jump to navigation

Why Does Apple Want to Halve the Price of On-Demand Music? October 26, 2014

Posted by Bill Rosenblatt in Business models, Music, Services, United States.
add a comment

Apple is asking record labels to agree to a $5/month subscription price for its Beats Music on-demand service, instead of the going rate of $10/month that it and others (Spotify, Rhapsody, etc.) charge in the US market.  This development started as rumor a few weeks ago, then rose to specific evidence of record label conversations confirmed by musician and artists’ rights champion David Lowery at the recent Common Ground intellectual property conference at George Mason University near Washington DC.  As of this past Friday, the evidence became strong enough for the Wall Street Journal to treat it as fact.

Re/code also reports that despite the major labels’ apparently cool reception to the new pricing, Spotify is already responding by offering a family plan in which additional family members can add their own subscriptions to a $10/month plan for $5/month.  (Beats Music has been offering discounted family plans through AT&T wireless accounts for a while.)  As Re/code reports, one reason that Apple has given for the change to $5/month is that it has found that its best iTunes customers spend about $60/year on the service.  Given that music download revenue has begun to drop rapidly, Apple apparently believes that it can entice iTunes users to an all-you-can-eat subscription service at the same spending level, instead of losing those users to free music services (or illegal downloads).  In other words, $5/month subscriptions are being offered to labels as a way to shore up revenues at $60 ARPU (annual revenue per user) from people who actually still pay for music .

This reasoning is clearly designed to appeal to record labels, which are known to be unhappy about the accelerating decline in purchases.  But is it Apple’s real motivation for halving the price of on-demand subscriptions?  I don’t think so.

The first thing to understand about on-demand music services is that despite all the talk about monthly subscription fees, the vast majority of users do not pay for them.  Research from Edison Research and Triton Digital has determined that the use of YouTube as a de facto on-demand music streaming service draws a US audience of four times all other on-demand services combined – including Spotify (paid and free).  Put another way, only about 8% of US users of on-demand music services actually pay for them.  Spotify’s percentage of paying US users has stabilized at 25% — which I am proud to say that readers of this blog predicted three years ago — while Google Play, Rhapsody, Rdio, and Beats Music do not offer free tiers for on-demand music.

On-demand music use is growing rapidly, but Apple only has a tiny piece of the market.  Beats Music has merely a few hundred thousand users, compared to the estimated 60 million who use YouTube as an on-demand music service and Spotify’s 12 million total US users.  Even when one counts only paying users, Beats Music still accounts for well below 10% of the market.

Apple clearly must do something dramatic to become a serious contender.  Integrating Beats Music into iTunes (and thereby marketing it heavily to the enormous iTunes audience) by itself isn’t going to expand the market enough to be meaningful to Apple.  And even if Apple thinks it can increase the paying user base disproportionately by halving the price, that’s not much of an increase in audience size — especially since the vast majority of the on-demand audience already gets it for free.

No, my view is that Apple’s primary purpose in halving the price is to throw the on-demand market into disarray.  Services like Spotify and Rhapsody have been operating their businesses based on the expectation of $10/month revenue for years.  Obviously, if Apple comes out with a rebranded Beats Music (iTunes On Demand, iTunes Beats, iTunes Unlimited, iTunes Jukebox, or whatever they end up calling it) at $5/month, all of the other on-demand services will have to offer the same price.  Spotify, Rhapsody, and Rdio would find themselves with unsustainable financial structures and/or the necessity of renegotiating their record label deals.  The best that any of these “pure play” services could hope for is to become acquisition bait for companies that are big and diverse enough to be able to cross-subsidize them (Yahoo and AOL come to mind).  A move to $5/month could even cause Google to rethink its plan to launch a paid subscription music service associated with YouTube.

In short, I predict that if Apple gets record companies to agree to $5/month for on-demand music, we will see a repeat of the shakeout that occurred around 2007-2008, which left only a handful of on-demand services in the market.  When the smoke clears, Apple could well find itself with a much larger chunk of the on-demand music market than if it were to try to grow its share organically.

The remaining mystery is whether Apple intends to add a free tier to Beats Music, such as a limited on-demand capability under the iTunes Radio banner.  The advent of free, legal on-demand music from Spotify and (effectively) YouTube in 2011 did cause the on-demand model to grow from a niche product for music geeks to a mainstream offering.  On-demand is still not quite as popular as Internet radio — I estimate the on-demand audience to be about 60% of the size of the audience for Pandora, iHeartRadio, etc. — but it has surpassed the user base for paid digital downloads.

On-demand is clearly a big part of the music industry’s digital future.  Apple is behind in the transition from downloads to access-based models and needs to catch up.  Only dramatic, disruptive gestures can make this happen, and halving the price is certainly one of them.

Now, since you were so good at predicting Spotify’s percentage of paying US users, let’s see how you do with this one.  Here’s a poll: 

That Old Question Again September 28, 2014

Posted by Bill Rosenblatt in DRM, Economics, Music, Services, United States.
add a comment

I’m looking at the U.S. music revenue numbers that the RIAA just released for the first half of 2014; at the same time, I’m reading Download: How Digital Destroyed the Record Business, a 2013 book by the noted UK music journalist Phil Hardy, who tragically passed away in April of this year.  For “numbers guys” like me, the book is a bonanza of information about the major labels’ travails during the transition from CDs to purely digital music. It’s a compendium of zillions of hard facts and opinions delivered with Hardy’s typical dry British wit  – though (like his other books) it would have benefited from a copy editor and, occasionally, fact checker.

One of the statements in Hardy’s book that sits somewhere between fact and opinion is his assertion — as recently as last year! — that the elimination of DRM from music downloads boosted sales.  Sigh… that old question again.

The question of whether DRM-free music download sales helped or hindered the music industry (no doubt it was good for consumers) served as a sort of Rorschach test back in the late 2000s after Apple and Amazon started selling DRM-free downloads — rather like the Rorschach test of Radiohead’s “pay what you wish” experiment in 2011.  If you hated DRM, DRM-free was going to usher in a bright new era of opportunity for everyone; if you liked it, removing DRM was going to spell the end of the music business.

So I thought that with the RIAA revenue statistics database in hand, I could put the old question to rest.  Here is what I found:

U.S. Digital Music Revenue, millions of 2013 dollars.  Source: RIAA.

U.S. Digital Music Revenue, millions of 2013 dollars. Source: RIAA.

In this chart, “Downloads” includes singles plus albums; “Streaming” includes both paid and ad-supported on-demand services (Spotify, Rhapsody, YouTube, Vevo)* as well as Internet radio (Pandora, iHeartRadio, Slacker, TuneIn Radio), plus satellite radio and a few other odds and ends.  I estimated totals for 2014 by taking the RIAA’s newly released numbers for the first half of this year and applying growth rates from the second half of 2013 to the first half of this year.

The relevant dates are:

  • April 2003: Apple opens the iTunes Music Store.
  • May 2007: Apple launches iTunes Plus, selling tracks from EMI without DRM for $1.29.
  • January 2008: Amazon launches AmazonMP3 with DRM-free MP3s from all labels.
  • May 2009: iTunes goes completely DRM-free in the US.
  • 2011: Spotify launches its “freemium” model in the US; major labels complete ad revenue share deals with YouTube, so that virtually all major-label music is available on YouTube legally.

Before we get into the analysis, let’s get one thing out of the way: the biggest change in music industry revenues from 2003 onwards was, of course, the dramatic drop in revenues from CDs.  Those numbers aren’t shown here; for one thing, they would dwarf the other numbers.  This is all part of the move from physical products to digital products and services, which has affected both downloads and streaming.

Now let’s look at what happened after 2007.  Growth in download sales began to slow down a bit, while streaming remained fairly flat.  Starting in 2008, growth in paid downloads remained virtually unchanged until the ad-supported on-demand year of 2011.  2008 was a transitional year for DRM, as Apple only offered a small amount of music DRM-free (and at higher prices), while Amazon offered all DRM-free music but had only a single-digit share of the market.  The real post-DRM era for paid downloads started in May 2009.

So, to see what happened after the major labels agreed to sell digital files without DRM, we need to look at the period from May 2009 to the start of 2011, which is highlighted in the chart.  What happened then?  Not much of anything.  Growth in download sales was essentially unchanged from the preceding two years.

One could argue that if streaming hadn’t ever existed, download revenues might have grown after January 2009, given that streaming revenues from 2009-2011 started to grow faster.  But given that streaming growth didn’t accelerate immediately after January 2009, I wouldn’t make that causality.

So there you have the answer to the old question: removing DRM from music files had little or no effect on download sales.

As a postscript, my 2014 projections included an interesting factoid: vinyl album sales, if current growth rates continue, should reach about $340 million this year.  That takes the resurgence of vinyl from a mildly curious hipster phenomenon to almost 5% of total music revenue.  For comparison purposes, it makes vinyl almost as valuable as ad-supported on-demand streaming (YouTube, Spotify Free, Vevo) and puts it on track to exceed that segment in 2015.  Vinyl could even end up equaling CD revenue sometime around 2016-2017 — for the first time since the late 1980s!

*Paid subscription on-demand services include download features, which use DRM to tie files to users’ devices and make them playable as long as the user pays the subscription fees. But the RIAA reports these as part of “subscription services,” lumping them in with streaming on-demand music.

Ghosts in the UltraViolet Machine September 24, 2014

Posted by Bill Rosenblatt in Business models, Music, Publishing, Services, Video.
add a comment

A few brief items of interest this week.  First is a reminder about Copyright and Technology London 2014 next Wednesday – there’s still time to register!  We have a great lineup of keynote speakers, including Shira Perlmutter, Maria Martin-Prat, and Dominic Young of the Copyright Hub, as well as panels on hot issues such as ISP responsibility for policing infringement and content protection for “4K” video content.  I look forward to seeing some of you in London next week.

Meanwhile…

Apple and Amazon Add UltraViolet-Style Family Accounts

Amazon and Apple recently announced the addition of “family accounts” for sharing content.  These enable up to six users who share a billing address to link accounts and get access to each other’s content, including e-books, apps, music, and video.  Apple’s Family Share is a feature of the new version of its mobile operating system, iOS 8, while Amazon’s Family Library feature is expected to launch later this Fall.

The primary difference between the two is that Apple Family Share enables the sharing of all videos downloaded from iTunes while Amazon only allows sharing of video streamed via Amazon Prime Instant Video, as opposed to videos purchased by non-members of Amazon Prime.  (In other words, this is yet another gambit to entice more users into Amazon’s US $99/year Prime service.)  Some websites have commented that Amazon’s service does not allow sharing of purchased music, while Apple’s does; but this is a bit silly given that music downloaded from both services is DRM-free.

It’s not particularly surprising that Hollywood studios have given both Amazon and Apple the rights to extend purchases to family accounts.  That’s because the rights are similar to those that the studios already extend for the same types of content under UltraViolet usage rules.  In fact, the availability of family access to video content from two of the biggest digital movie retailers eats into the advantages that UltraViolet offers.  (UltraViolet’s principal retail partners are Nook (Barnes & Noble), Target, and Best Buy).

More surprising is that one of these retailers decided it was worth the development effort to add this feature (causing the other to add it as well); perhaps this is a sign that UltraViolet is catching on?  Either way, this is yet another example of how the mainstreaming of digital content products and services has exposed deficiencies in the rights that users get to digital content compared to physical products such as DVDs (not to mention print books) and has led to innovation.  I would expect a similar announcement from Google Play in time for the holiday shopping season.

Garth Brooks Launches GhostTunes

Finally, a minor hypestorm erupted in the music industry recently over the beta launch of GhostTunes, a new digital music retail site spearheaded by country music superstar — and longtime digital holdout — Garth Brooks.  Contrary to initial reports, GhostTunes does not only sell albums; it also sells single tracks — though only at artists’ or labels’ discretion. Purchased music is available in an online locker and can be streamed or downloaded as DRM-free MP3s.  Some items are multi-album packages that contain multimedia items, in the vein of Apple’s iTunes LP.

Many musical artists will surely like GhostTunes’ willingness to sell single tracks only if the artist permits it.  The recorded music industry has been looking for ways to prop up the sales of albums in the digital age — just as UltraViolet was originally intended to help Hollywood studios prop up sales of movies while all of the growth is in streaming.  According to RIAA statistics, single track sales accounted for about 1% of unit volume when the iTunes Music Store opened in 2003 and have grown to over 80% today.

Yet GhostTunes looks like it is shaping up to be the music industry’s Pluto Nash moment: an expensive undertaking whose primary function is to cater to the whims of a big influential star rather than to be successful as a business.  Although GhostTunes is billed as an “artist-friendly” retail site, there’s little reason for anyone to go there other than the exclusive availability of Garth Brooks’s music in digital form… legally. The music selection comes from all three major labels but is limited: the press release touts “a million tracks” (compared to more than 20 million on iTunes or Spotify), while the site itself appears even more limited to a few dozen releases in each of several genres.  The highlight of the current catalog is a bundle of a dozen albums plus a concert video from Brooks himself for $30.

GhostTunes received a moderate amount of attention two weeks ago, ranging from neutral and factual to critical and skeptical. The press release contains a combination of vague hype (“music fans and artists deserve more”) and either falsehoods or anachronisms (“Just as it seemed fans would be left buying music in an increasingly more restrictive configuration without the ability to take the music they purchase anywhere they please, GhostTunes.com offers a new way.”)

It’s hard to see what GhostTunes can possibly offer that isn’t available on iTunes or Amazon — other than low prices for album bundles — but we’ll see what it does offer when (or if) it goes from beta to full launch.

MP3Tunes and the New DMCA Boundaries March 30, 2014

Posted by Bill Rosenblatt in Law, Music, Services, United States.
2 comments

With last week’s jury verdict of copyright liability against Michael Robertson of MP3Tunes, copyright owners are finally starting to get some clarity around the limits of DMCA 512.  The law gives online service operators a “safe harbor” — a way to insulate themselves from copyright liability related to files that users post on their services by responding to takedown notices.

To qualify for the safe harbor, service providers have to have a policy for terminating the accounts of repeat infringers, and — more relevantly – cannot show “willful blindness” to users’ infringing actions.  At the same time, the law does not obligate service providers to proactively police their networks for copyright infringement.  The problem is that even when online services respond to takedown notices, the copyrighted works tend to be re-uploaded immediately.

The law was enacted in 1998, and copyright owners have brought a series of lawsuits against online services over the years to try to establish liability beyond the need to respond to one takedown notice at a time.  Some of these lawsuits tried to revisit the intent of Congress in passing this law, to convince courts that Congress did not intend to require them to spend millions of dollars a year playing Whac-a-Mole games to get their content removed.

In cases such as Viacom v. YouTube and Universal Music Group v. Veoh that date back to 2007, the media industry failed to get courts to revisit the idea that service providers should act as their own copyright police.  But over the past year, the industry has made progress along the “willful blindness” (a/k/a “looking the other way”) front.

These cases featured lots of arguments over what constitutes evidence of willful blindness or its close cousin, “red flag knowledge” of users’ infringements.  Courts had a hard time navigating the blurry lines between the “willlful blindness” and “no need to self-police” principles in the law, especially when the lines must be redrawn for each online service’s feature set, marketing pitch, and so on.

But within the past couple of years, two appeals courts established some of the contours of willful blindness and related principles to give copyright owners some comfort.  The New York-based (and typically media-industry-friendly) Second Circuit, in the YouTube case, found that certain types of evidence, such as company internal communications, could be evidence of willful blindness.  And even the California-based (and typically tech-friendly) Ninth Circuit found similar evidence last year in a case against the BitTorrent site IsoHunt.

The Second Circuit’s opinion in YouTube served as the guiding precedent in the EMI v. MP3Tunes case — and in a rather curious way.  Back in 2011, the district court judge in MP3Tunes handed down a summary judgment ruling that was favorable to Robertson in some but not all respects.  But after the Second Circuit’s YouTube opinion, EMI asked the lower court judge to revisit the case, suggesting that the new YouTube precedent created issues of fact regarding willful blindness that a jury should decide.  The judge was persuaded, the trial took place, and the jury decided for EMI.  Robertson could now be on the hook for tens of millions of dollars in damages.

(Eleanor Lackman and Simon Pulman of the media-focused law firm Cowan DeBaets have an excellent summary of the legal backdrop of the MP3Tunes trial; they say that it is “very unusual” for a judge to go back on a summary judgment ruling like that.)

The MP3Tunes verdict gives media companies some long-sought leverage against online service operators, which keep claiming that their only responsibility is to respond to each takedown notice, one at a time.  This is one — but only one — step of the many needed to clarify the rights of copyright owners and responsibilities of service providers to protect copyrights.  And as far as we can tell now, it does not obligate service providers to implement any technologies or take any more proactive steps to reduce infringement.  Yet it does now seem clear that if service providers want to look the other way, they at least have to keep quiet about it.

As for Robertson, he continues to think of new startup ideas that seem particularly calculated to goad copyright owners.  The latest one, radiosearchengine.com, is an attempt to turn streaming radio into an interactive, on-demand music service a la Spotify.  It lets users find and listen to Internet streams of radio stations that are currently playing specific songs (as well as artists, genres of music, etc.).

Radiosearchengine.com starts with a database of thousands of Internet radio stations, similar to TuneIn, iHeartRadio, Reciva, and various others.  These streaming radio services (many of which are simulcasts of AM or FM signals) carry program content data, such as the title and artist of the song currently playing.  Radiosearchengine.com retrieves this data from all of the stations in its database every few seconds, adds that information to the database, and makes it searchable by users.  Robertston has even created an API so that other developers can access his database.

Of course, radiosearchengine.com can’t predict that a station will play a certain song in the future (stations aren’t allowed to report it in advance), so users are likely to click on station links and hear their chosen songs starting in the middle.  But with the most popular songs — which are helpfully listed on the site’s left navbar — you can find many stations that are playing them, so you can presumably keep clicking until you find the song near its beginning.

This is something that TuneIn and others could have offered years ago if it didn’t seem so much like lawsuit bait.  On the other hand, Robertson isn’t the first one to think of this: there’s been an app for that for at least three years.

Capitol Records Prevails in ReDigi Case April 1, 2013

Posted by Bill Rosenblatt in Law, Music, United States.
16 comments

A federal court in New York City handed down summary judgment against ReDigi over the weekend in its legal fight with Capitol Records.  In his ruling , Judge Richard Sullivan found the digital resale service liable for primary and secondary copyright infringement.   He rejected ReDigi’s arguments that its service, which enables users to resell music tracks purchased on iTunes, is legal under the doctrines of fair use and first sale.

The decision is a surprising blow to the Boston-based startup, especially given that Judge Sullivan refused Capitol’s request for a preliminary injuction early on in the case.

The central holding in Judge Sullivan’s opinion was that in order to resell a digital file, a user has to make another copy of it — even if the original copy disappears, and even if two copies never coexist simultaneously.  He based this holding on a literal interpretation of the phrase “copies are material objects” from Section 101 of the Copyright Act.

Once Judge Sullivan established that the ReDigi system causes another copy to be made as part of the resale process, the rest of his opinion flowed from there:

  • The user didn’t have a right to make that new copy, therefore it’s infringement — specifically of Capitol’s reproduction and distribution rights under copyright law.
  • ReDigi knowingly aided and abetted, and benefited from, users’ acts of infringement, therefore it’s secondary as well as primary infringement.
  • The user resold the new copy, not the original one, therefore it’s not protected under first sale (which says that a consumer can do whatever she wants with a copy of a copyrighted work that she lawfully obtains).
  • The “new” copies made in the ReDigi process don’t qualify as fair use: they are identical to the originals and thus aren’t “transformative”; they are made for commercial purposes; they undercut the originals and thus diminish the market for them.

In sum, as Judge Sullivan put it bluntly, “ReDigi, by virtue of its design, is incapable of compliance with the law.”  At the same time, he was quick to point out that his was a narrow ruling based on a literal interpretation of the law, saying that “this is a court of law and not a congressional subcommittee or technology blog[.]”  He investigated Congress’s intent regarding digital first sale and found that it hadn’t advanced since the U.S. Copyright Office — the copyright advisors to Congress — had counseled against allowing digital resale back in 2001.

I’ve always assumed that any district court decision in this case would be minimally relevant, as it would be appealed.  ReDigi has already stated that it will appeal.  And the opinion does contain patches of daylight through which an appeal could possibly be launched.

Most important is the opinion’s focus on the making of a “new copy” during the resale process.  It’s hard to see how this gibes with the many “new copies” of digital files made during normal content distribution processes, including streaming as well as downloads.

In other words, if ReDigi is making “new copies” without authorization, then so are countless other technologies.  Some such copies might be covered under fair use or the DMCA safe harbors.  Other “new copies” are considered “incidental” (not requiring permission from the copyright holder); the judge didn’t explain why copies made by the ReDigi system don’t qualify as incidental.  ReDigi did make a similar argument; the judge didn’t buy it because it didn’t involve the issues in this case, but a higher court, looking at the broader picture of digital first sale, might see things differently.

Judge Sullivan’s reliance on the Copyright Office’s 2001 report on digital first sale is also somewhat problematic.   The Copyright Office believed that a “forward-and-delete” mechanism — not unlike what ReDigi has built — could actually support digital first sale.  The Copyright Office simply concluded that such a mechanism would not be practical to implement.  This does not comport with Judge Sullivan’s assertion that “forward-and-delete” requires a new copy to be made and thus cannot qualify as first sale in the first place.

Another notable feature of Judge Sullivan’s opinion is his assertion that “a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk.”  The assertion that a user “owns” a digital download is itself controversial and not based on legal precedent.  Judge Sullivan found no legal precedent for digital first sale, but somehow he did find a basis for asserting that digital downloads are “owned.”

Retailers of digital goods believe that they don’t actually sell them in the way that books, CDs, or DVDs are sold; instead they license them to users under terms that may resemble sale.  The question of sale vs. licensing of copyrighted digital content is a gray area in the law, and it wasn’t up for examination here: Apple, for example, wasn’t a party to the case and remained silent throughout.  But if Apple (or another digital content retailer) ever objects to its content being “resold” through a third-party service, it will have to deal with Judge Sullivan’s language; and once again, it may be harder for a higher court to ignore this aspect of digital resale when determining its legality.

It remains to be seen whether the above issues can be forged into a legal theory that can convince the Second Circuit appeals court to reverse Judge Sullivan’s ruling.  Yet even if ReDigi throws in the towel and ceases operations, its very existence has called a lot of attention to the idea of digital resale.  The mechanisms are in place today: beyond ReDigi, there’s at least one more startup (the NYC-based ReKiosk); and Amazon was recently granted a patent for resale of digital goods.  Indie music labels and a few e-book publishers, at first, will most likely experiment with it.

This court ruling won’t eliminate digital resale; if let stand, it will simply restrict it to content that copyright owners have given permission to resell — permission that will probably include say over pricing, timing, and other factors.  This will complicate the lives of resellers, but it will ensure that digital resale doesn’t harm copyright holders.  In other words, ReDigi has let the digital resale genie out of the lamp.  It’s bound to happen, one way or another.

Copyright Alert System Launches in U.S. February 25, 2013

Posted by Bill Rosenblatt in Fingerprinting, Law, Music, Video.
2 comments

With today’s launch of the Copyright Alert System (CAS) by the Center for Copyright Information, the United States joins the list of countries that have adopted a so-called graduated response system for educating Internet users about online copyright infringement and taking steps to punish repeat offenders.  The CAS is finally launching after a few months’ delay, part of which was supposedly due to the effects of Sandy, the mega-storm that hit the northeast U.S. late last year.  Other graduated response countries include France, New Zealand, and South Korea; the United Kingdom is currently struggling with its own implementation.

The CAS is a partnership between music and video content owners on the one hand and major ISPs on the other.  The content owner representatives include not just the majors (RIAA and MPAA) but also the Independent Film and Television Alliance (IFTA) and American Association of Independent Music (A2IM).  On the ISP side, membership includes the five largest providers: AT&T, Verizon, Time Warner Cable, Comcast, and Cablevision.  Book and game publishers are not involved at this point.

The CAS is run by Jill Lesser, a tech policy veteran with deep experience on both the content and ISP sides.  It has an advisory board whose principal function seems to be to curb abuses: it includes advocates for looser copyright laws (Gigi Sohn of Public Knowledge) and user privacy (Jules Polonetsky of the Future of Privacy Forum).

The CAS works similarly to other graduated response regimes: copyright owners employ infringement monitoring services, which can identify copyrighted works as users send them around the Internet using fingerprinting and other content recognition technologies.  The monitoring services send notices to ISPs, which issue warning messages to users.  The warnings get stronger with repeat infringements.

ISPs can opt to punish repeat alleged offenders by such means as throttling bandwidth and making users watch videos about copyright.  (ISPs already have policies for terminating repeat infringers’ accounts, which they must have in order to maintain their eligibility for the DMCA safe harbor.)

Where the CAS differs from other graduated response systems is that it is not tied to law enforcement.  The arrangement between content owners and ISPs is voluntary. ISPs will not terminate or suspend users’ Internet accounts, nor will they pass information about infringements on to copyright owners.  Another difference is that the CAS is not being funded through taxes or levies on Internet service (although funding sources are confidential).

In other words, the CAS is a more purely educational approach than France’s HADOPI or other systems.  Analysis of the CAS’s results will therefore be more useful in determining how successful education by itself can be in getting people to respect copyright.  The hope is that education will do more than draconian statutory damages or blunt-instrument legislation.

Given how little effect those approaches have had, it may not be difficult to declare the Copyright Alert System a relative success in the years to come.  As it is now, it seems like quite a reasonable system: it raises awareness about the importance of copyright by using advanced Internet technologies instead of relegating enforcement to outmoded nontechnical legal means; it is permeated with references to legal content sources; and it doesn’t cost users a thing.

Music Subscription Services Go Mainstream September 17, 2012

Posted by Bill Rosenblatt in Business models, Music, Services.
add a comment

While revisiting some older articles here,  I came across a prediction I made almost exactly a year ago, after Facebook’s announcement of integration with several music subscription services at its f8 conference.  I claimed that this would have a “tidal wave” effect on such services:

I predict that by this time next year, total paid memberships of subscription music services will reach 10 million and free memberships will cross the 50 million barrier.

So, how did I do?  Not bad, as it turns out.

The biggest subscription music services worldwide are Spotify and Deezer.  Let’s look at them first.

Spotify hasn’t published subscribership data recently, but music analyst Mark Mulligan measured its monthly membership at 20 million back in May of this year.  Judging by the trajectory of Mulligan’s numbers, it ought to be about 24 million now.  In fact, Mulligan shows that Spotify’s growth trajectory is about equal to Pandora’s.  Furthermore, that’s only for users whose plays are reported to Facebook.  A redoubt of users — such as yours truly– refuse to broadcast their plays that way (despite constant pleas from Spotify), so make it at least 25 million.

Deezer, based in France, is Spotify’s number one competitor outside of the US.  A month ago, PaidContent.org put Deezer’s numbers at 20 million total but only 1.5 million paid, and added that Spotify’s paid subscribership is at 4 million.

Rhapsody is the number two subscription service in the US market.  Unlike Spotify and Deezer, Rhapsody has not embraced the “freemium” trend and has stuck to its paid-only model.  Rhapsody passed the 1 million subscriber milestone last December.

The next tier of subscription services includes MOG, Rdio, and MuveMusic (where the monthly fee is bundled in with wireless service) in the US; regional players including WIMP, simfy, and Juke (Europe); Galaxie (Canada); various others in the Asia-Pacific market; and Omnifone’s recently launched multi-geography rara.com.  These should all be good for a few hundred thousand subscribers each.

So among all these services, 50 million looks pretty safe for the number of total subscribers..  As for the number of paid subscribers, IFPI put it at 13.4 million for 2011 in its 2012 Digital Music Report, published in January.  Given that this represents a 63% increase over 2010, we can be confident in saying that the figure now is more like 17-18 million, but I’d back it off somewhat because IFPI probably counts services that I would not categorize as subscription (such as premium Internet radio).  So let’s say 13-15 million paid – way past my prediction of 10 million.

It’s also worth noting that if these figures are correct, the percentage of paid subscribership is in the 26-30% range.  That’s in line with the 20-30% that readers predicted here when I  ran a poll on this a year ago — the most optimistic of the poll answer choices.

To put this in perspective, 50 million still falls far short of the audiences for paid downloads, Internet radio, and even YouTube, which are all well above 100 million worldwide.  But it proves that the public is catching on to the value of subscription services, and they are no longer a niche product for “grazers.”

The Shame Factor August 30, 2012

Posted by Bill Rosenblatt in Economics, Music.
3 comments

Larry Lessig’s first book, Code and Other Rules of Cyberspace, is a landmark work in many respects.  One of the less-mentioned ones is his description, starting on p. 88, of the four forces that govern cyberspace (or any other environment that humans inhabit or interact with): the market (economics), architecture (technology), people’s behaviors (norms), and laws (self-explanatory).  This insight is an infinitely powerful tool for evaluating the digital world and attempts to influence the way it works.

In the world of content, we can view attempts to enforce copyright and uphold the value of creative works through the framework of Lessig’s four forces.  At one time or another, pro-copyright interests fight the battle on all four fronts: they support new business models that “compete with free” (the market), they try to implement technologies that limit what users can do with content or monitor cyberspace for copyright abuses (architecture), they try to educate consumers on behavior regarding copyrighted material (norms), and they litigate or lobby for stronger copyright protections (laws).

Most of what we talk about here is some combination of market, architecture, and legal factors.  The norms front has been both uninteresting and ineffective: it consists mainly of copyright holders’ desires to “make it easy to do the right thing” (through arms-length licensing deals with third parties that have other agendas, e.g. profit) and preachy educational campaigns (through trade associations that no one trusts).

Now David Lowery, of “Open Letter to Emily White” fame, has come up with what might just be the first interesting twist on norms: shaming big businesses.  In his blog The Trichordist, he has written a series of posts that all follow the same template: “[Musician with Artistic Cred] Exploited by [Name-Brand Companies]!!”  The musical artists with critical/indie cred have included Peter Gabriel, Neko Case, Aimee Mann, Neil Young, Jared Leto, Talib Kweli, and Tom Waits; the name-brand companies have included Volkswagen, LG, Ford, Target, Macy’s, Levi’s, Wells Fargo, BMW, Toyota, American Express, AT&T, Wendy’s, and many others.

Here’s what Lowery is trying to accomplish.  Torrent and file-sharing sites make money by selling ads that they show to people who come to those sites to download infringing music.  The artists and songwriters make no money from these ads (unlike, say, on YouTube, which shares ad revenue in many cases).  The companies that advertise don’t buy the ads themselves, of course; instead they are placed by online ad networks like ValueClick, Turn Media, 24/7 Real Media, AdBrite, Collective Network, Specific Media, and those run by Google, Yahoo, AOL, and Microsoft. Some ad networks buy ad inventory wholesale from other ad networks. In other words, the name-brand companies may not even know where their ads are being placed.

Many companies have policies with ad networks that their ads should not be placed on certain types of sites, including sites that offer infringing content (as well as porn, political extremism, etc.).  This is analogous to traditional advertising, where companies tell media buyers where and where not to place ads in publications, on TV shows, and so on.  The problem is that such policies often aren’t enforced — especially when multiple layers of ad networks sit between the advertiser and the site with the inventory.

Lowery’s objective is to generate negative publicity that will shame these companies into actually enforcing these policies, through audits and other measures, thereby starving the infringing sites of ad revenue.  He constructs his posts in such a way as to appeal to journalists looking for sensationalist angles like “Hip/Not-Rich Artist Exploited!”  (He isn’t complaining about exploitation of Lady Gaga or Jay-Z.)

I admire Lowery and his tactics.  He’s trying to do what he can with the tools he has (e.g. no multi-million-dollar budget for lawyers or lobbyists) and to build on the momentum he generated in the firestorm following his Open Letter to Emily.  Yet I had not been impressed with his emphasis on norms, or as his blog slogan has it, Artists for an Ethical Internet.

In general, people behave economically rationally.  If there’s a way to get something for free instead of paying for it, and the likelihood of getting caught is virtually zero, people will choose free.  If your boyfriend offers to fill your iPod with several gigabytes of his favorite music, you’ll take it and dive right in.  Trying to change this behavior through appeals to “ethics” is tantamount to fund drives on public broadcasting: it might work for a small, affluent minority but is hardly enough to sustain creativity in general.

Yet ethics do have economic value to corporations with consumer brands.  Bad PR can cost real money.  No company brand manager wants another Apple/Foxconn type situation on his or her hands.  Lowery has written to advertising departments of consumer product companies and gotten a couple of positive responses: thanks for bringing this to our attention, we will certainly clamp down on this in the future.  To add oomph to his message, Lowery often points out that the sites that feature infringing material usually also have ads from companies that offer Ukrainian mail-order brides, porn, and other things with which mainstream consumer product companies probably don’t want to be associated.

It’s an interesting and innovative gambit.  However, I have to wonder how effective it will be.  So far, no journalists appear to have picked up on any of Lowery’s posts, even though he has been at this for a few weeks.  Maybe he’ll have better luck after everyone returns from summer vacations, but he could use some help in getting the message out.  (Hello, Future of Music Coalition??)

The economics behind Lowery’s approach are in line with those of the failed SOPA and PIPA legislation: focus on squelching the supply of infringing content by cutting off economic benefits to the suppliers.  This is considered to be “low hanging fruit” because it does not directly affect consumer behavior.  But it has a major limitation: squelching supply of infringing content is highly unlikely to affect demand for it.  If people can’t get their free content from KickassTorrents or FilesTube, they’ll get it from places that don’t make ad revenue, of which there are plenty.  The most serious long-term issue is the dwindling perceived value of content.  Getting AT&T and Ford to pull their ads from TorrentReactor and IsoHunt won’t help solve this problem.

ADDENDUM: One of Lowery’s posts did get noticed on adland.tv, a site featuring insider-y discussion of advertising industry topics that appears to be frequented primarily by art directors, i.e. the creative types who make the ads, not the media buyers.  The upshot of the discussion there is “how difficult it is to find a network[] where the buyer has control” over where ads are placed.

The DMCA and Presidential Politics July 29, 2012

Posted by Bill Rosenblatt in Fingerprinting, Law, Music, United States.
3 comments

A minor firestorm has hit the techblogosphere over the past several days regarding the removal of a Mitt Romney campaign ad on YouTube that contained a short clip of President Obama singing Al Green’s “Let’s Stay Together” (while at a campaign stop at the Apollo Theater in Harlem).  Commentators used this as an occasion to blast an aspect of DMCA 512, the U.S. law that provides for “notice and takedown.”  The knee-jerk reactions to this incident have been wrong-headed and a little bit depressing.

The law says that if a copyright owner sends a proper notice to a site operator (in this case Google for YouTube) about an unauthorized content item, then the operator may take the  item down to avoid liability.  The law enables the operator to provide counternotice but stipulates that the operator must wait 10 days after issuing the counternotice for a reply period before it can repost the item without risk of liability.

Sites like Public Knowledge and Ars Technica have focused on the fact that the five-second clip in the Romney ad is highly likely to be fair use, how dare BMG Music Publishing do this, etc., etc.  Public Knowledge also complained that the counternotice period forced the political ad off the air for too long a time and thus constituted abuse of copyright.

There’s no question that the clip makes a fair use of the song snippet; the “fair use analyses” done by people like Public Knowledge’s Sherwin Siy are beside the point.  More importantly, it’s wrong to blame the “evil music company” for instigating the takedown.

Here’s a much more likely explanation of what happened: The Obama campaign contacted the copyright owner and asked them to issue the takedown notice, as a tactical response to Romney’s attack ad.  BMGMP issued the notice as a routine clerical matter, as it does all the time at the request of songwriters or their management.  The notice triggered YouTube’s automated system, which took the clip down.

Mike Masnick at TechDirt — the only one here who appears to have done some actual investigation instead of mere grandstanding — noticed that other YouTube clips of Obama singing the song remained up for a while until they were taken down as well.  He also found that other singers’ versions of the 1972 classic hit remained up.  Masnick attributed this to overzealous lawyers at BMGMP  “doubl[ing] down” on takedowns for the sake of consistency.

Uh,no.  The truth, once again, most likely lies in campaign tactics.  The Romney campaign (or allied interests) probably tried to re-post the ad several times with different titles or metadata.  The Obama camp then responded by asking BMGMP to use YouTube’s automated Content ID scheme (based on fingerprinting), which would find all instances of the singing president and get them taken down as well. And once again, BMGMP would have handled this as a routine request.  This was the only way that the Obamians could have ensured that the attack ad would not reappear.

It’s also worth pointing out here that the DMCA 512 does not obligate anyone to take content down; it only enables someone to avoid liability by doing so. YouTube automates 512 takedowns to minimize risk of liability and do so as efficiently as possible.

In other words, YouTube also responded to this situation in a routine fashion.  I would venture to guess that if a lawyer at YouTube actually looked at BMGMP’s takedown notice, he or she would have left the clip up, secure in the knowledge that no one would bother to file an actual copyright lawsuit against it.  (Similarly, I’m convinced that no one with a legal brain at BMGMP looked at this initially either.)

In other words, if anyone is liable for abuse of copyright — which is itself actionable — it’s the Obama campaign, which simply used routine mechanisms at both BMGMP and YouTube to accomplish its aims.  (Disclosure: I plan to vote for Obama in November.)  Otherwise, the errors were of omission, not commission; no actual human beings at BMGMP or YouTube appear to have thought or cared about, let alone considered the  fair use implications of, this incident.

Meanwhile, clips of Obama’s Apollo Theater performance have been restored to YouTube.  Yes, it took time, but that’s what you get when humans have to decide questions of Fair Use.

P.S. Romney’s ad has always been available elsewhere, just not on YouTube.

The Artists’ Rights Movement July 10, 2012

Posted by Bill Rosenblatt in Music, Uncategorized.
1 comment so far

The phenomenon that I called the Loweryquake has survived the press’s news-cycle rhythm and the proverbial 15-minute time limit.  It continues to reverberate throughout the mainstream press and techblogosphere.  It has led to a lot of what New York magazine last week called “actually pretty thoughtful online discussion.”  And it has engendered what can only be called a movement in favor of artists’ rights.

This has nothing to do with the RIAA, MPAA, or any other representative of Big Media.  The Artists’ Rights Movement is the product of actual content creators, real people who make the copyrighted works and receive the royalty checks… or not, as the case may be.  They are in favor of stronger copyright enforcement, eager to expose technology industry profitability on the backs of recorded content, and deeply skeptical of many of the schemes that have been suggested to make up for lack of compensation from content in the digital age, from T-Shirts to “True Fans.”  (They also sometimes espouse extreme positions such as curtailing First Sale.)

David Lowrey’s blog The Trichordist is fast becoming the unofficial house organ of the Artists’ Rights Movement.  The Trichordist Random Weekly Reader, a weekly post of links to relevant articles around the web, is becoming as useful in its way as the lamented Rightscom Daily Briefing was before it was discontinued a few years ago.  The Trichordist also aggregates other sympathetic blogs such as Copyhype and Fareplay, and more mainstream columnists such as Andrew Orlowski of The Register and Helienne Lindval at The Guardian.

Through The Thrichordist Random Weekly Reader I learned, for example, that the Center for Copyright Information (CCI) — the United States’ private-sector analog to graduated response regimes in countries like France — has appointed an Executive Director and is gearing up to launch later this summer.  The surprising tidbit about this news is that they have appointed an advisory board that includes people representing consumers, privacy issues, and so forth — including Public Knowledge CEO Gigi Sohn.

It’s good to see Gigi Sohn doing something constructive like this.  My opinion of Public Knowledge had been declining since its excellent white paper on 3D printing over a year ago.  Its output has shifted towards shrill fire-up-the-base scare tactics.  Its attempt to tie its Internet Blueprint to SOPA and PIPA was a particularly disingenuous piece of opportunism.  Sohn has said that she will try to influence the CCI to stay away from copyright enforcement through suspensions of users’ ISP accounts. But more generally, the CCI advisory board will benefit from her point of view and, frankly, her presence will serve to blunt accusations that it’s a cabal between Big Media and ISPs and that consumers’ concerns aren’t being heard.

An article in today’s New York Times suggests that a main theme of this week’s annual exclusive Sun Valley media/tech summit will be constructive engagement on copyright infringement.  On the one hand, RIAA CEO Carey Sherman has stated that he’s giving up on legislation as a remedy, now that SOPA and PIPA have failed (ACTA, which was soundly voted down in European Parliament last week, had long ago lost its teeth on copyright enforcement).  He is more optimistic about “best practice” solutions arising from the private sector.

On the other hand, a top Google executive said, “we do not want to be building a business based on piracy.”  Google also cosponsored an interesting new study of online copyright infringement carried out by BAE Systems Detica in the UK, and while — like all such studies — the methodologies can be questioned, this is another pleasantly surprising development.

These are all hopeful signs that, in the wake of the SOPA/PIPA defeat, the media and tech industries may be ending their hyper-partisanism, and in particular that the tech community may soften its “Party of No” stance regarding using technology to solve problems that were born of technology in the first place. Meanwhile, The Trichordist is clearly growing in influence; it may  (to extend an analogy) even become an MSNBC to the likes of TechDirt’s Rush Limbaugh.

P.S. one organization that really needs to get the memo on the Artists’ Rights Movement is the Future of Music Coalition, which purports to represent independent musicians and songwriters.  They could start by taking a hard look at their own advisory board.

Follow

Get every new post delivered to your Inbox.

Join 634 other followers