Investors, "Beware" of Record Companies

NewYorkCountryLawyer writes "The Motley Fool investment Web site warns investors to beware of 'Sony, BMG, Warner Music Group, Vivendi Universal, and EMI.' In an article entitled 'We're All Thieves to the RIAA,' a Motley Fool columnist, referring to the RIAA's pronouncement in early December in Atlantic v. Howell, that the copies which Mr. Howell had ripped from his CDs to MP3s in a shared files folder on his computer were 'unauthorized,' writer Alyce Lomax said 'a good sign of a dying industry that investors might want to avoid is when it would rather litigate than innovate, signaling a potential destroyer of value.'"

Comments

The vicious last bites of a wounded animal

[elrous0]

The traditional music industry is like a wounded animal at this point. They're hurt and desperately striking out at anything, in hopes of somehow surviving. They missed their opportunity to innovate a long time ago and now they're just the walking dead, stubbornly digging in their heals and refusing to just lay down and die.

They may get to the point where lawsuits are the only real income they have left. When that day comes, and all their Congressional bribe money has dried up, I think we'll see the courts and politicians finally start to hit back hard and finish them off. And they'll die still clutching their outmoded CD's, like pathetic John Henry's fighting innovation to the bitter end.

Re:The vicious last bites of a wounded animal

[dimeglio]

Madonna recently left Warner for Live Nation apparently for the cash. Interestingly, Live Nation does not appear in the members list of the RIAA. Coincidence?

Re:The vicious last bites of a wounded animal

[moderatorrater]

In the past year, we've had McCartney jump to a new label, Radiohead release their own album, NIN doing their thing, and Prince bucking the trends, signing a deal that is unheard of from a record label, and distributing his cd in a way that pissed all the industry folks off. I agree that leaving in droves might be an overstatement, but it was the first year where labels started losing out in a high profile way because artists weren't playing along.

Re:The vicious last bites of a wounded animal

[jcr]

Contracts expire. When they do, if you're a musician who has the prospect of distributing his work online and taking the lion's share of the revenues, or cutting a deal with a venture capitalist who'll pay you under 10% of the proceeds, what option would you take?

The record companies are a 20th century business that is rendered obsolete by the internet.

-jcr

Re:The vicious last bites of a wounded animal

[mpe]

I'm not convinced there's any way to die gracefully when your business becomes outmoded (SCO, too).

Of course there is. It's known as "voluntary liquidation"... If it's timed right the business owners might even still have made a profit.

Re:The vicious last bites of a wounded animal

[hedwards]

I do wonder if that's the only reason why they're leaving. Sure there is a profit motive in many cases and not being associated with an outfit that hates their own customers, but there are other reasons why an artist would jump ship.

What I'm talking about is sound quality, control over content and controlling how and where the music is played, rather than the label. Those are compelling reasons to switch, the labels have for many years tossed their formerly best selling artists out in the cold when they have released a couple of poorly received albums, and frequently there's a commercial viability clause in the contracts which allows for the label to not use albums that the label doesn't like.

Unfortunately, many of the best albums I've ever heard were failures compared with the normal standards. I love everybody - Lyle Lovett, Muswell Hillbillies - The Kinks, and Q: Are We Not Men? A: We Are Devo! - Devo, these were really good albums by any reasonable standard, personal taste in music not withstanding, and they largely went ignored. Worse, they aren't the only albums like that to not be particularly profitable in terms of sales.

The artists that recorded those albums could have far more control these days over how they market the albums and hopefully get better sales by using those new opportunities.

Re:The vicious last bites of a wounded animal

[CodeBuster]

Draconian contracts that restrict them to either selling their work to the labels, or not selling their work at all? More like trading their work to the labels in exchange for "promotion" and then owing the labels money for the studio bills, payola, and other concrete expenses associated with "promoting" the artist. As for the term of the contract, does "the rest of your prime working life" sound reasonable to you? BTW: If you want to break the contract early then they charge you penalties with interest for all of the "promotion" fees that you will be denying them from that point on AND you still owe them for the loans. Recording contracts suck. Why do you suppose that big name artists eventually found their own labels? So that they in turn can become the exploiters after they have taken their hundred lashes and paid for their spurs.

Sounds familiar

[Mick Ohrberg]

[...] rather litigate than innovate [...]
Now where have I heard that before... Oh, that's right. SCO. And look where they're at...

Re:so, what would Fool say about our Friend

[Score Whore]

What does that say about the GPL and various developers who have threatened to sue companies that might be violating the license?

Shared Folder?

[Anonymous Coward]

I wonder how they define a shared folder? I'd imagine an shared folder to them is any folder on a computer that is connected to the internet, WAN or LAN, has a CD or DVD burner in it, has any kind of magnetic removable drive, or any computer in which the hard drive can be removed.

Re:Shared Folder?

[jcaldwel]

I wonder how they define a shared folder?

Any letter drive under Windows.

Re:so, what would Fool say about our Friend

[Pojut]

Maybe I am buying into their crap, or maybe I'm right...who knows. But out of all the companies in the past 20 years that I have seen making huge mistakes, Microsoft is one of the few companies I have seen that is actually at least ATTEMPTING to correct their problems. They are still going about things in a very asshatish way, but I think they are realizing that they are not the invincible juggernaut that they once thought they were.

Of course, the other problem they have is that even when they do make good gestures, many in the IT industry still see them as dicks. Can't please everyone, I suppose...

Heh

[ilovegeorgebush]

I've personally never thought - during all this suggestion from various websites - that the Music industry will ever die. In fact, I just think that the current status is a precursor to it revamping itself and embracing the digital era.

The more I read things like this though, the more it seems the downfall of such companies could actually happen. I kinda like it, too. It rumbles in my belly...

Re:Heh

[MightyMartian]

I don't think the song is the problem. Prior to the emergence of the long-play record, it was all about the song. 78s and 45s could only fit a limited number of songs on them, and so was born the idea of the "single". Some guys, like Phil Spector and Brian Wilson, basically built careers around the single. They spent fortunes creating two and three minute songs, because you could make a lot of money off a single.

The long-play was attractive because a) it wasn't that much more expensive to manufacture b) generally the costs of producing it were all up front and c) the record companies could charge a lot more money for it. Unfortunately the LP (and its truly overpriced descendant the Audio CD) is a rather difficult thing to stack with good music. A good portion of the albums out there really aren't all that good. A few good single-worthy songs with less impressive filler. But from the mid 1960s until today the record album has been the major source of revenue for record companies, with singles fading away.

Re:Trade Associations Gone Wild!

[mea37]

Or rather the columnist believes that's the business model they're now in and predicts it won't work well for them.

The inference people here seem to be drawing (that the labels are in trouble because of the lawsuits) resonates well -- we want to believe that kind of justice works in the market -- but really it has the cause and effect reversed. Sales dropped first, then the law suits started.

Now, the thesis is correct in so far as "sue the customer" is not a productive response to an adverse market. They continue to spiral not because they file the lawsuits, but because meanwhile they do nothing to address the orignal failure of their position in the market.

The "ripping mp3s is unauthorized" angle is FUD all around, though. FUD on the RIAA for using that wording in the first place (yes it's unauthorized, in the same sense that I'm not authorizing you to disagree with my post), and FUD on everyone who cites this as the moment where the RIAA calls all users thieves.

Now, sure, the bad press from the lawsuits doesn't help the RIAA... among the small part of the market that sees what's going on and cares. Don't get me wrong, I'm among that small part of the market (not anti-copyright, not convinced that everything the RIAA says is wrong, but on the whole opposed to their actions over the past few years); but don't be fooled into thinking that slashdot is the world.

As to the investment point of view... yeah, to a point, I wouldn't want to be putting money behind the major labels right now. But Sony? What would be the total impact on Sony if their record label arm spun off or died out completely?

Oh no! My money!

[maclizard]

It's about time the recording industry collapsed. Maybe I'm just bitter, but last CD I bought cost $17, very little of which went to the artist. 90% of the money made in the music industry is not music sales but concerts, t-shirts, bobble-heads... you get the picture. Free the music!!

The **AA can't afford any more attention like this

[zappepcs]

If anyone here thinks that the Fool will harm the **AA's business, think again. The Fool is only telling us what is happening. In a family gathering of more than 25 people for present opening ceremonies this year, I watched quite gleefully to find that only ONE CD or DVD had been purchased. ONLY ONE! There were cameras, books, clothes, presents galore... but only ONE lonely little DVD.

My in-laws really don't care about the **AA and their ways, CDs and DVDs are JUST TOO EXPENSIVE. Never mind the lawsuits, their crap products are priced way out of order.

Time to start ePhoenix records I think....

i would like to suggest something unPC

[circletimessquare]

where polotically correct in this sense is sensitivity to the dying music industry: maybe there really is no more money in this business

we all talk about "embracing new models", and anger at the industry for seeing napster and fighting them tooth and nail, rather than changing their business model. we yell at the music industry for not using the internet to their advantage... well what if the suits are right? there is no advantage in the internet. that it's simply death for them?

of course there is still money in concerts and movie theatres, those are real world venues. also advertising plugs. but everything that goes on media: movies, music, maybe there really is nothing but a black hole of no cash for the music and movie industries

not that the industries can do anything about it

and copyright of course means shit: it's simply unenforceable. you can trap a few scurrying mice here and there and extract a few pennies from soccer moms and college kids, but everyone will trade anyways, with just more and more bulletproof protocols and apps

not that i'm worried or complaining about this new world. one music exec assholes financial riches gone means our cultural riches greatly improved. there's more than one way to measure richness than just cash in the bank

it's a wonderful new world in fact

long live the death of the music and movie industries

this is really wonderful

Re:so, what would Fool say about our Friend

[edwardpickman]

So Vista was an "attempt" to fix XP and the Firewall from hell was an "attempt" to secure the OS? Since Service Pack 2 on XP every time I install a component or piece of software Microsoft rebricks my computer. As near as I can tell they're approach to security is deny all actions then you don't have to worry about plugging holes. Sorry but kiss the puppy it's hard for me to wrap my head around the idea that deep down Microsoft are a bunch of white hat softies. Microsoft has been a bully for a long time and being a bully makes you paranoid. Even with profits going up every year they still see all the competitors as talking food from their mouths. They'd try to run Apple out of the computer business but remember Apple was their shining example of why they weren't a monopoly. They see Apple as the devil they have to live with they just don't want them to gain market share. If they openly attack Apple they risk another court judgement, not that the last one had any affect. Instead they chip away making things not quite compatible and play dumb. All Microsoft is "attempting" to do is line their pockets. So are most companies Microsoft just tends to be more anticompetitive than most.

Mod Parent Up...

[Penguinisto]

Seriously - he's right. The Tobacco Industry saw it coming a long time ago. Because of the diversification, they are able to sell a pack of smokes at a loss (the vast majority of the $4.00 or so you pay for a pack of smokes goes to taxes, followed by retailer mark-up. Most convenience stores IIRC make a huge chunk of their income not on gasoline --which is a loss leader for them-- but by selling ciggies). Tangent aside, most cigarette brands are sold on razor-thin margins or at periodic loss for the manufacturer (this is due to a combination of price pressure brought on by draconian taxation at the retail side, and the amortization of billions in 'fines', brought on by Congress during their little lawsuit/grab in the mid-1990s). In spite of that, these same corps are still well-able to do things like sponsor NASCAR races. That dough doesn't come from tobacco (it used to), but from profits off the food side of their holdings.

The music industry does have one advantage that tobacco doesn't - the RIAA has a sizeable menagerie of pet congresscritters on both sides of the aisle (e.g. their lead lapdog, Sen. Orrin Hatch (R-Utah)).

/P

Re:CD/DVD is the consumer transmission medium

[gnasher719]

I left the CD on the counter at the check out lane. The check out girl said "Don't forget your CD". I told her that I didn't need the CD that I already had downloaded it. I always thought the music industry could build a business around that. Instead of selling you shiny disks, leave all the distribution cost and effort to the customer and just sell the rights to have the music. They could have done the following:

1. Make a modified version of the iTunes software. That version will download music from all sources and mark it as "try out". It will also allow you to publish your music on the same terms. All this would be legal.

2. "Try out" music cannot be burnt on a CD or moved to an iPod. A splash screen appears when it is played. Removing the "try out" label without paying would be criminal.

3. You can buy the music easily, and the complete money goes to the rights holders (who distribute it in a fair way, or the rights holders might be the actual musicians). The music is then marked as properly owned by you.

4. This is combined with a rating system that lets you rate the sound quality of a recording and upgrade if you find a better version somewhere else.

The only thing that is problematic is how music should be handled that cannot be identified.

Look to wedding photography

[Solandri]

Before cheap scanners and color inkjet printers, most wedding photographers would shoot the wedding for free or at-cost. They would charge up the wazoo for the prints and reprints. When scanners and color printers became cheap, people just started scanning the prints (or sometimes the proofs) and running off all the copies they wanted. In response, wedding photographers have mostly moved to a model where they charge all the money for shooting the wedding, then give the prints away for free or at-cost.

I suspect musicians will go the same route. Songs will be given away as free advertising, and they'll make their money by booking performances and concerts (and selling memorabilia at such). For all practical purposes that's the way most of the RIAA-contracted musicians work anyway right now, since the studios keep 95% to over 100% (the band owes them money) of all the proceeds from song sales.

Going After Network Shares...

[Wakk013]

Hesitate to explain this, but....

Every windows computer is sharing everything, unless specifically disabled to NOT do so. Does the standard consumer understand this? No... Is it even instructed... NO. Does MS want you to remove the administrative shares? NO...

Every computer by default, first install... C$ is open and available. Its a share.

I strongly believe the RIAA lawyers have run out of ground to stand on.