Just How Much Money Has The Music Industry Left
On The Table?
Thoughts & Reflections from Digital Music Forum
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).
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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
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
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.
by the MusicDish
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It 2004 - Republished with Permission