Industry Profile: Stefan Kohlmeyer

— By Larry LeBlanc

This week in the hot seat: Stefan Kohlmeyer, CEO, Bach Technology

Two decades on from the development of the digital audio encoding format MPEG-3, digital audio may now have evolved to be a compelling content provider.

Last month, Bach Technology, one of the leading providers of technology and applications for the digital music market, unveiled MusicDNA at MIDEM as “the successor to MP3”; and as a way to make buying legal downloads more attractive.

The rollout of MusicDNA will be staggered over this year with the full commercial rollout expected over the summer.

Bach Technology, based in Norway, Germany and China, has been involved with the development of digital music since 1986. Its founder and president Dagfinn Bach pioneered the MP3's music application.

Among the Investors of MusicDNA is Karlheinz Brandenburg, the inventor of the MP3 algorithm. Bach's technology partner is Germany's Fraunhofer Institute for Digital Media Technology (IDMT) where the MP3 was developed.

Bach Technology’s CEO Stefan Kohlmeyer, 42, is a veteran of the German media company Bertelsmann AG.

Kohlmeyer started his career in 1995 as a trainee with Bertelsmann Book Club China in Shanghai. In 1997, as Interactive Media / Logistic Manager at Bertelsmann Book Club China, his team launched the Bertelsmann Book Club website, possibly the first e-commerce site in China.

In 2000, as managing director, Kohlmeyer set up Bertelsmann Online China, the first international online retailer operating in mainland China.

In 2002, Kohlmeyer moved to Sydney to become COO of Bertelsmann Direct Group Australia, managing the operations of the Bertelsmann Book & Music Clubs in Australia and New Zealand. Two years later, he returned to Shanghai and invested in, and became a partner of eDongcity, a mobile entertainment service provider.

In 2007 eDongcity was acquired by the global mobile entertainment company Buongiorno/Mitsui. Kohlmeyer was COO of Buongiorno China until joining Bach in 2008.

Among the music companies to sign up to MusicDNA so far are: The Beggars Group in the UK; and Matador Records in the U.S. Among the service providers onboard are Norway’s InProdicon; UK retailer PeoplesMusicStore; and R2G in China.

R2G, whose online music store Wawawa has a catalog of more than one million music tracks, will integrate MusicDNA into their service to provide a search and recommendation service.

Unlike older technology, MusicDNA is based on the open standards, MPEG-7 and XML. Bach is the only company offering full end-to-end MPEG-7 integration, ensuring interoperability and compatibility with external programs and systems. So MusicDNA’s files will be compatible with MP3 players, including Apple's iPod.

MusicDNA uses the same audio compression technique as MP3 (itself a form of lossy data compression) but adds significantly more, including richer metadata than is allowed by MP3.

MusicDNA technology enables a large amount of metadata to be packaged alongside an MP3. This metadata--in essence the MusicDNA--allows for a detailed description of media files including generating Music playlists based on such attributes as mood, energy and even the electro-acoustic properties of tracks.

It also includes editorial content including from lyrics and artwork through to updated content such as an artist’s Twitter stream, blog posts, and latest news.

The company’s customized multimedia content can go with whatever music package the consumer wants, whether albums or individual tracks.

Additional content appears alongside the MP3 in a customizable App-driven player that is freely available to download. Content automatically updates whenever the player is connected to the internet.

Only legitimately purchased tracks will update, and pirated versions will remain as static files.

MusicDNA can analyze consumers' music choices and help them find exactly what they want at a digital store or in their own digital music collection. The technology offers 13 "descriptors" (description categories), ranging from genre, mood, tempo, and aggressiveness to density to help pin down the type of music sought.

MusicDNA technology would allow rights holders--music label or artist-- or retailer to send updates to the music file and enables rights holders to up-sell concert tickets, merchandise, music videos and other exclusive content – either purchasable alongside the track itself or at any future point.

Pricing of MusicDNA rolls will be at the discretion of rights holders, label, and artist, or retailer involved.

A recent report by Forrester Research, the independent American technology and market research company, argued that the future of the music industry lies in allowing fans greater interaction and customizability with their music files

MusicDNA, incorporating user-customizability and inter-platform compatibility, may represent the New Frontier.

Was MIDEM a success for your company?

We had a blast there. We were completely taken by surprise that MusicDNA made such a splash in the media, and had such a good response from the industry. It was great for us. Very positive.

In the past, music recommendation was difficult to sell. Now everyone is interested at looking at these formats.

If we had introduced MusicDNA three or five years ago, everybody would have said, “No. We don’t need it.” The industry is at a point where they are thinking that they have to give (or sell) more than a digital recorded file. They are thinking, maybe, that they have to improve files, and give users a better experience. (They might think that) MusicDNA is a very good vehicle for doing that. Things like this need time. Changes are never made overnight.

A number of independent labels have signed up for MusicDNA, but the major labels have yet to commit.

We are currently in talks with all of the major labels. The feedback that we are getting from them is very positive. These are big corporations, and the process with big corporations is slower than with smaller companies. The feeling that I get is that they clearly get what is behind MusicDNA and the opportunity of it. My guess is that it will be only a matter of time until we have one or two of them on board.

With the new CMX album download format-- that includes a CD, lyrics, artwork, and videos--the majors seem to have recognized the need for richer content.

I am very positive in regards to this. Three of the four major labels have their own initiatives with CMX. We are now trying to evaluate how we can work there together. So the majors are already thinking in the right direction. How quickly can we now make it happen? I don’t know but I’m quite optimistic.

A pivotal move in the market too was the introduction of ITunes LP by Apple.

It broke the ice. Everybody is now saying, “We need more rich media.” Labels are now going in the right direction with the thinking that there are things (online products) that users can customize; that there’s an open standard; that there are updates; and that there should be ways to make it user friendly. It is the perfect timing for us.

For years, the music industry, reeling from illegal file sharing, had fought against most technology. Do executives now better understand technology and its uses to their business?

The key industry players are better equipped these days. There now is a younger generation in key positions. They are more technology keen. At the same time, technology has moved more into the day-to-day lifestyles of every one of us. So, we are in a much better position (to launch) than 10 years ago.

Still, after MTV and ITunes, the music industry doesn’t want to have a third party so dominant in its industry.

Yeah but I think this is a little bit different. The comparison between us and MTV is not right. iTunes is in the consumer business. We are not operating a consumer business. We are providing platforms that the consumer businesses can grow again. This is the fundamental difference.

With MusicDNA, the labels and others can also take back control of pricing.

Yes. We make it clear that we provide the technology; we provide the infrastructure but what the content is, and what the labels are making out of it is up to them. In this way, the major labels won’t lose any control over their pricing or their products whatsoever.

ITunes has set the agenda for the structure of music pricing.

I would not say (music labels) lost control over (music pricing). They are glad that there is a legitimate player that is able to sell their product versus all of the freely available stuff on the internet. In this industry, as you say, nobody really wants anyone else to be a really dominant player in the market. This is not only in the music industry, it is in any other industry.

The music industry has gone through a basic re-think in how to sell music and content.

If you look at what has happened in the 10 or 15 years after MP3 came up, the initial reaction (to it) was shock. Then, there was a restriction with DRM. Now, we are at the end of the phase of trying to make the numbers work and trying to find different business models, either by subscription or combining it with another device. I see a little bit of a light in the tunnel in which the (music) industry is going back to the product, and thinking, “Maybe, we have to make the digital product better so we can charge again.”

Why has it taken so long to evolve the MP3?

The .mp3 was developed 20 years ago, but it only got good market penetration about 10 years ago. It took 10 years for it to take off. It was only when the Winamp player [was introduced] that it suddenly became a household tool. Sometimes, the technology that everything is based on is around for some years but the time has to be right (for developing a market).

[In 1994, the Fraunhofer Society released the first software MP3 encoder called l3enc. The filename extension .mp3 was chosen by the Fraunhofer team in 1995. With the first real-time software MP3 player Winplay3 released the same year 1995, many people were able to encode and play back MP3 files on their PCs.

The popularity of MP3s began to rise rapidly in 1997 with the advent of Nullsoft's audio player Winamp, and the Unix audio player mpg123. In 1998, the Rio PMP300, one of the first portable MP3 players, was released.

The small size of MP3 files enabled widespread peer-to-peer file sharing of music ripped from CDs. Napster, the first large peer-to-peer file sharing network, launched in 1999.]

The interaction within MusicDNA is the most exciting aspect.

Absolutely. This is where we have the great hope that the artists, and the labels can work with this interaction. Nothing is better, for example, that in the future if you are listening to your favorite artist and, simultaneously, you get the message that he is currently in a Starbucks in Copenhagen drinking coffee. You feel real close to this. Artists’ fan relationships can be very easily triggered and grow with this technology. I think that this is how we can bring back additional value to fans.

Bach Technology is seeking third party developers to use MusicDNA?

Yes. It is very important for us to get the message out that we don’t want to control the (music) market. We don’t want to push our players to every music lover in the world. Basically, what we want to do is to develop technology for others so they can invent even better players than ours. We want to have third party developers to develop music-related products.

This would be similar to collaborations and development that came with MP3

Yes. This proved to be very successful.

You still see a future in downloading despite the growing popularity of streaming.

We, as a team, believe that it won’t be one thing only. There won’t be only downloads. There won’t be only streaming. Every delivery method has its advantages and disadvantages. We think that at the end of the day there will be a healthy mix between pre-loads, downloads and streaming.

Pandora and Last.fm use collaborative filtering, relying on both technology and human editors; other services are based on music-purchasing behavior. MusicDNA offers consistent categorization akin to personalized radio DJ that scans every track in the vendor’s inventory.

MusicDNA is, in essence, media extensions that include how to analyze this information, along with textural rich media; multimedia information, and business intelligence. Whatever Last.fm has on information could also be fed into the (MusicDNA) music journal container. So one doesn’t exclude the other.

Instead of relying on editors' individual tastes, MusicDNA can analyze a buyer's music choices and help him find precisely what he wants at a digital store or in their own digital music collection?

Exactly. The files are so intelligent that you can develop your own personal DJ (files) but how you analyze this information can also be combined with information from the collaborative filtering. We think that these two informations together give the best choices.

It’s easier for everyone today to produce and release music. It’s about how (consumers) can filter all of the music. There’s too much (music product) out. It’s about how you make it easy for the consumer to filter what they like or they don’t like. In the entire internet, there’s so much information available. The question is, “How do I get easy access to the exact information that I want?” It’s good that there’s a lot of information available, but you need some tools to make easier for the user to get a better grip on it, and get the right thing for them.

Why did you pick the music industry to launch MusicDNA? There are more lucrative fields, including the film industry.

That’s a very good question. Yes, MusicDNA can be used elsewhere, but I would say that the biggest immediate value comes from music because it can be compared to the MP3; and it’s a very plain product. You have just the recorder, some basic information, and the current MP3, and that’s it. If you go immediately to film, the immediate value is not as apparent. But, for music, it is immediately apparent the value that it brings. So the music industry is a natural choice.

As bandwidth increases, there may be other usage?

Yes. The entire container can hold to 32 gigabytes. It doesn’t make any sense to put all of the (films) into it because then we’d have the same experience as ITunes LP where you have to download 500 megabytes. If I do this in China, I’d switch my computer on in the morning and (only) in the afternoon the content would finally be there. Initially, there will be videos, and video links. Before a full (film rollout), maybe, we’ll start with first 20 second clips or something. The bandwidth will evolve in a way that you can enlarge it. I don’t think anyone (like a studio) wants to immediately put films into it.

MusicDNA could be used by large businesses for in-house communication, particularly if it was a global firm.

You mean everything within this MusicDNA contain roll?

Yes.

That’s a very nice thought. I haven’t thought about that yet. I still have a tunnel view of trying to make MusicDNA happen with music. In essence, you could use it for that. I’m not sure. Maybe, there are some other smarter products out there than Music DNA.

Currently, corporations use memos or postings on their home websites to inform employees and customers of product development. MusicDNA could send audio, textural and multimedia files bundled to their mobile phones or Blackberrys.

Put everything in one single roll and you have everything immediately available. Yes, I think that this makes sense.

For example, Toyota’s current recall could be immediately explained to its dealers and customers with a MusicDNA rollout.

That’s a very good idea, Larry. I was not thinking that it could be used in that sense but it would be possible. And, it’d come with a nice MP3.

As well, dealers and customers could be instantly updated by Toyota.

Yes, I think that the updates are important.

How will the updates be done for music?

If you are a user, you have it locked into your music service. Each time you are online, the music service recognizes you, and sends a new data roll bar. Then you are getting the updates.

With MusicDNA, the consumer gets more.

This is what is most important. That they think they are really getting a special product. Currently, if you purchase a MP3, it’s a very dull shopping experience. I’m sure you can remember buying your first record, “Wow. This was an experience!” You have to spruce up the product today so people feel that they have something special.

Put back the emotional experience into buying music?

Yes. I think that this is necessary. If you go into a store, and buy a product, they package it nicely etc. They make it special. You are buying something that makes you proud to have. With MP3, music got too devaluated. It’s not a special thing anymore to buy it; and it’s not special anymore to own. It is very hard to ask a consumer to pay for something where the perceived value is so low. I think that it’s very necessary to work on the product; the product value; and, especially, on the emotional component. When that is all there again, you will see, I think, a willingness by the consumer to pay for (music) again.

Do you think physical will disappear or will it transform itself? People seem to like the shopping experience.

The share of physical product will definitely decrease in my opinion. That it will disappear completely? I don’t believe so because there will be a niche. Vinyl didn’t die out completely. The CD will not die out completely. It may be repackaged. Instead of getting a plastic box, you might get an entire book with the CD. This will be like a collector’s item that you will want to have in your shelf at home.

So many music stores are boring.

This is a very sad development. That is not only for music (retail) but it’s the same for books that also became a low volume mass market product. (A product) deserves special attention. If, as an industry, you are not giving it special attention, it won’t work (sell).

How did you come to be involved with Bach Technology?

In essence, my entire career has been involved in distributing media content to consumers. My career started with catalogs. Then it went to the internet, and then to mobile. I think that (technology/applications) is the next thing. You can now try to distribute media so that we are the product itself. It is just a natural flow. I met Dagfinn Bach, the founder of the company, in China in 1998. He was working on a project with Nokia to distribute music via mobile phones. He contacted me about getting some music for this project. We kept in touch with each other. Then we decided to utilize this amazing technology, and build a commercial product on top of it.

What brought you to China?

I studied Chinese at Hamburg University. Normally, you go for a year of studies in China at a university to improve your language skills. I didn’t want to go to the university. An opportunity with Bertelsmann for an internship for a year came up. Then, after 8 months, my boss asked me if I wanted to stay. It was a very quick decision. I said, “Yes. That’s exciting. Let’s stay in China.” I’ve stayed for a long time.

R2G, whose store Wawawa has a catalog of more than 1 million music tracks, is integrating MusicDNA into their search. A good market template?

Yes. It’s a very good showcase. We are happy that R2G is sort of a guinea pig for us. We are curious to find how what the consumer reaction will be. We are, especially happy to do it with a partner that is passionate about music. Let’s see in a few months from now what the results look like.

When you began working in China in the mid-90s, e-commerce was almost negligible there. There were cultural, logistical, regulatory, technical and other challenges in building the e-commerce business there.

It took many, many years for the e-commerce business to develop there. It is just now that e-commerce is soaring there. The infrastructure there was not ready back then for that kind of business. We (Bertelsmann Online China) set up the first e-commerce store. We were clearly five years too early.

Credit cards weren’t prevalent as a means of payment in China then. Debit cards were being used, but they weren’t the preferred choice. Consumers preferred to buy products with cash.

There was no widespread use of credit cards; and the delivery systems were not in place. You also always had to think that you were not operating in a small market. China is not like Germany where everything is accessible within a few hours. China is huge. To deliver a parcel to a small city 3,000 kilometers away is quite a challenge.

In building e-commerce there, you had to do cash on delivery?

Yes. The infrastructure (for e-commerce) was not there. You had to build it on your own. For a catalog or an e-commerce company, it is not your core competence to deliver, and get the cash in. Traditionally, in other countries, there are service providers that can do this. In a market like China you had to do everything by yourself.

Has e-commerce improved in China over the past 15 years?

It has improved dramatically. There is no comparison anymore to, say 1995. It’s a completely different world out there now.

According to Chinese government figures, about 84% of China’s nearly 300 million Internet users download music over the Internet, and most of it is used for cell phone ring tones.

I think that the current number of mobile phone subscribers is 600 million. That is a penetration rate of about 50 percent which still means that there is a lot of growth still to come in comparison to other markets. But it’s enormous.

Labels, managers, and artists in the West are still trying to figure out how to monetize music in China.

It is absolutely difficult. How the Chinese (music) artists are monetizing is that they are not making their monies from recordings. They are making their money from TV appearances, advertising etc. They are building a brand. The traditional model of monetizing on record sales is not working there.

The Chinese government seems to have made little effort to get illegal music off the internet.

In terms of getting illegal services out, it is not only about the music. Basically, it is about counterfeit product being on the market, whether it’s Nike shoes or whatever. (Counterfeiting) is everywhere. It needs a lot of determination by the government to stop all of these. It’s a real challenge. It’s a real effort. I am sure they can. But the effort is tremendous. It’s like fighting against a wind mill.

[The Beijing No.1 Intermediate People's Court recently ruled in favor of China’s top search engine, Baidu, saying its links to music downloads does not constitute piracy.

The court ruled that Beijing-based Baidu offers the searching service for pirated MP3 files, but does not actually pirate the music itself, and therefore bore no responsibility to pay any damages. Baidu's music search service is highly popular and Google, Baidu's main rival, now offers a competing service in China.

Universal Music, Sony BMG Music Entertainment Hong Kong and Warner Music Hong Kong had sought to have Baidu remove music links they say infringe their copyrights in a lawsuit filed in 2008.

A Chinese court also ruled recently against the labels in a similar lawsuit against Sohu, a Chinese portal and search provider.]

Has Google Music made an impact in China since being launched last year?

No. Not really. This is very disappointing because Google is a legal service. It is completely for free whether or not you stream or download. It still has failed to have an impact on the music market in China. This is very disappointing. But Baidu, idonkey, and Wawawa offer a better user service than the Google service. The Google service is not very music centric. It is more like a standard search. You feel a lack of passion (of music) there. This is why I feel confident that initiatives like Wawawa, which is online as a music store, will be more successful because the people who are operating it are very passionate about their product. This is what Google lacks.

Many online music sites are like that. They feel like they are run by people who aren’t music fans.

That’s the problem. It clearly is. I started my career with the Bertelsmann book club. They were only successful because the people, who ran this business and presented the product, really loved their product. If this doesn’t come across, then it gets very difficult.

With many online music sites, there’s an apparent conflict between commerce, and being truly music centric or having an on-going dialog with their users.

What still doesn’t work—and digital hasn’t changed—is that the backlist (catalog) is still not working (selling) very well. Everything is incredibly hit driven and marketing dollar driven. I hope this will ease up in the future.

Editorial content on most online music sites is pretty poor.

If you are currently trying to operate a digital retail store, your margins are extremely tight. Basically, you can’t afford to employ a lot of people to concentrate on the editorial part. If the margins are higher, there’s more room to hire more people and to improve the editorial.

Does the ad funded model for online music sites have the best chance in China?

There are only a few websites in China triggering enough page use to make this model work. We have to look into it again. We have to work together, and operate a web portal with the labels, the developers, and manufacturers, and find a good way of how to monetize (music on line). I don’t think that an ad funded model will be the Holy Grail in China. I seriously doubt it.

How do you keep up with Western music while living in Shanghai?

It is not easy. Now we have this R2G service, but it’s not easy. When I wanted to buy the first time from iTunes, they rejected my Chinese credit card. I wanted to buy legally and I couldn’t. Then I had the smart idea of using my German credit card, and that worked. Music services don’t make it very easy either. It’s not easy to get a hold of new music in China I can tell you.

Well, there’s Chinese pop.

It has all gotten a lot better. When I came in ’95, the music in China was really terrible but it got substantially better. There’s some music around now in China. It has really improved.

If (top singer/songwriter) Jay Chou is playing, the stadium is filled. The big Chinese acts, whether they are from mainland China, Taiwan or Hong Kong, they are hugely popular. The acts that do have a problem with entering (Chinese) markets or playing these concerts there are the Western artists

Most western acts are either unknown in China or their material might not get past the censors there.

I would say that it is largely the first thing. Basically, they are not known, and the record companies are not making an effort to market these artists. They are not being properly marketed, and nobody knows them or are going to their concerts.

The Black Eyed Peas have played dates in China several times.

When the Black Eyed Peas played there it was absolutely packed, and it was a local (audience). Then you go to an Elton John concert, and it’s completely empty. It’s hard to make a good pick of who should play there.

We’re not close to having Madonna play Shanghai yet.

No but we had the Rolling Stones there in 2006 which was quite exciting. I hope that this year will be significantly better than last year. U2 or Coldplay probably can’t play there, and Oasis was canceled last year on short notice. It was unfortunate. But, there are bands like Linkin Park who really make an effort to be there. They are doing a good job there. They are a frontrunner of how to work the market in China. They are starting to build a valuable brand there.

[Oasis had planned play in Beijing and Shanghai in 2009 but the Chinese government revoked the performance licenses already issued for the band, and ordered the shows canceled. According to the shows' promoters, the concerts were called off when Chinese authorities had discovered band member Noel Gallagher had appeared at a "Free Tibet" benefit concert in the United States in 1997.]

Where are you from in Germany?

I was born and raised in Gütersloh. The town where Bertelsmann is based. My first encounter with Bertelsmann was may when I was around 4 to 5. My father worked there for over 30 years, in the early days still with the (company's) founder Reinhard Mohn.

While growing up were you a music fan?

Yes I was into music. Music and soccer.

You didn’t become a soccer star.

No. I am not in South Africa this year. What a disappointment I didn’t make it. I wasn’t able to succeed (as a soccer player) in Germany. So I started to revise my soccer career in Shanghai (with the Shanghai Krauts) but, as you see, I am not in South Africa this year.

Did you have much music in your life growing up?

Not necessarily from my parents but from my older brother. He’s five years older. He had his own band. Of course, when he had a record at home, I had to listen to it as well. That helped a lot. We also listened to (the late BBC DJ) John Peel all of the time. He was amazing.

All the great western rock acts would go to Germany when you were growing up.

My first big concert was Led Zeppelin. I think it was their last (European) tour (in 1980). I would say that had a major impact on me over the years. What is a little bit disappointing is that only a few German bands made it internationally over the years. There were Kraftwerk and the Scorpions etc. but, in comparison, to a relatively small market like Australia, there aren’t a lot of German bands that made it internationally.

On one hand, maybe, it is the language; but, on the other hand, it is, maybe, the mentality. There is a sense that the German speaking market is big enough. There are 100 million people with Austria and Switzerland. It’s a huge market so there is no need to go out from there. If a band is coming from Scandinavia, if they really want to get big, they have to get out.

Domestic music is up in many international markets including Germany, Italy, and the UK. Multinationals aren’t as able anymore to readily create global superstars with U.S.-based acts.

It’s nice to see that local music rules. So every country has its local heroes, and they are often occupying the charts. This is nice to see.

[In Germany, local music's share of the market rose from 48% in 2003 to 62% in 2007 and down slightly to 52% in 2008. “German audiences have rediscovered their own language,” Volker Neumüller, managing director of the Berlin-based artist management company 313 Music told Billboard magazine (December 20, 2008). “If you're not releasing German-language product, you've failed to see the signs of the times."]

Amazon's Kindle and Sony's Reader are becoming popular. As a former book seller, what are your thoughts on e-books?

I don’t have one yet. I don’t think that all books in the future will be electronic. It is great for traveling. It is great to keep all your favorite books around or having newspapers there. But, it is still different having a physical book in your hand.

Should we be worried about books now being devaluated like music?

I completely agree with you in regards to your worries that books may get devaluated. It is one of the problems. This is what the music industry went through and this is what we have to fix now. If you take an ordinary CD and just put it in the catalog, nobody is interested in it. It’s about making an effort to package the products right.

It has to be a joint effort.

There is nothing more important than trying to make the product better.

Larry LeBlanc was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-89. He was also a co-founder of the late Canadian music trade, The Record. He has been quoted on music industry issues in hundreds of publications including Time, Forbes, the London Times and the New York Times.

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