If I Had a Major Record Label, I'd Hammer in the Morning

Peter Kafka on All Things Digital asks the pertinent question, "Why are the major record labels so silent?" (See "An Open Letter to the Big Music Labels: Pipe Up, Please!")   It is a vey pertinent qestion.

We have been warning, and warning, and warning the record labels for years (as I have tried to document here in Chronicle of a Solution) that the cloud was coming and that they have a counterfeit problem that is going to get exponentially worse when the cloud arrives.  They talk to us ... but then they don't listen .. or they don't do anything.  Now, finally, their bus is parked in the proverbial blind alley and it will be even harder for them to steer out.

Here is the response I sent to Peter:

    I cannot speak for the labels, but as an entertainment lawyer that has represented platinum-selling artists, I’ll take the bait.

    Is Amazon any less aware than Limewire was (or indeed Napster was) that illegal downloads are going to be served to users by their servers? If not, then the same legal precedent is there that got Napster and Limewire shut down: contributory infringement.  They take your illegal music and  provide the player, they provide “management” (TOS), they provide Gracenote … and most of all they provide cloud-based access and mobile access, the best thing that’s ever been invented for music.  That is way more than Limewire ever did.  Limewire was “capable of non-infringing uses” as well.

    There are an estimated multi-billions of illegal songs still out there from activity of the last 15 years. Amazon has to know that 1/2 the stuff that is uploaded to its cloud is illegally downloaded, ripped from a CD the owner no longer owns (e.g sold back or returned to the library) stream-ripped, etc. It is one thing for illegal downloads to be stuck on hard-drives and not widely available for mobile except on iTunes clunky side-loading system. But when you unveil the state of the art mobile app and don't bother to distinguish between legal and illegal it is very bad.  If McDonalds announced tomorrow that it would accept counterfeit bills at all 10,000 of their stores in the US, what would that do to the value of US currency?

     If you look on Amazon for physical items, you will see that most music is under a dollar and the biggest payday on selling a CD is the $2.98 “shipping and handling”.  So Amazon, via the phenomenon of rip and ship specializes in driving down the price of music.  Taking a billion or more illegal downloads, or rip and ship downloads, or stream-ripped downloads and giving people state-of-the art access to them …  is guaranteed to drive the price of music down to zero.  Why buy a download? Why buy Spotify or anything else?

    Amazon, in the end, doesn’t care about the price of content.  As pointed out in a chart in the WSJ on Tuesday, they are hawking business services now more than ever.  This Cloud Player is a way of bringing more people under their sphere of influence in order to hawk other stuff.  Thus, it is a naked power grab at the expense of artists and content owners in general.
    

    The entire industry (record industry, cloud providers, publishers, apps, subscription services, etc.) needs to send this message loud and clear to users:

    "If you downloaded illegal music from 1996-2011, good on ya’.  But that doesn't mean you have the constitutional right to have that song be forward compatible w/ every new service that comes down the pipe."

In Media Rental Services We Trust

Why, in the age of Netflix, do any of us want to worry about buying thousands of little MP3 files individually, managing them in a directory structure, moving them from place to place, etc.? Could the folks at Spotify please hurry up and launch in the US so we can get out of this one-at-a-time, file-based model of music?

Read more: http://www.businessinsider.com/amazon-cloud-drive-2011-3#ixzz1I8Jlu5C0

I am not criticizing the above poster at all but it's interesting to me that on the one hand you have users complaining that they don't want to trust Amazon or any other cloud provider with their media files for privacy and a whole host of reasons so they want to store their music on their own hard drive and have no use for "the cloud" whatsoever  and then you have OTHER users like this poster saying that they will trust subscription services to always provide the full selection of media that they want at a reasonable subscription price forever until the end of their life.

Me, I'm going to hedge my bets. I want my stuff 97% in the cloud (there may be a few things so rare and precious that I will bother to store at home) but I want to own it.  As in Title. As in Property.  As in Po-SESS-ion.  That way, I am guaranteed always to have access to that song.  Even if my cloud provider goes belly up they will at least owe me my songs back in receivership.  A subscription service goes under it's by-bye songs.  Anybody having any luck getting their stuff back from MySpace?

And btw ... Who is Netflix that we trust them so much that we are willing to forego ownership?  I can buy Casablanca, which won 8 Academy Rewards, right now on Amazon for $1.79.  I can drop ship it to the Digital Content Exchange (my cloud provider) and watch it for free as many times as I want.  How much is Netflix going to charge me for it over the next 40 years?  Even after the film is OUT OF COPYRIGHT?  What if Netflix' license with the studio falls apart and it is deleted from offer? What if the film is banned for political reasons (I dunno "stereotypes"?  Too much smoking of cigarettes??).  For films that I am unsure about, yeah, maybe Netflix.  But for anything I might truly want to watch again, I'd rather buy it and if it sucks sell it back on Amazon or eBay for 80% of what I paid for it. Or 96% of what I paid for it if I sell it back through the DCE: on the DCE there is no deterioration of quality since it never leaves the user's digital locker and there is no packing or shipping.

Repeat after me: "Streaming and downloading are methods of delivery of digital content, not indications of ownership or rental"

You can have rental that is delivered by download.  You can have ownership that is delivered by streaming.  You can have subscription downloads.

Like Burger King, you can have it your way.  The key is: counterfeits shall not be given value.  

(And that is precisely what Amazon is doing).

The Amazon Challenge: The Music Industry at the Crossroads

According to this well-sourced report, the music industry is toying with the idea of allowing Amazon Cloud Drive & Player to accept illegal downloads for cloud access ... as long as they can extract a fee.

It is of the utmost importance that the industry not even for one minute countenance the idea that any of these new cloud services, which give people better ways to use their counterfeit songs, are OK.  If the record industry as the copyright holder (and fiduciary for the artists whose rights they hold), ever asserts, even implicitly by entering into negotiations, that it might be okay for someone to use ill-gotten songs, they have  thrown their whole argument of the last 10 years out the window and they will never get it back again.  What will then be wrong with a user stealing some new downloads?  What will be wrong with sharing Rhapsody or Spotify  passwords?  Or methods of copyright infringement to be invented in the future?  The user will always be able to rationalize, “Well, the record companies didn't like it for a while but eventually they went along with it.”  

Is Amazon any less aware than Limewire was (or indeed Napster was) that illegal downloads are being served by their servers?  There are an estimated multi-billions of illegal downloads still out there from activity of the last 15 years.  Right now, they are stuck on hard-drives and not widely available for mobile except on iTunes clunky side-loading system.  But, thanks to Amazon's nifty Cloud Player, these same illegal downloads are about to go "uptown".

Taking money from Amazon is like taking a bribe to look the other way.  It does not fix the problem.  How do we fix the problem?  As always, innovation.  Like everything else wonderful about the internet: you innovate.  Solve the problem!  Do not just cover it up.

But if no one bothers to even look at the problem, it will not get fixed.  If the users are greedy on one hand and just want free music by whatever means necessary and the record labels, on the other hand, just want up-front cash to help with the next quarterly earnings report, the problem will never get solved.

Innovation!  Such as that represented by the DCE.  The first steps of which are: 

1. All parties (anyone who touches music) cooperate through an opt-in exchange*.  
2. Agree to share user registration info and require that each user who wants access to a song be a Verified Accessor.**   

Immediately, users are happy because they have cloud access to all their stuff (video and books as well as music, physical as well as digital, and unlimited, not just 5 GB), and the value of counterfeit (illegal) downloads is reduced.  Music is valuable once again!  Mind you, the counterfeits are still out there, still on people's hard drives.  Just not quite so valuable.

A method like this has been used for decades successfully in the securities industry.   It’s reasonable to ask services like Amazon Cloud Player to require DCE-style verification before people enjoy their music in a newfangled way. Since verification is easy, they have no excuse.   But why aren't the labels insisting upon this?  Why aren't their artists insisting that they insist??

 

*An Exchange by definition allows competitors to compete fairly and creates efficiency.

**A Verified Accesor is an end user who has been verified to have access to a particular song by means of ownership, borrowing, or by such other rights as may be approved by the lawful copyright owner of the song.

Amazon: 'Look Ma, No Licenses'

It is a blood sport now.

You can now store over 5 GB of music and video for free, courtesy of Amazon Cloud Drive and Cloud Player.

According to multiple sources, Amazon has not secured a license from the record label for either.  And it is precisely the artist's lunch that is being eaten here.

This is because, despite the de rigeur user agreement, illegal downloads are given equal credence to legal ones in the Player (I just tested it for music).  No attempt at all was made to weed out illegal content (and yes, the technology is available).

What this instantly means is that:
a) over a billion illegal downloads currently in users' possession will be given even more value by being given this state-of-art, "anywhere" access.
b) if you are a user and you want to add a new song to your Amazon digital locker or your Google Android device, the choice will remain as before:  free vs. paid ... and free will win every time.


Another bonus for your illegal downloads is the services of the embedded Gracenote.  In fact, the only two approved purposes of the Player according to the terms of agreement are "management and playback of content".  So you can take all those illegal mp3s that came in from the wild and manage them into more usable shape (e.g. adding album art where there was none before), courtesy of Amazon.

What is to stop you from cramming the entire 5 GB with nothing but ill-gotten goods ? Practically, nothing.  Just a few measly words in a user agreement. The same words that were in the Napster, Kazaa and Limewire agreements.


The user agreement also states that the Player is only available in the U.S.  But watch out, World, this stuff is radioactive!

And in other news today, global music revenues fell 8.4% last year.

How the Digital Content Exchange stops illegal downloading through creating an incentive to register

The DCE would solve the media industry’s illegal download problem through a system of registration, verification and immobilization.  It all starts with registration.  The DCE provides the inducement to get both creators and consumers to register and keep track of who owns what.

In the securities industry today, 99% of all stocks have a registered owner.  But it was not always the case.  As recently as the 1970's it was possible to own an unregistered stock certificate and be able to do most of the things that you would want to do with that stock. Then the digital revolution hit.  The digital revolution gave owners of stocks the opportunity to do a lot more with those stocks. The securities industry did not flub the opportunity that the digital revolution presented. It gradually insisted upon registration and offered “sweeteners” for issuers and owners to register and immobilize each and every share and to make the information contained in their registry available for third-party verification. The Depository Trust Company was formed.

Note that among the sweeteners was prevention of fraud, forgery, counterfeits and "rip-offs" in general.  But also high on the list was that you could do more of what you wanted to do with stocks, whether you were the issuer or the shareholder .. or someone in between.  It was like steroids.

The music industry, on the other hand, when presented with the opportunity of the digital revolution basically flubbed it.  They did not use a registration system. They sold music on an unregistered basis, just like they had done in the pre-digital age.

So, users wanted their music on steroids but the music industry could not, despite their efforts, make that happen. So many users turned to illegal free music, in order to have the flexibility that the digital world seemed to promise.

Until the music industry finds its way over to the DCE**, it will continue to flub it.  This is because the DCE method is the only known way, indeed the only logical way, to handle a fungible commodity, in the digital age, where said commodity is easily counterfeited.

Under the Digital Content Exchange, every new media item sold to a consumer will offer the consumer the opportunity to register his/her ownership of that item (and why not?  It gives you ownership on steroids).  have a registered owner.  The registration "hassle" is no more burdensome than most User ID/password systems already in place for any e-commerce purchase.  Physical items can be presented for registration to the helpful clerk at a cooperating intake center (psssst! Best Buy!! Blockbuster!! Have any retail space you're not using??).  The clerk registers and immobilizes your physical item (just like brokerage houses did to  paper stock certificates of IBM that were turned in during the 1970s).  Past Amazon or iTunes downloads can be registered and immobilized through the intake center, if you wish, or online by establishing your Amazon or iTunes identity and matching you up with the purchases you made utilizing those services.

Once registered and immobilized, the fun begins.  The user can access the music that he or she just registered either from the DCE server, or from any cooperating app's server.  In order to access any piece of music from the cloud, or from a cooperating app, a user will first have to verify that the user either, a) owns the item, or b) is borrowing it (like from the library) or c) has a streaming subscription account that covers that particular song. 
 
The “sweetener” for the user is greater selection, competitive pricing like a stock exchange, resale ability, the ability to replace a record that is lost or damaged, the ability to share music online and complete cloud access to their media.

The “sweetener” for the music industry should be obvious: the reduction, and eventual end, of piracy.  (Who wants to be a pirate, when you have to use 2005-era apps to play it and you cannot use all the new cloud and mobile apps that go with your music like strawberries go with cream?).

There are a lot of other sweeteners for the music industry (they might ask someone in the securities industry if they have been able to “eke out a living” by selling stocks on a digital exchange).  But is not the end of the blatant incentive to pirate enough incentive to get on board with the Digital Content Exchange?

** 3/19/13 update: the music industry may have gone too far down a dead end road to whistle them back at this point. (We'll see).  There is still time, however, to save the book, movie and games industries.

Aspirin, Duct Tape, WD-40 and the DCE

            I often feel like an 1890’s salesman of aspirin.  Or a 1940’s salesman for duct tape.  Or a 1950’s salesman for WD-40. 

            I can see myself knocking on doors and hearing people say,

            “What is it, pain reliever?” “I’ve got Dr. Good’s.”

            “What is it?  Tape??”  “I’ve got all kinds of tape.”

            “What is it, lubricant?”  “What’s wrong with oil??”

.... and getting the door slammed on my foot!

            Eventually, though, people realized that there was something key about aspirin . . . that it could fight headaches as well as muscle soreness, prevent strokes and be used topically for cold sores.  To this day, aspirin is being looked at to fight cataracts, cancer . . . you name it.

            Duct tape and WD-40, as any homeowner knows, are similarly key.  You do not buy these items for one purpose alone.  Problems arise in the home, and you apply duct tape or WD-40.  And because WD-40 and duct tape have the right principle they usually work. 

            The DCE principle: 

·                     Fights piracy;

·                     Allows libraries to be better libraries;

·                     Allows people to enjoy their video and music collections more;

·                     Allows people to share mix-tapes;

·                     Allows content owners to cut out the middle man and keep more money for themselves;

·                     Allows radio stations to reduce the cost of music;

·                     Allows colleges and universities to comply with the Higher Education Opportunity Act without throttling legitimate research;

·                     Reduces the cost of text books for students;

·                     Brings online all of the knowledge contained in all of the books of the world and makes it searchable.

·                     Saves space;

·                     Is environmentally friendly

. . . to name just a few.  But you try selling all of that.  We get told all of the time, “people do not want that,” “they are happy with their [fill in the blank],” etc.  Like they said about products like duct tape in the 1940s.  And sometimes to add insult to injury, people look at you like you are a wacky professor.  I am sure that the aspirin, WD-40 and duct tape guys got that "look" quite often, too. 

            Decades transpired before aspirin, duct tape and WD-40 were welcomed into peoples' homes en masse.  The DCE was created by a patent filing March 4, 2004.  So since it has only been seven years, we are doing pretty well in that comparison. 

            We probably do not even know half the uses to which the DCE will be put some day.  Because the DCE correctly analyzes the problem that arose for content owners at the beginning of the digital age, it is a solution that will continue to reap additional solutions to those who apply it creatively. 

            Unlike duct tape, however, our solution, in order to be scaled up, requires cooperation among some (but by no means all) of the folks who create, sell or play media.  Right now, these folks would rather fight among themselves.