Industry information that you can actually use
In this issue:
-- The Digital Revolution declared officially "over." Majors Win! Dot-coms lose.
-- RIAA snitches on file sharer and gets him arrested
-- Napster's 40 Million "membership" may be more Red Herring than Trojan horse.
-- SDMI gives prize money to hackers so that they don't look completely stupid
-- BET will now be run by whitey as Viacom absorbs it.
-- Y2k Bug back in the limelight
This is not news...
News is allegedly objective. This is anything but. This is about
interpreting the news into information that you can use. The key to predicting the future is in interpreting the past. In real terms, this means understanding how the big players interpret their mistakes and their recent acquisitions.
And they make some big ones of both. Let's take a look. But first:
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Partners:
This month MosesAvalon.com picked up ten new affiliates, many of who are featured on the new and very much updated resources page under "Places to Go People to See." Also check out the new "Free Advice" section that lists scores of free resources for music related information. All are certified
"Moses Approves" as artist friendly.
This month's featured link is Musician's Junction, a free resource that will help you locate any type of musician anywhere in the world. Need a left handed Lute player in Guam or a LA drummer that shows up on time. Musician's Junction is an interactive search engine that finds them (often slumped over bars-- Kidding!). Later this month you can read an interview with it's originator, Michael Lascow, as he talks about the resource and how his controversial company, TAXI, was the real power that broke Farm Club's artist, Fisher.
Everything here can be reprinted, forwarded, or E-mailed,
as long as you give credit to the source, Moses Supposes and attribute authorship to Moses Avalon.
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RIAA SNITCHES ON AN MP3 USER-- GETS HIM ARRESTED
This one you're not gonna believe. The Recording Industry Association of Amerika (RIAA), desperate for an example to be made of a Napster user, has had to travel all the way to Oklahoma to find their scapegoat. Asserting their position, that all "file sharers" should get nothing less than a needle in the arm, they tipped off a District Attorney about a 19 year old student, who was "sharing" Pink Floyd's, Dark Side of the Moon (a record just about everyone owns anyway).
Now, I told many of my lawyer friends it would go this far. No one believed me so here are the facts, Jack:
Scott Wickberg was a graphics design freshman at Oklahoma University, when the local DA, tipped by the RIAA, seized his computer and placed him under arrest. He pleaded no contest to a misdemeanor charge of "unlawful advertisement or offer to distribute sound recordings." (Note: not "copyright infringement or facilitation thereof.") According to police reports, Wickberg was operating a file-sharing website that paralleled the MP3.com model where users to log on and download any of
the 10,200 MP3 files in his collection. How many people were actually using the service was not part of the report, but it was likely to be less than a few thousand. His punishment: two years "unsupervised and deferred probation" and a $5,000
fine. Not satisfied with this, the DA filed an additional application to get Wickberg to forfeit his computer, monitor, hard drives and 44 blank CD-R disks so that they could be destroyed.
So, while 19 year old Shawn Flemming grows to be a millionaire for creating Napster, the ultimate copyright infringement machine with millions of users, 19 year old Scott Wickberg, with relatively minimal penetration, will now have a criminal record. Can somebody explain this to me so that is makes
sense?
Rumor has it, the RIAA is paying for copyright infringement tips of this kind. Just like the IRS does if you know someone who is cheating on their taxes.
LEAD STORY:
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WELCOME TO THE REVOLUTION. NOW LEAVE.
It was supposed to change the music biz for an eternity. It lasted 11 months. The so-called "Internet Music Revolution," has seen its light at the end of the tunnel now that the Big Five have formed the key alliances that will shape the virtual music marketplace.
It's no secret that I have vocally disagreed with "experts" claiming that the Internet was going to put a huge dent in Big Five revenue, but I thought for sure dot coms would gain a small margin of power for pioneering download sales. I was wrong.
Apparently, I underestimated how quickly the Wall Street powered webcasters would sell out. But with the DOW in the shitter, brow-beaten investors are running scared instead of fighting what many believed was a winning battle, albeit an expensive one. So, much like the Sexual Revolution of the 60s, the Digital Revolution seems about over and leaving many wondering who won.
Here's how of the new music industry will reshape itself in the first year of the 21st century.
UNI/MP3.com
If you can't acquire a company by buying their stock, maybe you can lawsuit them into a partnership. Over at Universal Music Group, the Big Fiver succeeded in "convincing" MP3.com into paying them $57 million, almost three times the amount that MP3.com was required to pay other Big Five companies
after a judge ruled that they were guilty of "willful copyright
infringement." This leverage allowed UNI to impose what is tantamount to a hostile takeover of the Internet music pioneer. Despite the opinion by many experts (I wasn't one of them) who thought that MP3.com had a great case for
an appeal, based on the recent controversy concerning the "Work for Hire" status of sound recordings, they buckled and agreed to become Universal's dot-com whipping boy.
Such an appeal, had MP3.com tried to pull it off, would center around the fact that if sound recordings, under UNI's contract, are not works for hire, then UNI has no right to collect a judgment for copyright infringement, since they might not own the copyright, the artist would. Instead, they will now be proudly featuring UNI artists on their site and entering into licensing deals to promote their catalogue.
In an attempt to sound humanitarian, Universal boasted that they plan to share half this $57 Mil with their roster of artists. But their bravado was quashed embarrassingly when a number of industry experts, interviewed by journalists (including myself) pointed out that Universal's standard artist contract required them to share this wealth anyway. Nice try guys.
BMG/Napster
In the past month BMG, taking a divide and conquer philosophy, has more than caught up by collecting Internet alliances as if they were baseball cards. Its most important one is the Napster technology. How useful will this be to them? Well, BMG is gambling that users will pay $15 a month to use the Napster file-sharing service. But how many users does Napster really have? (See below) Estimates suggest that even if only a minority of Napster's alleged 40 million users agrees to pay for what was once free, BMG will still make out like a bandit. Obviously, the other major labels agree, because
deals were discussed this month to license the technology to several of BMG's competitors. (Aren't these the same guys that were suing Napster only two months ago?)
This multi-lateral alliance could put policing companies like, Liquid Audio, who has had an ongoing relationship with Napster, in the driver seat in terms of dictating standards for encrypting and watermarking technology, an arena that, without a doubt, will be paramount to the new music business's competitive tapestry. (symbol: LQID. See related story below.)
If owning the technology of choice isn't enough, EMI is likely to merge within BMG giving them the largest portfolio of major labels and publishing catalogues in the business.
But all is not rosy for the German giant. For example: music e-tailer EMusic.com, a premium player in the on-line record game, with a catalog of 140,000 songs, is not playing along. They fired the first shot in what will undoubtedly be a floodgate of lawsuits against Napster, now that they have
the deep pockets of BMG to dig into. This month, EMusic announced that it had begun using technology that snags Napster users as they Bogart their catalogue into MP3 files.
Napster is attempting to comply with Emusic's request for a pop-up warning whenever one of their "sharers" accesses an Emusic.com song, but it's fairly obvious that soon Napster may find themselves in over compliance mode and will likely simply begin buying out or outright ignoring requests from the small fry digi-lables just to get on with their business.
Napster - How Many Users, Really?
Regardless of the above, the BMG/Napster alliance might turn out to be something of a red herring rather than Trojan horse. Publications ranging from Reuters to Industry Standard have placed the Napster community at anywhere from 14 to 40 million participants depending on which wire-service you get your facts from. But where is the real number? No one knows for sure, even Napster, who still claims they cannot track their users, even if EMusic.com can.
However, one inside source told me that Napster's real community may boil down to less than 5 million active members using a variety of screen names and aliases which artificially inflates the published number. If this is true, BMG may be in for a disappointing 2001 Christmas season.
AOL/Time Warner
WEA's (Warner Electra Atlantic) contribution is, of course, the AOL merger, which is forging ahead despite potential Federal Trade Commission's intervention and will, likely succeed in forming the most powerful merger in music business history. This is likely, mainly because AOL holds the largest organized Internet audience and can create a de facto standard for
downloading, watermarking, and delivery at will, by simply deciding which method to adopt, and avoiding all the red tape of multi-corporation compliance. Other companies will likely be forced to follow along with the AOL standard if they want to immediately access its 25 million confirmed users. This, combined with the WEA catalogue, will make AOL/WEA the 6000 pound gorilla of on-line record companies.
However, Time is not on their side. (That's a pun) Even if the FTC allows the merger, it will likely take months, if not a couple of years, to properly employ all necessary components for a fully operational digital music delivery system. Meanwhile, their stock continues to plummet and BMG/Napster, soon fully operational, has already forged alliances with other Big Fives.
And the winners Are:
The usually suspects. Yes, it appears the Big Five will do just fine in the new millennium as they gobble up the primary players and get the smaller dot-coms to fight amongst each other for market share. The on-line music revolution is basically over, as now each of the free services "revolutionaries" will be charging fees and joining the establishment as a result of the new business models dictated by their respective Big Five sugar daddies.
What we will see in the end on the Internet will be a mirror image of what we see in the analog world: several large companies and their distribution systems of choice, bottlenecking and monopolizing the information
superhighway with their elite catalogue of "hits," forcing the smaller players to conform to their standards and compete in an area that is slanted against them.
We will have AOL/WEA with their confirmed 20 plus million users and the AOL Instant Message type system for delivery, verses BMG/Napster with their alleged 40 million and the "File Sharing" model, verses UNI/MP 3.com's eight million users with their "Song Locker" service. (What does Sony have up their sleeve-the Memory Stick, destined to be about as useful to consumers as the MiniDisk.)
And if that's not enough:
No revolution and truly be squashed unless the victors make it absolutely and completely economically unfeasible for the losers to compete in the new-world-order. I mean, we don't one another revolution on our hands, do we? And that's why!
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THE RIAA MAKES A BID FOR WORLD DOMINATION.
To squash completely any "free" efforts to market music on-line music, the RIAA has positioned themselves as the bag-man to collect a newly established royalty that could potentially apply to e-radio stations and anyone offering
the sale or listening of music through the Internet. This royalty asserts that webcasters be required to pony up cash for every song they "stream" through the pipeline. This would include the downloaded samples of songs that on-line record companies use as sales bait, file-sharing, and anything else that is considered, "interactive."
The RIAA launched The SoundExchange, a collection agency, which will bill webcasters and radio stations and sue them if they don't pay up the money that will be distributed to the 2,100 record labels that have agreed to let the RIAA be their collection agent.
"The recording industry understands the urgent need to bring subscription music services online," said Hilary Rosen, president and chief executive officer of the RIAA, in a press release. But what she really wanted to say is:
"With this device I can rule the world!!!" as she runs naked down the halls of the Federal Copyright Office asking them to acknowledge her as the patron saint of Sound Recording fees.
Enactment of the Digital Performance Rights Act of 1995 and the Digital Millennium Copyright Act of 1998 made it possible for an agency to be set up and collect "interactive" SR fees. This would be separate royalty than the one ASCAP or BMI collects from radio stations and live venues for the writers of songs. This new royalty is money that the owners of the master recordings get for playing or streaming their copywriten recording over the airwaves and the Internet. Only record companies would receive this money, potentially
undermining royalties that are collected by non-profit organizations, like ASCAP and BMI.
This new SR royalty is long over due-- no dispute, but hopefully, someone will step up to object to the RIAAs' roll as collector and offer a non-partisan alternative to SongExchang as one can't help but wonder, what exactly will be "exchanged," aside from cash to labels in return for them not
litigating its "members" into bankruptcy. Smaller labels, who join the coalition, will not likely see money, much in the same way that smaller songwriters rarely see any money of consequence from performing rights organizations who collect on behalf of thousands of "more active" members. Also, the use of the descriptive category, "interactive" will become the legal hot-potato, as each company the RIAA muscles will try to classify themselves as anything but.
But one practically difficult challenge for the RIAA in collection will be finding and serving lawsuits on those on-line companies who do not wish to comply. Honestly, I can not imagine most small Internet radio stations, famous for their f-ck you attitude toward the majors, even agreeing to participate. Well, fear not. This week Liquid Audio announced that they have secured a patent for program that can determine a user's location based on the geopolitical territory of the user's Internet Protocol (IP) It's a small world after all.
How this will affect you?
Gee, how won't it effect you is easy to answer.
Worth noting is that sound recording royalties are not necessarily passed along to the artists, despite the PR that labels will "pay" the artist this royalty "directly." What this really means is that the money will be applied to the artist's debt to the label. Most labels, by contract, traditionally
hang on to SR money (like movie sound track licensing) as recoupment for expenses the label incurred for the artist's promotion. Some labels offer to split the fees with their artists. Most do not.
Also, producers take note. The Copyright Act of 1976 makes you an "author of a sound recording," meaning, (I believe) that you are now in the pool of people entitled to receive money from this new source. Something to bring up in your next contract negotiation.
But don't start shopping for a new house, no one knows as yet, how much these fees will be. Early estimates have put it in the low billions per year in total revenue collected by the RIAA. How much of this will get to you? Who can say? Artists will see their debts to labels diminish somewhat, but the
down side--and this is a serious downside for the Indie world--is that these fees will make any new music related Internet start-up economically unfeasible without major financing (probably for putting up a bond for the royalties generated by the start-up's future streaming of music) and put huge financial pressure on the ones already in existence to begin rethinking their "non-commercial" formats.
So now the Big Five (or their comrades) will own the technology to deliver the sale of Internet music and be able to enforce, through the RIAA, "independent" vehicles (like Webcasting radio) into a pay-for-play model as well. Sound familiar? The FTC has not made this connection yet. They are
too busy breaking apart Microsoft, AOL and other companies that provide quality services.
In a unrelated story, the Federal Trade Commission has accepted an invitation from Parker Brothers, makers of the board game Monopoly, to help them restructure the game's rules to reflect the new economy environment. Some of
the FTC's suggestions are as follows: rather than winning the game after you acquire all the properties and hotels, you will now be forced to divide them up amongst the other players and then go directly to jail without collecting $200. You may also use the little metal boot to kick yourself in the ass for
ever tying to have a successful business in the first place.
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Y2K GO AWAY
In the "yeah, most of us already knew," department, several papers reported this week that the techno apocalypse dubbed the "Millennium Bug" is now officially considered "a hoax." It was perpetrated largely by a marketing firm called, Gartner Group, who published a "news release" predicting the Y2K
glitch would cost up to $600 billion to fix. The alleged hope for this, was in generating high consulting fees for them and other like companies.
Oops.
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FOLLOW-UP STORIES
--SDMI Caught in a lie
Last month it was reported that the Secure Digital Music Initiative's proposed codes for encryption were hacked. They denied it naturally, but this month they acknowledged several hackers with prize money for participation in their "we dare you to hack us" contest, with rewards of $5,000 each.
Although their heart may be in the right place, unfortunately, this is great encouragement for all the cyber-cowboys who invent things like the "I love You" virus, so they can advertise their programming skills and get jobs. So, the next time you get one of these viruses you can thank people like the SDMI
and their moronic incentive. Considering that they are supposed to be encouraging the opposite, it's a bit embarrassing. I guess you can't break an omelet without making a few eggs. Then again, look who their sponsors
are: Universal Music, BMG, Sony Music, Warner Music Group and EMI. (Those same names keep popping up. FTC wake up!!!)
--BET now in the hands of Whitey
Last month's story about the MTV's potentially biased agenda in closing The Box raised more than a few eyebrows. Several news groups picked up the story and ran with it. Well, not three days after that story ran, Viacom announced that they were buying Black Entertainment Network (BET).
Mel Karmazin, BET's president said, "This accretive transaction is amajor step forward in our strategy to expand in the fastest-growing media industry segments and will immediately benefit shareholders, as well as broaden our already formidable presence as the largest national and local platform for advertisers."
(Notice how there was no mention of the effect that this will have on urban music.)
This development, and the closing of the UBO portal (Urban Box Office) puts the control of promoting African American artists squarely under the one umbrella-Viacom. Let's hope they have both heart and soul. But if they don't? Don't say I didn't warn you. (see below)
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OBITUARY
The Urban Box Office an urban-culture portal, laid off about 300 of its staff this month and will file for Chapter 11 bankruptcy protection. After their Texas-based Interfase Capital withdrew their offer to continue to finance the
company, they made the announcement early last week to throw in the towel. They were about $3 Mil in the hole to date. Those who think that this is just a coincidence should read last month's Moses Supposes story regarding MTV's dismantling of The Box and this month's blurb above about Viacom acquiring BET.
Also, good riddance to November, a month that has
left investors gasping for mercy.
That's all for this month. Hang tight and keep loose. And of course, Happy holiday to you and your family. May the New Year bring you all the things you want, and need: creative freedom, and fair trade practices among your fellow Man. See you in the beginning of the next century.
Moses Avalon
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