded, they can – you get paid.

BAKER: Well, there is some logic to what you’re doing, I think, because, for example, if I wanted to listen to jazz, I could find it easily on the Web, but I wouldn’t know good jazz from bad jazz, I wouldn’t know – there’d be too much choice.

WILNER: That’s correct.

BAKER: Whereas, in a sense, you’re an aggregator for – a trusted aggregator. I could go to your club site and know that somebody more intelligent and more knowledgeable than me has selected these artists and has stamped these artists as good, and then I could start digging around there. So that makes some sense.

WILNER: That’s exactly our – that’s exactly what our point is, is that as a club, Smalls has based its reputation for the last 17 years on the fact that we present quality music. So people can come to Smalls any night of the week, regardless of who’s playing there, and be pretty much assured they’re going to hear a great show. Same thing with Smalls live, which is our media company. It’s that you can go there, and because the artists are associated with our brand name, you can rest assured that they’re going to be of a high enough quality level.

I imagine the same model could work for the New York Times or any company that already has a reputation for quality. It would just be a matter of how to present that to people in a way that they could be attracted to it. And I do believe that even though there’s been a ton of free content at this time, that that’s going to change and that people will start to pay for quality. I think they always have, and they will once it becomes apparent that they have to.

BAKER: I hope you’re right. Steve, you teach at my class at Juilliard. And one of the things that I always look out at the class and I think, how are these brilliant students ever going to make a living? How are they ever going to get discovered? Maybe you want to talk about that or something else?

GORDON: Well, just to play off what Spike was talking about in the first place, and then I can get into opportunities for artists. And I wrote a book called The Future of the Music Business, and one of the reasons I did was to set forth the new business models that had come out of the Internet. It’s not all gloom and doom. It’s been really bad for the major record companies, but it’s made certain forms of business possible that didn’t exist before, not only iTunes, but Pandora, which is Internet radio, Sirius XM satellite, Spotify, which is interactive music on demand. There are thousands of these services.

Now, what Spike has been talking about is really encouraging, because here’s an entrepreneur who can actually become a record label for the first time in history, because he doesn’t need a factory. I remember at Sony, they took us out to Pitman. It was a plant out in New Jersey that made CDs for the Northeast. It was huge. It was almost as big as the campus that we’re doing this broadcast from. And it was a $100 million investment at least and then tens of millions to keep all those employees, and there’s trucks taking the CDs and people making them, warehousing them. All of this is completely unnecessary now to reach a worldwide audience, and it makes possible entrepreneurs, like Spike Wilner, to get into business, to make money for himself and for artists. So I find that deeply, deeply encouraging.

As far as new artists, one of the guests that we had when you had me was my former intern, Laurel Halo, who spoke to your class at Juilliard, Bill. And she’s someone who was classically trained at University of Michigan and got into making electronic music, and very niche, very arty, but she created an image for herself. And then she used the blogs, the music blogs. Not by pouring her music into them in the first get-go, but by becoming friends of the blogs and having that kind of connection, because blogs are about a mutual appreciation society. If you like their taste in music, they’ll kind of naturally incline to like yours. And it’s viral.

And because six of the blogs picked her up, none of them big, the aggregator blogs, like Brooklyn Vegan and Pitchfork and Hype Machine picked her up, and now she’s a star. She’s really a genuine star in this niche electronic area. She’s on tour in Europe. She has a deal with Mute Records, which is a fantastic indy label, and she’s making a living from making her music.

BAKER: God bless her. A very smart – mention your book again, because we’ll put up the Website for it, because yours is probably the most important book in this field, so we better have people know how to get it.

GORDON: It’s simply The Future of the Music Business.

BAKER: OK. And how do they get the book, just online, any –

GORDON: You find it on Amazon and what bookstores are remaining.

BAKER: OK. Solana, is any of this that they’re talking about, in some ways it sounds like the model that your news Website has really developed in a lot of ways. Can you fill us in on that? And also, where do your journalists come from?

PYNE: Right. Well, one thing that I wanted to say first that is striking to me in both the music industry and in journalism is that we haven’t really been talking about the consumer that much. For me as a consumer, I think it’s great that I can buy a single on iTunes. I don’t want to put the record industry out of business. I don’t really – I don’t actually probably care that much about the record industry. I don’t want to put individual musicians out of business. I want them to be able to make money, but I also want to be able to buy a single. Right? I think that’s great. I don’t have to buy the whole album.

And in news, I think what’s happened with the Internet is we pay a lot more attention to – we know a lot faster what people are actually reading or watching. And sometimes we complain about that a lot, because it’s cat videos or anything that has to do with penises. On Global Post, those stories, they go crazy.

But there’s another side to that, which is when we get information or images or stories that no one else has from places that people are interested in, that goes viral, just like a new song might. And it allows us to be a lot more rigorous about what people want and what kind of impact our stories are having. And for Global Post, the biggest traffic that we’ve received has been for these kinds of stories. So it was video that one of our reporters got of Gadhafi right after he was captured in Libya. And it was video and still images that actually the same reporter captured in Syria of free Syrian army rebels being shot and killed by a tank blast, rather.

And so I think in this new kind of – in the new media, it allows us to – it forces us to be a lot more rigorous about this very thing, what do people want and how can we get it to them also within the scope of our broader mission, which is to tell these stories that we think are important and that the world needs to hear.

Our journalists come from all over. A lot of them – most of them are native English speakers but are living in the countries that they report on. And so – and most of them have some kind of journalistic training. A lot of them have a similar background to a rookie reporter that would have started before at a local newspaper, for example, but now they want to be foreign correspondents. And the conventional pathways where you used to start out and pay your dues at a local paper or go to the New York Times, stay on the local desk and get sent abroad, or even to other regional dailies that used to have places abroad, that doesn’t exist anymore. So they just go abroad, they have their own equipment, which – so if they’re doing video, it’s video cameras, if it’s print, it’s just a computer. And they cover these stories in the way that they would have covered any story for a local newspaper or wherever it may be.

BAKER: Not to be critical of rookie reporters, because I was definitely one myself, but I also remember the kind of reporting that I did early in my career, I was much more susceptible to outside forces that could have colored my views because I just didn’t have the personal maturity. One of the worries these days is that you can afford to have the younger, with-it, very smart, not question their intelligence reporters, but the people that have had a long – that are long in the tooth and have a lot of experience and life experience might just not be able to earn a living doing the kind of journalism that we need. So –

PYNE: I think –

BAKER: – how do we answer that question?

PYNE: I think that’s a really good question, and I’m not sure what the answer is. I still think that the brand name publications are going to persist. I don’t think that the New York Times is going to go out of business. Maybe I’m overly optimistic, but I think they’ve got a following. People respect their name and people still go to them as a source for news, and they’re going to continue employing these more experienced journalists. I hope that organizations like ours will work up to a place where they’re also employing those journalists. But I think – and I think that at this point, we have to figure out a way to do that.

But our journalists in the field, I think you have young journalists, and hopefully you have people in the back office that can help them with any of the shortfalls that you were talking about, that come with not having reported that much in other places.

BAKER: Yeah, and for instance, your relationship with the NewsHour on public television is a wonderful one, because they bring a wealth of maturity and sophistication. And it’s a nice, it’s a very nice fit, yet you’ve got the feet on the street all over the world.

PYNE: Yeah, that’s true.

BAKER: Meagan, you’re an intellectual property attorney. All this is pretty complicated stuff. There are laws, there are copyright laws. Are all of these things in flux? How are they changing, should they change, what’s going on there?

JAGLOWSKI: Legislatively or –

BAKER: In any way, yeah.

JAGLOWSKI: Well, I’m not sure how to answer that. I’m at a loss here.

BAKER: Steve, can you take that one on? As far as the intellect – as far as copyright law goes, what – it is a tough question. Where are we going with it? Is copyright law even relevant anymore, the way things are going in this world of everybody downloading, etc.?

GORDON: I think the record companies and majors have basically given up on pursuing people who download from pirate sites. I think that there is more collective cooperation throughout the world to trace down and close down pirate sites. A site called Pirate Bay is a case in point. And you have some collaboration between the governments of countries all over the world. However, and this is where Google comes into play, as always, the links between Google and free sites continue to exist. And there was a recent case which upheld another case where linking to pirate material in itself is not illegal. So –

BAKER: Is not illegal?

GORDON: It’s not illegal. Now, in China, you have Baidu, which is the Chinese Baidu, which not only linked to pirate sites, but if you would put in a name of a song, the song would start playing from a pirate site. Google’s never been that bad, and if Google went over that line or any other search engine went over that line, then it would be illegal. But the case I’m referring to, the original, is Perfect 10, where there was a porn company that sued Google because Google linked to material that this porn magazine owned. They lost, because the link in itself was not illegal.

So what I am saying is the technology is too strong for the law. Does copyright still matter? Yes. The catalogs of the major labels are still very valuable, and that’s why you can’t start a legal site, like Pandora or Spotify, without permission. Will there always be piracy? Yes. Is there hope? Again, I think there is, because the technology is now making it possible for the record companies to create business models that do effectively compete with free.

Let me tell you what I mean. Spotify is marvelous, OK? You can listen to any song you want anytime. You don’t have to download anything. You don’t have to look for a piece of plastic or vinyl. Just put in Tony Bennett with your favorite artist and you’ll get that duet. Sinead O’Connor and Willie Nelson. I really wanted to hear Don’t Give Up. So put it into Spotify, it comes right up. Also You Tube. Now, the issue is modified (inaudible) –

BAKER: Do you pay for it when that happens?

GORDON: Exactly the issue. So I went on vacation to Puerto Rico recently, and I couldn’t figure out how to use the cable TV. It was just too complicated, the mechanism. So I put in the song in Spotify or a Pandora, and all of my favorite music came up. But then I noticed that Spotify, although you have to pay $10 a month to get the mobile version, was offering me a free deal for three days. So I switched from Pandora, where you put in one song and you get similar songs, to Spotify, where I could listen to anything I really wanted to listen to. And I used it in Puerto Rico all three days. It was fantastic. Then I got back to New York and I didn’t pay for mobile, because I listen to most of my music on the desktop where it’s free. So the issue is monetization.

Spotify is growing like wildfire. It’s just incredibly easy to use, and most of what you want to hear is there. But it is having a huge problem getting people to pay. The free service is free. If you pay the $10 a month, you get it mobile and no commercials. OK. No ads, because these annoying ads do come up after two or three songs.

Now, my little pet theory or hope is the fact that there are now more than one billion smartphones in the world, 100 million in the U.S., if we can learn something from the cable business, then maybe the music business could actually recover. Because I pay Manhattan Cable over $100 for a lot of stuff, including the Internet, cable, H – well, I pay extra for HBO, but the idea is I get all of cable and the Internet, 1000 channels, all for $100. If you paid Verizon for your mobile service or AT&T, and in that payment you got Spotify, what if Verizon or AT&T charged two dollars extra? OK, a hundred – one billion smartphones, suppose it was two dollars extra a month, how much is that? That’s enough to bring the worldwide record business back.

And there’s already momentum in that direction, with a mobile carrier called Cricket and a music service called Muve. You pay Cricket for your subscription every month, you get free music. If they could start any momentum to these kinds of deals, where free music is still free but you actually pay for it, and the copyright owners ultimately receive it, because remember, the major labels have equity positions in Spotify, so to some extent they are Spotify, then you could see the recovery of the music business. That’s my pet theory, for what it’s worth.

BAKER: It’s a good one. What do you think about this, Spike? You’re sitting here thinking and listening. Any reflections on what you’ve heard?

WILNER: You mean having the major cell phone carriers –

BAKER: Right.

WILNER: – subsidize the music industry? It sounds like a great idea, actually. I still think that for independent artists, it’s not necessarily going to be the answer. I don’t know what artists are actually getting paid on Spotify for when their music gets listened to, but I think it’s just fractions of a cent. So that might save the big record companies, but I –

BAKER: And it might save the superstar performers, but the real people out there (inaudible) –

WILNER: Yeah. My personal feeling is that I don’t want to see those big labels survive. I’d like to see them all crumble, honestly. I think it’s time –

BAKER: Well, they’re well on their way, so you don’t have to worry about your dreams.

WILNER: Good. No, I mean it’s time for artists to take over the distribution of their own material and for artists to come together and to take advantage of a remarkable opportunity in history to use this media, new media to get their music out there. And whether it’s subsidized by big corporations or not, I’m of the mindset that I don’t think it’s necessary. I really don’t. I think if you have quality or something that people are interested in, they will pay for it. And it’s just a matter of finding the correct way to present it.

I think that these little tricks of saying, hey, no ads if you pay, or you get stuff that no one else can hear if you pay, I don’t know if that – they don’t need to trick anybody. It’s like if you go to a good restaurant and they have great food, you’re very happy to pay for it because the quality experience is there. And I think that if you have that, you can get – it’s just like any business. If you have a quality product and it’s available, people will pay for it. And in the end, the artists, I think, can profit much more.

We’re in a position at Smalls where I can do, say, 50/50 split with every artist, so that if they list – if someone listens to one of their things, they’re going to make half the money on that rather than just fractions of a cent. So I think it’s a time for – and it could be the same thing with the journalists. If you have a talented journalist with a following or whatever it is, people will come to it.

BAKER: In all of this is a word that has come up in this little discussion we’ve had, called aggregators, who are very powerful. And aggregators are people like Google and Yahoo and AOL. Meagan, you’ve been looking at aggregators. How significant are they in this journalism and recording business? And then the one in China, what’s the name of it, Pan – no, what’s the –


M: Baidu.

BAKER: Baidu in China, which is bigger than – maybe bigger than all of them. It is basically 99% of all the Chinese aggregation is done by them.

JAGLOWSKI: Right. They pose a threat, definitely. They are essential for being able to disseminate content further. And that, I don’t think anybody would quibble with that. But when you are Google, for instance, and you are able to use all the information that they collect on any search that’s done to provide better search results, and then they tailor them towards their own products, their own sub-products, they are just getting to be a bigger and bigger powerhouse every day.

And that threatens the news industry to the extent that when you Google a story, Google has summarized it in the link and you don’t have to click through to read it, and then you don’t ever go through to the actual source. And the news industry is losing out on all of those advertising dollars, because face it, advertisers realize it’s better for them to go to advertise through Google than it is to go through independent platforms like the New York Times.

BAKER: That’s a real good point. And you said it right, the Google summarizes it and all of the work was done and paid for by, say, the New York Times or by some other news organization that paid that journalist, and they never got paid for that at all.


BAKER: And meanwhile, Google made the money. What is your – Solana, what is your relationship, your company’s relationship with the big aggregators? Have they turned out to be good or not so good for you?

PYNE: I know that, like every news organization now, we’re always working for search engine optimization, which is to make sure that our stories come up when someone Googles a particular subject. And that is actually – we do get click-throughs. That actually drives a lot of traffic to our site, it’s something we want to do.

There’s another kind of aggregation, right, which is the sort of thing that, say, that people – say, the Huffington Post made their reputation on initially, which is people who don’t have anybody on the ground, who write a news story that’s entirely based on the reporting of other news organizations. And at Global Post, we do aggregated stories as well as independent reporting, and in some ways our stories, I think, our aggregation provides a little bit more value, because we have reporters who might be reading something in a newspaper in Rio de Janeiro and summarizing that and including it in a story.

But this is a really big deal, and this was something – the Huffington Post also has independent reporting now, but this was something that they’ve gotten a lot of criticism for in other places, because they’re making actually a lot of money off of the reporting of other news outlets, and the other news outlets don’t actually get any money for that reporting. And I think it’s sort of complicated. It disseminates the information to a broader audience, but at the same time we need to find ways to fund that reporting. In some ways, that’s the kind of aggregation that actually I – we end up talking about a lot in the business, because –

BAKER: One of the things as a citizen, a global citizen, that troubles me, and it troubles me, in some senses, in the music business and in the journalism business, but especially the journalism business, and I’m just as guilty as anybody else, is because of the technology, I can only go – I can now go to the sites that just interest me. So I only hear information that reinforces my own prejudices. And I don’t get usually the broader sites or the little surprise news stories, because I’m always just kind of there where I’m expected to be. And that’s probably the same in my musical taste. I just have one kind of musical taste, and I don’t get a chance to listen to many different kinds of music because I’m just not at those sites.

Is this going to be a country – maybe has this helped create the not only artistic polarization, but political polarization of this country? Is that possible that that’s what’s going on? Meagan, your thoughts?

JAGLOWSKI: Yeah, I agree with you. I think that when you are, as a consumer, are looking to read about certain content that you’re – it’s also driving what the news organizations are putting forth, what the consumers are looking for, and it is creating a polarization, where you – I think that this past election was a prime example. The networks that were leaning more left, they were heavily watched by those people that have the same viewpoints. And the same, vice versa for the right. They drive their own traffic and they’re re-encouraging it.

BAKER: What do you think, Steve? What’s your take on all of this?

GORDON: Yeah, well, there is a certain Balkanization in the music business. People who want to listen to audio electronica or EDM or classic rock, there’s much more diversification. But you could say that was a good thing. I think that a music lover who wants to hear only dance music doesn’t exist. They also will like R&B and other forms of music. And I think that the Internet has been helpful, allowing you to dive into your passion, whether that’s muscle shoals music or classical or harp music, and then allowing you to discover other forms of music. At least in terms of music, I don’t think that kind of diversification is a bad thing. Political, ethical, economics, that’s another thing.

BAKER: Why don’t we wrap it up right now and end with your closing thoughts about what we’ve been talking about. And Spike, why don’t we start with you? Any big thoughts to wrap things up?

WILNER: I just, I feel like this is a very positive time and that I think things pass. Things come and things pass. Systems come into play and systems go out of play, but I think that this is an unheralded opportunity for people to really create a whole new way to present media, music, news, everything, and make it into a viable business as well. I understand the lamenting of loss, but I think that in the end it’s going to be replaced by something more efficient and better. So I have a very positive outlook for it.

BAKER: Meagan, what is your take?

JAGLOWSKI: Well, I like your optimism. I also hope that the news industry and the music industry is able to see a brighter future and be able to, I guess, capitalize on such this great audience that the Internet does make accessible. I think that’s a wonderful thing. I just hope that the, like you said earlier, that the viewers are willing to subscribe and pay for the services to the right people in the future. And if there’s a percentage of that overall revenue that gets directed towards the new digital technologies, I think that makes sense. It just needs to be a fair percentage towards the digital technologies.

BAKER: Solana?

PYNE: (inaudible) I think that’s absolutely true. I think we have to find a way to continue to fund the kind of journalism that is a public good in this new landscape. But at the same time, I’m also really optimistic, because I think that there is a diversity of voices that we just haven’t really had before. And not just of any random person who wants to put their opinion on the Internet, but also people, good journalists who are out there finding things out and are able to tell stories that they weren’t able to tell before, for a variety of reasons. And I think that is a great public good as well. And so I believe that there will be a way to do both, have this diversity and still fund the journalism we think is important.

BAKER: Steve, the last word is yours.

GORDON: Well, I think the Internet has been, so far, calamitous for major labels, but I think, as I was discussing before, if the majors could wrap their head around it, I think they could come to some solution. And my perception is partnering with the mobile carriers, but whatever that solution is, I think the possibility for their recovery is out there. And I frankly disagree with Spike. I think the majors are not totally evil. People forget that aside from the Rolling Stones and Michael Jackson and the Beatles coming through the major record system, so did Miles Davis. My boss at Sony would say when Miles needed money, he would call him at CBS Records. So I think that the majors have provided careers for a lot of artists. I think there’s always this controversy about their deals with the artists. But I think in the long run and in general, it’d be a great thing if the majors survived.

And finally, as far as independent artists, the Internet has created these incredible opportunities that never existed before, like sending up your song from your bedroom to the world without the need of a record company. But like Don Passman, who also wrote a book about the music business, told me in an interview, if you want to make it as an artist, whether it’s on a major or an indy, you’ve got to be able and be needing and want to break through any door, to make a hole in any wall. And unless you have that passion as well as talent, you’re not going to make it as an indy or with a major.

BAKER: Well said, and thank you, Steve, Solana, Meagan, Spike.

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