Edo the Reliable

Download It Again, Sam

In Music/MP3 on March 29, 2000 at 12:11 pm

As corporate entities sue their investments, music sharing applications herald the beginning of the end for the traditional music industry

Originally published in Globes, Israel’s financial newspaper, 29 Mar 2000

Peter Gabriel was one of the few who could afford a sampler back in 1985

Peter Gabriel was one of the few who could afford a sampler back in 1985

Quick: after two decades of accelerated technological development, which dropped lower – CPU prices, or soundcard prices? Several thousands of dollars, the original price tag on the first IBM PC, dropped to about a thousand bucks for a standard home computer. Speeds, indeed, magically rose, but price per unit went down by less than tenfold, and actual CPU size did not miniaturize considerably. Compare that to what happened, during the same period, to devices that sample and playback digital audio. The audio sampler, a two decades old $30K-priced and refrigerator-sized box, beyond reach for anyone except affluent Peter Gabriel -league superstars, is now available a on a soundcard for any home PC and budget. It costs $20-30 –  a mere 1/1000 of the original price. The laptop I’m typing this on does not even have a distinct sound card anymore – it’s been merged into the main board, signaling the industry’s admission that the need for music is even more basic than the need for accounting software or word processing, and as basic as a graphic display or a modem, serving her majesty the Internet.

Years ago, before SoundBlaster became a household word and eons before business proposals sent investors into frenzy by merely mentioning the I-word, yours truly had a little business plan of his own. I offered an investor a plan to produce a PC sound card, with very similar specs to the one later produced by a Singapore company named Creative. It was a sampler. My investor stared at me incredulously : sound in your PC? Who would ever want that?

Perhaps that doubting investor was eating his hat later, cursing his shortsightedness. However, over the years – and in fact until very recently – I keep hearing the same objections and doubts as soon as the music business is mentioned. Perhaps the primary reason for that is that music is about as virtual as products get, the veritable king of intangibles. Music is, indeed, but a short series of air vibrations. How reckless chould an investor be, or how visionary, to invest in something that cannot be experienced except on an emotional/aesthetic level? And the other reason: the music industry is in a crisis since some decades, well before the introduction of P2P networks. Perhaps, some investors ask, music is but a passing fad, at least in its popular form? As much as that may sound preposterous to music lovers, it is nevertheless a nagging question, casting a shadow on popular music since the early Rock’n’Roll era. After all, music is a struggling industry, fighting for its survival. Will we wake up one morning to a world where people do not clamor anymore for CDs, musical instruments, songs and dances? Are music records a basic product, or a luxury one? Are they, like bread, a necessary item people will fight for and cannot imagine living without? The answers to those riddles may have recently started to materialize, and they arrive not from the philosophical realm but from the business world, from the very edge of the Internet.

Remember yesteryear’s buzzwords like high bandwidth, rich media and push technology, the promises of cheap telephony, WAP and other miracles that were supposed to shift paradigms and change society-as-we-know-it forever last year (or was it the year before that)? Music is one thing that never needed a buzzword, and yet managed to survive a lot of bad publicity. Music is what drives the value of some digital music companies sky-high. Those are the companies which, instead of focusing on inventing consumer technology, focused on removing the obstacles to natural distribution of music on the Internet. Aiming for that goal means you have to take on the forces that be, in a series of escalating legal battles.

Take MP3.com, for example – a company with no real technological message, concentrating on building a marketing infrastructure with the goal of signing up content. I estimate that currently, MP3.com is the largest “new paradigm” music catalog around. That forte is also its weakness: MP3.com does not host a lot of known (or “old world”) artists, since those are already signed with old-world record labels. Perhaps exactly this dead-end forced MP3.com’s CEO Michael Robertson to take the “adventure capital” road, where financial backers do not shy away from confronting the old world in the courtroom.

Robertson’s latest feature, and perhaps MP3.com’s only original technology R&D project ever, is the MyMP3.com service. It is a controversial technology, a focus for a confrontation with RIAA.  MyMP3.com allows any CD owner to get, using MP3.com, a real-time stream of any music they already purchased in other media. Just do the one-time shuffle of inserting the CDs you own into your computer CD drive, MP3.com’s Beam It application will scan them and in a couple of seconds you’ll have them streaming from MP3.com’s site to you.

The legal argument, according to Robertson, goes thus: if you purchased the CD, you are entitled to hear the music on it, anytime, anywhere. But how does he pull that off technologically? That part is not covered too extensively in MP3.com’s site, while RIAA blames Robertson in erecting a massive illegal operation.

40 thousand tracks are assumed to already be present in the controversial service. If RIAA wins, that might mean 4 billion dollars according to copyright infringement laws – and maybe even as much as 67 billion, according to the Wall Street Journal. The interesting point is, however, that a site now charged with setting up the world’s largest pirate music depository, is backed by one of “new economy”‘s finest – Sequoia, known for its investments in Yahoo! and Cisco. Did investors come to realize that music is a very basic product, or because it is now acceptable to mess with major music labels, betting the farm on the outcome? Hillary Rosen, RIAA’s chief, had called MP3.com’s activities “irresponsible”, in that they put their shareholders in risk.

A respected “smart money” investment fund backing up the defendant in such a trial is not an everyday thing. However, among the legal and tech experts I consulted with I heard no surprise. Just some months ago, RIAA lost the too-little, too-late battle against the Rio, an MP3 player. That sorry battle was reminiscent of other late and unfortunate battles recorded in the annals of modern technology, such as the battle to annihilate audiotapes and DAT recorders. On the other hand, Robertson’s position suffers a major weakness. His main argument is the consumer’s right for “fair use” of the music product they bought. Use, however, is not considered defendable within that category if someone other than the original owners has amassed some wealth during the usage process. In our case, we might head for an interesting court decision:  does the very construction of a music database – even without the licensing to resell it – constitutes a value? If yes, then there goes the farm; if not, how would investors feel about a venture proclaimed value-less by the courts?

Recent Time-Warner-AOL merger steps also show that the end of the old world is already felt in the corridors of the new power. Here’s the paradox: AOL, now tied to Warner, is also invested in Nullsoft, makers of Winamp. Those Winamp players are on very many desktops, including those interconnected to Napster, sued by RIAA, representing Warner. Investing in the software, but suing its users – there’s a paradigm change for you.

There – I did mention Napster. This month I spotted three music companies using the term “revolution” in their copy, but Napster went places rarely seen even on the upside-down world of the new economy. A user marching in protest over an application is certainly a first.

Like most of the successful Internet concepts, Napster is more an implementation of a good old mechanism than a novel idea. If ICQ was built on the good old UNIX Talk utility, Napster is but a variation on FTP. FTP could be best described as a legacy protocol, originally intended for file transfer; but FTP quickly became irrelevant as browsers seamlessly integrated into themselves file transfer functions. Most users nowadays could not care less about the mechanics of FTP or HTTP – it works, and that’s all there is to it. If FTP survives at all on the margins of modern tech consciousness, it is because of its pirate uses.

FTP servers are a common target to pirate raids, breaking into them to place programs and music without permission. Thus, the files are available to the whole wide world  – until an administrator in that server, usually one that belongs to an educational institution or to a company weak on the security side, discovers where their bandwidth is going and kicks out the intruders. Such pirate FTP sites, therefore, have the lifespan of a butterfly – sometimes less. In fact, it depends on the internal dynamics of the organization owning the server: choose a large or slow organization as your target, and you will probably evade the administration for a while. In other words, the space/time of piracy is defined by the speed of large organizations; their existence, like Vietcong or Hizbulla members, is temporal and intangible. Mobility and communication are the keys to their efficiency, coupled with popular support, emanating from a deep-rooted hatred towards “the establishment”.

The odds for winning the battle against piracy are as good as the odds for winning the Vietnam, or Lebanon, wars. Reminiscent of the public debate in the midst of those other, real, wars – here, too, we have the hardliner camp, insisting on strong measures, and on the other hand, we have those who advocate an orderly withdrawal.

In the pirate war against the old world, the primary importance is on accessibility and speed: if you stay in one spot for too long, you’re dead meat. In 1998, after a relatively quiet period, some 800 copyright infringement trials were being carried on in the US. That caused some nervousness with pirate sites, and search engines filled in the gap by providing timely information. Do a search on Lycos’s MP3 search engine or Filez.com – you will find there quite some files that you are not really allowed to have. Some, probably, will be erased in days or hours; until that happens, they are available all over the world. Got hit? Send a complaint to Lycos. It will be appropriately handled, and they cannot be held responsible to the fact that in that time, perhaps a 100,000 people downloaded your software or music.

The pirate career is not for everybody. It requires initiative, access to technology, and some technical expertise. That is exactly the innovation Napster brought to the scene: the unbelievable ease of piracy. Napster turns your PC into a temporary file download station, and creates one a huge swap center, without a real need for an external server. Songs on your PC become accessible to thousands of users, and their music becomes accessible to you. Sounds nice, so far as it isn’t used for piracy – of the kind that’s hard to legally crash.

RIAA isn’t the only organization having some difficulty  with Napster. Universities are also worried about Napster swallowing their bandwidth, and only when protesting students went on march – literally – they stopped from banning it altogether. Wrapster, a Napster clone, goes further than music and offers to share anything, even Windows 2000 files. If that sort of thing is not stopped, we have the largest piracy system ever. If Napster was hit by RIAA, imagine what Wrapster is going to get from the BSA.

So how are companies that play such a risky game evaluated so highly? MP3.com’s current market value is US$ 1.6 billion, and AOL put some 400 mils in Winamp and co. last June. The explanation is not mysterious as much as it is embarrassing: it all falls into place if we add the assumption that traditional music industry itself is moving past denial, and starting to accept the fact it is at the end of the line. It has not had the courage or will to change, and it was going through consolidations, cuts and continuous industry difficulties since the 70’s. The mechanism for distribution of tangibles like plastic or vinyl is doomed. There are just too many people, they like very many things, there is a continuously growing repertoire that is not aging, being distributed using “things” placed on a finite shelf space to place those “things” on. Shelf space – or, the actual dimensions of the real world – is the one factor that did not, and cannot change. Shelf space gets more expensive and risky, the stakes in the distribution game become higher, and products need to finance that at a questionable price.

CD production costs went down considerably in recent years – however, that dramatic change was not reflected in the CD consumer price, which nowadays reaches 20 times the pressing plant price. Given that, fighting piracy is as feasible as the long-forgotten fight against audiotapes. In fact, the MP3 kids never heard about that one – but I can remember being told that audio tapes will destroy the music industry, or that video will destroy the movies, that DAT tapes will destroy CDs. Those predictions of wrath never materialized – and those who let themselves being guided by fears were left behind. Now is a time for another step forward – towards finding a solution for the free distribution of music, even if temporarily unpopular.

One solution is PlayJ, a music player that attached advertisements to music. The new message here is that for once, copying is not only permitted but also encouraged. In the ad-supported distribution model, copying files and giving them actually creates more “eyeballs” and “impressions”, and that means more revenue to the content owners. PlayJ, unlike some other systems, works in cooperation with music companies. Signed agreements allow it to offer over 70 thousand tracks to users. Competing solutions are valid only for an Internet session: PlayJ will work even when you are offline.

Other solutions suggest selling downloads by micro payment: if the price is right, the payment process is friendly, and access immediate, it may prove more profitable to sell music in the virtual form only and eliminate pushing, shoving and stocking tangible goods. Israeli firm Trivnet is one prominent player in this field, and its client list includes Tucows Music, Mymusic and MPnow at different stages of implementation. The ideal scenario here is a sophisticated user, conveniently downloading MP3 into their hardware player, fast service and low cost. Is that feasible? Have MP3 players worldwide reached a critical mass? Are average connections fast enough? And the most interesting question: will the virtual world be able to provide a shopping experience equal to that of purchasing a CD in a music shop? I expect the answers to be provided in the coming weeks, on the Internet, in chambers, and possibly in street demonstrations. Seems like a revolution is indeed happening.

The author is product manager for PlayJ.


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