Just How Much Money Has The Music Industry Left On The Table?
Thoughts & Reflections from Digital Music Forum
By Eric de Fontenay,

MusicDish Network Sponsor

During the Digital Music Forum held this March in New York, RealNetworks Music Services VP Sean Ryan raised an interesting point when noting that the real value-generating segment of the digital distribution sector is the player (that's the software, not hardward player).

This certainly would follow common convention. The player acts as the consumers primary, if not sole, interface to digital music, and therefore controls to a large extent the listener's experience, from what file formats they can play to the music given prominent placement. It's a question of customer account control, establishing a long-term if not lifetime relationship with the client. It wasn't for nothing that Gates decided Netscape had to go.

But of course, the problem with the music industry isn't customer relationship building (though we could use some of that), it's access. And it is by no means technological, but of rights. Those able to provide access to the content consumers want are likely to be in a position to capitalize on the emerging music industry. And while the Real player may control the actual listening experience, it is predicated on the amount of the industry's catalogue that is made available and under what price, terms, and conditions. In Apple's case, it ain't much despite momentarily saving the industry's digital butt!

Unfortunately, participants on the "Selling Music Online" panel such as Scott Kauffman (MusicNow) were reluctant to go into detail as to how those terms apply to music distributed through subscription services such as theirs. While that in itself may be telling, we do have a pretty good idea on the conditions imposed on digital downloads, and they fly in the face of Scott Cohen's (The Orchard Global Media) proclamation that "people want unlimited music, like their internet connection."

Basically, that means music fans want to access the music they want, when they want, using the device (PC, PDA, mobile phone) they choose, and without having to check the meter. The Internet in fact provides the perfect real-case study of what happens when you switch off the meter and open the pipes wide: remember when AOL went from metered to flat-rate pricing? Traffic ballooned and chocked up AOL's system to the tune of $1 Billion in infrastructure improvements that followed to accommodate demand. Why would the music industry want that? How about the ensuing 35+ million paying subscribers, making it in short order the largest ISP in the land.

For the music industry, the downside of this model is that it unavoidably leads to some form of compulsory blanket licensing. Whether it was Steven Marks (RIAA) or Ted Cohen (EMI), the verdict was unanimous and clear: government is evil, it's intervention therefore bad and by logical deduction, must be minimized at all cost! Of course if the intervention is to extend the length of copyright or arrange a sting of counterfeiters, government is all of a sudden good! The fact is that government created today's music industry back in the Constitution and it's continued role is as necessary as it was then, whether to defend those rights or guard against their abuse.

And lest we forget, you can't spend much time in this industry without tripping over some sort of compulsory license. How is it compulsory licensing works for some in the industry like songwriters/publishers/composers, and not other like the recording artist/label? If these licenses are so evil, why did the RIAA fight for Soundexchange, even going so far as to agreeing to split royalties 50/50 with the artists without recoupment? And how much money have the labels and the artists they represent left on the table because radio broadcasters are exempt from paying them? Could we say at the least, as much as the PROs have collected over the decades?

The lack of a compulsory license today continues to rob labels and artists everyday. Eric Garland of Big Champagne, a company that tracks p2p traffic, noted that over 4 million songs are being downloaded on p2p systems per month, up from a little over 2 million in Dec. 2002. A compulsory license would allow artists/labels to monetize on this exchange. Not only that, Derek Broes (Altnet) explained that it would provide p2p systems with an incentive to place their focus on distributing legal music files, which in the Altnet system, would progressively displace illegal files from the users' player.

How can the music industry leave so much money on the table? Because the lack of a compulsory license has been their best bet at controlling digital distribution by dictating what is 'licensed/legal' technology. By solely licensing DRM/copy protected music providers, they are trying to impose one technology (DRM) over others (peer distributed,...). In antitrust parlance, they are leveraging their monopoly power over their extensive catalogue to dictate what technology the digital distributors and consumers will use to experience music, a decision rightfully left to the marketplace. The fact is that compulsory licensing is the best antidote to antitrust concerns by:

- being technology neutral;
- being transparent and lowering transaction costs;
- allowing all firms to compete on a level playing field; and
- empowering innovation and new forms of distribution.

Finally, it should be understood that I am speaking of a 'last resort' compulsory licensing, much as is found in webcasting. It would in no way prevent rights holders to enter into private negotiations with any party they choose. It would, though, prevent the industry from blackballing a certain sector or technology while providing entrepreneurs with the level of certainty to invest in new ways to get music in the hands of consumers legally.

Provided by the MusicDish Network. Copyright © Tag It 2004 - Republished with Permission