Taking digital music Universal

newsmaker He believes offering licensed legitimate services is the surest way of curtailing music piracy, and points to cloud as a potential growth segment--only if service providers such as Amazon and Google do things the right way.

Rob Wells, president of global digital business for the world's largest music company, Universal Music Group, pointed to South Korea as the "poster child" for turning a market once dogged by rampant piracy into a successful legitimate music business.

In an interview with ZDNet Asia while in Singapore for last week's tradeshow Music Matters, Wells recalled how Universal was about to walk out on the Korean market when it signed a deal with Soribada in 2006 and turned the service into the biggest digital music store in the economy.

He said this was indicative of how the accessibility of licensed digital music can point consumers toward the "legitimate" path, adding that he expects more interest in this segment within the Asian region.

Asked why then Apple iTunes users in Asia, outside of Japan, still have no access to music downloads, he revealed Universal already has a global contract with the device maker and the ball is in Apple's court to turn on the service in the region.

He added that some companies in the music and technology realm view Asia as being too complex, preferring to focus on Japan as their only "Asia initiative". "But, the growth we're seeing across the region is significant and technology needs to notice," said Wells, who is responsible for developing Universal's digital business worldwide.

The industry veteran also manages the company's relationships with global business partners such as Apple, Microsoft, Amazon, Nokia, MSN and YouTube.

In this conversation with ZDNet Asia, Wells also explained why he does not approve of the cloud music services Amazon and Google recently launched and why he sees tremendous potential in the integration of social networks and digital music.

Q: What is the role of digital music in curbing piracy in Asia where it's a problem?
Wells: It is a pivotal role. The single biggest weapon that exists in the arsenal we use to fight privacy is licensed legitimate services. There's a combination of things you can do. You can turn existing services legitimate which is what we did in South Korea with Soribada, or you can launch new services to compete with existing illegal music services which is what we've done in the seven western European markets where Spotify is live. In the first 12 months of Spotify use, 87 percent of people that go to the free services come from file-sharing services.

So to answer your question, licensed legitimate services is the biggest way we can fight piracy. And we can use these examples to lobby government to say, here's what we've done, we're licensing our way out of the problem. But, the ship isn't turning fast enough so we need laws passed and other protective measures put in place by governments which, again, is what we did in South Korea.

Do you think it's working?
Absolutely.

Any figures you can quote to back that up, for example, numbers to show that piracy has dropped since the launch of these new services?
Not off the top of my head, but South Korea is the poster child for turning a problem market into a booming successful market. We did a deal with Soribada five years ago, and bear in mind that six years ago, we were actually looking at the marketplace as finished, and we were going to walk away from South Korea.

We did a deal with Soribada, legitimize that service and three years after that, the government was making noise about passing a law. Soribada became the single biggest digital music store in South Korea and over the last 18 to 24 months, we've been investing in domestic repertoire and the K-Pop phenomenon has exploded around Asia. So we basically went from rags to riches within five years and that's the direct result of fixing a piracy problem and licensing legitimate service. We use South Korea as an incentive to how it can work. If you want an opposite end of the market, look at Spain.

My personal belief is it's only a matter of time before we see some of the big emerging markets focus more on their creative sectors. I think there's going to be a lot more interest in Asia because of what's happened in Asia.

Are there any markets that haven't taken to digital music and are still turning to free downloads that you hope to have a bigger influence on?
Piracy is a big problem in this region. You said so yourself, and I agree. From a scale perspective, we look at Indonesia as one of the markets we really need to crack. I think there's a great new service coming on-stream from a major OEM (original equipment manufacturer) later this year that is going to ignite it, though. Thailand is also a big problem for us as well from a piracy perspective.

We've done some great things domestically here in Singapore, including a service that Universal launched with SingTel's AMPed that's lifted the entire music business in Singapore by about 20 percent over the last three years and that's just with Universal repertoire--there's no other music label in that service at the moment. So it can be done.

There are other deals we've got on the table with other partners in markets we actually don't have operations, which is also very encouraging.

So I think it's only a matter of time. To be brutally honest about the Asian region, it's the one region I'm responsible for which is really super heating when it comes to digital music business. We've seen exponential year-on-year growth for the last four years with regard to our profits from Asia, and that growth trend is predicted to continue.

Do you think accessibility is a problem here? For instance, music and movie downloads aren't available for Apple's iTunes users in Asia, excluding Japan, and that's been a huge...
It's holding you back?

Yes.
Agreed. Universal prides itself as a global company and we have great global focus. I spend a lot of time in Asia and I can tell you this: Asia is a rich mix of cultures, currencies, social demographics, religious sensitivities, and so on. The problem with other companies is they don't tend to have the global view that Universal has, not just in the music industry but also in the technology business.

They kind of assume it's too complex. They'll target a big market with a big domestic repertoire like Japan, that's where they'll lead it and that would be their Asia initiative. But, the growth we're seeing across the region is significant and technology needs to notice.

So what's stopping Apple? Is it you guys?
No, we have a global deal with Apple. In fact we have two deals with Apple: one for North America and one for the world outside of North America.

I talk to all these business partners and say that they need to expand in all markets: Eastern Europe, Latin America, Sub-Sahara Africa, Middle East, North Africa and Asia.

But you're right. Accessibility is definitely holding people back. But it's not us that's stopping Apple, definitely not us.

What are some challenges that remain in terms of bringing legitimate music to the industry?
Technology is moving so fast that a phenomenon has come from the game industry, called vaporware, where people resist new products and services because they think something else is going to replace it very quickly. I think we're in danger of having a bit of vaporware problem with everyone talking about cloud-based services.

Accessibility is also a big problem, and a whole host of other problems with regard to these tech companies that are famous for bundling products without being that bothered about selling, or retailing, or increasing use of music across their platforms and services.

How do we solve these problems? We persevere. We adopt a pragmatic approach when it comes to rolling out new services, and we also adopt a strategy of directing consumers as well so that in the event where a market or region that is being ignored or underserved by an existing partner, we can do stuff ourselves like the AMPed service in Singapore, and the DiGi service in Malaysia. We've also done a deal in Middle East with a company called QTel, and another one with Reliance in India.

So we'll take the music to the consumers through our own channels without having to rely on a big partners like Google, or Apple or YouTube.

I know that you guys are trying to work on some deals in the cloud space. Can you elaborate on that?
Cloud services are obviously the talk of the town. To explain what a cloud service is to the layman, you have to get quite misty eyed about a dream scenario where a consumer is driving home listening to a track, and they pull up their car in the driveway, turn the car off so the music turns off, they enter the house and the same track starts playing where it stopped playing in the car. The same track continues to play as they move from one room to another, and when they turn the PC on, the video of the same track is playing on the screen. There has to be a seamless consumer experience.

Some of these partners talking about cloud services are using cloud to lock the consumers into their product. My view is that the best consumer experience is for cloud to sit above the layer which is the device. It has to be a service level above the device. So the consumer of a BMW playing the track via his Bang & Olufsen system, gets out of his car, walks into his house and turns on a Sony amplifier and walks into his kitchen where he has a Sonas machine, and have the same track playing throughout. It has to be seamless because my job is about empowering consumers to have access to as many artists under Universal as possible, and these devices and technologies can get in the way.

But doesn't cloud already sit above these devices?
You'd think so and in theory, yeah, but it doesn't quite work that way. I live in a house with my wife and two-year-old son. My wife runs an Android device, I run an iPhone, we have a Mac and my son has an iPad. There isn't a service currently that is on offer in the marketplace that will serve all of those devices. There should be, but there isn't.

So my wife will have a Google Android music locker service and I will have an Apple locker service, and in theory, we may or may not be running Spotify on a Windows service. And when you extrapolate that across a family with three teenaged kids, you've got a lot of machines that will need to tap into a cloud-based service.

So the debate over Amazon's announcement to release a digital music locker without licensing agreements from the major record labels, that wasn't about licensing, it's about not locking consumers in?
No, I think that was about licensing. And the jury is out as to whether what they've done is or is not illegal. They're gaming a private copying loophole in an act, as are Google because Google launched a similar service a month ago.

The problem I have with both of these two services is that they offer very poor consumer experience. The problem with what they've launched is every single individual consumer that goes to their service has to have their individual files uploaded into the cloud. So the Google service has to sniff your hard drive and you click about on the Web site, and the actual files from your hard drive are lifted into the cloud. I have a guy who works for me with a reasonably big collection of music and he was given an estimated time of 46 days to lift his library of tracks. And while that's happening, his hard drive is spinning and his PC is running at half pace. That's a very bad customer experience.

What they need is a license so that they can run a scan-and-match service. So they ingest all the repertoires from the major music labels and rather than lift all the files from your hard drive, they just scan and match the songs. So you subscribe to the service, they point the server at your hard drive and they read the files you have on your hard drive. Nothing is lifted, but they allow you access to files you have on your hard drive across multiple devices because they have all the music already stored in the cloud.

So it's like accessing a backup or repository in the cloud?
Bingo, exactly. But the Amazon and Google services are not able to do that because that would definitely make them illegal. Bear in mind as well that the service only exists in the United States. They can't launch it anywhere else because they're playing on an exemption in the U.S. law.

So it's not a great customer experience. Only U.S. people can access it--bad, fail. What about the people in Western Europe and Asia? I mean, why have they done this?

But shouldn't we leave it up to the consumers to decide whether it's a bad experience?
Well, how many people are currently using their service? I guarantee it's a very disappointing number. Do you know why I know, because if they had huge volumes of people, they'd be talking about it, and they're not. When Apple launches their locker music, you'd find that that will be far more intelligent and far more customer friendly.

Amazon's argument that it's simply about providing consumers the functionalities of an external hard drive so there's no need for an additional licensing agreement? That's not a reasonable argument?
No, I don't think so. Again, it's about serving their customers and providing their customers the best possible option and they're not doing that. They're doing their customers a disservice.

From my perspective as well, I look for services that can compete against piracy and that can drive people away from piracy and pirated services, and not launch services that are sub-standard and weak. So we don't view them as business partners in that regard. Amazon is a great partner of ours. They sell lots of our repertoire online but this is very disappointing.

You've talked about how social media has the potential to be integrated with music. Can you elaborate on that?
The single biggest problem with digital music in the world of infinite choice is, where do you start? How do you cut through and find the stuff you want to find. I have probably eight friends whom I rely on for recommendations and there are other sources, too, like Radio One and Dr. Dre. Through a social media API (application programming interface), that's very easily done. People gravitate toward things they are familiar with and friends of theirs are a great source of information.

I think we're only just started seeing the true integration and impact of social networks on the music business.

But aren't you concerned this could perpetuate the problem we had with P2P (peer-to-peer) and file-sharing sites like BitTorrent. If you allow friends to more seamlessly recommend and share music, it could bring us back to those days once again?
No, I don't believe that. In a controlled environment, if a social network launched a sharing functionality which pointed people to P2P services, there would probably be a lawsuit. A lot of the services going live now are an integration between a service that's licensed and a social network. So I don't think that would be a problem.

Using BitTorrent or P2P sites is also not a good experience. People might point to a file and say it's Lady Gaga's Born This Way, and you spend time downloading the track and it could actually be someone's demo that they recorded in their bedroom. It's not a trusted medium. You don't always get what you want. And this is all about the consumer experience. It has to be completely seamless and integrated.

So are you working with any social media to start that integration?
Maybe.

Is it going to be a huge announcement this year, or next year, sometime next week, tomorrow?
[smiles] Maybe.

What are some painpoints you're experiencing now in bringing legitimate digital music to the mainstream market?
The single biggest painpoint, and what would really speed it up, is if we had government support in various markets. And government support means at least a debate on whether or not a market needs to have some form of graduated response imposed.

We can only do so much by launching as many varied services across as many territories as we can possibly exist in. But, what would act as a real catalyst is when a government sits up and say it's interested in protecting its cultural heritage and supporting its domestic intellectual property businesses--some of which are worth millions to these economies. In light of that, they're going to use a graduated response process to educate the public about non-payment for use of content. That would help an awful lot.

I've spent some time while I've been here with some of the government bodies. I actually think there'd be a big market in Asia that would sit up and say we need this, and I think that would happen sooner rather than later. Korea has definitely led the way and the fact that the Korean repertoire is now selling outside of Korea, it shows the Korean government has won.