When Charles Grimsdale, a British investor, started the Internet music venture OD2 in 1999, he had a hard time persuading large record companies to license their music. But when he approached the rock musician Peter Gabriel about putting his music catalog online, he got a very different response: Gabriel was not only willing, he also wanted to take a stake in the company.
While major record companies have spent heavily on the Internet with relatively little to show, Gabriel and his partners started OD2 on a tight budget, built it into a digital delivery platform that retailers like Virgin used on their Web sites, and sold it in 2004 for US$40.5 million.
“When most labels were banging their heads, he got it and saw the liberating value of Internet distribution to artists, and that’s what excited him,” says Grimsdale, a partner at Eden Ventures, of Gabriel. “He has a very good sense technologically of what’s going to work.”
OD2’s success also catapulted Gabriel, 58, after decades as a top-selling artist, into a second career as a powerful player in the emerging online music industry, a move that once seemed more outlandish than the costumes he wore in the early 1970s as a singer for the rock group Genesis.
But Gabriel, the son of an inventor, keeps devising new ways for musicians and record labels to use the Web to control their work and to make — not lose — money.
His two newest Internet ventures — We7, an advertising-driven music site, and TheFilter.com, which offers personally tailored multimedia recommendations — have received strong financial backing and positive user reviews in early tests.
As an artist, Gabriel was quick to embrace new technologies like music videos, interactive CDs and high-definition television. His 1982 release featuring the popular single Shock the Monkey was among the first completely digital recordings.
“He’s very technically savvy,” says Tom Teichman, chairman of Spark Ventures, which is a partner with Gabriel on We7. “He carries all the latest gadgets, understands what the artistic involvement can be and is very clued up on the business model. That’s an extremely unusual combination, and he does it in a chummy way.”
Those attributes set Gabriel apart from most musicians and, indeed, from most record executives. “Technology has always shaped music,” he says, “be it 78s, 45s, LPs or CDs, it changes the shape of the music. With downloading, the artistic change hasn’t really hit yet. But it’s turned the economic model on its head. The major record companies have some smart people looking at digital models. But the question is, will the people at the top be willing to turn the business upside down?”
Gabriel is betting that they will have to make that leap, and recent record industry history seems to be on his side. Since the advent of Napster in 1999 made music file-sharing ubiquitous, the recording industry has been in a downward spiral: In the US, from 1999 to 2007, annual CD sales plummeted from US$13 billion to US$7.5 billion, according to the Recording Industry Association of America, or RIAA.
But encouraged by the growth of the commercial digital marketplace — and worried about the success a handful of established artists like Radiohead and Trent Reznor have had selling music online directly to consumers — the big labels are cautiously expanding the kinds of deals they’re willing to make. And they are trying a wider variety of new online models.
We7, which lets users choose between buying recordings and downloading a free version with a 10-second ad (which expires after a month), is one of the startups trying to ride that evolution to a position of prominence.
Twenty years ago, Gabriel says, the idea of tying a recording to an ad would have felt sacrilegious. “Today I have a different view: It’s a way to hold onto income for creators,” he says.
Royalties from downloads on We7 are paid to the record companies, which then pay a portion to the artists.
Not all of Gabriel’s Web efforts have succeeded. In 2004, he and the musician Brian Eno proposed a cooperative, Mudda (for Magnificent Union of Digitally Downloading Artists), aimed at creating a Web site for artists to deal directly with listeners. The idea found few takers. “People were shy of upsetting the record companies,” he says.
If Mudda proved a failure, it still enhanced Gabriel’s reputation with other musicians.
“Peter approaches business the way he approaches his music: it’s not digital, it’s organic,” says Thomas Dolby, a musician who has enjoyed his own business success as the co-designer of the Beatnik ring-tone synthesizer, a utility included in more than a billion Nokia mobile phones. “I am impressed that he’s achieved so much in the business world.”
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