Aristotle observed that man is a "social animal".  That is the fundamental premise behind why there will always be room for "radio" in people’s lives.   

I was reminded of this when listening to some podcasts this weekend.  I rarely listen to terrestrial radio, save for NPR, preferring instead to listen to algorithmic, playlist-based streaming radio (like the sort that Launch or Rhapsody might offer).  The podcasts, raw though they were, made me realize how much I miss having a live human introduce me to music in an intelligent way.  I miss the personality and human touch that I love in great music shows like KCRW’s Morning Becomes Eclectic, NPR’s All Songs Considered, Virgin Radio (UK) and now in podcasts.  Playlist-based, algorithmic radio works well for me when I’m working and can’t concentrate on another human voice.  However, when I’m mobile (in the car or out and about), I’ll want a human voice, whether as part of a talk show, or a music show introducing me to music I might like. 

At D3, Steve Jobs announced that Apple would be adding support for podcasting in the next version of iTuenes within the next 60 days.  Good.  It’s about time a major jukebox embraced podcasting (which is essentially supporting rss with enclosures).  The existing podcasting tools are typical 1.0 software releases — a bit buggy and not too user-friendly (though these are and will improve over time).  I’m hoping Apple’s support for podcasts will greatly increase the ease-of-use in terms of accessing podcasts.  But it won’t be enough.  Apple is bringing its sensibility to this in that they’ll be hand-picking the stuff that will be listed in iTunes, like they’ve done with the radio directory — they don’t want their pristine environs swarmed by the vox populi.  iTunes users will hopefully be able to add podcasts not listed in iTunes to their podcast directory as they surf the Web.  Finally, Jobs mentioned that podcasts would be available for free but didn’t rule out charging for them via the iTunes Music Store (like they currently do for spoken word via Audible).  That would potentially enable copyrighted music to be included in podcasts (provided the files are protected by a version of Fairplay that ensures DMCA compliance).  I don’t think this will happen anytime soon but the statement could have a chilling effect for would-be entrants to the space.

Record labels continue to vertically disintegrate.  The news that Universal Music Group is selling their CD & DVD manufacturing & distribution operations to an Atlanta-based tech company got lost in all the hubbub last week.  This combined with the labels’ moves to make music videos & master tones into profit centers means they’re vertically dis-integrating from non core competencies, and, instead, horizontally integrating/expanding.  Good.  That’s what they need to do.  As others have argued, vertical integration doesn’t work anymore. 

Update:  I may have been off in predicting that it would be a solid, relatively bug-free product from Yahoo!  So why the timing of the announcement?  Ah, Napster’s earnings call was today.  That’s mean! 

Record labels are a lot like VCs but with some important differences.

The similarities:

• Both find and fund risky ventures, artists and entrepreneurs/startups respectively, via equity stakes.
• Besides cash, both provide a strategic ‘value add’.  Record labels use their skills to develop their artists and their control/clout to distribute and promote their records via radio airplay, videos, co-op ads, etc.
• Both usually have some form of liquidity preference built into their deals.  Record labels call this recoupable while VCs will often get some guaranteed return via liquidity preference and participation mechanisms.
• Both have some sort of control over their investment though the level of this can vary substantially and depends on the track record of the investment in question and thus the relative leverage between the artist/entrepreneur.
• Both act in ways to minimize risk and maximize returns (as any rational profit-seeking entity would).  For the record label, it may mean asking (forcing) an artist to do things they don’t want to do (say do a cover song), or dropping the artist altogether.  For the VC, it may mean asking the entrepreneur to step aside for some seasonsed management to come in.
• Both are in hit-driven businesses where a few spectacular successes make up for many failures or moderate successes. 

There are, however, some key differences:

• VCs will usually look for an exit strategy in the form of an acquisition.  Labels usually realize their investments via the cash they generate.  The major labels are public (or soon will be) but this isn’t really an exit option for a label (notwithstanding the magic worked by Edgar Bronfman and TH Lee).  Smaller labels will often sell their masters or contracts to larger ones, but usually they work with majors via distribution deals (not unlike how Pixar is/was distributed by Disney).
• VCs make their money via a management fee and the carry from investment profits.  Label executives are well compensated although I am unclear how their compensation is based and to what extent it is variable based on the performance of their investments.
• The equity a VC purchases derives its value from the entire enterprise they’ve funded and all of the attendant revenue streams.  Not so the record label.  Despite finding, nurturing and ‘breaking’ an artist, the label’s equity is based solely on the master recordings and the number of reproductions or other economic uses, like being licensed for a movie, they are likely to generate.  The label does not usually see revenues from touring, merchandising and publishing (caveat: the major all have publishing houses but they do not necessarily go hand in hand with their recording artists).
• While a VC thinks of betting on or funding an entrepreneur, they actually own equity in an entity separate from the the entrepreneur.  They "own" any intellectual property generated by the entity insomuch as the amount of equity they own in the entity.  OTOH, the label funds artists and keeps right to the intellectual property generated (in the form of master recordings and sometimes publishing).   This ties the artist much more closely to the label, than the entrepreneur to the VC.  Although there can be often be misaligned incentives between VCs and entrepreneurs leading to tensions, this ought to be the case much more often between artists and labels.  For instance, successful artists may drag their heels in fulfilling their studio album agreement in favor of doing more touring. 

Like others, I believe labels will evolve to be less dependent on recordings and more holistic in their approach to artists by taking a smaller piece of all of the revenue streams rather than a huge piece of the one.  I know EMI is/has tried it with Robbie Williams and am not sure how successful that has been but, even if it hasn’t, it makes a lot of sense to me.   In fact, I can see labels horizontally integrating with artist managers &/or concert promoters (and publishers).  After all, the label is instrumental in building the brand of the artist, they should get a piece of more than just the recorded music.  So should artist managers and other players based on their relative contribution to the success of the enteprise that is the artist. 

Can you imagine artists’ equity trading in public markets?  This is unlikely – lots of room for inside information & manipulation; artists are very risky and hard to predict and many other reasons.  Still, it would be pretty cool — I’d be short Coldplay and long Radiohead, and I’d have Kiss and the Beatles in my 401 K.  Ha.

I had a very interesting conversation with an industry insider today and we got to talking about technology.  His perspective was that cutting edge technology is great, but what about getting the consumers in the fat part of the bell curve to adopt non-cutting edge technology.  There are maybe a few million Rhapsody/Napster/MusicNet subscribers, about 5 – 7 satellite million satellite radio subs, and a few tens of millions of IP-Radio listeners and MP3 player owners (with probably a healthy amount of duplication in these audiences).  Contrast that with the tens of millions who buy CDs and the couple of hundred million radio listeners using 700 million transistor radios out there.   We get really excited about the innovations in the industry, like portable subscriptions and streaming to cell phones.  And we trumpet these at the industry conferences to mostly the the same faces and everyone gets excited.  But sometimes we move too fast for the consumer to catch up.   

Most are still grokking digital music via portable mp3 players (and yes, file sharing hastened the adoption of digital music for many) and starting to stream music.  Digital music sales still represent but a sliver of overall sales (2-5% I believe).  On a side note, I don’t understand digital-only record labels.  I mean, why preclude yourself from distribution platforms for your content?   

So thanks to the insider for the perspective and the reality check.  I’ll be the first to admit that I can get carried away with cool new uses of technology.  We as an industry have come a long way, but it is still very, very early days.