Future Of Music

For the industry, the best news about the Supreme Court ruling is that both music and technology companies can move forward with a clearer understanding of what the rules are.   It is time to get to work.  There is a fantastic opportunity for all parties to come to the table and establish some standards and bang out a digital music license that embraces the new technologies and allows the legitimate market to grow.  If the music companies continue with their strategy of scorched earth litigation and refusing to work with the P2P companies, they will miss the chance to negotiate a forward looking license, without congressional intervention.

While the music companies may feel that they won a tremendous victory, the reality is that their customers are turning away in droves. The day after the decision there were more than 5 million people online trading files.  If the music companies do not provide an authorized way for people to get music the way they want to, music fans will simply continue to get the music for free.  People need to realize the immense monetary and political power of the entertainment industry and fight back against inflated prices, limited distribution and being told what they can and can’t do with their music.  As a music consumer you should demand that the music industry stop suing their own customers and come to the table and negotiate a digital license for music that embraces the new realities of the digital marketplace.

The US Supreme Court has ruled that file-sharing companies can be held liable for secondary infringement for what users do with their software.  The very surprising ruling will most likely result in a flood of legal action against the creators of file-sharing networks such as Grokster and Morpheus and other companies.  The unanimous ruling is a victory for recording
companies and film studios in what is widely seen as one of the most
important copyright cases in years.

BBC article here.
Supreme Court decision here.
EFF response here.

This excerpted from the March 29th transcript of the oral arguments in MGM vs. Grokster between Richard Taranto Esq, attorney representing Grokster, et. al. and Justice Anthony Scalia.

MR. TARANTO:

Let me say a few words about what the record says about legitimate activities. Altnet is a company — they say that they have distributed, on peer-to-peer systems, hundreds of thousands of
authorized songs, and, they say, millions of pieces of video games, leading to sales. This is not a trivial
number. JIVE, speaks about 250,000 peer-to-peer downloads of a music video. The Internet archive,
which is talked about in the record, and as you now look at what they are on their Website, now lists some several
hundred musical artists with 20,000 recordings which are being put out there for peer-to-peer distribution. The
Creative Commons is licensing all kinds of things for authorized public distribution. There are musical bands —

JUSTICE SCALIA: Because, I gather, that some artists don’t make money from the records, but make money from the
popularity that draws fans to their concerts…  So they’re willing to give away the records for free.

MR. TARANTO: — My understanding is “some” is a great understatement, yes.  The bands which have authorized their live concert
recordings to be traded among — on — to be traded. The GigAmerica business is in the business of compiling musical recordings and other things for authorized distribution. The world of
music distribution and video distribution and movie-trailer distribution and, in small instances now, text
distribution, but growing, is changing and making use of this extremely innovative, low-cost tool. The great innovation
of this tool of communication ….

The great virtue of peer-to-peer decentralized software is that it doesn’t require anybody to put stuff onto a
server and then bear the cost of bandwidth, of being charged by the Internet service provider when a million people
suddenly want it. It automatically scales. It — the more people who want it, the more people will have it, because it
will be out there on a million computers. That is an inherent distributional economy, together with the autonomy of the
user, rather than having a kind of Mother-may-I system, with having to check every communication through some third
party to say, “Am I authorized to make this communication,” that are the virtues of this system and that make it
clearly capable of growing the already large hundreds of thousands, even millions, of uses that this — that these
pieces of software already enable people to do.

One final word. We’re not disputing that there are, in an industry-wide way, a set of important policy
issues here, though there’s nothing in the record about what self-help measures — digital-rights management,
encryption, other things — there’s nothing in the record what — about that. There’s nothing in the record about what
kinds of real industry harm is being done by this. Right? This is all citations to Websites in their brief. These are
classic questions of predictive judgement, industry-wide judgements that Congress should make to decide whether there
is a problem in need of solution, and what solutions ought to be considered, whether changing the rule would have a
overriding bad effect on other industries.

Read the complete and lengthy transcript here.  Film at 11.

Held back by fear, you are.

The music industry can’t preserve its current model of total control. Rather, it must embrace P2P and other new technologies because consumers won’t accept anything less than full freedom. In the future,preventing customers from doing things they have grown used to will equal a quickly executed death blow. For the music business, this means that any innovation that will be offered to the marketplace must be without any catches. It must be flat-out in synch with what the consumer will accept and wants, and its integration into the daily lives of the average music consumer must be unobtrusive and effortless.  In other words, keep it simple and give customers what they want.

As Yoda might say, “Held back by fear, you are. To the Dark Side, your stubbornness will lead.” It’s a
fate the music industry may want to avoid.

Read the second part of the interview here.

Music fans once turned to radio DJs to expose them to new music. But as
music grows on the net, listeners are relying on friends and strangers
to feed them — often in creative combinations.

Forget the album and corporate radio. Fan-built playlists and mixes are taking over the way people get their music.

Read the whole story at Wired.

"Before, say, ’94 or ’95,
before the Internet came around, there seemed to be a sharper divide
between those who create and those who consume: It seemed like you were
supposed to be either one or the other. I love to see this kind
of American rebellion, fueled by extreme hate for the record label, not
just from the fans but from the people like Prince, Ani DiFranco, Aimee
Mann, that have loudly said how they hate their label and they’re never
going to work for a label again. I have the feeling that a new
generation of musicians will grow up not having to be converted to that
way of thinking.

Like right now, I meet lots of 30-something
musicians, who maybe spent their teens and 20s wanting to be a rock
star, and now are kind of starting to think, “Well, maybe I can make a
good living just putting out my music directly and doing it on my own.”
But they kind of had to fall over to that way of thinking. What I think
will be really interesting is, imagine being a 13-year-old musician
right now, growing up surrounded by this mentality of “Fuck the label,
the label sucks, indie is cool, go direct, never sign over your rights
to somebody else”! Imagine growing up in that mentality, and what
that’s going to look like in 10 years!"

Read the LA Weekly interview here.

All eyes are on the Supreme Court, with a decision in this important case predicted as early as next week.  The Electronic Frontier Foundation (EFF) is defending StreamCast Networks, the company behind the Morpheus
peer-to-peer (P2P) file-sharing software.

Twenty-eight of the world’s largest entertainment companies
brought the lawsuit against the makers of the Morpheus, Grokster, and
KaZaA software products, aiming to set a precedent to use against other
technology companies (P2P and otherwise).  The case raises a question of critical
importance at the border between copyright and innovation: When should
the distributor of a multi-purpose tool be held liable for the
infringements that may be committed by end-users of the tool?

The Supreme Court’s landmark
decision
in Sony Corporation of America v. Universal City Studios,
Inc. (a.k.a. the "Sony Betamax ruling") held that a distributor cannot
be held liable for users’ infringement so long as the tool is capable
of substantial noninfringing uses. In MGM v. Grokster, the Ninth
Circuit found that P2P file-sharing software is capable of, and is in
fact being used for, noninfringing uses. Relying on the Betamax
precedent, the court ruled that the distributors of Grokster and
Morpheus software cannot be held liable for users’ copyright
violations. The plaintiffs appealed, and in December 2004 the Supreme
Court agreed to hear the case.

"The copyright law principles set out in the Sony Betamax case
have served innovators, copyright industries, and the public well for
20 years," said Fred von Lohmann, EFF’s senior intellectual property
attorney. "We at EFF look forward to the Supreme Court reaffirming the
applicability of Betamax in the 21st century."

Read more from the EFF and get ready for this extremely important decision.

Snocap is the new company founded by Shawn Fanning, the creator of the original Napster.

"SNOCAP today announced the public opening of its digital registry, a
new service that enables any artist or record label to register content
and generate revenues from its distribution across SNOCAP-enabled
retailers, including authorized peer-to-peer networks and hosted online
services. Individual artists and independent labels can now upload
their content into the digital registry and define usage rules on a
global basis. Major record labels Universal Music Group, Sony BMG and
EMI, and leading independent labels and aggregators including TVT,
Rykodisc, Artemis, Nettwerk and IODA and others have already begun to
register their catalogs with SNOCAP."

While a milestone in the efforts to create a legitimate P2P distribution system, Snocap’s announcement that they are ‘open for business’ lacks the punch they could have if they had support from any one of the major P2P networks.  Right now they are only offering 1/2 of the solution.  Without widespread support and integration with the P2P networks you have to wonder what kind of market will develop for this idea.  I like mine with strawberry sauce.

Get the latest from Snocap

Online music distribution is set to grow significantly over the next
few years, forcing industry to reconsider their business models and
posing regulatory challenges to governments, according to a new OECD
report on the digital music industry.

A ‘re-evaluation’ of music distribution needs to happen to achieve a
balance between consumers’ desire to access digital music and the
industry’s copyright protection concerns…. Instead of paying a set fee to download an individual song, music
downloads might become part of a subscription package from a cable
television company, internet service provider or mobile-phone carrier,
the OECD said.

• A key requisite for the creation of efficient online music
  delivery is a competitive and wide-spread access to broadband
  infrastructure. The delivery of online content also necessitates new
  technologies and an environment that facilitates the creation,
  acquisition, management and delivery of content. Effective and secure
  (micro)-payment systems are needed.
• Alliances between content providers, broadband and technology
  providers that come up with new business models play a critical role in
  driving the adoption of licensed content services.
• A diversity of interoperable content, standards and hardware are
  likely to prove most beneficial to efficient online content markets.
  With vertical integration, lock-in of consumers to certain standards,
  and difficult access to certain content, an environment where small and
  innovative players can compete should be maintained.
• The OECD notes the importance of government actions to take steps
  to address online piracy. Around one third of Internet users in OECD
  countries have downloaded files from P2P networks. While, in principle,
  file-sharing software is a new and innovative technology, piracy is an
  important impediment to legitimate online content services. The most
  important is to find equilibrium of available legitimate and innovative
  uses of new technologies and the necessary protection of associated
  intellectual property rights (i.e. copyrights).
• The Internet already provides new forms of advertising at lower
  cost, lower barriers to entry for artistic creation and lower costs of
  finding new talent. However, the effects of authorised and unauthorised
  file-sharing and digital music services with pay-per track offers on
  artists and the music supply are not yet obvious and need further study.

Read the Organisation for Economic Co-operation and Development Report

"The report said it is difficult to establish a causal connection between the rise of file sharing and a drop in music sales. While the music industry’s revenues fell 20 percent from 1999 to 2003, other factors, such as illegal CD copying, might have played a role in the decline, the OECD said," according to an article that ran on Wired.com today. "The report recognized the value of fledgling online stores like Apple’s iTunes. Last year represented a "turning point" for legal music downloads, the study said. However, online music distribution only accounted for 1 to 2 percent of music revenues in 2004. The OECD expects to see that climb to 5 to 10 percent of revenues. But growing online sales will depend on expanding catalogs to appease demand and sway illegal downloads, the OECD said. The report also suggested exploring new distribution methods, beyond what the OECD called traditional… transactions."

Read the article.

Dave Kusek and Gerd Leonhard provide strategic consulting and advisory services to companies and individuals involved in the music and entertainment industries.  The partners have extensive experience in helping businesses expand and adapt to changing circumstances. 

Our past and present clients include AOL, IBM, Intel, Sony, BMG, Gracenote. Island Music, A&M Records, Polygram, Roland, Yamaha, Berklee College of Music, Boston Acoustics, Liquid Audio, Media Rights Technologies, Bluebeat, Mercora, Musicrypt, Popkomm, Kaman Music, Arnold Communications and many others.

If you need someone to help move your business or ideas forward,
please contact us 

A frightening glimpse into the future of information and the impact of personalization and the web on the news we read.  Be careful what you ask for.

get razzled here

As TVT’s chief executive officer, Steve Gottlieb, puts it: "Manufactured pop culture is disintegrating before your eyes as the Net takes hold," and the nimbler, less risk-averse indies are best positioned to take advantage of the digital transformation. While the majors look at P2P file sharing, podcasting and other forms of digital distribution and see thieves, pirates and the willful disregard of copyright, the indies increasingly see a chance to connect directly with their customers – and an opportunity to steal a march on the Big Four. As Gottlieb points out, independent artists now account for 30% of internet radio play, and labels such as Artemis Records (Steve Earle, the Pretenders) have been distributing files over P2P networks for over a year. Add the fact that podcasters, at the wheel of the fastest-growing media phenomenon around, almost universally avoid major label music due to potential licensing infractions and it starts to look like there’s a digital train leaving the station – and the majors aren’t on it.

Read more in Digital Music News

Independent labels use networks as a way to reach consumers, not necessarily make money.

"…To many independent labels, the main goal is simply to introduce music fans around the globe to little-known artists who have no chance of being played on commercial radio stations. The payoff they hope for in the long term is greater CD sales; any downloads they sell on the networks are icing on the cake.

"It is small, but everything starts small," Chief Executive Daniel Glass of Artemis Records said of his company’s revenue from Kazaa and other popular file-sharing networks. "To not be part of it is insane."

Read the whole article from the LA Times here

"How do you predict the future?  That’s easy.  How do you create the
future?  That’s hard."

Good reading here