Below are the remarks NARM President Jim Donio
delivered during his keynote address at the TM Forum
World Americas Conference on December 8, 2009.

To view the video version of the speech, click here.
(speech begins 1 minute and 30 seconds into the video footage.)

Remarks

Thanks, Tim and thank you TM Forum for inviting me to speak here today about the music business.

I’m here to tell you that, although undergoing massive transformations, the rumors of the death of the music industry have been greatly exaggerated.

This morning I will take you behind the curtain and explain how engaging and working seamlessly with technology companies — especially mobile — is critical to growing both of our businesses as we move forward in an on-demand world.

The bad news? Starting 10 years ago with the original Napster, music sales have declined. Music research firm Big Champagne has reported that today more than one billion songs a month are still being traded on illegal file-sharing networks, a disturbing reality.

A refashioned, legal Napster service lives on, and its alignment with Best Buy has recently yielded a new consumer offering. But the open nature of the web over the past decade has bred essentially unfettered development of illegal music services.

Make no mistake, however. Music is far more a part of peoples’ lives than ever before. Consumer tracking studies conducted by another leading research firm, The NPD Group, show that although consumers are buying fewer CDs, they are purchasing more music from authorized download sites than ever before.

And the percent of teens that use social-networking sites and Internet music services to enjoy music rose to over 40% in early 2009.

What about all the buzz about how this new service or that new service has the killer app for the music biz? Don’t immediately believe the hype.

The core competency of the label is brand-building and talent incubation. An artist, just like any other brand name, requires a massive amount of marketing dollars to rise above the white noise of thousands of other aspiring chart makers.

The public’s perception of the music business is largely based on what we see on TV or in the movies – cigar-chomping execs or label reps offering tantalizing fruit to innocent artists and musicians.

And for the last several years, we’ve also seen news story after news story about lawsuits and piracy that take great pains to sound the death knell for the music business.

But there is no singular music business; just as there is no one discipline that represents mobile.

The music industry starts with the writers of the music and the performers who are sometimes one and the same.

Each of these is represented by attorneys, managers and publishers who ensure that the copyrights in the songs provide the financial means for the people behind the hits to make a living.

Recordings are made immortal by producers and engineers, who hone the sounds of raw studio tracks into polished albums, and then those finished recordings are handed to an entity, usually a record label.

The label invests marketing dollars, existing relationships, and personnel resources into the artist and recordings. They spend months working terrestrial and online radio stations, the social networks, apps, the blogosphere, television shows, and other video outlets to achieve critical exposure. The goal is to push that artist above the white noise and become a household name.

A network of booking agents and venues provide outlets — from the smallest hole-in-the-wall bars to arenas and stadiums — while merchandising companies turn the artist’s name and likeness into revenue, ranging from apparel to avatars.

As with any multi-faceted business, there are a lot of acronyms to know: BMI, ASCAP and SESAC collect songwriter broadcast royalties from TV and radio, while HFA (the Harry Fox Agency) collects songwriter royalties from physical product sales and music downloads on behalf of thousands of major and independent music publishers.

SoundExchange collects recording royalties from webcasters and satellite radio for performers and labels. UMG (Universal Music Group), SME (Sony Music Entertainment), WMG (Warner Music Group), and EMI are the four major content owners, with interests in both publishing and content creation.

Independent music labels — ranging from tiny one-man operations to multi-million dollar enterprises that make up 20% or more of the market — are represented by A2IM, the American Association of Independent Music.

Physical, digital and mobile sellers provide the commerce backbone for the music business by providing customer-facing solutions that sell CDs, DVDs and vinyl, and deliver streaming or downloaded music, ringtones, games, and applications.

It’s a tangled web, with sometimes heated wrangling between the various entities as they scramble for their pieces of the pie. And the plot thickens even more as a new wave of industry consolidation and strategic partnerships hits the digital space after a decade of compression in physical distribution.

Just consider MySpace’s acquisition of imeem and iLike, and this week’s announcement that Apple will purchase Lala, a company that itself had already aligned with Google and Facebook, a development that could have significant longterm impact on the mobile music marketplace.

Each year, technological innovations add additional complexity to the equation of a business that may seem too much like alchemy already.

So where does NARM fit into this variegated tapestry? NARM started almost 52 years ago as the National Association of Record Merchandisers, bringing together wholesalers, distributors, record labels, and supplier partners … and eventually retailers.

Over the years, as the market has become more fragmented, NARM has transformed from simply advancing the business of music to being the sole trade organization that touches every facet of the music business, a pure music business association.

Although formats have changed, and the scope of the music retailer has expanded to include digital, gaming, and mobile products and services, NARM remains that nexus of content and commerce.

Nokia, Verizon, Apple, Amazon, Napster, and Zune, have all joined — not only as members, but serve on the Board and as committee chairs. Members such as Best Buy, Target and WalMart not only sell music and other entertainment products but your devices, creating powerful potential for better collaboration to build a better mobile music mousetrap.

And let’s be honest. Mobile music, for the most part, still isn’t easy.

For a little while, ringtones provided a huge boost to the music economy. But as devices that use downloaded content as tones have increased, customers have become jaded to the value proposition of tones – and the market has decreased.

Sometimes being unique and proprietary does not necessarily create a strategic advantage. Sometimes the better mousetrap is the one that everyone knows what it’s called and how to use it.

For example, if a consumer does not know that a ringback and a callertone and a callertune are essentially the same product, it creates confusion when an artist tries to market these digital products.

NARM believes consensus on these basic issues is actually pro-competitive, good for the consumer, and good for business.

Another example? Streaming. Although great through wi-fi-enabled devices in the home, it is still subject to spotty network connectivity elsewhere.

The last thing customers want is for their music to be interrupted while they wait for the data to catch up with them. And this can certainly kill the buzz of a new consumer looking to find something that simply works.

Our research tells us that consumers are terribly confused by conflicting messages, non-standardized customer-facing taxonomies, and inconsistencies and incompatibilities with their music services.

Our industries are simply not yet living up to the simple expectation of “I want my music everywhere.”

So, while some may look at the market in other ways, the members of NARM see incredible growth potential, and opportunities in several areas:

We see opportunities in the smart pipe — such as creating an experience where one short code can gift content across carriers and services. This could be a huge win.

Taking cues from the virtual goods market on Facebook, digital gifts show enormous promise.

We know that birthdays, holidays and many other special occasions still present big opportunities to give the gift of music.

But technology hasn’t found a way as of yet to take this very personal process and give the customer a friendly way to make it happen on a handset in as few clicks as possible.

We see opportunity in the cloud. The promise of ubiquitous, high-speed connectivity (LTE, home gateway, and the like) and interoperability really takes the reins off the truly connected world.

And the promise of one web connected through multiple touch points is within reach — from the TV set-top, to the home- or office-based PC, to connected devices in automobiles. In fact, GigaOm just reported on the next iteration of the Car 2.0 — an LTE-connected car that allows consumers to access network- and cloud-based applications that put on-demand entertainment, navigation and much more at their fingertips.

But to do it right requires collaboration with the nuanced needs of the music consumer — from the casual listener to the Fanboy or Fangirl, from the Boomer to the perpetually connected Zoomers.

And we are further encouraged by the reports that half of streaming radio service Pandora’s first-time users are now signing up via mobile devices.

Furthermore, 9 million people have created new Pandora accounts on smart phones, and the service has been installed on 13 million smart phones to date, 70% percent of which didn’t have an account before this.

When we look at the future of music, we look at monetizing the culture of convenience. We understand. There is no mobile. There is no web. There is simply … connected.

And we see that our job is to create a fluid music ecosystem and lower the barriers to commerce by taking the mechanics out of the consumer’s way, so they can easily enjoy and share their discoveries.

True, consumers may be hesitant to embrace such an ecosystem, either out of fear of the technology, or of the perceived time it takes to learn and adapt to it.

To embrace such an ecosystem requires that consumers know how to set up playlists on their PCs, TV set-tops and handsets; and know how to sync them; and spend the time logging into the various services; and troubleshoot connectivity issues so that they can pick up a handset and have the same experiences in their car.

So when we ask, “Who is the service provider?” the response is, really, all of us — anyone who has a stake in satisfying the consumer experience that generates revenue.

From the broadband back-end to the artist, there can be no weak links in the value chain. If we can make it simple and intuitive, and the customer is happy, we can all reap the benefits.

NARM’s newly established Digital Think Tank was created for just this purpose. Its mission is to simplify this process, and to bring together all the partners to talk about issues that will grow the pie and give customers what they are looking for.

With the Think Tank, we are taking the greatest minds from our digital and mobile constituencies and creating specific work groups dedicated to identifying and resolving key issues grouped around three key pillars, operational efficiencies in the digital and mobile supply chain, metrics, and product development.

On the digital side of the supply chain, where operational efficiencies are concerned, human intervention is nearly impossible in the blizzard of information.

Audio, video, ringtones, ringbacks, virtual goods, games, apps, and myriad bundles delivered to multiple screens means that any hiccups in the delivery and display of this content means a frustrated or lost customer, and lost sales.

And the marketplace is not going to get less complicated or less crowded. New products and services will only increase the need for better information flow among partners.

Recent innovations like the iTunes LP, creative mobile apps, Atlantic Records’ Fanbase, and the announcement of the CMX initiative already show that these products are in the pipeline or new to the market.

These connected experiences not only require vast libraries of available titles to become successful, but a steady flow of information to keep customers engaged.

Manual processes to handle the perpetual refresh of these products will not be able to handle the volume, and adds another dimension to challenges in supply chain and information infrastructure.

An additional area of concern is the reporting and analysis of sales. Content creators and retailers need to be able to react quickly to the on-demand market and render marketing and programming decisions based on what’s happening that minute, not what happened days or weeks in the past.

The Think Tank’s Metrics and Data Visualization Work Group has just begun to look at the operational needs and software services to better create real-time market information.

And on a related note, NARM’s Mobile Applications Work Group, with guidance from Verizon Wireless and Nokia, is looking to define best practices on designs and navigation for mobile music-related applications, and establish a clear-cut consumer-facing taxonomy to better enhance and expand the customer experience.

So NARM is here today at the TM Forum Management World Americas to extend an invitation of partnership. We recognize that mobile absolutely represents enormous opportunity for the music business, and, likewise, it’s essential that all of you recognize that music absolutely represents enormous opportunity for the mobile business.

The members of NARM are committed to working with all of you to create growth for both industries.

I look forward to meeting many of you during the conference and I encourage you to join with us, so we can build the future together. And that is not greatly exaggerated.

Thank you and have a great event this week.

To view the video version of the speech, click here.
(speech begins 1 minute and 30 seconds into the video footage.)