Canadian Music Week 2009 - Cory Ondrejka Keynote

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

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so, we’re going to talk about history

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so, we’re going to talk about history second life

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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

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so, we’re going to talk about history second life the net alien abductions long tails participation virtual concerts

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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)

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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

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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

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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 15

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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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

image (c) 2007 peter s.y. du

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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 88

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 cost drops

The Internet

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and the computing horsepower for mp3 Moore’s Law

Radical computing cost drops

The Internet

mp3

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driving a bunch of good things Moore’s Law

Radical computing cost drops

The Internet

mp3

Zero Marginal Cost

Broadband Adoption

iPod 104

(which you know better than I) Moore’s Law

Radical computing cost drops

The Internet

mp3

Zero Marginal Cost

Broadband Adoption

Canada broadband penetration: ~85%

iPod 105

with unanticipated results Moore’s Law

Radical computing cost drops

The Internet

Broadband Adoption

mp3

Zero Marginal Cost

Online Groups

Friend Networks

iPod 106

and even more Moore’s Law

Radical computing cost drops

The Internet

Broadband Adoption

Friend Networks

mp3

Zero Marginal Cost

Online Groups

Niche Dominance

p2p Darknets

Trust Friends Not Experts

iPod

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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 cost drops

The Internet

Broadband Adoption

Friend Networks

mp3

Zero Marginal Cost

Online Groups

Niche Dominance

p2p Darknets

Trust Friends Not Experts

iPod

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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 126

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 129

the gray lady

image cc by:nc 2007 esther dyson 130

and craig

image cc by:nc 2007 esther dyson 131

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

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versus 1995 0 pulitzers sf classifieds incorporated(1999)

1851 98 pulitzers 1.5m circulation $4b advertising(1999)

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historically, this looks pretty one-sided

image cc by:nc 2007 esther dyson 134

physical economies of scale

Control of distribution Control of content Existing mass of subscribers Vast capital and leverage in the market 135

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 #1 classified ad source on Earth 30 million new ads per month

2008 advertising down 63% $500m from nyt.com

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and a different perspective 2008 #1 classified ad source on Earth 30 million new ads per month “little interest in maximizing profits”

2008 advertising down 63% $500m from nyt.com

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better grasp the power of new models

cheap computing + communities = crowdsourcing collaborative filtering niche fulfillment 143

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

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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

01100100 01100100 01101100 01101111

01101111 01100101 00100000 01110111

00100000 01100001 01101110 00100001

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vinyl to cassette 50%: 12 years 90%: 17 years

01100100 01100100 01101100 01101111

01101111 01100101 00100000 01110111

00100000 01100001 01101110 00100001

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vinyl to cassette 50%: 12 years 90%: 17 years 50-90%: 5 years

01100100 01100100 01101100 01101111

01101111 01100101 00100000 01110111

00100000 01100001 01101110 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 01100100 01101100 01101111

01101111 01100101 00100000 01110111

00100000 01100001 01101110 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 01100100 01101100 01101111

01101111 01100101 00100000 01110111

00100000 01100001 01101110 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

01100100 01100100 01101100 01101111

01101111 01100101 00100000 01110111

00100000 01100001 01101110 00100001

50%: 9 years 90%: ?? years 172

want to bet this will be 5 years?

01100100 01100100 01101100 01101111

01101111 01100101 00100000 01110111

00100000 01100001 01101110 00100001

50-90%: ?? 173

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 185

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

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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 207

not to mention

If we’re talking experience…

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the beatles rock band

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paid demand is falling

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overall demand increasing

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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

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life might not be this simple

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but, think about the experience

do any of you really believe that the experience of music was the transaction around pieces of plastic??

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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

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

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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?

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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! [email protected]

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