Digital Music Trends – Episode 54

This week on the show the second installment of my series on piracy and anti-piracy which is an interview with Alex Jacob, Communications manager at the International Federation of the Phonographic industry – better known as the IFPI. Also last Wednesday I attended a debate organized by Music Ally on Cloud music services with some very interesting guests so I’ll talk a little bit about that. An finally in the news for this week PRS for music released a controversial paper that calls for the ISPs to be charged for the piracy that happens on their networks. Also in the news a heated back and forth between Tony Silverman and Tunecore’s CEO Jeff Price, Spotify keeps growing and maintains it will launch in the US by 2010, UK music retailer HMV is set to re-launch its digital store soon,  We7 integrated a news element in its on-demand offering to become a real rival of traditional radio and finally Ministry of Sound decides to sue its customers like it’s 2005.

IFPI feature

Alex Jacob
Now last Wednesday I attended Music Ally’s event on Cloud Models for the music industry. The debate turned out to be quite informative in that the panelists were all coming from very different viewpoints. There was Michael Robertson of fame who has now launched a music locker service called, Rob Lewis – the head of Omnifone, Pete Downtown from Imagination Technologies, Chris Cass from Gracenote , Bobby Rosenbloum from the law firm Greenber Traurig and Will Page from PRS for Music. Cloud models are clearly a hot subject now as demonstrated by the packed room – and with NPD recently reporting that between seven and eight million iTunes users in the US would be willing to pay a monthly fee of $10 to access a cloud service people are starting to realize that subscription could bring big bucks back into the music industry coffers. There were a few main points to take away from the panel
1) cloud music service is a very generic concept that includes a whole host of subcategories from simple backup systems to online radio, to on-demand streaming services and music lockers
2) service interoperability is key to the success of any cloud service, with the number of devices that are connected to the Internet either via 3g or wi-fi set to grow exponentially over the next few years access is fundamental
3) according to Michael Robertson this is the dawn of a new phase in the consumption of music and it brings a host of new business opportunities or the music industry – the industry by now should have learnt from its previous missteps and be willing to embrace these new models
4) there is an open legal debate as to whether music lockers need a license or not, especially if the user uploads his own music and that content is password protected.
5) cloud services may be able to appeal to that large segment of the population that at the moment does not buy any digital music thus expanding the market
6) licensing is a major hurdle in getting any legal service off the ground, there is a real need to streamline licenses and to clear up the data on who owns what rights.
This is a super-short summary of the main points that took away from the panel,  but I do suggest that if you have time you go and read Music Ally’s liveblog of the event, the link is in the shownotes!

– PRS for Music controversial report on an ISP charge

A controversial paper by Will Page – Chief Economist at the collection society PRS for music and David Touve – assistant professor of Strategy and Entrepreneurship at the Washington And Lee University has spurred further debate this week on the role of ISPs in controlling and ultimately compensating the rights-owners for the exchanges of unlicensed materials happening on their networks. The paper, entitled “Moving Digital Britain Forward, without leaving Creative Britain Behind” is based around the idea that ISPs are the next generation broadcasters – in the sense that they are operators of networks that connect supply with demand in a market for media. The problem is that open high speed networks differ from traditional cable and satellite networks since much of the entertainment carried by the ISPs is not currently remunerated. The assumption is that through the Digital Economy Act that has been passed as law in the UK the transit of unlicensed content over the Internet will be monitored and measured and this measurement allows for a precise quantification of the value of unlicensed media, a value that enables this media to be priced and traded. The paper identifies a company that has developed technology to monitor filesharing activities – called Detica and its technology called Detica C-View. This allows rights holders to measure and price and the problem of piracy and consider the aggregate effect of new licensed services, business models and events. Basically it allows to know exactly who is filesharing what on which network and to monitor whether the introduction of new legal services or the use of warning letters in the case of the three strikes implementation has an impact in the volume of unlicensed file sharing. The idea is that if changes in the scale of unlicensed media can be measured then they can put a value on this spillover to bridge the gap between licensed and unlicensed. The paper goes on to outline the legal basis to justify a transfer of value form the ISPs to rights holders – i won’t go into details on that one but you can find the link to the paper in the shownotes – and finally it puts forward two compensation based possibilities, that it specifies can only be considered by accepting that a form of market failure has occurred and therefore some form of regulation is required. First is the dynamic compensation model where operators would face a fee for the transmission of unlicensed media on their networks and that fee would be reduced in line with reductions in the unlicensed media transmitted, and second a positive spillover approach that converts infringing media to non-infringing by a way of a legal agreement. Basically in this second option network operators would pay a fee for a blanket license, which would also vary depending on the volumes of licensed and unlicensed material that goes through their pipes.

Well you can imagine that ISPs were the first to come forward against the paper with Talk Talk being the most vocal for now, the company stated to Sky News that

“It would require monitoring of traffic and this has huge implications in respect of directives on privacy and data retention. and also “It’s profoundly unfair – it is like making a bus company responsible for shoplifters who use their buses to get to the shops. Finally Talk Talk reiterated that  ”It is futile since people will switch to undetectable methods e.g. encrypted services, streaming.” So a pretty direct response here.

The Financial Times reported that a spokesperson for the Department for Business, Innovation and Skills said: “I understand this would require fresh legislation, which we don’t have any plans for at this time.” So I don’t think this will be integrated in a hurry in the Digital Economy Act since this law is controversial enough as it stands.
From my point of view there is a fundamental problem first in talking about pirated material as a lost revenue – there is no consensus on how much more the industry would sell if piracy wasn’t there, in other words how can you calculate whether the person that downloaded the latest Eminem album illegally would have bought it? Second there’s a clear privacy problem, as the idea of a private company lice Detica snooping around in every single packet exchanged over the net in the UK really gives me the creeps. And third, although the ISP metaphor of the bus driver is getting a little tired by now, ISPs are hardly responsible for the filesharing that is done by its users. I also take some issue with the idea that legal users will not benefit from the increased speed of the networks. If i want to rent a movie on iTunes I’d much rather have it in 5 minutes rather than a half hour and with HD content probably becoming the norm in the next two years we will need that extra bandwidth to push out better quality content. Sure, the user that just downloads a few MP3s will not feel much difference between a 2mb and a 100 megabyte download speed, but a time will come where the music industry will offer the material without any compression, and since that way an album could easily be 700 megabytes or so then a higher broadband speed would be a marked advantage.
– Tunecore VS Tony Silverman
And there was another controversy this week as the founder of Tommy Boy records, Tom Silverman, released a pretty incandescent interview on Wired. The interview starts out with Silverman talking about a new business model in which the labels would become partners with the artists – a way to stop the advances culture once and for all and to make the payments systems more transparent. The controversial part comes a little later when he talks about DIY artists. First he states that fewer artists who are doing it themselves are breaking through than ever before, then he goes on to slam Tunecore users be calling releases that sell less that 100 copies as Noise and “an aberration”. He calls Tunecore users hobbyists who clutter iTunes with crap and make it harder for good artists to break through. This was obviously a pretty direct attack on Tunecore and so Jeff Price, the CEO of the company was quick to come up with a sarcastic rebuttle. First of all he argues that the presence of a release on a digital store does not compromise the finding of another release, and so an independent release is not blacking anyone from finding the lastest Lady Gaga track. Second, he points out that he disagrees with the concept o one person deciding for the rest of us what has and what hasn’t got value. Third Price goes on to point out how odd it is that Silverman is actually at the head of the New Music Seminar, an event aimed at providing young artists with the information needed to promoted their music and get it out there, he basically dismissed about 80% of the people who attend – and pay for – his series of seminars. Finally price concludes by pointing out that Tunecore artists have generated over70 million dollars in gross music sales and that with more people that ever consuming, streaming, stealing and listening to music it does not look like a wider offer is hurting overall music consumption at ll. The controversy was immediately picked up by Techdirt writer Mike Masnick who went on to report on both the initial interview and on Jeff Prices’ rebuttal. I completely agree with Mike when he says that there was a part of Silverman’s interview that actually contained some pretty interesting ideas about new business models, so if you want to have a look yourself follow the link in the shownotes to the interview, Jeff Prices’ rebuttal and Techdirt’s articles.

– Spotify’s growth and US launch plans

The Telegraph this week reported some juicy news on the Spotify front. Daniel Ek confirmed that the service now has over 500,000 subscribers in Europe and is one of the biggest music subscription services worldwide. Spotify has struggled to obtain the necessary licenses to launch its service in the USA but Ek was confident that the launch would happen by the end of this year. He also admitted that the service is not perfect yet and that in order to become the best service possible it needs to grow – he said that at the moment it’s not important to see the ratio of how many paying versus free users they have but it’s important to gain momentum and increase the number of people using it. This is a very interesting statement – the company has been pushing subscriptions hard as everyone agrees that the free version alone could not sustain the service. At the same time the implementation of its new social features has allowed Spotify to reach huge amount of new users and could make people feel like the £5 or £10 per month are worth it – especially if Spotify was to introduce some other important features related to the social space that would only be available to paying users.
– HMV to re-launch its digital store

And Billboard Business reported on the imminent re-launch of HMV’s Digital Music Store, after it was taken down earlier this year. HMV’s head of Music Melanie Armstrong revealed at its suppliers conference that the company is very close to launching HMV digital. The new download store has been created in partnership with 7Digital, the digital retailer of which HMV acquired a 50% share in September 2009. The store has been touted as being completely DRM free, in start contrast to HMV’s previous offering and of being compatible with iTunes and Windows Media from the get-go, which makes me think that the offering will consist of very straightforward MP3s. Hmv is pretty much the only music retailer left on the high street in the UK and many people also use its website to order music, DVDs and games. The success of the digital store will depend on how well HMV manages to push the digital option in its high street stores, website and at its live venues. It is increasingly hard nowadays to get consumers to sign up to yet another service but an intelligent promotional giveaway or something along those lines may be a good way to draw customers to the store. Low prices do not appear to be quite as important, Amazon has been selling selected Singles and Albums at a loss from the start of the service as a promotional tool but the user base of Amazon Mp3 is still extremely low compared to that of iTunes.

– We7 integrates news in its music on-demand offering

The Guardian, Telegraph and Techradar reported on We7’s latest addition to the service. We7 in fact has struck a deal with the Guardian Media group division to host their content within the platform. The deal will allow users to intersperse the playlists they created with regular bulletins that will  keep them up to date with the latest news. This marks the first step towards the creation of a truly on-demand radio where you are in control of the music but are still able to keep up to date with what’s happening in the outside world. I expect this to be the first of a series of deals with content providers to create a completely personalized radio experience and I wonder whether it would make sense for them to integrate spoken word podcasts into the service as well – wink wink – to provide the listeners with a more exciting experience. Music podcasts in addition could actually shift between the pre-recorded part and a direct stream from wE7 so that they could still use full length music without paying the extra license as the music would have been licensed within the service anyway. It may be an off-the-wall idea, but I think that would be pretty cool!  

– Ministry of Sound is the latest label to decide to sue P2P downloaders, bad call?

Ministry of Sound is the latest company turning to a law firm, in this case Soho firm Gallant Macmillan, in order to obtain compensation from users who are suspected of sharing its music. The company recently sent over 2,000 letters asking the recipients for between £300 to over £1000 for sharing particular pieces of music. These letters have become a more and more adopted practice despite even the British Phonographic Industry reiterating that legal action should be reserved to repeating offenders only and should not be used as first and only approach. Clearly the aim is to scare off people enough to get them to pay – to date none of these cases have actually gone to court in the UK.  Legal experts deem that it would be very hard to actually win these cases in court because the copyright owners would have to provide irrefutable proof that that particular person was responsible for the filesharing.

I take exception in particular to the fact that many of the companies sending the letters have no intention of taking the cases to a court possibly because that would be far too expensive and it would be a tricky decision. What I AM sure about is that people who received these letter probably won’t be buying Ministry of Sound tracks ever again even if they absolutely loved the music.

Well that’s all for this week, i really hope you enjoyed the show, next week an exclusive feature on the company Music2Text a new player in mobile distribution so don’t miss it. You can email any feedback to and you can follow me on twitter, the handle is digimusictrends,

Have a great week and ’till next time!

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