This story is about the business of the U2/Apple/Universal Music deal for the free digital release of Songs of Innocence. My Songs of Innocence album review is here. This story is 2300 words long, not my usual “about 300.”
Why’d I title this “Throngs of Diffidence?” Because “diffidence” means “lack of self-confidence” and Bono threw out a few self-deprecating statements in the last two years about concern for U2’s relevance. And, because those statements have been über-amplified since the innovative, free release of U2’s Songs of Innocence.
I think it’s ridiculous that reviewers and informed consumers are lambasting organizations like Rolling Stone for giving a good review to Songs of Innocence. A lot of the negative reaction is about the album being automatically placed into 500 million iTunes account holders’ libraries, at no charge to them, but without their prior consent. These reviewers should separate their review of the art from their review of the commerce/business/distribution model. The medium is not the message. Well, that’s not true, so, I guess I mean, don’t blame the messenger/technology. I’ll get to my opinion on that within this story.
Many of the negative reviews seem jaded and not reflective of the actual music on the album. I think that’s because reviewers were rushed to beat their competitors to get a review up, because it was not a normal release with advance copies sent out for review with a customary embargo to have all the reviews hit at once, aligned with the release date.
From my perspective, this deal is about an elegant a solution as is available in these tumultuous times for the music business, or any business dealing with intellectual property. Let’s look at the seven parties involved in this deal, what they want, and if this deal gives it to them.
Party #1: U2
The band has been in the studio for months and months over several years, with several different producers, and seemingly couldn’t find a sound or theme they felt should be the next U2 album. Further, No Line on the Horizon sold five million units sold vs How to Dismantle an Atomic Bomb‘s nine million and All That You Can’t Leave Behind‘s 12 million, so their units sold metric has been heading in the wrong direction. (Notwithstanding, all those albums debuted at #1). The band may well have had some anxiety about their next release. Bono told BBC earlier this year, “We were trying to figure out, ‘Why would anyone want another U2 album?’…We felt like we were on the verge of irrelevance a lot in our lives.”
As Engineer Declan Gaffney finished tying together all the disparate tracks into a cohesive album, it became apparent that the album might be done in time to tie in with the Apple event for the launch of the iPhone 6 and Apple Watch. Gaffney got the master done, getting a full Producer credit for pulling it all together. No time for pressing a first run of CD’s and vinyl, but that wouldn’t be necessary with a deal like this one.
This seemingly spontaneous release must have been a huge relief for the band. Look at their faces in these surrounding photos, taken just a moment after the announcement. Larry and Edge look like they can’t believe they got away with this. If you’re the band, this is an outstanding deal. (It’s good for other parties, too. Read on.)
After what must have been a frustrating production process, they finally—and instantly—got the music pushed out to a possible audience of half-a-billion people. That’s literally 100 times more people than bought their last record, and one of every 14 people on earth. It is rumored that they and their label were paid a reported $26 million for this, plus advertising support of an additional $100 million dollars. As Bono joked at the event, “We’re not going in for the free music around here.”
On the downside, the units won’t count on Nielson SoundScan or Billboard, nor will the album qualify for next year’s Grammy Awards. So what? They get bigger distribution, more revenue, and they can go for a Grammy the next year. If the paid version sells poorly, U2 and Oseary can simply say it was the free release that cannibalized the paid release. (Just don’t tell Party #4–the brick & mortar retailers.) But, if the paid version sells poorly, won’t the concert promoters get anxious? Doubt it. What promoter or sponsor would get sheepish about a tour from a band that had the highest grossing tour in world history, raking in $736 million the last time they went out in 2009-2011? (There were 110 shows in the tour, with a long break in 2010 due to a back injury Bono suffered during one of the shows.) Further, a collateral benefit to massive distribution of free music is that the arenas (or back to stadiums?) on next year’s tour will be packed with people that know the new songs.
Party #2: Apple
Apple is plowing $100 million into running the colorful “Echoes” TV commercial made from the new U2 video for “The Miracle (of Joey Ramone).” No big deal, as they would be spending that money on an advertising campaign for the iPhone 6 and Apple Watch, anyway, and so why not align with the new release from one of the largest bands in the world who had the largest tour in music history just a couple years ago, and who’s fans have reached fever pitch waiting five years for this release?
Whether or not Tim Cook feels throngs of diffidence, his industry (Samsung, Google, etc) and Wall Street certainly have been putting a lot of pressure on Apple to innovate with new products, rather than derivative ones. This U2 deal demonstrates that Apple is very much invested in music (notwithstanding Apple’s three billion dollar acquisition of Beats by Dre in May via the same relationship with Intersope Geffen A&M chairman and Beats co-founder Jimmy Iovine, who produced U2’s Under a Blood Red Sky and Rattle and Hum back in the eighties). Apple needed a high-profile, innovative deal like this, with iTunes getting stale after 11 years on the market, and their iTunes social media play, “Ping” dying 24 months after it launched in 2010.
The $26 million Apple reportedly paid for the album is a drop in the bucket for a company with annual revenues up 450% in the last five years and with 39% gross profit margin and $159 billion in cash on hand. They could probably misplace $26 million in the couch of the Cupertino campus break rooms. This $26 million also is seen as a cost of acquisitions and win backs of lapsed iTunes consumers, which will be the bedrock they use to migrate those consumers to the forthcoming Apple Pay program, where the company stands to make an estimated 15% on every iPhone-based credit card purchase consumers make in brick-and-mortar stores that use NFC (that’s everybody by next Christmas), when they buy gas, groceries, coffee, clothes and whatever (companies such as Square make only 2.75%), according to a story in the Financial Times. This will be an enormous, continuous, passive revenue stream for Apple, and will make the iTunes play 11 years ago look tiny. Major disruption. Sorry, PayPal.
Apple Pay will ultimately be able to connect to any credit card (already signed are American Express, MasterCard and Visa, issued by banks representing 83% of credit card purchase volume in the US), and will generate a one-time security key for each and every single transaction, so there’s relatively no threat of mass theft like we’ve seen recently at Target and Home Depot. On the retailers side, Apple already has deals set up with scores of national chains such as Bloomingdale’s, Macy’s, McDonald’s, Staples, Subway, Walgreens, Duane Reade, Whole Foods Market, Walt Disney World Resort, and more. This will touch an overwhelming majority of consumers. Do you know anyone without an iTunes account? Well, they probably have a credit card account, and ultimately their bank will likely be inviting those non-iTunes people into Apple Pay because it’s far more secure than credit cards. And, don’t forget… it works with the phones, but also with the Apple Watches.
One other benefit Apple gets… Tim Cook gets to feel cool, regardless of that awkward “high one” he and Bono exchanged. I’ve not read or heard of anyone else remarking about that weird “high one” (I don’t know if that’s a legit phrase–I’m just making it up), but it sure seemed goofy to me. Do you agree?
Party #3: Universal Music Group
iTunes store four days after the event. Courtesy of Complex Magazine.
It isn’t clear how the label and the Band split the supposed $26 million fee, but it is clear that the label is pleased with the deal and the impact from it. Interscope (a Universal Music label) exec Dennis Dennehy told Mashable, “Besides giving a new U2 album as a gift to iTunes store customers, the initiative with iTunes clearly encouraged discovery for new fans and a rediscovery for existing ones.”
At one point Thursday afternoon, 26 U2 titles charted simultaneously on iTunes top 200 albums rankings, according to the Mashable story. U2 had no albums on the iTunes chart the day before Tuesday’s Apple event.
Eddy Cue, Apple’s senior vice president of Internet Software and Services, stated to Rolling Stone: “Just six days after its release on iTunes, a record-breaking 33 million people have already listened to the album.” That’s 6.6 times as many units than the last album sold.
Oseary said the band and label worked on the deal for a few months, and became excited about the idea of having an event nearly 10 years to the day of the launch of the U2 Project Red iPod in 2004. Whatever record labels are still standing in 2014 may have less diffidence than they did a few years ago, but a deal that increases revenue and awareness like this certainly can instill and/or increase confidence.
Party #4: Brick & Mortar (& Other Digital) Retailers
If you’re the music category buyer at Amazon, Best Buy, Walmart, Target, Barnes & Noble or anywhere else but Apple, you’re feeling fairly diffident right now. But hopefully, you’re boss’ boss (the CMO or SVP of Marketing and/or Sales and/or Strategic Partnerships) has confidence and vision, and is calling Guy Oseary to make you’re own giant idea of a deal with the band.
Apart from that, you’ll do whatever you can to make hay with the October 13th release of the deluxe physical album available in both CD and Vinyl. (Or, will you not stock it out of protest?) The paid album will come with four additional entirely new songs as well as seven acoustic and alternate versions of some of the songs on the album, sos the band and label are giving you a product that has a bigger value proposition than the free one already released.
Oseary is not apologetic at all about snubbing the other retailers, saying in the Mashable interview, “Everyone has a phone and they can just call whoever they want to work with.” The onus is on brick & mortar to innovate with strong value propositions to consumers, but also to suppliers. I think there is a lot of opportunity for brick & mortar. And aligning budgets and dovetailing with big entertainment bands and brands go-to-market is a fairly obvious play. The challenge remains for discoverability and establishing revenue on smaller bands and brands, but perhaps you think that’s a problem more for your suppliers. From my perspective, that’s a short-sighted view of partnership. If you partner well with suppliers and help them with discoverability for smaller acts/brands/products, they’ll naturally be more apt to scratch your back on the big releases.
Party #5: Consumers That are U2 Fans
They get the latest music from a band they love, after waiting five years for a new album. What’s not to love? Here’s how to get the album for free, now. (You likely already have it.)
Party #6: Consumers That Do Not Like U2
“Haters gonna hate,” as they say. Would these people be upset if they opened their garage and found a free Ferrari in it? Gimme a break. You were not violated, and nobody is forcing you to listen to this music. I concede that there will be a best practice decorum developed for this sort of thing, but clearly parties 1-3 went the “forgiveness is easier than permission” route, because the nature of getting prior permission neuters the surprise element that made this whole deal work. The collateral damage was worth it to them. Apple, U2 and Universal Music apparently foresaw this backlash in advance and had what I see as a three-fold plan to respond to it:
- Bono wrote on U2.com, “For the people out there who have no interest in checking us out, look at it this way… the blood, sweat and tears of some Irish guys are in your junk mail.”
- U2 Manager Guy Oseary told Mashable, “”It’s a gift from Apple. If someone doesn’t like the gift, they should delete it.”
- Apple posted a simple help page to let iTunes customers delete the album.
Party #7: Consumers Who Tweet & Post “Who is U2?”
These people are just shakespearing, as @TrendingPhrases would state it. They’re probably also gangstaposers. I’m sure they are wondering if the Apple Watch will put Bono’s DNA in their wrists without their permission?
At a time when Nielsen Soundscan shows 2014 physical album sales down 14.6% and digital album sales down 11.7% (Billboard), U2 is up 660% in units against what their last album sold over a five year period, in just the first six days!
Seems to me, all parties fare well. It’s a big idea, but really, rather simple. It’s about aligning what the parties are already doing. I like the business model. I hope other industries try it.
And, I like the album. You can read my review here.
Going back to that whole “Throngs of Diffidence” thing… U2 has rebooted their art before by leaning into their insecurity about the work they were doing at the time. And doing something like that in the middle of a lack of confidence bout takes… confidence.
Or, maybe faith–which usually produces more fruit than any endeavor done solely by human strength. By the way, the last time U2 put out an album during a bout with this level of self-doubt, it was called Achtung Baby, which sounded very weird to people when they first listened to it. But now, of course, it’s on all the top albums of all times lists.
One Last Thing
I challenge all those who rated Songs of Innocence poorly to wait for the stories about the iTunes stunt to die down, then give the album another listen and see if they change their mind. I’m not asking you to get on the record about being wrong. You can just enjoy the record as your little secret. And if you deleted the free iTunes download, you can actually buy the record. I’ll bet if you put all the reviews in two columns–one, positive reviews and the other, negative–you’ll find that the “negative” column will be comprised of frustrated “musicians” that settled for being critics.