September 2, 2014
The phrase, "follow the money," may have been popularized during the Watergate era, but Fred Beteille has being "following the money" for years, since getting into the business as an entertainment lawyer, then working at the Harry Fox Agency, Google and now as Product Manager at YouTube - and as Chairman of the Board for the Music Business Association (formerly known as music retail trade organization NARM). Over the years as digital platforms became prevalent, Beteille now believes that the key to success for the music industry is to follow the consumer - both current users and potential consumers. Welcome to the new Music World Order.
You worked at Harry Fox before heading to Google and YouTube. What did you learn there that you could bring to the tech side?
Before I joined Harry Fox (HFA), I spent four years in entertainment law as a legal assistant. I got experience in pretty much everything related to the contract side of the music business. I worked for Stuart Silfen, who was counsel to the firm Frankfurt Kurnit, Klein and Selz. Stu was my first mentor; it's super-important to have a great mentor when starting a career. I remember my first or second day there; some girl from Brooklyn walks in the office with her demo and I got to be involved with her first album and watched the project evolve from the demos all the way to Grammys ... it was Norah Jones. That was my introduction to the business.
Both the law firm and HFA were places of employment that were rooted in the business affairs and licensing side of the business. That was an area I really loved learning about; all the business transactions that form the root system of the music industry. Specifically at HFA, as Director of Business Affairs, I was charged with licensing content on behalf of publishers and from that we grew a service business that offered licensing solutions for those who wanted to obtain licenses from publishers. One of the great things I learned by leading the technical aspects of HFA's licensing function were: a) the critical importance of rights -- each license is important -- and b) how to administer licenses and rights at scale by using technology. I also lived through the early evolution of the business from physical to digital. The digital business generated tremendous transactional volume and was much more complicated than what we did with physical product. We had to evolve and innovate our business and technology to keep up with the change in the industry.
What made you decide to segue to Google?
Actually, when I left HFA, my next stop was as COO of a start-up called RightsFlow. RightsFlow offered licensing and royalty services to labels and music services. I thought of the transition as a natural progression. At the time, HFA primarily dealt with licensing from the point of view of the music publishers. RightsFlow focused on the same issues from the POV of the artists, labels and music services. This allowed me work in my area of expertise but from a different perspective. Within a year, RightsFlow was acquired by Google; I stayed on and continue to work with them.
When Google acquired RightsFlow, the licensing service functions that we provided on behalf of other music services were needed at Google, and our objective was to use our operational and technical models to help support content identification, licensing and royalty reporting for YouTube and other Google properties. Having Google's resources behind us, we have been able to expand our efforts significantly over the past few years and grow our influence. What I do now at YouTube is not just about managing artists' rights and IP, but a lot of broad and interesting initiatives in music and media.
Was there a noticeable difference in the corporate cultures of Harry Fox compared to Rights Flow and Google or YouTube?
Every company has its own "corporate culture;" this term may get a bad rap. I went from being a legal assistant at a law firm, to an executive at both a medium-size licensing agency and a start-up ... to a Product Manager at YouTube and Google. Each entity has its own unique culture, even though they operated in the same business sector. Having a so-called "corporate culture" is not an evil thing; it's what exists in every single business and is merely a reflection of the people and the past, present and future of the company.
In every stop in my career, I've felt like the employees had a hand in shaping the culture, so it's not just a top-down thing. There's also a big misconception about size and culture. I can say that the corporate cultures at YouTube and at Google are hyper-progressive, professional and focused on tremendous innovation. That creates a positive energy that forces change and shapes a company and people to constantly iterate and evolve for the better. RightsFlow was also very innovative, so it has little to do with size. What I am saying is that in today's world you absolutely have to place an emphasis on creating a culture of innovation and aligning employee incentives to the innovation you desire -- especially when working with technology.
What I've noticed is that traditional music industry entities have cultures that were rooted in an environment where non-musical innovation wasn't stressed. Over many decades, these companies reaped the benefits of profitable physical format changes (Record, Tape, CD...), but they didn't compete in the manner they need to compete today. Now the business is changing on what seems to be an almost daily basis, so these companies are learning to innovate. It seems clear that we are not going back to the days of old; companies and leadership are more willing than ever to change. But it takes time to morph cultures that were rooted in a different time and place. The faster this process happens, the quicker we will see better overall success in our industry.
So what made you decide to lend your talents to the Music Business Association?
It's a critical time for the music industry and I felt that the Music Business Association, which as you may know was formerly known as NARM, represented a great opportunity and platform to facilitate change. Obviously, music retail has undergone a considerable evolution over the years, which prompted NARM to rebrand itself as Music Biz and become an all-encompassing trade organization facilitating the growth of music commerce. Jim Donio and Bill Wilson have done a tremendous job steering the ship through this sea change. Regardless of the steps it takes to bring music "product" to the consumer, Music Biz represents everyone from labels, physical, brick-and-mortar retailers to the digital companies -- both pay-for-download and streaming -- and even entrepreneurial entities, artists and students. It's truly all-encompassing; I don't know many trade organizations with that breadth, as it represents our past and present... and all of these components are key to music's future.
Stepping into the shoes of Rachelle Friedman, who led the organization for so long and through so much change is quite the challenge -- and by the way it's great to see that she's still inspiring with her new concept for J&R. Specifically, whenever someone asks why I think this is a challenging role in the business and why I'm doing it, I start with one thing: The primary challenge is to break down one of the big misconceptions in the music business - that's it's simply a battle for sales between the brick-and-mortar (old) side and the digital (new) side ... that it's a zero-sum game. That view is myopic and rooted in negativity and pessimism. I don't see things this way.
The different parties in the music business should have a symbiotic and collaborative relationship, and being Chairman of Music Biz, while working on behalf of YouTube, helps me bridge the gap between technological and traditional music companies. It was truly an honor to be elected Chairman by a set of diverse industry peers from companies like Apple to the major labels to Dimple Records -- to me, it also showed that we're all part of this ecosystem together. People like myself write and produce music, work with artists, publishers, labels and music start-ups on the technological side to grow the business as a whole, not at the expense of anyone else.
This doesn't mean that we'll agree on every issue. There will always be disagreement on rates and rights and everyone will always want to be paid more. But, while we can respectfully disagree on some issues, we need to understand that more people are consuming more music than ever -- we need to work together to monetize it.
Another huge misconception is that the tech side of the biz is only filled with technically-minded people such as engineers and computer people -- but in reality, those people are balanced by people like me and others who make music and work with the content side of the business.
But going back to the big challenge: We can't look at our business and think if someone buys something in one medium, they won't buy it in another. A person who buys something on vinyl will probably buy that artist's content or some other artist's content in another product. And it's not just recorded music; it's much more than that. It's everything about music and artists that can be monetized. That's how to look at it. We're all different-sized pieces in the same pie. Our goal is not to make one piece bigger at the expense of the other; the goal is to build a bigger pie. Music is consumed in a variety of ways. And if we all work together to grow the pie and raise awareness for the music, we create more fans, who are more likely to buy content from Target or wherever one day to an additional download the next, to streaming the next day, to merch and concert tickets after that.
Let's go back to your work on YouTube. Could you describe how ad placement works on YouTube in regards to generating revenue?
Any video uploader can choose to show an ad on their videos. When they do, they keep the majority share of the revenue made from advertising on that video. We keep a minority share. Obviously, when the video gets more popular, more advertisers want put something on it. Those videos can get a higher rate because we do auction-based pricing. In other words, Psy's "Gangnan Style" would likely have a higher rate than the first video from a brand new artist. It's about eyeballs.
Is it incumbent upon the artist to market their videos on YouTube to generate more revenue, or do you promote them as well?
It's both. On YouTube, artists control everything about their videos and channels, and we give them tools on how to be as successful as possible on the platform. Check out youtube.com/playbook for more info, like how to build a brand and build subscriber bases. In the coming months, you'll see us commit even more help to artists and we'll be working hand in hand with them to generate more business for everyone.
Speaking of revenue and the digital side of the business, the artist and content provider side have complained loudly that what they make from streaming is woefully inadequate. At the same time, many of the streaming services are crying poverty if the royalty rates are raised. How do you, as Chairman of Music Biz and as a spokesperson for YouTube, find a balance that will please everyone?
We need to keep in mind that the debate about streaming and digital rates is happening in an evolving environment that balances what platforms need to grow the pie properly and what content owners need to feel fairly compensated. Both are important. We also have to clearly understand that these rates aren't just pulled out of thin air. They are governed by actual legislation or business deals, meaning that artists or their representatives have agreed to these rates.
But the fact is that the streaming companies represent an entirely new business model and of course, in the beginning of any new business model, there's lots of discussion on how things should be. Less than 10 years ago, we were in a world of litigation where companies from tech and content industries were not working together, they were just suing each other. Now we've evolved from that environment to arguing not about whether content owners should be paid, but how much. A lot has changed in a short time. But we're still in the first few years of these models and we're operating on a brand new playing field with new legislation and deals governing it. We have to let these companies grow, evolve and get to the point where scale will make it profitable for artists. Until then, there are still positives -- today's platforms enable artists to connect to their fans like never before. Fans are more and more aware of their favorite artists today than they ever were before the digital revolution.
When it comes to content payouts, it's like a kid opening up her first lemonade stand. She won't make a profit selling to her next door neighbor on the first day, but the longer she's out there and the more customers she gets, the more revenue and presumably profit she makes. Nobody knows about it the first day you open; you need drive-bys and walk-ups, put up a flier on the telephone pole. That's what happening with streaming today. What are there ... maybe tens of million of paying subscribers globally? If a billion new music fans all of a sudden start consuming music via subscriptions and ad revenue models, we would have a profitable business that scales. All streaming companies think about growth over time, as there are huge areas of the world that are without the Internet or are just getting online -- it's hard to believe but most people still don't have Internet access. That's billions ... yes billions ... of untapped music fans who, up to now, have had no access to music or the ability to pay for it. Our focus should not only be going after the small fraction of the consumers we already have today, but the billions who aren't music consumers -- once we figure this out we open up huge, untapped markets for music and related products, we will inevitably create a profitable business model.
Just how long do you expect that scale to come to fruition?
If I had a crystal ball ... in reality it's up to all of us. Every second we spend focusing on fighting over the shrinking areas of our business is a second we're not thinking about growing our business. Today, we're talking about a totally new reality - an environment where artists can connect more efficiently and faster with fans and new partners who will generate merchandising, licensing and branding revenue. It has become incumbent upon artists and their representatives to innovate in these areas. If they're sitting at home, saying, "Hey I just wrote these songs, which should automatically make me this kind of money," they're working under an old, outdated model. Sure, it's going to take time for all these things to equal out, of course, but even now artists can tap revenue streams they couldn't tap before. Like every other business at every other time, it's about innovation -- if you're waiting for someone else to figure it out or waiting for the scalable "magic bullet" you're part of the problem, not the solution.
There have been reports of a new YouTube Music Key service. Although you can't comment on anything specific until it's official, could you provide a basic gist of what you want this to accomplish?
We are helping the world of music grow. That means giving people more ways to enjoy music on YouTube, and giving musicians more ways and tools to earn a living through YouTube. That's why we're going to be adding more free and subscription-based features for our users in the future. It's important to remember that these features will be one component of how YouTube positively impacts the business in a broad way.
Overall, the music streaming field is crowded by huge brands such as YouTube, Google, Amazon and Apple, as well as Pandora, Spotify, Rdio and scores of others. How can they all survive?
The ones that will thrive will best focus on the roots of the business, which in this case is connecting artists with fans. That has to be core of any special music service, and the companies that innovate around that space will survive and prosper. Undoubtedly, things will change over the next few years, and that's typical of any industry.
So where do you see YouTube and this industry, in general, evolving in the future?
For YouTube, I have to go back to the core of it -- connecting fans with artists and the creators of any media. We are going to double down on this area in new and exciting ways. More generally, the ubiquity of music is not debatable; the challenge is monetizing that ubiquity. Our business needs to support creation and consumption models that are all-encompassing ... from people in an artist's fan base buying vinyl to individuals making stuff with their smartphones to be a posted on YouTube or elsewhere. We talked earlier about being more creative and innovating; our business is at a critical inflection point where old models and some bad habits are changing. In the future I see a truly diversified business supporting myriad revenue streams -- and with a global shift to mobile and increased connectivity, fans will be consuming music and related products from literally anywhere on Earth. Exciting times.