All Things Digital

Seems AOL and Yahoo were a bit off on their estimates of the back royalties they owe music composers, writers and publishers for streaming their work over the Internet. The two companies had proposed paying just $632,879 and $889,402, respectively, in 2006 royalites to the American Society of Composers, Authors and Publishers. Yesterday, a federal court ruled that what the two really should pay is $5.95 million and $6.76 million, respectively.

Under the terms of the court’s order (PDF), AOL (TWX), Yahoo (YHOO) and RealNetworks (RNWK) as well must pay ASCAP
2.5% of their streamed-music revenues between 2002 and 2009. That could amount to as much as $100 million for ASCAP and its membership.

Quite a windfall and one that ASCAP was quick to ballyhoo. “The Court’s finding represents a major step toward proper valuation of the music contributions of songwriters, composers and publishers to these types of online businesses–many of which have built much of their success on the foundation of the creative works of others,” said Marilyn Bergman, president of ASCAP. “It is critical that these organizations share a reasonable portion of their sizable revenues with those of us whose content attracts audiences and, ultimately, helps to make their businesses viable. This decision will go a long way toward protecting the ability of songwriters and composers to be compensated fairly as the use of musical works online continues to grow.”

Sony BMG (SNE) has signed on to Nokia’s (NOK) new “Comes With Music” program and really, who better than the pioneer of the rootkit digital-rights management scheme to endorse Nokia’s DRM-hobbled prebundled music initiative?

This morning, Sony BMG became the second record label to jump on board the Finnish phone giant’s Comes With Music offering, which–when it launches in the second half of 2008, will package mobile phones with a year of unlimited access to music. There are, however, certain caveats to that value proposition, as I pointed out last December:

Though Comes With Music does indeed permit owners of certain Nokia cellphones to download as many songs as humanly possible in one year (with no per-song data charges), transfer them to a PC and keep them at the end of that time, they must pay a per-song usage fee to burn them to CD. What’s more, the songs are wrapped in Microsoft’s (MSFT) ironically named ‘Plays for Sure’ digital-rights management scheme, which prevents them from being played on the iPod, Zune, etc. Finally, another 12 months access to the music catalog requires the purchase of a brand new phone.”

Clearly, Sony, like Universal (VIV.PA) before it, doesn’t see these issues as off-putting to consumers. “When you give consumers the key to the candy store without any limitations, there’s a lot more opportunity for discovering music that you might not have found before,” said Thomas Hesse, president of global digital business and U.S. sales for Sony BMG Music Entertainment. “We think this will energize the discovery of music.”

It might energize Sony BMG’s bottom line a bit as well. When Universal first signed up for Comes with Music, sources close to the company said that Nokia would pay the label up to $35 for every phone that offers access to its library. Nokia subsequently denied it was paying that amount, but it’s definitely paying something–to Universal, Sony and whatever other labels it manages to line up for the service.

If YouTube aims to someday host every music video ever made, as co-founder Steve Chen once claimed, it better get crackin’. Because the market’s getting crowded.

This morning PluggedIn Media launched a new service for streaming HD-quality music videos. Backed by Overbrook Entertainment–Will “Gettin’ Jiggy Wit It” Smith’s production and management company–PluggedIn will offer some 10,000 videos from EMI (EMI.L), Vivendi (VIV.PA) and Sony BMG (SNE), along with the standard music-site fare–artist bios, users playlists and whatnot. That being the case, how does PluggedIn hope to differentiate itself from the competition? “We look at all the changes shaping online entertainment and see massive opportunity for lots of companies to appreciate and forge really viable consumer connections,” said CEO Jeff Somers. “We think what will separate us from what is out there today is an unbelievable high-quality viewing experience, matched with in-depth content and community tools.”

Perhaps. But it will also create dangerous rivalries with some powerful competitors. With its social-networking features, PluggedIn will soon find itself in direct competition with MySpace Music (NWS) as well as Hulu (GE).

Back in 2000-2001, when the Recording Industry Association of America was still trying to recover from its CD price-fixing scheme with poorly reasoned justifications for CD price inflation (”Listen, if CD prices were governed by the Consumer Price Index, you’d be paying $33.86 for them instead of $12.75!”), a little company called Napster came calling. Napster had pioneered a new Internet distribution model for digital media that was revolutionizing the music industry, and it hoped to partner with RIAA member labels to create a subscription-based service.

At the time, Napster had some 20 million users worldwide and was essentially the de-facto file-sharing standard. Had the RIAA labels agreed to the alliance, they might have turned peer-to-peer distribution into a new and powerful business model, one with low distribution and marketing costs and a fast developing user base. But they didn’t. They chose another route.

Big mistake. Along came Gnutella. And increased broadband penetration and cheaper storage. Along came Kazaa. And then came BitTorrent. And, well, look at the industry now.

Given such history, it’s difficult to look at the recording industry’s plan to have a monthly fee added to consumers’ internet-service bills and not shake your head in wonderment.

Portfolio.com reports that Edgar Bronfman Jr.’s Warner Music Group (TWX) has indeed hired veteran industry consultant Jim Griffin (no relation to Peter, right?) to quarterback a plan under which consumers pay an Internet-access surcharge of $5 a month for the collective right to freely share music. Those fees would be pooled and divvied up among artists and their labels.

“Ideally, music will feel free,” says Griffin. “Even if you pay a flat fee for it, at the moment you use it there are no financial considerations. It’s already been paid for.”

Ah- charge everyone for all music. So it is Monetization Without Representation. OK. But what gives the music industry the right to tax all broadband users because it suspects some of them might illegally share its content? And if the music industry deserves that right, then doesn’t the film industry deserve it as well? And the publishing industry? And any other industry that might benefit from such a tax?

As David Barrett, engineering manager for peer-to-peer networks at Web content-delivery giant Akamai (AKAM), notes Griffin’s plan is problematic. And desperate.

Said Barrett:, “It’s too late to charge people for what they’re already getting for free. This is just taxation of a basic, universal service that already exists, for the benefit a distant power that actively harasses the people being taxed without offering them any meaningful representation.”

The concept is simple: The music industry forms a collecting society, which then offers file-sharing music fans the opportunity to ‘get legit’ in exchange for a reasonable regular payment, say $5 per month. So long as they pay, the fans are free to keep doing what they are going to do anyway–share the music they love using whatever software they like on whatever computer platform they prefer–without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music. In exchange, file-sharing music fans will be free to download whatever they like, using whatever software works best for them. The more people share, the more money goes to rights-holders. The more competition in applications, the more rapid the innovation and improvement. The more freedom to fans to publish what they care about, the deeper the catalog.”

–Excerpt from “A Better Way Forward: Voluntary Collective Licensing of Music File Sharing,” Electronic Frontier Foundation, April, 2004

Turns out that the Electronic Frontier Foundation was simply ahead of its time when it suggested that the recording industry adopt a voluntary collective-licensing model for music. Because the record labels are finally warming to the idea.

During tomorrow’s South by Southwest “Mobility, Ubiquity and Monetizing Music” panel, Jim Griffin, managing director of OneHouse–a digital entertainment consultancy that works with three of the four major labels–will argue the case for a file-sharing surcharge.

Like the “File-sharing Monetization” proposal recently pitched by the Songwriters Association of Canada and the EFF plan that the industry dismissed back in 2004, Griffin’s proposal would have Internet Service Providers add a flat-rate fee to their monthly charges to underwrite the cost of unlimited music downloads. The resulting funds would be divvied up among songwriters, performers, publishers and music labels.

“It’s monetizing the anarchy,” says Peter Jenner, head of the International Music Manager’s Forum, who will join Griffin on the panel. “The labels are beginning to like the idea of an access-to-music charge, because they’re increasingly aware that their current model is broken.”

Looks like the long and winding road that leads to the iTunes Store may disappear after all.

With their trademark dispute over the “Apple” brand finally settled and the solo work of Beatles John Lennon and Paul McCartney already for sale on iTunes, Apple (AAPL) and the Beatles’ Apple Corps. are rumored to be negotiating a business alliance that will bring the Fab Four’s remastered back catalog to the digital music store–for a sum of as much as $600 million.

Reports of the deal have the Beatles’ back catalog arriving on iTunes “within months,” perhaps even accompanied by a special edition “Yellow Submarine” iPod. That said, they should all be taken with a grain of salt–if not an entire salt flat. Apple has already dismissed them as “unsubstantiated speculation.” “This is not news, nor is it a scoop,” an Apple spokesman told Billboard.

Perhaps. Perhaps not. Discussing a potential iTunes deal with Billboard.com last November, McCartney said “it’s down to fine-tuning, but I’m pretty sure it’ll be happening next year, 2008.”

I got into a pretty public fight with Steve Jobs about our TV. We were the market share leader at iTunes, we had 35% of the market share at the iTunes store. What we said to Steve and his team was that we wanted there to be some variable pricing. There’s no example in the world of where the retailer sets the price–there’s no example, except at Apple. We’re very conscious of what happened in the music industry. … We offered do a test with one show, you pick the show, I don’t care, and charge $2.99 for that and everything else at $1.99, and in fact we’ll give you the whole library at $0.99, and they didn’t want to do it. Granted none of it is as mobile and successful as iTunes. … We agreed to put up our film stuff on Apple just a few weeks ago and the reason we did that is variable pricing.”

–NBC Universal Chief Executive Jeff Zucker, Feb. 27

Apple today announced that it will not be selling NBC television shows for the upcoming television season on its online iTunes Store. The move follows NBC’s decision to not renew its agreement with iTunes after Apple declined to pay more than double the wholesale price for each NBC TV episode, which would have resulted in the retail price to consumers increasing to $4.99 per episode from the current $1.99.”

–Apple Press Release, Aug. 31, 2007

We’ve said all along that we admire Apple, that we want to be in business with Apple. We’re great fans of Steve Jobs.”

–Zucker, Jan. 20

Apple has destroyed the music business–in terms of pricing–and if we don’t take control, they’ll do the same thing on the video side.”

–Zucker, Oct. 28, 2007

As Sun Tzu once wrote, “Keep your customers close and your enemies closer, and should someone be both, kick them off the Internet.” At least that’s what he appears to have written in the recording industry’s well-worn copy of “The Art of War.”

Earlier this year, the British Phonographic Industry suggested that the British government pass “three strikes” legislation that would require Internet service providers to terminate the accounts of casual file-sharers. And now the government seems to have taken it to heart. This morning it said ISPs have until April of 2009 to curb illegal downloads of music and films occurring on their networks before they are slapped with legal sanctions. Said Culture Secretary Andy Burnham, “Let me make it absolutely clear: This is a change of tone from the government. It’s definitely serious legislative intent.”

Britain’s ISPs are, as one would imagine, a bit put off by the idea of being used as entertainment-industry heavies. “Using BitTorrent isn’t illegal,” said an Internet Service Providers Association rep. “We prefer to go with self-regulation because it’s generally seen to be more nimble than legislation.”

But as the BPI notes, with self-regulation comes litigation. Given the option of lawsuit or loss of connectivity, what would the average music pirate choose? “The three-strike process is far better then landing someone with a great big lawsuit,” says Matt Phillips of the BPI. “Surveys we’ve done suggest that 70% of consumers would stop sharing on their connection if they knew it was being done illicitly. And it’s got to be better than taking them to court, where they’ll face a legal bill of at least £3,000.”

What do you get when you cross a cowboy, a construction worker, a biker, a soldier, an American Indian and a police officer? Why, the Village People, of course. But throw in a Web Sheriff and you’ve got a lawsuit: The aging disco group has teamed up with the U.K.-based antipiracy outfit to sue Swedish torrent index The Pirate Bay for enabling illegal downloads of its song “Y.M.C.A.”

A chart topper in 1978, Village People’s “Y.M.C.A.” has been played in thousands of baseball stadiums and karaoke bars and even performed by former Secretary of State Colin Powell at the ASEAN Forum, an annual security meeting for foreign ministers (”President Bush, he said to me: Colin, I need you to run the Department of State. We are between a rock and a hard place.”) without incident.

But its alleged popularity in file-sharing circles–particularly after the appearance last year of a YouTube video combining it with historical footage of Adolph Hitler and other Nazis–has drawn the group’s ire, as well as that of Prince, who is also reportedly part of the suit. “We are suing for damages of millions of dollars, and [suits] will be filed at both Swedish as well as U.S. courts,” Web Sheriff Chief Executive John Giacobbi told Swedish online business daily e24. “Many are asking themselves why they should be paying for content when it is widely available free of charge. But such thinking disregards the fact that someone has been creating this music or movie, and [has] invested huge sums of money in the project. Therefore it should be up to [the creators] to decide how and to whom their works are being distributed.”

Giacobbi, it should be noted, is calling upon other artists to join the suit in the hopes of giving it more critical mass and credibility, though his choice of artists may achieve quite the opposite. Said Giacobbi, “It would also be good/appropriate if the members of ABBA could take up the fight against these pirates, as they personify the Swedish music industry’s successes and are renowned ambassadors for Sweden, contrary to The Pirate Bay.”

One can only the imagine the fun the folks at The Pirate Bay, who’ve publicly ridiculed legal threats from everyone from Warner Bros. to Apple, are going to have with this one.

If the recording industry had its head any further in the sand, they’d have to insert a breathing tube.

Consider the British Phonographic Industry’s latest stroke of brilliance for combating illegal file-sharing: kick casual file-sharers off the Internet. Seems the BPI would like the British government to pass “three strikes” legislation that would require Internet service providers to take action against users who access pirated materials. A first offense would draw a warning, a second the suspension of Internet access, and a third the termination of that access. ISPs that refuse to comply could be prosecuted and might be forced to make the details of suspected offenders available to the courts.

“For years, ISPs have built a business on other people’s music,” said Geoff Taylor of the BPI. “Yet they have paid nothing to the creators of that music, and done little or nothing to address illegal downloading via their networks. … We simply want ISPs to advise customers if their account is being used to distribute music illegally, and then, if the advice is ignored, enforce their own terms and conditions about abuse of the account. But despite some agreements in principle, the ISPs refuse to do this on any meaningful scale.”

An astonishing demand, but one that the British government has taken seriously enough to include in a Green Paper its Department of Culture Media and Sport plans to release next week. Which, as some observers note, is really too bad. “Beyond shoving ISPs into the role of the entertainment industry’s police, judge, jury and jailer, it also is a legal solution to a business-model problem,” Mike Masnick writes over at TechDirt. “The entertainment industry is still unwilling to adapt its business model to the new distribution mechanisms of the Internet. That should be a reason to change the business models–not change the rules of the Internet. Only in the shortsighted minds of entertainment industry execs (and the politicians they support) would it make sense to change the platform to support a more limited business model, rather than embracing the new (more efficient) distribution platform and adjusting the business model.”