The 404 1,482: Where we're approaching the streaming singularity

It's Friday, May 9th, 2014. I'm Ariel Nunez and from our CBS studios in New York City, welcome to The 404. [MUSIC] Hey everyone. Happy Friday. Welcome to The 404 Show. I'm Jeff Bakalar. I'm Justin Yu. We've got a fantastic show today. Why's that you ask? Steve Sphere Guttenberg back on the program, living the dream, telling it how it is. Welcome back dude. Hey. We love you to death man. This is where the man was, Mark Barron. Oh, god. I'm a huge fan. Let's hear you gush about Mark Barron. It was awesome. Yeah man, thanks. It was great. I love, I had a blast doing that. It was so natural, it flowed, it was. Yeah. It was, it was like, you were on his show, but you, he was on your show. [LAUGH] Blew your mind. Were you stoned while you were watching this? How did that work for you man? I don't know, it was really good. Thanks dude that means a lot, I, it's almost like you wrote it or something, scripted it or something. Well people who know who Mark Maron is and the kind of guy he was, and I had people email me that I didn't even know like associates people and PR people. And they said like you know that was great and it meant a lot to hear that. So coming from you it means a lot, I appreciate it. That should be like on his thing somewhere. What do you mean? You know, like a reel or something. I don't know if he's going to take our show to show off the kinda Of course you were complaining that other people used the show for their own Well that was a big deal! When it happened, Justin and I were legitimately pissed. Is there a name for that? When you steal somebody's thing and don't credit it. It's not plagiarism, I guess maybe a little bit. The big thing for me was he stole, he didn't steal but he didn't credit our property. He just stole it. It's the Yahoo guy, this friggin' Yahoo guy. So that's how it works. So we gotta talk about beat. Yeah. Right. How poetic is it. $3.2 Billion. How poetic it is, you the ultimate beats by Dre hater, I mean. Well. I mean Justin and I hate on that brand a lot. I'm numbered by, you know, it did a lot to push headphones on people. Yeah. To get other headphones, eventually. It did but it also forced them to buy crappy headphones. Forced them? Well, I don't know about forcing. Or convinced them that they getting a superior product. [LAUGH] Wow. They're crazy. What? You don't, you don't think that it's all sort of like snake oil? It's all snake oil, but most things in life are. Okay, well. But it raised awareness of quality headphones even if. [LAUGH] They're not quality headphones, but then people would discover the quality headphone. So it was like a gateway headphone. A gateway headphone. Okay, I like that. Perfect. But what I don't understand about the $3.2 billion, it's not just for Beats Radio, right? It's for Beats, the headphone. Okay, wait, let, let's back up here. So the news that dropped this morning was that, I guess technically last night on Tyrese's Facebook, where I always go for my breaking news. How in the. [LAUGH] Late yesterday, there was a video that popped up on Tyrese's Facebook profile. Yes, the male model and Fast and Furious star. [INAUDIBLE] Of him and Dr. Dray getting drunk on Heineken's. [LAUGH]. And talking about how Dr. Dre is officially the most paid artist in hip hop, which is true now because Apple has purchased, or is in talks to purchase-. No, it's a deal. Is it a deal? They haven't confirmed the amount yet. Right, right. But there's, but there was a report, um-. But the number is 3.2 billion. Yes, but, so Apple is going to be buying Beats by Dre, for $3.2 billion, which is officially the biggest sale that, Apple has ever [CROSSTALK]. I wonder how much of a cut he gets of that, like, I, he was already well on his way to being the first billionaire in hip-hop. I mean, Dr. Dre has, like, a butt-load of money, but even if you subtract the whole Beats brand. But Beats is, he was just, I, Dr. Dre was just a face. Right. Steve was just the endorser. Right, so how much could he possibly. He had nothing to do with it. Be getting out of that [CROSSTALK]. I'm sure it's substantial. Yeah, it's probably a lot. [LAUGH] I'm sure, All right, so all that aside. That's what's happening, that's the big news this morning, I assume that, that Apple bought the headphone part, that's the part that's kinda grey to me. Yeah, I think it's a package deal, right? Well, it's everything. So, it would both be streaming music and the headphone line. So, now here's. but 3.2 billion seems way too much for even both of those companies combined. But Beat headphones sell around a billion dollars a year. Yeah. I think that, I think for the headphones is they're, as long as it's they're, I think what they're really doing [CROSSTALK] Weird part. Yeah. I see immediate sort of, immediate results is the hardware, right, the, the headphones, the iPhone 6 is gonna come with beats. I think that's like a you know, a given. Yeah. But then, when you move down the line, it's such a big deal where they can now potentially compete with the likes of Pandora and Spotify. But-. What about the Apple radio though? Right, and that's what I'm saying, maybe they merge that technology. Here's what I don't get, who the hell uses Beats music? Do you know anybody. I don't know [CROSSTALK]. Streaming service. They have, couple [CROSSTALK] million, but no where near as many as [INAUDIBLE]. 200,000 [INAUDIBLE]. Really? I read. [CROSSTALK] Was the number. Really? They don't make money. Doesn't make money. None of them do. Not nearly as much as other streaming companies out there. So why? Like, invest in that? Wha-, you know like go, yeah, go. You know what? Remember all the rotten things I've said about Spotify? And now they're like the messiah? [CROSSTALK] No, no, no! What? Aside this whole Beats deal. So there is this guy, Mark Diger, who's like a big shot at William Morris Endeavor, which used to be the William Morris Agency. Mm-hm. And he gave this speech at Minum, which is a music industry conference. And he laid out, it was like a Ted Conference. Co-founder of Lollapalooza, yeah a lot of things. He worked with Rick Rubin, he's a heavy guy, a heavy white guy. He laid out this whole thing that ten years from now, I think that was sort of his time frame that the whole streaming radio business will have basically taken over and people won't be buying files. It's already happened. Yeah it's already happened. iTune download sales are down. Right, so, all that stuff is gonna go away. And when there's this magic number that's reached, which he called, like, 500 million, it's, like, the users. [INAUDIBLE] It's, like, the screaming singularity. Yeah. Yeah. Just like this, yeah. And that, at that number. Whether they're being paid subscribers, or it's advertising. We have a number of that big of users, then the advertising gets to be very significant, the income from it. [INAUDIBLE] The income from advertising gets to be. So are you, [CROSSTALK] so are you doing a 180 on the whole Spotify model? I am, yeah. Holy ****. But here's the thing, here's the thing. It's not for me personally, I won't be, I won't be you know, signing on. Okay. But I get it. That it will, here's, here's the change, that I will get it that this can actually save the music business. Well, it's that, at 6pm. The value of that goat exponentially raises and then it becomes a fair shake. Right, cuz he's saying when you get to 500 million users, that turns into approximately I mean, 500 million turns into $500 billion a month, of money that's flowing around. Which is $60 billion a year and some big chunk of that will go to the record companies and he projected out to basically like a $100 billion a year. So where before I just saw Spotify and Rhapsody and Pandora as basically sucking the life out of record companies, getting the music essentially for nothing. Right. And building their whole business, in a sense is like a slavery mall, like you work for me but I'm not going to pay you anything. Sure And now I see through this Mark Geiger talk that they're actually, that this could work out in his future, and he gave the speech a few months ago, and he said, it's going to be either Apple or Google or something as big as that, that Spotify isn't big enough. Usually something they, they are the default name. Well that's cuz it's in this early days. Right, and it is early, but don't you think Spotify has the power to lay that ground work, and do what you are saying? I don't think they have the muscle, I don't think they have muscle like Google. And that's, this move today proves it, that Apple is definitely gonna be making that push soon. But why like how could apple make it any easier than someone just downloading the flash player. Like how could I mean how could I mean is it built into the phone already. I mean how is it, you understand what I am saying right? Yeah, yeah. Like how do they compete with just the simple downloading of an app. Cuz if, cuz if that's the case, and this Geiger guy is right, and a certain, after we reach a certain threshold, this streaming singularity. Mm-hm. Everything is now lucrative and valuable. Because you reach a certain number. I get it. And then it starts to make sense. I understand, but why wouldn't Spotify, who's already way out ahead of the whole thing. That's a good question. I don't know. How do you, how do you take down Spotify. I don't think, I, Look. It's happening the thing with android everyone's like well how are they gonna you know android was a product and people liked it and now it's more of the market and so you know what I'm saying, how are you gonna take down, like you know what I'm saying? I think it's the straight up user base I mean. But Pandora is way more. It doesn't really have a social element to it. Once you put it on everyone's iPhone, then maybe you can start sharing music, listening to music together would be really cool. Yeah, I mean look, people, Spotify, people are paying for its. There is way more Spotify, I mean, way more Pandora users than Spotify. Right but are they paying for Pandora? Does Pandora have more paid users than Spotify. Well they, you know those numbers are really well guarded it's [CROSSTALK]. I don't know, it sounds like a lot of people are making. But in this thing, with Mark Gieger. The number that he quoted for, for Spotify was 5 million paid subscribers. That's a lot. No it's not enough. But it's a good start. No it's not. No? No. It's only. I could have five million subscribers. You do, you do, sir. I could snap my fingers and get that kind. Only five million? How many users. Pay the price. How many users do that? I think it was like ten times that number, so like 50 million. But Pandora is 90 million. Okay, so it's way ahead. You know what I'm wondering about this whole sale is you see Beats everywhere right now, right? Like, go on Cnet, look at their desktop computers section. Yeah, and they're in cars, they're replacing those speakers. They're in laptops Snappy brand, baby. TVs definitely made a multimillion dollar funding into them a couple years ago. Yep. I'm wondering now that they're being sold to Apple if they're just gonna pull the plug on all of those partnerships. That's a good point. And maybe you won't see HTC Beats anymore, maybe it'll be an Apple-only thing. yeah, that's a great question. I don't know how it'll shake out. I think, to me, you know, you look at like that move that they did, and we, we all get it. Like it's way more the brand than it is the actual quality. Mm-hm. You know? Anyone who's [CROSSTALK] the brand is very strong. It's, like we were talking about this kind of stuff the other day, with like the energy bracelets. Like. Mm-hm. It's crap. It's just the brand name. Mm-hm. so. You know, they're kind of buying that, right? Mm-hm. Right? It's like Tommy Boy. They're buying the Zalinsky, the Callahan name and putting it in a, in a box. So, I don't know how, I, me personally I don't like that. I think that feels cheap, and I think Apple just thinks we're all just a bunch of dummies who care about brand names. Well, it's. Probably got [CROSSTALK]. [CROSSTALK] And for the short term, that's, that's kind of what they're doing, right? It's kind of like a smash and grab deal. It is, it's just another variation of the thing with, Whatsapp?, the $19 billion sale for a company who doesn't make any money. Right. I have $19 Billion. Right, right. But Facebook is in the spot where there just throwing money away like garbage and that was like a preventative thing sort of as well, I think it was a strategic buy. Wow $19 billion. It doesn't take that much to look for Zuckerberg that's how it is but I don't know I think right now it seems silly on paper if they can really make. A compelling, streaming business model with this beats music that nobody uses. Right. That nobody is familiar with. I think the beats music is the most unfamiliar, you know, sort of subdivision of beats. Uh-huh. I don't know. You know what is scary to think about is, so Iovine runs what? Interscope, Geffin, A&M, what if part of the deal to sweeten the pot for the Apple purchases. Hey, if you buy out our company, we'll give iTunes exclusive rights to all the artists in this label. Could you see a future where that might happen? I mean, he owns those companies. Yeah, yeah, yeah. What if that happened? And then you'll see all these popular artists not on Spotify. Friends were saying, you know, and I said no but think of it like, like the thing with Netflix. Right. And House of Cards and stuff. Mm-hm. So if you want to hear, but, you know, the certain artist, you need to subscribe Right. To our service. And [CROSSTALK] Yeah. [CROSSTALK] Back again. Yeah. So, that's part of it. The Delphine artists that are exclusive to them too- Mm-hmm, the beats per minute is world wide recognizable too, so I just got back from a trip to Beijing Huh-huh. And my girlfriend and I climbed the Great Wall, right- Wow, really? Yeah, just all the way up to the top, by foot. And no, we took like a tr- tram up there, or whatever, and then we like, hiked the rest of the way up. Yeah. And then on the Great Wall itself there was a huge gift shop, right? Oh yeah? And it sold all kinds of junk. Like the junk that you would expect. Right? And there was like, tea cups, and like shoddily printed, screen printed shirts, and mugs. A bunch of Chairman Mao, like hats and thing like that. Okay. And then tucked in the corner, Beats By Dre counterfeit headphones, the only non Great Wall paraphernalia they had there was actually, I should have taken a photo of it. Cause it was hilarious, like on the way out. They were also selling beats headphones by Dr. Dre for $150 clearly bootleg like definitely fake I'm sure the quality was But the fact that they have them up there like they didn't have iPhones, beats by Dre I still don't get it, I still don't understand how that brand was able to transcend. Everything. I think they reached that, the target market, where the other companies really weren't trying. I don't think Sennheiser [CROSSTALK] were even trying. Yeah, they made a market out of nothing. I think it was like an Emperor's New Clothes thing. They came in at the right time, when music was sort of shifting into digital, and they were like, we need to rebrand the way you listen to music. Right. You're not listening to music correctly right now. Right, and they cashed in. And there's subjectivity there. You're totally right, they cashed in on a non-market with the, with the, you know, high-end, quote-on-quote high-end audio. Right. And they made it a status symbol. And attached it to Dre. Right, and they, right, that, which, definitely, I mean. Which hadn't been done before. [CROSSTALK] There was no equivalent before that. And they made it an elite status symbol. Yeah. Right. And then you got grenading inside of music videos. And made it expensive. And that's the other thing, it wasn't like a $50 or $20 headphone, it was $300, the originals were $300. $400. $400? Yeah, $399, that's what the originals were. And you had, like, the skull candies and you had all these things, but they weren't really. But you never saw celebrities wearing them. Right. And that, at least on the marketing side. It is genius Which is why it all comes back to the fact it pisses me off about this whole thing. Is that it's just snake oil. And that it's just a fake popularity. Right. You know, done to make you. And then maybe they'll just go poof and be gone. Maybe they'll just disappear. There you have it. And from there we go to strippers. Whoa. See, a popping bubble. You see strippers wearing beats. Is that where this is going? Definitely. [LAUGH] Definitely. [LAUGH] That's it. Nothing but beats. Nothing but, there's the tag line. [LAUGH] Oh man, call Jimmy Ivie. Right now, I got an idea for you. There you go, buddy. Yeah, but you're right. We're not in strip clubs! Part of that 3.5 value man. So much money. Stop the camera! Actually we had a story, somebody emailed us a news story earlier this week about a movie theater in Korea that was actually having, they were distributing headphones to all of the customers, that you could listen to, and plug into a jack in the arm rest. If you wanted to drown everybody else out, yeah I don't know if theres a language thing, oh really that's awesome so they're translating it like for you? Yeah, well they have different versions just like plugged into a channel. Yeah, that's genius. We had the idea first. Yeah we did. Nothing but beats so anyways I don't know why this popped into my head but. Oh I know why. go on But I'm thinking about in the 70s, you know I worked for a guy who owned a porno chain. Okay, you didn't have an objection? Yeah, in porno theaters. We left that out of order. For people who don't know what was going on in the 80s in the New York. What are porno movie theaters? Yeah. Well in the days before the internet. you're about to blow half our audiences mind right now. In the days before the internet Blow [LAUGH]. Or even before VCRs. Yeah. If you wanted to see dirty movies you had to go to a movie theater, with other people, other patrons in the theater. yeah like a normal movie theater, but porn. Yeah it was audience participation, and we were all we they were all in it together. And they would all do what they would normally do while watching porn. In a movie theater? Yeah. Are you serious? They clean up after it so you know And I gotta tell you. We're not talking about that. This guy that they worked for [LAUGH] was see I never met him. I worked for him for eight years. Yeah. And I never met him. The wizard of Oz. And he owned 12 porno theaters in New York CIty. That was a lucrative business back then. Yeah, big chain, and he was a really good businessman. Sure. Kinda a Jimmy Lovine of his time because I've got all these movies. I'm showing all these movies. I should just make the movies myself, meaning produce the movies. I thought you said he got into the Lubriderm business. No, no, no. He, he started producing porno movies to show his own **** so he wouldn't have to split the box office with the movie theater, it's not like a major thing to try and make a porno movie right? Right, no. How much does it cost to go into one of those movies? It was the same or more than a regular movie, Yeah. So but anyway you know so he was making all these porno movies and cuz you know he would get NYU college student to make them. To produce them. Yeah. Not to be in them. For shoot, yeah, for shooting them. I mean, they have a lot of political [CROSSTALK]. For some of them were sort of artistic. So anyway, so, Danny had this bright idea. It's like 78 or 79 to do 3D porno movies. What? In the set, oh, with the red and blue glasses, yeah. Yeah, with the glasses, right. I gotta tell you, if you think about it, porno in 3D makes a lot of sense. Yeah, it does. There's a lot of 3D aspects to porn. Yeah, but they, like, they've tried to do that now with the new 3D technology. Really? 3D porn? I don't think it's taking off the way it did back then. Oh my. It did then. Literally lines around the block. Really? And double the ticket price. He does. Took that money and ran. Oh, yeah. And because that first one, you might even find it on the internet, it was called Coming at you in 3D [LAUGH]. Can you sell a copy to me man? [LAUGH] No we can't Oh it was amazing, it was huge. So where does this all tie together you started to talk about. So anyway I'm in the porno biz. You are? Well. How can we learn everything, something new about you every time your on? You never throw up the porno projection ever, of course but not the porno. I was a producer for 25 years and I was in porno for 8 years so I knew a lot of people in the bin. A third of your tenure. Yeah, and a lot of people on the, in the adult entertainment industry. Right. Is that the one you were talking about here? Oh God! Unless somebody, Somebody caught some copyright issues here. Take a look at some of the screen shots here from the movie. [CROSSTALK]. [LAUGH]. What year is it copyrighted? I don't know. It doesn't matter. Anyway, you know anyway So I knew all these guys that worked in the adult industry. Yeah, yeah. The tech side. Okay. Right. I had this friend that worked in Times Square in this strip club. Okay. He said, you should hang out, enjoy the show. So I said okay. So I'm hanging out with him and he did lighting. For the, for the strippers. Now the thing is, so the strippers go out and do their thing and there's this crappy music and they strip. But then they walk off stage naked and they go into their dressing room which is the room with the lighting guy. Okay. [LAUGH]. He's in there? Yeah you know like behind. So there used to be lighting guys for strippers? [CROSSTALK]. I don't know if they still do it but back then yeah. I would imagine they would have a spot light. [CROSSTALK] A spot light [INAUDIBLE]. But there a was a guy who would move it [CROSSTALK] as they were dancing around on stage. Oh you have to move it? Yeah, it's a show dude. Like smoking pot and doing all that stuff. Yeah, but this was actually before the pole thing happened. Right. Poles that came later. That was the 90s. Right. Yeah. So, [LAUGH] the would move around. So, I be, all these strippers are hanging out in the dressing room, waiting to go on. So the naked ones had just come off and the dressed ones are going on. Right. Yeah. And I was hanging with them. And they're really interesting people. They were NYU college students. Mm. They were housewives. They were all kinds of people. They were Russian immigrants. There are all kinds of people. Yeah. Smart ones, stupid ones chunky ones. Yeah. The full [INAUDIBLE] of life yeah. But some of them were just doing it to make money [CROSSTALK] you know they got paid well, they got paid really well actually. I know like the whole clich