How Much Money Has The Music Industry Left On The Table?
Thoughts & Reflections from Digital Music Forum
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).
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.
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!
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
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.
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
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?
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.
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 transparent and lowering transaction costs;
- allowing all firms to compete on a level playing field; and
- empowering innovation and new forms of distribution.
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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