This morning the company announced slotMusic, a compact memory card-based music format that can be played on cellphones, PCs and some MP3 players. It relies on MP3s without digital rights management schemes and is backed by Universal Music Group, Sony BMG Music Entertainment, Warner Music Group and EMI Group, all of which apparently believe that more physical media is the best way to reinvent their business model in the era of digital distribution. Though as SanDisk VP Daniel Schreiber notes, they do have their reasons. “There’s a billion phones out there and a lot of them can play music and a lot of them have a microSD slot,” he explained. “We think there’s still a need for a tangible, physical product. People will appreciate walking out of the store playing music on their phones.”

Perhaps. But will they appreciate carrying that music around on a 0.6″ x 0.4″ medium that’s about the size of a fingernail? Seems easy to lose, doesn’t it (maybe Case Logic is planning a slotMusic binder)? And wouldn’t they rather carry around hundreds of songs, instead of the dozen or so stored on each slotMusic card? And what if the memory card in their phone is already in use, filled up with contacts, applications and other data? What then? And beyond this, haven’t iTunes and Amazon MP3 made consumers more accustomed to purchasing music à la carte? Why purchase a full album at $15, when all you really want are the only two good songs on it?

“The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small,” Bronfman said during an earnings call today. “There is what I would call a very paltry licensing fee per song. … I think the industry as a whole needs to take a very different look at this business and participate more fully and in a much more partnership way. And if that does not become the case, as far as Warner Music is concerned, we will not license to those games.”

Leaving aside, for a moment, the question of why Warner (WMG) agreed to a royalty scheme it apparently finds unappealing, you’ve got to wonder why the company persists in lambasting these new media that so obviously invigorate the industry and promote its music. And beyond that, you’ve got to wonder why Warner is doing it at a time when games like Guitar Hero and Rock Star are clearly becoming viable distribution outlets.

Of course, we already know the answer. Bronfman himself gave it to us in a speech last year. “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.”

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.”

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.