All Things Digital

MySpace will soon be not just “a place for friends”, deceptively flattering photos, and seizure-inspiring Web page design, but a place for the music industry as well. This morning some major music companies struck a deal with the social network to create a music destination site. MySpace Music will be jointly operated by MySpace and Universal Music (VIV) (who’ve apparently settled their long-running copyright suit) and Sony BMG (SNE) and Warner Music Group (WMG). EMI hasn’t yet signed on, though sources involved in the negotiations tell The New York Times it will probably join soon making Myspace Music, in the words of MySpace CEO Chris DeWolfe, a mega-music experience. ‘This is really a mega-music experience that is transformative in a lot of ways,” DeWolfe enthused. “It’s the first service that offers a full catalog of music to be streamed for free, with full community features, to be shared with all of your friends.”

The venture is a noteworthy step for the music industry–whose failure to embrace digital distribution early on has cost it dearly. And it’s one that could pay off. “MySpace has the audience and environment to enable the music industry to get to the next digital level,” Forrester analyst James McQuivey told News.com. “What iTunes offers is a good buying experience but that’s not all people do with music. They they talk about it, they share it, they try things out. Remember, this is the kind of activity that (record label) Universal Music Group was suing MySpace for previously. I think the labels said to themselves,’Oh, if we enable fans to have a fully immersive experience, they might spend more on music. MySpace can offer a place where all aspects of the music experience can be expressed. Imeem was getting close to this, but MySpace, if they don’t mess it up, should take Music 2.0.”

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.”

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns on Monday.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. Our Tech 10 appears below.

1. Coming to a PDF Near You: Adobe announced today that it is teaming with Yahoo to put text-based ads in PDF files, reports The Wall Street Journal, noting that publishers will be paid for running ads from Yahoo Inc. next to the PDFs.
2. But Will It Be Able to Leap Tall Buildings in a Single Bound? The new and improved version of Apple’s iPhone will be able to download from the Internet at a faster rate, AT&T CEO Randall Stephenson announced last night, Bloomberg reports. Speaking to the Churchill Club in Santa Clara, Calif., Stephenson also divulged that the new iteration of the device will debut next year and will operate on third-generation wireless networks. (AT&T is the exclusive carrier for the iPhone in the U.S.)
3. Nothing’s Set in Concrete, After All: Responding to criticism from MoveOn, Facebook execs are looking into changes to the recently launched Beacon advertising tool, according to BusinessWeek, adding that adjustments to the system could come as early as today.
4. Democracy Comes to Search Results: Google is experimenting with a system that enables users to change the rankings of or delete sites in personalized searches, according to Loren Baker of Search Engine Journal, explaining that the new system will allow users to manipulate search results by simply hitting dedicated buttons.
5. Reining In Comcast: Federal Communications Commission Chairman Kevin Martin is proposing a rule to keep cable colossus Comcast from growing larger, the New York Times is reporting, adding that the new rule comes as Martin attempts to regain the upper hand after his earlier proposal to broadly control the cable industry was shot down.
6. The Faster the Better: Verizon Wireless will upgrade its network in 2008, according to Reuters, using long-term evolution technology to achieve higher speeds. The new system could end up challenging Qualcomm, which developed the CDMA technology Verizon’s current network is based on, as well as supporters of WiMax.
7. Strike This Strike? ABC and the Writers Guild of America, East, announced today that they had come to a tentative agreement for about 250 ABC News writers, editors, graphic artists and desk assistants in New York and Washington, D.C., according to the Hollywood Reporter. The union, which has worked without a contract since Jan. 31, 2005, will vote on the new agreement Dec. 13.



8. Cartman, Kyle and Kenny–Free: Following the online popularity of “The Daily Show With Jon Stewart,” MTV Networks will make all episodes of the animated comedy “South Park” available for free in 2008 according to Reuters, noting that the move is part of Viacom’s strategy to boost TV viewership.
9. Just When You Thought Things Couldn’t Get Any Worse: Along comes Warner Music Group’s gloomy forecast for 2008. In today’s fourth-quarter earnings call, CEO Edgar Bronfman Jr. predicts a continuing decline in physical music sales as retailers cut back on shelf space, while the digital-music and mobile sales growth will be slower than expected, reports Peter Kafka of Silicon Alley Insider.
10. No Wii? Waaaaa! The popularity of Nintendo’s gaming console coupled with “a maxed-out supply chain that can’t be ramped up to meet holiday demands” means it could be next to impossible to purchase a Wii before Christmas at retail stores, explains Chris Kohler at Wired.

–posted by Associate Editor John Sullivan

World War II was won by the Allied forces, not only because we were right, but also because we had more men and women, more weaponry and more money, and that money in turn would train more men and women and build more weaponry.

“But being fair, and being just, is what allowed our civilized society to survive and prosper, while that of our conquering ally, the Soviet Union, cracked, crumbled and collapsed because it attempted to perpetuate a society that was fundamentally unjust and unfair.

“And if the Internet should require an unjust and unfair paradigm in order to perpetuate itself, then it too will crack, crumble and collapse, and it won’t take five decades of Cold War politics for it happen.

“That is why it is in your interest to join our fight to protect and defend the property rights of creators everywhere. And that is why we are bringing our fight to the court of justice and to the court of public opinion.”

–Warner Music Group boss Edgar Bronfman Jr., May 26, 2000

Edgar Bronfman Jr.’s abusive relationship with Steve Jobs has apparently resulted in a Stockholm Syndrome-esque emotional attachment between the Warner Music CEO and Apple. Speaking at the GSMA Mobile Asia Congress in Macau, Bronfman–who’s long been critical of the company that arguably legitimized the digital music business–turned tack and lauded iTunes as a prime example of digital music done right.

“For years now, Warner Music has been offering a choice to consumers at Apple’s iTunes store the option to purchase something more than just single tracks, which constitute the mainstay of that store’s sales,” Bronfman said. “By packaging a full album into a bundle of music with ringtones, videos and other combinations and variations, we found products that consumers demonstrably valued and were willing to purchase at premium prices. And guess what? We’ve sold tons of them. And with Apple’s cooperation to make discovering, accessing and purchasing these products even more seamless and intuitive, we’ll be offering many, many more of these products going forward.”

And so began a paean to Apple which, by the time Bronfman concluded, had heaped adulation on everything from the company’s design chops to its billing-platform savvy. “You need to look no further than Apple’s iPhone to see how fast brilliantly written software presented on a beautifully designed device with a spectacular user interface will throw all the accepted notions about pricing, billing platforms and brand loyalty right out the window,” Bronfman continued. “And let me remind you, the genesis of the iPhone is the iPod and iTunes–a music device and music service that consumers love.”

Clearly, Bronfman’s had quite an epiphany since his war-against-the-consumer days, when he was calling for mandatory peer-to-peer filtering and taxes on recordable media and MP3 players and demanding a share of Apple’s iPod revenue. “We used to fool ourselves,” he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file-sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and, as a result of course, consumers won.”

Doug’s a very special guy. He’s the last of the great music executives who came up through A&R. He’s old school. I like him a lot.”

–Apple CEO Steve Jobs on Universal Music Group CEO Doug Morris

The per-device royalties Universal Music Group receives for every Zune player sold were apparently substantial enough to buy CEO Doug Morris a bigger set of balls, because he’s out drumming up support for an industry-owned subscription service with which he hopes to loosen Apple’s grip on the digital music market.

The endeavor is called “Total Music,” and Morris has already approached Sony BMG Music Entertainment and Warner Music Group about participating. His proposition: a subscription-based music service for the hardware industry, one whose cost could be baked into the hardware that supports it. Under the Total Music model, hardware makers subsidize the cost of music, which consumers are then given for “free” when they buy a new digital media player. That’s more money up front for hardware makers, but it’s a wise investment because, as Morris reckons, they’ll make that money back and then some by selling many more devices.

Interesting business model. “If the object is to wrest control of the market from Steve Jobs,” said Gartner analyst Mike McGuire, “this is a credible way to try it.”

Sadly for Morris, it’s also one inevitably complicated by recent turmoil in the music industry. With Radiohead releasing its latest album as a pay-what-you-will digital download, Nine Inch Nails declaring itself a free agent, and Madonna about to dump Warner Music Group for a concert promoter, we’re clearly seeing a sea change in music discovery, distribution and consumption, one perhaps lost on an industry so hardened by years of CD price fixing. So while the music industry struggles so to wrest control of the digital music market from Apple, some of today’s biggest popular artists are crafting an entirely new business model.