Chair: Gert Leonhard to talk about the future of content and telecoms.
Gert: Thanks very much. That was a great presentation. I hope that with I want to talk about, in fact, one would think we have synchronized as far as the dress is concerned - two guys in black - but we did not. It was just an accident.
I'm from Switzerland. Is anybody here from Europe? Interesting, I work as a futurist. I run a site called www.mediafuturist.com. You can download this presentation sometime in the afternoon or later when I get to upload it.
I want to talk about a few things. I work as a futurist for companies that are interested in figuring out how to use content and technology in the future. Here are some of my clients. I work with a lot with telecom companies, handset manufacturers, record labels, and publishers; even though you would think it's impossible to work with both of them.
I wrote a book called The Future of Music and a second book called Music 2.0. It's about how to solve the music problem. If you want an actual copy a deb3 version, you can get one from me; I have free books. If you prefer to download, it's www.music20book.com. It's a free PDF. My third book coming out later this year is The End of Control. Why is it called The End of Control? You'll see in my presentation.
Basically, what we're looking at now in 2009 is we have the rise of a new ecosystem. Finally, after ten years of messing around from mp3.com to what have you, we finally have a situation to where we have colliding search engines, web portals, social networks, and telecoms.
All the telecoms around the world are thinking about what they are going to do about content? "Are we going to dive in or not?" Voice and data are commoditized. We're talking about major change here, especially in Asia, where you have huge companies thinking about how they can actually make money in the future; what is the next SMS and how will it work.
All of a sudden, these sectors that were previously separated, and I'm giving you some very fancy colors here, all of a sudden they're all mixed up. All of a sudden we're thinking "search, media, entertainment, telecom, and advertising." It's all sort of colliding in various business models all over the web.
I spoke at Google on Monday and Google is in the midst of this. We're looking at drastic role changes for a lots of these players, just like Johnny Deep who plays anything from the pirate to a transvestite. In the middle of that are the telecoms thinking about their role changes and how it would go forward.
The old content economy where I come from - I used to be a musician and a producer. I worked in the music business for a long time. I ran a bunch of Internet startups, including here in San Francisco. In the old content economy content was king in the middle of everything. We would essentially donate our dollars by buying books, individual unit sales, whether it was books or whatever; it was a payment per unit.
That made Hollywood very happy. In that model, it was easy to count the units. It was easy to restrict them, like with DVD region coding and copy protection and all that stuff. It worked out quite nicely.
Now, as my friend Chris Anderson says, "The same consumers today are saving their money, playing free games, listening to Pandora, cancelling cable, watching Lulu and of course, using Skype." A lot of people are saying Google is the master of making things free that used to be paid for.
That fits right into this. The web has become a place where a lot of people are thinking the reverse of the old content model. Content is in the middle but the payment is actually made around it, or what Chris likes to call "freemium." There is a payment that comes out of giving content away and then charging some of them as a consequence. FlickR is an example, and other services like Spotify, which is a fantastic service that just got started in Europe.
The idea of saying content actually creates value out of which we make money; for example, here is the iPhone app for Pink, and a company called Kite, straight from San Francisco here. You may know Kite as a great mobile application. It's the idea of making money as a consequence of people using this rather than the other way around.
Of course, next generation advertising - I'm not talking about disruptive models, but integrative models. And of course this, the money in the network. How do we get the money out of a network - this is from Kevin Kelly - that copies everything for free? How do we get this, from Kevin Kelly's site, www.kk.org. You may know Kevin; I'm pretty sure. He writes extensively about this. How do we get this little Christmas tree on there? I'm sure you've been following what happens in Europe, and in some cases, also in the U.S.
Now, the record labels, RAA and RFPI are asking the networks to disconnect people. They are no longer suing them; they're asking for them to be disconnected if they download. They're lobbying the government essentially for censorship.
The very idea of getting the ISP to control what I do on the web; I think content 2.0, as I like to call it, is going to come down to selling everything around it. As Kevin says, "When copies are free, you need to sell things that can't be copied." What is a better job to have in this context than to be a telecom? If you can sell stuff around the content, that's the mission. You don't own the content and you're not going to own the content. That's a good position to be in.
Basically, if you look at it like this, I went to this great place in London called Inamo. It's a sushi place; I like sushi. It doesn't quite beat Sushi Run, but it's pretty close. Inamo has great sushi but here is the thing; it uses a surface computer to interact with the kitchen and the ordering. That's why you do there. The sushi is fantastic but you can change the color of your table. You can play Battle Ship if you have a boring date. You can watch the kitchen remotely and you can look at the food in all different variations. You can change the design of your table.
This is what I call making money around the content. What Inamo sells is the packaging, it's not the food. If you call the food the content, I would say yes, I pay for the content because it's a given that it's supposed to be good. I'm really paying for the experience. That is the future of content, for me. I'm paying for the packaging, the experience, the context, the rating, the exchange, the social network around it, and then eventually I pay for the content as well.
The future of content really goes in this direction. This is my own conjecture, so you can like it or not, but that's my proposal; I think copy-based revenues are steeply declining. That doesn't take a futurist to notice. The record industry has been dropping 25% per year. The same is going to happen with DVDs, and books.
Attention-based revenues are the flip side of things; they're increasing. What are attention-based revenues? It's selling data, selling advertising but not only advertising, and selling many other things that come out of the fact that people pay attention.
If we look down this road, we can clearly see the value of a copy is steeply declining. In other words, the value of a piece of music when it is just copied, is zero. Just a copy of it doesn't make money. Record labels that are trying to sell copies are not going to be able successful. Of course, they all know that. The value of context, of filtering, of curation, of what I call "meta content," what people say about it, how they make comments, how they forward it; that is completely exploding. Of course, that gives fantastic opportunities of packaging and the experiences.
This stuff will basically make us think about the fact that the money is moving from selling the copy to selling the experience. Of course, this is pretty much good news for everyone. It's also drastic disruption.
You go to Disney and say, "You're selling experience," and they're not going to like that very much. They prefer to sell copies. Record labels are still suing people that don't want to buy the copies. Amazing, how stupid can you be? After ten years, it's still the same idea. We need to move on and think about selling experience. This is just starting happen.
I was here in 1998; we were thinking about that already, in those days, with Internet underground music archives. That was a long time ago. Of course, telecoms and telecom companies are in a very good spot to sell that experience, if they know how that works.
If we go forward, I call this "twenty-first century content economics," and I didn't make it up. It's somebody else's but I am stealing it here, influenced by people like your Yochai Benkler and Don Tapscott; I think we're looking at trust being the basis of this new economy.
Companies that I trust, people that I trust, artists that I trust, I voluntarily give my money and of course, Google used to be - maybe Google still is for a lot of people - "In Google we can trust." That was the initial paradigm of Google.
Intimacy - a company in London called SellaBand; you donate money for a band to go to the studio and make a record. You are the record company called Crowdfunding. You pay $50 for a share, and when the band has $50 thousand, they go in the studio and record. You own the band. You're very close to the band; you make the band successful. You pay for that. You don't pay for the music. You pay for the intimacy.
Of course, individualization, like LastFM allows me to make my own program. Packaging, like iPhone applications; I pay for the iPhone app but I would never pay for the music. I pay for the ringtone, but I would never pay for the download. That is just a different logic we can use.
Selection and filtering - a company called Harlots of Space in Sausalito, www.hos.com, has a fantastic service of ambient space music. Guess what; people don't pay for the music. They pay for the program or the filtering. And, of course, the convenience, like buying a ringtone on your mobile phone; it gives you a penalty payment of whatever it is because you can make the ringtone, but you make the payment.
Here is the question; who controls what? This question is immaterial. It doesn't matter, as long as a system can be monetized, and I think if we have to learn something from the music industry, it's how the battle over control declined; The Pirate Bay, the most successful sharing site, is currently in court in Sweden. I think the verdict should come out today. It's growing and exploding in terms of growth. Radiohead and Nine Inch Nails, iPhone and of course, Nokia are now rolling out their own music service; all these signs are showing now.
In 2007, the Recording Industry Association of America was the most hated company in America. This is the head of Halliburton. Halliburton makes the bombs but they don't get to be the most hated ones. The RAA did. That's a brilliant success. Down in Indonesia, it's Kentucky Fried Chicken is the biggest distributor of music. This is how far we've gotten in digital music.
Basically, it's free-falling sales and total disaster while everybody else is spending money on content. What's wrong with this picture? There is something wrong here. Money could be made and people are spending money on content; why not on music? The answer is because permission hasn't been given to make money. It has not been given for a different model.
Victim of control - for example Rhapsody, is anybody a Rhapsody user? It's a great service; 750,000 subscribers. Why isn't it working? It's copy protection, price, mobility, and all these issues don't make it work. Everybody could have Rhapsody if it was $1 a week, with an open format; everybody would have it. Bundle it into the ISP. This is something that could easily happen.
Of course, iPhone - we have the consumers basically saying go and you know what; go away. We don't like music this way. Attempts at controlling music have created zero revenue streams for the creators themselves, at this point.
Let's move onto the future, rather than the past. What I see happening this year is advertising, content, and telecommunication finally starting to mesh, to look at how a new ecosystem can be built. It is also a consequence of the economic crisis.
We're looking at a redefinition of telecom. This is probably nothing new to you. The users are forcing us to actually get our stuff together and merge telecom and content in some interesting ways, where we're becoming data pipes, content pipes, and most importantly, experience platforms.
I talk to telecoms all the time. This is a tough mission. Being an experience platform, content, advertising, we don't know anything about these things. Now, we're going to see new partnerships. It's only a question of time until we have Google and Facebook making deals with the likes of China Telecom, or Singapore Telecom, or Reliance in India.
Hollywood is now screaming in horror as people are sharing stuff for free. I think this crisis is a huge opportunity, the "control crisis." I see this happening this way; we have what I call the new "data economy." That means making money with data that's being given by the user. As we see data is vastly important. Of course, you all know that or I wouldn't be here. The Facebook thing last week, where they changed the terms of use, shows us how important data is. They tried to get it and we didn't like it so they went back. Now they have to think of a smarter move.
We have the content economy and of course, next generation advertising. We're going to look at these things all mashing up in different directions, this year. This is not an easy mission, obviously, but I think this is the direction we're going, in terms of this overall status.
IBM Global Business Services is a very smart outfit. They say, "Advertising will constitute nearly half of the content market by 2010," In other words, half of the content is going to be paid for advertising. Of course, all of us say it will never happen because advertising sucks. Nobody wants to run these ads. I think we're looking at a new generation of advertising. The challenge will of course be to get people to consent to advertising, to consent to me sending stuff along to them.
I think I call this "next generation advertising." We're going to see engagement, involvement, and activity - the Facebook Syndrome. The new deal has been the old deal; in exchange for value, we surrender data. In other words, I got free music, free videos, free TV shows, and maybe even free software because I give my data to be sold or given or leased to somebody else. The attention data that I actually give produces content.
I'll give you some examples. Widgets are a way of doing that very effectively. Facebook, I think, will be the leader in what I call "personal information and data currency." People are going to see something emerge there. Gmail is a great example for getting value in exchange for surrendering user data. The Nike Plus running shoe - some of you can do this. Actually, you can connect your running shoe with the iPod and publish it. That is a great example for launching a product that actually has marketing built in.
I call this Advertising 2.0. You used to have a budget to buy the audience and now you have to invent ideas to attract the audience. That's where the whole thing is going. Don't think of advertising as we know it; think of advertising as an idea to invent ideas to attract a new audience. Information becomes conversation and interruption, engagement, and entertainment.
This is probably not really news to you, but the drastic shifts that we're seeing here will fuel a lot of momentum this year, especially because of the economic crisis worldwide.
The future holds, "Where is the money?" Data creates pictures of people. It sounds very scary and it is scary. In creating pictures of people, I create enormous value that will pay for the whole process and lubricate the engine. I think we will have to be careful of becoming utterly transparent or being forced to hide out behind a sack because we fear to be transparent.
These are large issues that we have to fix, but let's look at some of the players in this turf. Of course, Google now has a great situation, basically getting it from three sides, from the data, the content guys which they basically out mode for free, and next generation advertising.
Nokia Comes With Music is a great example of advertising. Sony Ericsson, and of course the iPhone is creating a new content economy in the mobile and connecting back to advertising. Of course, the New York Times is a very similar example of having an application that connects advertising and content.
We're going to see hundreds of these examples, people coming up with new value chains of how this works. We're going to see the telecoms, like Orange, [0:18:27.2 unclear] Telecom, SK Telecom come up with ideas about how to connect these things, the data and the content.
$1 a week, per user of the Internet in the U.S., $1 per week will be enough to earn the music industry more money than they make with everything else, $1 a week. That's not even me paying the $1. That's just me saying I'll be part of it, somebody else can pay the $1.
The flat rate for digital music is imminent already in twelve countries around the world. It's already in place in Denmark; it's been looked at in China, by Google. There are a whole bunch of things in this direction that we're going to see, and of course, all these guys - the ad, the marketing agencies, they're going to connect to figure this out for their clients, how to connect the data economy with the advertising. Of course IPTV is another major driver of this.
To make it even more confusing, with this nicely confusing diagram already, this is all going to get mixed up. We'll all turn around forever. This is the opportunity and the challenge. We'll figure essentially; the crowd and the cloud - I think that's the future. If we can figure out how to use the crowd and connect it to the cloud, with the content, then we have the next big thing that we're all looking for, the next shiny thing that will explode in some way. Of course, we'll print money for all of this.
A few final words because I'm running out of time, the importance of filtering, Clay Shirky has said, "It's not really overload, it's filtering failure." I think many of us will be involved in creating filters for content. They may actually make more money than the content itself. In other words, people will pay for the filter directly, but not necessarily for the content. We already have this in blogs like Hype Machine or FriendFeed. Keep in mind we're using FriendFeed to filter stuff. And of course, it's stuff like LastFM.
For bottom lines - the fight for control was the fight for distribution. TV studios, motion picture companies, networks, it was all about distribution. The fight for attention is a fight for trust, the beneficiaries of control, which we've had until just recently, the monopolies of the studios, and then moving onto collaboration. I think you are going to kick me off now. Thanks for listening.
Chair: Great job.
