I’d argue that both of these very smart guys are obsessed with the wrong problem and, on this topic at least, they are as stuck in the past as major labels are.

They both make the mistake of focusing primarily on start-up business models that revolve almost exclusively on getting publishing or performance rights to stream or download music. And by getting tangled up in that mess, they miss the forest for the trees.  They’ve forgotten that the music industry isn’t — and has never been — just about recorded music.  Sure that part is hard and it’s been shrinking for the last decade, but that aspect is only a part of the bigger picture.

Don’t believe me?  Here are some forward-thinking companies who are wisely focusing on other parts of the music world and not just whining about the high cost of licensing music. So what are they doing right?

They focus on live music

Live music revenues have eclipsed recorded music revenues and while a lot of that money is flowing through LiveNation or AEG, both of those companies are ripe for disruption. Live experiences are hard to pirate and commoditize. As the money drained out of recorded music sales, money spend on music has moved products and services that are harder to mass produce and offer intimate access to their favorite musicians.  And fans are willing to pay for these experiences, in stark contrast to the smaller segment who are willing to paying for downloads or subscription music services.

This is what start-ups like SongKick and BandsInTown understand as they build communities and tools for live music.

They are making promotion and discovery better for artists

The truth is that 90 percent of musicians don’t have a piracy problem, they have an obscurity problem. The people who should love their music just don’t know it exists. The old channels of videos and radio are still there, but the internet exploded everything and diffused attention. In many ways it’s harder than ever for artists and fans to connect. While Peter scoffs at the value of a start-up based on bands without music contracts, it’s where the future Radioheads and Beyonces are going to come from. And plenty of new and old artists who DO have label deals also need these services and will pay for them.

This is what Soundcloud (CEO Alex Ljung pictured) is doing by proving easy-to-use tools for artists who want their music to be heard by more people in more places. Or WebDoc, which creates a platform for artists and their fans to collaborate and share creative projects.  Or The Hype Machine, which has harnessed the power of music blogs to amplify discovery of new music. This is also the area that my old company, Last.fm, SHOULD be pivoting toward…but don’t get me started on that.

The opportunity to partner with brands here is also amazing. It’s also a place where you can get the labels to work with you instead of sending their shark-like lawyers to negotiate with you.

They are making the whole ecosystem better

The value of music for fans isn’t just listening to it.  It’s about the connections you make with other fans and to the artists themselves. Or by disrupting the number of middlemen who take a part of each dollar an artist gets from fans. Fans want to pay artists, particularly when they understand that the artist gets a larger piece of the pie than they did with the old-school record labels.

This is what Ian Rogers has been preaching forever as TopSpin pioneered the direct-to-fan platform. Or what Benji Rogers is doing with his alternative funding platform for artists, PledgeMusic. Or what Bandcamp does when they create a better deal for artists by letting them sell direct to fans.

They created simpler and more intimate services

While the first generation of services that Pakman and his generation ran were based on the size of the catalogs they offered and on trying to be all things to all users, a music services doesn’t have to be massive and complicated to be valuable.   This is what Hannah Donovan and Matt Ogle, formerly at Last.fm, are doing with This Is My Jam, which you an think of as Instagram for music. Watch them closely.

They move their focus to mobile

Mobile phones are already the most personal technology we own these and so they have already become central to many people’s music listing experiences. The opportunities to expand that to other music-centric features like with ticketing, new music discovery, fan/artist interactions are all fantastic. Location and hyper-local services around music are also untapped. Improving and enhancing music playback of music we already own is also under-developed as an opportunity.  Apps have become a new medium for artists like Bjork and Brian Eno and there is more room for innovation here, even as it gets even more crowded.

This is what Mobile Roadie recognizes as they build a mobile-first platform for artists who want to want to reach their fans directly.

They build B2B services around the music

Every label and artist manager, large and small, is struggling to understand audiences and to collect data around how music is being used. And it’s not just labels who want this data. Brands and advertisers want it too. This is where Next Big Sound and MusicMetric live, providing important analytics and tools to create “actionable intelligence” in the fragmented music world.  The Echonest, meanwhile, is also building data-driven services and commercial APIs to help small and big companies to make their music products with data, play listing, and recommendations.

And that’s not all

Here are other areas that haven’t really been touched yet:

Sync rights

 - the licensing of music to TV, games, advertising and film  is one of the most lucrative parts of the recorded music business.  Creating a better marketplace for sync rights could make it even more valuable, particularly if you can make it faster and simpler for companies to do it.

Merchandising

 The company that really fixes the “merch-table” for bands and creates the Threadless or the

Etsy

 for music fans could clean-up.  TopSpin and BandCamp are doing this now too.

Royalties and payments to artists

  The accounting system that underlies the publishing and performance rights is one of the most rotten and complicated things about the industry. It’s only getting worse as are more digital products and services are created. A few companies like

Kobalt Music

are trying to start again from scratch.  A music start-up built on transparency, great analytics and paying artists faster and more fairly would be the most disruptive music business ever.

Start-ups create the most value when they carve out new business models and transform the way we used to do things.  They are less valuable (and thus less viable) when they just wringing the last drop of money out of old models.  The truly great ones transform industries and build new opportunities, growing the market for everyone.

Kafka and Pakman are right about one thing:  trying to licensing music is hard and the corpses of many start-ups litter are littering the battlefield.  So be smart and don’t play on that field.  Move to a new one or make your own field.

Matthew Hawn is product development and strategy consultant based in London, and previously VP of product at Last.fm

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The startup released the Clik mobile app Thursday, letting users browse YouTube videos on their iOS or Android mobile devices and beaming them to the enabled Clik screen. The app is more of a proof-of-concept than anything, showing how the platform can be used to connect mobile devices with more or less any screen that has a browser. The most obvious example is a PC, but it can also be used with Google TV-enabled devices, as well as devices with Webkit browsers, like the Boxee Box by D-Link.

To take advantage of the app, users need only download the Clik mobile app, go to www.ClikThis.com in any supported browser, and scan the website’s QR code to pair the screen and mobile device. Multiple users and mobile devices can be used to control the same screen, by enabling multiplayer mode.

While the current Clik app adds mobile control to YouTube videos, the startup hopes to enable other developers to create apps on the platform. Currently in private beta, the startup’s partner program is targeting three verticals to start: streaming video providers, streaming music services and game developers.

Imagine, for instance, being able find to control a Spotify playlist from your mobile device while blasting it through your home theater system. Or you could play a game of Texas Hold ‘em on a TV or PC where your cards appear on the mobile device, but community cards and bets appear on the primary screen. Those are the types of experiences Clik CEO Ted Livingston, which can be powered over Wi-Fi or even mobile 3G networks.

While there are lots of smart TV development platforms out there, few now provide the same kind of flexibility in connecting mobile, PCs and TVs that Clik enables. The closest might be Samsung’s Smart TV platform, which is pushing connectivity between the manufacturer’s TVs and Android-based mobile phones and tablets. One other advantage of Clik is that developers can use today’s web standards, without having to worry about writing specifically for one mobile or connected TV platform.

Livingston and the rest of the Clik crew were the same group that released the popular Kik messaging platform. The new venture is funded by $8 million that the Kik team raised from Union Square Ventures, RRE Ventures and Spark Capital last March. The company now has 26 employees, most of which are focused on developing the new smart TV but it will continue to support Kik’s messaging apps.

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Facebook product designer Alexandre Roche explained the new feature in a company blog post:

This feature lets you listen along with any of your friends who are currently listening to music. You can also listen together in a group while one of your friends plays DJ.

It works like this: Friends who are listening to music via any one of the available music services on Facebook will have a music note next to their names on the Facebook chat sidebar. The “listen with” button will appear when you hover over a name that has a music note next to it. Once you click that button, you will hear the exact same thing that your friend is hearing at that time.

The “listen with” feature brings to mind turntable.fm, an online music service that lets people create music listening rooms and share DJ duties with their friends. Turntable.fm became a big hit this past summer, and closed on $7 million in venture capital in Sept. 2011. But there are a few major differences between “listen with” and turntable.fm. For one thing, turntable.fm allows anyone to listen to music together, while the “listen with” feature only connects people who are already Facebook friends. And while turntable.fm allows people to create colorful avatars that can be made to dance along to the music, Facebook’s new feature is visually much more bare bones.

“Listen with” will roll out to all users over the next few weeks, Facebook says.

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But what has not changed is Ek’s belief that music industry was going through a fundamental change. “The music has changed from ownership to anywhere access and sharing of that music,” he says. Sharing, begets more sharing and it begets more listening of music and that powerful loop is the life force of Spotify.

One of the reasons why I personally loved Spotify is because to me it represented the kind of application that is created specifically for an always-connected, high-speed broadband enabled life. Without connectivity the app is as useful as a car without wheels – but without the app, connectivity is not as exciting as it can be. Sure for now Spotify has offline access, but Ek’s vision of music as a shared experience still depends on being connected

Here is a short interview with Ek, who was calling me from somewhere on the west coast.

Om Malik: What are your expectations from the U.S. market? I read somewhere that you want hundreds of millions of users.

Daniel Ek: I don’t think like that. I don’t have any certain expectations in numbers.  From my perspective music has changed from ownership to anywhere access and sharing of that music. The U.S. is the largest music market in the world so in a way we cannot be about sharing without being in this important market.

OM: What kind of conversions to paid service will you get for Spotify in the U.S.?

DE: We have said in the past that 15 percent of our users pay for the service and the U.S. has the same potential. Our view is that when people are social with their music and recommendations, they convert into paying users and that is key to our success. There is no indication why users are any different in the U.S.

OM: What about mobiles?

DE: Android in the U.S. is very healthy and definitely very attractive to us. It is growing more and more and it is important to us. The Apple ecosystem is 200 million strong but there are 4 billion mobile devices out there and we think about that.

OM: Are you worried that Apple would be a problem for Spotify on iOS?

DE: Just because Apple has a music service, people tend to overdramatize this tension with Apple. People forget that Apple is about the best-of-breed apps on its ecosystem and they are going to encourage that.

OM: So how are you viewing Spotify and its role in the digital music ecosystem?

DE: We think the digital music has to become simple like a CD – it plays in every CD player. That is what attracts us to consumer electronic devices. I guess from our perspective, we want music to become like water – music on your Sonos, music on your Samsung or music in your cars based on Spotify.

OM: Can you elaborate on your comment about music being more like water?

DE: Lady Gaga is now known and heard by more than 2 billion people even though she has sold only a few million albums. Two billion of those have heard of her music from other locations like YouTube videos for example. What that shows that people today are consuming music in much larger degree in different places on different devices. Spotify wants to make consuming music simpler and at the same time pay the rights owners.

OM: What does Spotify look like when it grows up?

Daniel Ek (Third from left) with Shakil Khan (right), Spotify's head of special projects with others at a Spotify event

DE: The reason we had an album with 10-14 songs was because of the physical limitations of the format. It was the same with vinyl records. On digital there is no physical limitation so the very idea of what is an album can be different. Now an artist can release one song every two weeks. Or she can create an audio-visual experience around the song. I want Spotify to become a platform around music so artists can innovate around Spotify. And at the same time music listeners can vote with their hands and attention and become involved in the creation of the music experience itself.

My interpretation of Ek’s comments is that the company wants to essentially become the “CD” and the next evolution of the iPod. In order to do that, Spotify will be working with artists and provide them a social and a global platform. What comes next for the company — convincing artists to team up with Spotify.

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For the past few months, I have been hearing about Facebook and Spotify getting a lot closer as companies, with a much tighter integration between the two services. However, Facebook’s musical ambitions go beyond Spotify and include other music services and applications. The company is currently working on lining up more partners for the 2011 edition of f8, its annual developer conference, which is most likely to be held in August 2011.

It seems that Facebook, after consolidating its position in three major Internet sectors – retailing, news and games – is now getting serious about music and media. At The Cable Show held recently in Chicago, Comcast CEO Brian Roberts extolled the values of cloud-based services and explained why cloud-based guides and interfaces are going to be key to television’s future. He showed off a deep integration with Facebook that can make television more social with recommendations from your social graph.

Just like Comcast, Spotify already allows you to share the information about the song that you are listening to on Spotify with your Facebook friends, but the next level of integration is going to be much deeper. And it won’t be just Spotify – my sources tell me that Facebook has been reaching out to other online music services and much of the attention at f8 should be focused on music. Facebook Connect and Facebook Likes are key components of this effort.

Facebook Music Features

Whether it is Pandora, Turntable.fm, SoundCloud or iTunes, listening to music, sharing music and then talking about is inherently a social activity and it makes perfect sense for Facebook to encourage this social behavior. Also, as we become an always-connected society, the idea of downloading and buying music is slowly giving way to the idea of “subscribing” to a giant library of music.

Facebook’s music plans are aimed at capitalizing on just such a future. Here is what Facebook is planning to launch as part of its music efforts, based on pitches it has made to some of the music services:

• In the left-hand column, right where Facebook lists Photos, Friends, Places, Groups, Deals, Pages, and Games, you will find a new tab called Music. This tab will show up if a user has listened to music with one of Facebook’s partner music services.
• Clicking on this new tab will open a page called Music Dashboard.

• The Persistent Playback/Pause Button at the bottom of the Facebook page, where currently you have the chat icon. This button essentially is like a quick snapshot and controller of the music experience. Mouse over it and you can see what is playing on whatever service you might be logged into using Facebook Connect. It also allows you to play or pause a track once you discover it on Facebook. It is also linked to the play buttons in the news feed.
• A page with snapshot of all the songs you have listened to on any specific service and also your top tracks and the number of times you have listened to those tracks.

Facebook’s push for integrating deeply with music services is understandable. The company wants everyone to keep coming back to their website – if they don’t, then they cannot sell the ads they need to keep those revenues growing.

Music Equals Social Commerce

In addition, this could also be the start of a new kind of social-powered e-commerce business, something I discussed in one of my Om Says newsletters – So what comes after Social Commerce.

When Apple launched its Ping service, I was pretty excited by the idea of that service and what it meant for the future of commerce. Here is what I wrote then:

This click-and-go-somewhere-to-download model of affiliate links can never match a unified experience. Amazon, for example, encourages bloggers and others to link to things they like and then get a piece of the action. This separates social from commerce and treats them as two discrete activities. On the post-Facebook Internet, I don’t think anyone can afford to keep these two actions distinct.

Ping, from what little I saw during Steve Jobs’ demo, allows a similar level of social interaction. It can tell me who my friends think are cool and the top 10 favorites of people in my social graph. Some of my friends are famous deejays. Others just have eclectic musical tastes. They can collectively sift through over 10 million songs and help with the discovery of music.

Unfortunately, Apple never did things right with Ping and it seems Facebook is on its way to becoming a worthy challenger – without even having to deal with the record labels.

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