RAIN heads off to Washington DC today to cover (and hopefully participate in) the U.S. Copyright Office's public roundtable on the "Notice of Recordkeeping" requirements. Please check for our coverage on Monday. Thanks for reading. xx

The following guest essay is in response to yesterday's Wall Street Journal article called "Music Industry Is Finally Online, But There Aren't Many Listeners." See RAIN coverage here.


BY BOB BELLIN
for RAIN: Radio And Internet Newsletter
While yesterday's article reads like a sympathetic history of the difficulties in launching a legitimate online music service, it masks many of the real issues. Most significantly:

(1) The music industry is opposed to any system of online distribution, despite claims to the contrary;
(2) Antitrust issues will force the music industry out of the distribution business and into the licensing business;
(3) The music industry doesn't have the rights to much of the music they are selling through MusicNet and pressplay and are subject to considerable damage awards as a result; and
(4) The only answer to the entire mess is a compulsory license.

The realities are fairly easy to distill.

"The first offering was too clunky and too consumer unfriendly to hold much hope for its success...So we are going to go back, and we will come out with a 2.0 product which will be more consumer friendly, easy to use...This is a business of trial and error."

This is demonstrably untrue. The problems with the launches of MusicNet and pressplay were immediately apparent to everyone it seemed, but the music industry. Early reviews underscored the same issues being discussed today and market needs were easy to discern. It didn't take a marketing genius to figure out that what consumers wanted was Napster or KaZaa/Morpheus with a subscription price, not a title-limited song rental service that only worked on a PC.

The problem was that the labels didn't want to give that to consumers and probably couldn't sidestep antitrust issues if they did. Such a service would have to be licensed to a third party to pass muster with the Justice Department.

"Global sales of compact-disc recordings fell 5.1% last year from a year earlier, the first drop since the format was launched in 1983. The industry blamed the fall largely on the proliferation of homemade CD compilations, as well as free offerings online."

But that doesn't make it true.

What the article fails to mention is that similar drops in music sales have occurred during recessions and periods where blockbuster releases have been absent -- proir to the advent of the Internet and file swapping. Even the music industry acknowledges that this year's releases are not as compelling as those of the previous few years.

There are studies that indicate (Jupiter just released one) file-swapping actually increases music sales. Given the huge number of files being swapped every month (billions of units), as compared with the negative sales numbers (tens of millions of units at most) it's clear that the net impact on music is marginal at worst, and additive at best.

"But the deal was just the beginning of MusicNet's headaches. Designing the service itself proved even stickier. Because the labels weren't supposed to know each other's business, board members couldn't discuss any details of MusicNet's distribution or licensing agreements, leaving them in the dark about many of the venture's dealings. The MusicNet board had to keep an antitrust attorney present for all discussions."

This is why the labels can't distribute music directly to consumers. The kind of cooperation that such a venture neccessitates (one service featuring most/all "in print" content is necessary for widespread adoption) amounts to collusion and the DOJ would never allow it. A third party will have to do the distributing and the labels will have to be satisfied with license fees.

"It's a problem not just for the music business, but for the entire entertainment industry, which is trying to figure out online business models for movies and TV shows at a time when these things, too, are increasingly being swapped on the Internet."

It's the same model for movies and TV as it is for music and they know it (except that consumers would probably be willing to accept the rental model for video that won't fly for music, as they are used to it and don't usually re-view movies/TV shows). Everything from one source (like a "brick and mortar" video store), except online.

The content owners can't get into the distribution business for the same reasons -- consumers want one stop shopping -- and for the studios to arrange that on their own amounts to collusion, given the consolidated nature of the entertainment business. Once again, they'll have to settle for license fees.

Talk of trying to figure out the online business model from the entertainment industry is just another stalling tactic. It's widely known what the model is and that the entertainment industry just doesn't want to embrace it.

They didn't control the rights to digitally distribute songs by prominent artists...

The Napster team figured that out, and as a result the RIAA's lawsuit against them may well come back to bite them in a monumental way. It's likely that the major labels sold music online (via MusicNet and pressplay) without the rights to do so. The damages (up to $150,000 per infraction according to the law) could run into the billions.

"Nobody thought you would put out a service MusicNet 1.0 and it would not need to be debugged.."

The problem with MusicNet and pressplay isn't coding flaws -- it's that they were designed in direct opposition to known consumer preferences. The debugging pretext is just another stall.

Meanwhile, consumers who would be willing to pay are swapping what they want, because they would rather get a superior product for free than pay for a limited, inferior one. They don't have an acceptable "legitimate" option and the entertainment industry seems intent on not giving them one.

The answer is a compulsory license. A federally determined and mandated "per download" fee that anyone who wants to license content can pay. No negotiation, no preferred vendors, just "pay and play." And from there, let the market decide the winners, losers and models.

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From the Tallahassee Democrat: "Last year, I discovered that I didn't have to listen to the mindless corporate radio stations we have here in Tallahassee. On the Internet, there were thousands of radio stations that didn't endlessly broadcast Creed and Britney Spears, but offered an infinite variety of genres and artists from all over the world...

"But all this might end soon because the recording industry's greed threatens to overshadow the shining the promise of digital freedom. Unfortunately, it may be back to Creed -- my own prison of greedy corporate schlock.

"On May 1, all of my favorite Internet radio stations went silent in protest of a proposed new royalty rate that would kill thousands of Internet radio stations. If accepted, the rate would be seven times higher than royalty rates that land-based radio stations pay songwriters for the same performances of the same works...

"For example, a mid-sized, independent Webcaster (imagine two or three people working out of an apartment or a dorm room) that has had an average audience of 1,000 listeners for the past three years would receive a bill for retroactive royalties (which will come due 45 days after the royalty rate is approved) that would be in the neighborhood of $525,600.

"Even Arthur Andersen couldn't hide that kind of debt. Even so, it seems that the Enron-sized greed of the recording industry just may silence the freedom now enjoyed on the Internet...Let's hope that greed does not silence the sound of freedom. "

Read this entire editorial from today's Tallahassee Democrat online here.

From Silicon Valley Business Ink: "On May 21, U.S. Librarian of Congress James Billington will make a decision that may determine the fate of Web-based radio stations. Billington must decide on a royalty payment system for Web stations that stream copyrighted material, but many Webcasters believe the terms of a proposed payment system are unfair...

"'This makes our business completely impossible to scale,' says Val Starr, founder and president of Choice Radio in San Bruno, a property of Internet Radio Inc. If the CARP recommendations become policy, she fears, her station will be forced to shut down because the cost of the royalties will outstrip revenue...

"Ann Chaitovitz, national director of sound recordings for the American Federation of Television and Radio Artists, offers another perspective. 'I think a lot of the math you read is done wrong,' Chaitovitz says. 'A lot of it is misinformation spun on behalf of the large Webcasters.'

"'I don't think these rates will drive [small Webcasters] under,' she says. 'And now the independent artists will get paid for their efforts.'

"But other insiders -- including Jonathan Potter, executive director of the Digital Media Association, a trade organization that represents Webcasters -- say helping artists is precisely what Web radio is all about. 'There are a lot of artists on major labels who would love to have their music promoted on the Web, since their own labels aren't promoting them,' Potter says.

"'I don't want to promote conspiracy theories, but [the proposed royalty system] certainly does smack of the record companies trying to control the entire music broadcasting industry,' Starr says.

"Rusty Hodge, general manager and program director for San Francisco-based non-profit Webcaster Soma FM, shares this hunch. 'It seems like [the major music labels] are trying to control the music from the source all the way down to the listener,' says Hodge, who is hesitant to use the word conspiracy, but wonders what the recording industry's real motive is: to collect royalties or to clear the small, Web-based broadcasters from the game board."

Read this entire article here.

	There's Trouble in the Air for Webcasters Over Music Royalties
	Getting Static on Internet Radio
	Web radio’s selection is what its fans like
	Internet Radio Silent Today: 'Day of silence' hopes to grab media spotlight
	Tangled Web: Legal complexities threaten to pull the plug on many Internet radio broadcasts