November 11, 2014
While streaming continues to be the hottest topic for debate in the music business today, in Sweden it is a foregone conclusion, where 80% of the revenue comes from streaming. Johan Largerlof, who started out as a rap producer before segueing to the business side, has deal with the digital environment for over a decade. Currently he's CEO of X5, a digital-only label that has been enjoying increased sales of their compilations of music from all over the world, from African music and classical to jazz and bluegrass. Here's how he successfully wades through an upstreaming world.
You started as a rap producer/artist. When did you decide to segue to the business side?
In 2002 or so, Europe saw the piracy setting in, and everyone was blaming the Internet. I had been doing music and I felt more and more insecure. At the same time, the mobile industry was starting to boom. Everybody was buying mobile handsets; it was the perfect time to go from the music side to doing more business-oriented work. There was a great need to rejuvenate the business because the music industry needed something new. It was also fun to try something different.
That was when you started a ringtone business with Mobilehits.com ... true?
At that time, cellphones went from something boring -- basic black and white -- to colorful accessories. My songwriting partner and I realized that we were in the same target group of active young music fans, but the mobile industry at that time was only going after older consumers. They were just starting to target the young crowd. We felt we could provide a good match when we launched a service that downloaded the latest hits as ringtones. We also started writing our own songs that could be developed along with all the hits into ringtones.
Three years later, you would launch Plus 4 6 with BMG, which brought music packages to mobile phones. It almost seemed that you were changing businesses as soon as you got the previous one launched.
That's the way the business was. The music industry has been changing so fast in the past decade or so -- almost too fast. Look at the changing paradigm shifts in the last 10 years alone; we've gone from changing physical products - vinyl to cassettes to CDs -- to download sales ... and somewhere in between all that, mobile ringtones. Now we've evolved into streaming. Three different business models in 10 years is very rapid change. Naturally, artists can feel insecure when things are changing so quickly. The one positive thing is that rapid change benefits innovation. It forces you to be innovative, which is why one thing leads to another.
That's why in Sweden, 80% of the music market is streaming. It's booming in Scandinavia.
Why is it working so well in Scandinavia when it's not even profitable in America?
We get that question a lot. First of all, we were early adaptors. Piracy had already been quite big here; Pirate Bay is Stockholm-based, so consumer consumption behavior was already established. People had been getting their music online for free; their consumption behavior changed early on, so when the legal services came, people knew how to make an easy shift to streaming.
It was much of an infrastructure and bandwidth thing as well. Many people had fixed, unlimited megabytes on subscribers' cellphones. Maybe one benefit of streaming becoming more popular in the U.S. is that as operators support it, they may improve bandwidth and offer cheaper, unlimited megabyte subscriptions. When you have unlimited megabytes and good bandwidth, you'll be able to pay for the obvious benefit of having all the music in the world essentially in the palm of your hand.
Yet artists complain loudly that streaming services grossly underpay them for their work. Have the streaming services in Scandinavia solved that issue?
That's something between the record company and artist. This was also a heated discussion over here, but that has changed over time. Obviously in this new streaming world, people get paid for playing something and not buying something. Artists need to renegotiate their agreements with labels. In this new environment, they need new contracts that are fair for both parties. The music industry's marketing costs have come down from 20%-5%, giving them more money to distribute to artists. There has to be a process where artists approach their labels and update their agreements to be fair for both parties. As the total revenue increases over time as streaming becomes the main format and other new services grow big as well, there will be more revenues for all.
Let's get to your current business incarnation, X5, which you launched in 2003. Did you see a "market hole" for it when you started the company?
I was in Berlin and I went to a music industry conference, where I met with some Apple people. They had just that month launched the iTunes service. The convention was held in Germany, but there wasn't much interest in Germany for iTunes, so the panel with the Apple guys was almost empty. We were able to just approach them and ask them how to register with the iTunes store and how to upload music into it.
At the time, digital retail was very new, but we instantly realized the potential for that market -- not big then, but maybe in five years. We thought about the possibility of creating a company that would be profitable in a tiny market, understanding that as the market grew, we'd grow as well and know how to be successful in it. Our focus was to skip the physical side completely, where it's gotten more and more difficult to succeed.
X5 is a digital-only label ... but why did you decide to start by releasing only classical music compilations?
We got into the classical first because I went to another German music conference and found out that this was still a very old-fashioned classical music scene. I felt that would be a good place start. We needed to change things by acquiring classical catalogs to create customized products for iTunes. What we didn't realize then, but realize now, is that the classical physical product was easy to understand, because the liner notes had all the information for you to read, but digitizing it was very complicated. You can't always tell what the music piece is just by reading the song info. You can have two tracks listed in iTunes as "Symphony No. 5," but which composer's "Symphony No. 5" is it? Our challenge was to create a customized product that would simplify those distinctions for the user, so they understand fast, exactly what they're buying. And we became very successful with those products as they were customized for iTunes.
You've since expanded your compilations to include folk, bluegrass and jazz. Why?
Things worked so well with classical, we saw it as a natural step to work in these genres as well. They were traditional American music genres that have been hard for people outside the U.S. to discover. We've found a lot of consumers who don't know the artists or the music history behind them, just as we found American consumers who weren't familiar with the world music in our compilations from other parts of the world. There is a great need to help people connect with music from the geographic areas, or music genres they are interested in, but unfamiliar with.
What makes one compilation succeed and another fail?
I can give you a simple answer to a good question: A successful compilation is one that is easy to understand, so the user knows what he or she is getting when thy see it. Whether it's Latin music or classical music from Eastern Europe, they have to understand the concept of the compilation. In this world, where there's 30 million tracks to choose from, you have to be specific in what you present the listener. Then to better connect the product, where the user enjoys the music discovery, the compilation needs to present the music in a logical, entertaining way. It's the same thing when you enter a dance club. To get people dancing, you have to mix the songs in an order that maximizes the experience of each track. First you simplify and explain what the music product is, and then you give them the best music experience when they start to listen to it.
Please describe your latest toy - the "Music of the World" app.
The app targets people who don't now anything about world music and would like to browse it quickly and easily, but don't know here to start. If, for example, you want to find out about music from Morocco, that music would be almost impossible to find at a big box retailer or most digital music stores. With our app, you click at the country and you get customized playlists featuring different music genres from that region. The more people navigate music in that app, the deeper their listening experience becomes.
Let's say I want to hear a specific world music artist, such as King Sunny Ade from Nigeria. Does the app have an artist search as well?
You can search for artists but you can also search for that artist on Spotify. What we do is when you listen to that artist, you can browse more artists in that same genre or area. Whatever your entry point is, be it African music or anything else, you can instantly dig deeper and discover the music.
The idea is that the all music should be made available for anyone in the world just by browsing a map. There should also be a variety of music from many parts of the world. Even if it is from Bolivia, Denmark or India, you should be able to choose and categorize all the music that comes from there. That goes for any part of world. In North America, we want to present traditional music, and offering up to 50 genres is a good start. Once you know the history, you can move on from there. You're talking about Native American music, Cajun music, Hawaiian, Southern gospel hymns, Country bluegrass and so on.
How do you curate all this music - have you come up with algorithms for them all, or you have programmers curating it?
We have a number of compilers or producers around the world who are experts in very specific genres, who also know how the tracks should be structured to enhance the mood and playability of the music. We have staff based in both Chicago and in Vladivostok. It's important to know the specific music very well, so when we load it into our system and create those playlists, we can create a compelling product - and you need knowledgeable people who believe that all music should matter, whether it comes from Rio or Beijing.
Do you see X5 venturing into mainstream contemporary music compilations, such as pop, rock and hip-hop?"
Yes, for example we have an app called "Hard and Heavy" already that presents Rock music from the '60s to the '80s presented and compiled for a young demographic that wasn't even born when "Kiss" removed their make-up.
So where do you see the music business evolving in an increasing digital world?
Up here in Scandinavia, we have a music world where 80% of the business comes through streaming. It seems like it's slowly becoming that way in more parts of the world. Being here, we now have to take our knowledge of streaming and use that when approaching other music cultures. We want to help labels and artists get discovered. Our mission is to help artists and labels get their music discovered by more people from all around the world. We simplify for both listeners and labels get connected through apps that offer novel compilations of jazz, a jukebox for oldies, blues or Americana -- creating a simple context where people can navigate through the 30 million tracks that are available to them.