Cracking Digital Music in Nigeria: The COSON Summit

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Disclaimer: The views expressed in this piece are totally personal to me, in my personal capacity as someone who has had a keen professional interest in the development of the copyright administration system in Nigeria for over 10 years.

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The Copyright Society of Nigeria (COSON) just concluded the hosting of a summit on digital music distribution, licensing and consumption. The 2-day event was tagged “The Nigerian Digital Music Summit” and its theme was “Establishing the Basic Rules of Engagement in the Digital Environment”. It was attended by industry practitioners, lawyers and also had resource people from countries with more mature copyright systems, such as Norway, Finland and South Africa. At the end of the summit, a communiqué was published, outlining the various things the community wanted to see in place.

The summit was timely for a couple of reasons – this year, for the very first time, it was reported that revenues from digital exploitation surpassed sales from physical. Revenue from streaming is quickly bridging the gap with revenues from downloads, with some companies actually reporting higher income from streaming than downloads. Streaming is the future, as I have previously written, and the time to begin to lay the groundwork for the Nigerian music industry to fully partake of it, was at least 3 years ago.

THE TELCOS ARE EVIL CORP.

Moving quickly to the substance of the proceedings, the gathering very quickly turned on the telcos, accusing them of benefitting unfairly from the music they exploited, mostly via Caller Ring Back Tones (CRBTs – the songs you hear playing when you give someone a call). And it was understandable. For an industry that has risen from piracy-ridden ashes to becoming arguably the leading hub in Africa and a major contributor to GDP post-rebasing, CRBTs were the content producer’s goldmine for sometime. Network saturation, in terms of subscribers and availability of CRBTs now means there are lots more mouths contending for the same pot of beans and individual revenues are declining somewhat.

In the middle of all this however, is the [unsavoury] fact that the telcos retain anywhere between 60 and 80% of the income generated from CRBTs. The remaining 20-40% is then shared between the Value Added Service (“VAS”) Company and the artist/or record label, with of course an even smaller share for the artist if they are signed to a label. With the bulk of their earnings coming from either corporate endorsements (but we can’t all be Don Jazzy, Phyno, Wizkid or Olamide) and CRBTs, the industry is probably justified to demand a larger cut.

Tellingly, however, very little attention was paid to streaming in spite of the efforts of CAPASSO CEO, Nothando Migogo, to stress that the time to focus on it was now i.e. before bandwidth and data costs stop being issues.

The industry should be worried about streaming because each of the four telcos in Nigeria now operates a music streaming service – MTN Music+, Airtel Wynk, Etisalat Cloud9 and Globacom’s Music App. If these telcos have held on to the lion share of the revenue with CRBTs, what’s going to happen with streaming revenue from their services? For other music streaming services, the most efficient way to take payments from subscribers and purchasers is via their airtime. However, when the telcos convert airtime to cash to pay for a transaction, they typically retain about 70% of it, leaving only 30% to be shared between the stand-alone streaming service and the artist/label. Perhaps the even more pressing issue is that the aim of the telcos in starting these services, in my opinion, is to sell data, as voice revenues have peaked globally – data is the new frontier. It’s the same reason some of them are getting into video on demand, etc. In other words, data sales are the real target, the real pot of gold at the end of the rainbow for the telcos, and these guys don’t share data revenue (larger than music download or streaming subscription revenue) with anyone.

BUT EVERYONE LOVES THE FREE DOWNLOAD SITES

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Perhaps it’s even more striking that an industry that wants to earn serious digital revenues made no reference to the industry practices that cannibalise the larger portion of digital earnings, particularly the way nearly everyone offers vast amounts of music for free downloads. What will the incentive be for consumers to buy albums when 70% has previously been released for free. If one also considers the fact that the industry is globally now more singles-driven than albums (iTunes killed the album), this is effectively a limiter on potential earnings, if all singles are given away. The CRBT gravy-train won’t last forever and it isn’t even really working for those who need it to, who have neither the eye-watering performance fees or the juicy telco endorsement deals. Will those ones dare cross the picket line against their benefactors?

ENTERTAINMENT DEVICE LEVY?

Another interesting issue that came up was the Private Copy Levy. This is basically a surcharge on all mobile phones, tablets, PCs, storage devices, etc. to compensate musicians for the revenues they lose when we email or Bluetooth music to each other. I would be very interested to see how our analogue National Assembly would treat this sort of legislation.

F.U.B.U.

Perhaps a final impression is on a comment made by the panellist on the need to develop homegrown solutions to our problems. Yes, benchmarks can be drawn against global best practice, but ultimately the mature systems matured because they developed relatively organically and catered to the needs of their locale, not necessarily pidgeon-holing themselves into systems others had developed. I think it’s important to take local peculiarities into account, to get the system that works best for us.

All said, COSON is doing very important work and deserves commendation for how far its come in the past few years. As long as it becomes clearer how it distributes revenues it collects, and as it increasingly delivers value to the industry, the benefits to will be immense.

Streaming IS the Future; but Nigerian Music Needs to Turn on The Tap

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Last week, Adele’s manager, Jonathan Dickins, was reported as saying during an interview that streaming is the future whether musicians liked it or not. His comments followed news that Taylor Swift had pulled her entire catalogue from Spotify, the world’s most popular streaming service.

Taylor Swift is not the first musician to grow less than enamoured of the service, or with streaming as an income generator for the industry. Last year, Radiohead musician Thom Yorke described Spotify as “the last desperate fart of a dying corpse”, when the group pulled its music off the service. More recently, musician/songwriter Aloe Blacc published an op-ed in which he also expressed grave reservations about streaming as a sustainable source of income. How true, can it be then, that streaming is the future?

Looking at it from Blacc’s perspective, there might be a point about the reward system but I think rather than an indictment on Spotify, it’s more symptomatic of where the industry is, as a whole. Blacc writes –

“Consider the fact that it takes roughly one million spins on Pandora for a songwriter to earn just $90. Avicii’s release “Wake Me Up!” that I co-wrote and sing, for example, was the most streamed song in Spotify history and the 13th most played song on Pandora since its release in 2013, with more than 168 million streams in the US. And yet, that yielded only $12,359 in Pandora domestic royalties— which were then split among three songwriters and our publishers. In return for co-writing a major hit song, I’ve earned less than $4,000 domestically from the largest digital music service.”

If that’s what’s now considered a streaming “success story,” is it any wonder that so many songwriters are now struggling to make ends meet?”

It sounds dire, but that’s 168 million streams versus exactly how much in sales? According to this site, the track sold 237,000 copies when it debuted in July 2013 and only broke the 1,000,000 mark 5 months later in October. Take a look at Billboard’s half year charts for digital singles too. Album sales are down, and have been on the downward trend since 2010. Streaming and subscription revenues, on the other hand, are growing, climbing 51% in 2013 and crossing the $1bn mark (summary here; full report here). The head of Global Trends and Futuring for the Ford Motor Company has also been quoted as saying that “young people prize access over ownership.” So, what’s the issue? Is Spotify, together with the other streaming services simply ripping people off?

The issue may be that content creators don’t fully understand the service yet. Chances are that many users don’t understand the back-end either (they don’t really need to, in all honesty), so if you’re one of them, you might want to check out this post. Another post suggests that Spotify has not sufficiently controlled the narrative and has allowed content creators and the media replace fact with fantasy.

In the latter post (the Lefsetz Letter), the point is made, agreeing with Adele’s manager, that YouTube is by far the bigger monster, paying far less than Spotify does, closely followed by P2P platforms, which pay nothing at all. The post however disagrees with Adele’s manager on some music being taken behind the subscription pay wall, because that would simply push users to YouTube and P2P, leaving the content creators with nothing.

Does this mean anything for streaming in Nigeria? Probably not in the near future. Unreliable mobile internet and expensive data plans mean that very few people without WiFi modems stream much. Furthermore, given that most of our musicians give most of their music away for free downloads, there is little incentive to explore streaming anyway. So, perhaps the Nigerian market prefers ownership to access and this is all moot for now. But I’m an advocate for long-termism, and mobile internet will work someday and voice/data bundles will become more affordable for the streaming demographic. What then?

The current industry model will probably need to change in a year or two. Right now, the model for success is giving music away for free, hoping it becomes a hit that leads to RBT revenue and, ultimately, live performances. This sort of ties in with Dickins’s breakdown of how revenue streams for successful artists today –

60-65% of their income is going to come from tickets, 15-25% from tour merch, 10-15% from publishing, 2-4% from ancillary and 2-4% from record sales.” (Here’s the link again, just in case; emphasis in the quote mine).

You can see though that it’s significantly different, in that 70-90% of revenue will come from touring (not “shows”!) and tour merchandise. However, publishing revenues aren’t insignificant either. Enter, COSON (and its pursuit of digital royalties).

If RBTs are going to be the way forward here, then the crazy percentages that the telcos take of the gross revenue (60-72%, before VAS companies split the net with the artistes/labels) need to come down significantly. The music industry should lobby as hard as they can for legislation to support this (shouldn’t be too hard, with so many entertainers gunning for office in 2015).

If, on the other hand, the African market is to become as competitive as the foreign market, then the industry needs to support its domestic music streaming companies. Streaming kills piracy, and if the numbers are large enough (hint, hint, artistes and label execs), it will put money directly in their pockets. As Lefsetz says, “tech is all about scale” and “people who put brakes on the future end up screwing themselves.”

In conclusion, everyone knows that digital is here and analogue is gone. For Nigerian musicians to fully maximise  revenue from digital, given that their largest market is local, they may need to approach the issue a little differently.

Cracking Digital Music in Nigeria

One of the courses I treated with the greatest disdain in University was GES 101. I can’t  remember the official title of the course now but I do remember that one of the topics was language and how culture and technology affect language. This has been proved true and become more evident as we march forcefully on into the 21st century.  Until about 5 years ago, tablets were medicine, tweets were onomatopoeic sounds, swiping meant stealing and streaming was something only a river or estuary did. The secondary (?) meanings that all these words and many more have acquired, one could argue, are actually close to achieving primary status now.

 

The advances in technology have presented new challenges for distributors of entertainment content. The market is swinging firmly away from scheduled to content to “on demand” or “a la carte”, where the user/consumer merely pays for access and is thereafter able to determine the order in which he will watch or listen to the content.  The consumer could also decide to purchase the content outright, and with purchase comes the ability to move content between storage devices. Delivering content in this manner will require the consumer to have enough space to store his content library. Thus, advances in digital broadcast have also been accompanied by exponential growth in storage technology.

 

A result of all this progress is that while my dad still has a collection of vinyl records occupying roughly twenty cubic feet of space somewhere in my late grandmother’s house, I can carry infinitely larger amounts of music around on a device no larger than my palm. This is good for the honest consumer but it makes piracy a whole lot easier.

 

Forgive me for being Captain Obvious so far, but a context needed to be set.

 

Piracy – in this context, the unauthorised distribution or selling copies of music – has always been with us and will probably always be with us. The problem is worse in many African countries, including Nigeria, where the government’s anti-piracy efforts are extremely feeble where they exist at all. Today, anyone can be a pirate, as is evident with so-called “offline downloads” being the primary concern of many labels and artistes in Nigeria.

 

“Offline downloads” is the copying that goes on, frequently for paltry sums, from laptops or external hard drives to USB storage devices. It has been reported that the “content aggregators” (with sincere apologies to legitimate content aggregators) charge as little as one naira per track copied.  With more and more cars and even portable radios coming with auxiliary USB audio sockets, one can see why members of the Copyright Society of Nigeria (COSON) are alarmed.

 

The Nigerian industry is also peculiar in the way its revenue stream works. Piracy killed record sales decades ago. The industry tried to solve this problem by selling record masters to distributors at the major piracy centres (tragically ironic, right?). Even at that, many emerging artistes are willing to give their music away for free on popular blogs and websites in return, hopefully, for exposure and recognition, which ought to translate into touring and performing income.

 

Thus, music is largely freely available on both the supply and demand sides of the music equilibrium. How then can digital translate to money for the local, large-scale distributors?

 

The challenge before Iroking and Spinlet, Nigeria’s two main digital distributors – the companies adopting the Spotify/Deezer models of monetising content – is to convince a large enough number of people to agree that paying for music is worthwhile.  In a country of 160 million people with a median age of 19, the market is certainly there. Potentially.  However, even Spotify, with its 24 million users (6 million of whom are paying subscribers) is yet to turn a profit, in its 7th year of operation. iTunes, it is claimed, is running barely above break-even (another great infographic here for dataheads), though Deezer claims to be profitable.

 

These companies exist in countries with mature copyright enforcement systems, where music royalties have been a dependable source of livelihood since forever. This means that there already exists a culture for paying for music. In spite of this, however, musicians are complaining that the revenue from streaming isn’t anything to get excited about. According to Zoe Keating (crossover classical musician) these are the different streaming rates that various distributors offered her (very useful table, actually). So, if neither the streamers nor the streamed are making money (though this point is heavily disputed), what’s the point of this business model? What will the point of this business model be in Africa, in Nigeria?

 

To understand profitability in the business, one must first understand how the service is priced. Most digital music distributors, in addition to outright sales, have a free (advert-supported) service, a limited subscription service (ad-free, but limited number of streams), and a premium subscription service (ad-free, unlimited streams). Therefore, first of all, the difference between outright sales and streams must be taken into account.

 

A physical CD in Nigeria is usually priced between N150 and N1,500 (not counting “deluxe” editions).  This pricing model can easily be adopted for digital sales. A stream, on the other hand, occurs when a track (not downloaded) is listened to for at least 30 seconds. The minimum listening period varies (some agreements say 45 seconds) but the first problem streaming has is how you quantify a listen. Do you randomly estimate how many listens can be extracted from a CD before it becomes unplayable? If a 9-track album costs N150, this equates to about N16 to “own” each track for life. How many times should a streamer be able to listen to a track before his use translates to N16 for the artist? Is this even the metric that distributors and artists/collecting societies use?

 

Speaking of collecting societies, one must commend COSON and the efforts they have made thus far in ensuring that music makers receive royalties for the use of their music. It is not clear however, whether they will function as an aggregator in respect of their dealings with digital distributors. Their primary revenue targets to date have been radio and tv stations, hotels, events venues, etc. and this category of people should rightly pay COSON a licence fee. However, should an Iroking or a Spinlet pay COSON a licence fee, given that each artist enters into a licensing agreement with the digital distributors? If yes, would that not effectively be double licensing, as the artists will collect under their individual licensing agreements, regardless of whatever fee COSON extracts. More importantly, was it the intention of the artists when joining COSON that the collecting society would take over all licensing activity? These are the issues that will need to be clarified as digital music expands in Nigeria.

 

The Value Added Service (VAS) companies that collaborate with telcos to sell ring-back and call-back tones are currently the silent winners in this quest to monetise digital music. Personally, I would never willingly activate a ring-back tone but I am a single subscriber in a pool expected to surpass 128million by 2014. The VAS market in Nigeria is currently valued at over N78.5bn and “may actually be moving towards $1bn in the next three years” .

 

In addition  to all that’s been said here, artists should consider ditching the “listen for free” model and start steering their fans towards platforms where listening generates them money. This may mean starving the blogs of some content and some blogs therefore going rogue and becoming pirate broadcasters (lawsuits, yaaay!!) but if physical sales are dead, then digital must reward maximally.

As for who will win the race to crack digital music in Nigeria, Iroking and Spinlet need to take on and subdue Deezer and Amazon first and hope that Spotify doesn’t decide to expand its operations to Nigeria before then. The catalogue is everything!