Why Starting a Legal Online Music Vendor Is Tough

Hodejo1 writes "Former MP3.com CEO Michael Robertson offers commentary at The Register saying any attempts to build a sanctioned digital music site today is doomed from the outset. 'The internet companies I talk to don't mind giving some direct benefit to music companies. What torpedoes that possibility is the big financial requests from labels for "past infringement," plus a hefty fee for future usage. Any company agreeing to these demands is signing their own financial death sentence. The root cause is not the labels — chances are if you were running a label you would make the same demands, since the law permits it."

Comments

Business logic or monopolistic cartel?

[StrategicIrony]

Just because I'm allowed by law to charge someone whatever I wish for the fruits of my business, this doesn't mean I would, or that I should. I would go out of business very rapidly.

However, if I ran a cartel, controlling a monopoly share of a highly desirable resource... then I guess I understand where they're coming from.

But... wait... aren't monopolies illegal for this very reason?

Re:Business logic or monopolistic cartel?

[plen246]

Competition in the free market only really works when competing products are considered to be interchangeable. Unfortunately, the music-consuming public, and much of the on-line music industry, haven't yet caught on that there are alternative, independent sources of good music. Because the entire music delivery system has been built around the big labels for decades, it will require a significant push by on-line music retailers and pull by consumers to shift the industry away from the monolithic model toward a more broadly independent and distributed model. Indeed, the big labels increasingly resemble a cartel (e.g., the RIAA business and their negotiations with on-line retailers) when it should be moving the other way.

Re:Business logic or monopolistic cartel?

[StrategicIrony]

Any label is not a monopoly. The collective bargaining put together by the RIAA cartel may be, however.

I would regard it akin to... All 4 of the airlines that service my city getting together and deciding collectively to triple the price of tickets out of my city.

Yes, there are other, less desirable means of transport. The bus still runs.

Yes, it is possible to start a new airline (or a new major record label), but the barrier to entry is astoundingly high (so much as to make it almost impossible).

If all 4 carriers at my local airport were colluding to set prices artificially high, they would be slapped down HARD.

Because the RIAA labels deal in slightly more nebulous items with slightly less cohesive boundaries, they're allowed to collude all they want and nobody bats and eye.

Re:Business logic or monopolistic cartel?

[Znork]

Any label is not a monopoly.

Any copyrighted work is a government protected monopoly on its own, which makes the distinction harder to make.

While an airline (or two different airlines) and a bus may get you to your destination, the fact is, despite the significant attempts to make everything sound the same, different songs are not the same destination. And you can't (generally) buy the same song from different entities.

they're allowed to collude all they want and nobody bats and eye.

See, the trouble is they don't really need to collude. Monopoly pricing is set in relation to available disposable income; it's a function of what the consumers will spend. You maximize your revenue when you raise prices to the equilibrium point where higher prices mean lower income (as the higher per-unit revenue wont be outweighed by the lost sales), and not a cent below. (This point tends to be at a level where a significant number of customers cannot afford the product, and is also the main reason for things like region coding and parallel import prevention in other similar product areas)

As the monopoly pricing is set as a function of the same thing, all the players will end up with very similar price points. After that, the main competition going on is exposure and channel control (well, apart from friendly copying).

In essence, monopoly rights are irreconcilable with a free market economy. The business logic when you have a protected monopoly simply doesn't work the same way as competitive industries, so there's a permanent conflict of interest between the bigger players and everyone else. A conflict that is unlikely to be resolved until monopoly rights are restructured as non-exclusive revenue share rights, which simply is unlikely to happen any time soon.

Re:Business logic or monopolistic cartel?

[bsDaemon]

No, the problem is the problem with any other sort of art -- either people like it or not, and whatever arguments made, for or against, by music/art/literature majors aren't going to change (at least not in any significant way) the way that "regular" people view a piece.

Then there is also the problem of perception associated with the source. I could pay to self-publish a volume of my poems, but it'll be ignored by critics, unavailable to most readers and, ultimately, be a waste of money on my part. If I can't get in a literary magazine or picked up by a traditional publishing house, then the perception is that I'm not any good.

The same is only marginally less true for music, and the only reason that's the case is because of the whole punk/hardcore scene which morphed into "indie," and even then Sub Pop was just a stepping-stone to Geffen for Nirvana, and most "indie" labels have major-label distribution contracts, or try to sell their bands to the big boys so they can take their cut.

So, is most of what's out there today on MTV crap? Yes. Are the new offerings on college radio stations "interchangeable?" Functionally, yes, aesthetically, no.

But, if artists and the public realized that you don't need the distribution channel to be good, then it wouldn't be a problem -- the internet makes record labels and publishing houses anachronistic in the extreme.

Re:Business logic or monopolistic cartel?

[Lumpy]

Then there is also the problem of perception associated with the source. I could pay to self-publish a volume of my poems, but it'll be ignored by critics, unavailable to most readers and, ultimately, be a waste of money on my part.

Huh? are you going to self publish and then hide the books in a closet? Because I have self published 2 photo books and even have them on the shelves at Barnes and Noble. It's not hard to self publish and get your stuff out to the public.

If you self publish, then you have to self promote, self market, and self sell your books. I get maximum profits from that instead of making $0.75(max) a book sold by letting a publisher get all the money by doing all the work. If you want to sit there wishing, go ahead. It's what most writers and photographers do they make something and send it to some publishers and use the hope method.

The successful ones don't hope, they do. They push themselves, and work to get their stuff out there and in people's faces. If you wrote a poetry book, how many public readings are you doing a month? did you travel to Chicago last month for a public poetry reading at the Library? how have you marketed yourself?

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Maybe I missed it ...

[Daniel Dvorkin]

... but I didn't see the word "iTunes" anywhere in that article.

It is possible to build a profitable, long-lasting, and legal online music business, Mr. Robertson. I'm genuinely sorry you failed to do it, but to pretend that the biggest player in the online music world simply doesn't exist is kind of childish.

Re:Maybe I missed it ...

[pla]

... but I didn't see the word "iTunes" anywhere in that article.

iTunes doesn't come close to what MP3.com wanted to do.

I don't want to start a debate about how much they had available or how lax their DRM; Put simply, they do have DRM, and they don't offer everything, therefore fall woefully short of the ideal.

That said, you make a good point... iTunes has done quite well, and I would call it a good start. Even so, keep in mind that every few months we hear rumblings about how the major labels want to "renegotiate" with Apple to charge more and use more restrictive DRM - They just don't "get" it, even when offered a viable model on a silver platter.

Horsepucky.

[pla]

The root cause is not the labels -- chances are if you were running a label you would make the same demands, since the law permits it.

Irrelevant, whether or not the law "allows" it.

As various legacy-media industries (and I don't mean just the RIAA here) slowly waste away to nothing, they have two choices - Find a way to make their product available on terms we can all agree to (and do so knowing how easily we can choose to simply pirate their content)... Or cease to exist.

The right to "past damages" doesn't matter if you have no future. These industries have a wide assortment of 3rd parties all but begging to solve their current problems for them with various forms of modern online distribution; Only stubbornness, and a near-suicidal insistance on maintaining some mythical "control" they lost over a decade ago, have kept such ventures from any chance of success.

So before you absolve the labels of blame in this matter - Ask yourself, would you, starving in the gutter, turn down a lifetime supply of Big Macs because you think the world "owes" you a home-cooked steak dinner?

Re:Horsepucky.

[stormguard2099]

I've heard a lifetime supply of just bigmacs is only 9 days tops depending on how athletic you are.

Re:Horsepucky.

[Teancum]

One of the problems here is that the author of the article seems to think the authority to change the situation lies with the court system, when in fact this is a legislative problem that is compounded by a massive mis-interpretation of what the general public thinks it ought to be about.

While I understand that the Register is a UK publication, it reads like it was written by an American (perhaps a personal bias). From an American perspective, the record companies are fighting something even tougher: The U.S. Constitution. More to the point, if the copyright clause of the constitution were to be properly interpreted to understand that the protection was only for a limited time (life + 75 years isn't a "limited time" in spite of what the U.S. Supreme Court claims). Retroactive copyright term extensions make the situation even worse... but I'm barking up the wrong issue here anyway.

The point here is that legislative bodies of the world like Congress, Parliament, and other similar bodies have been dealing with this issue as if the publishing bodies (including recording studios in the case of music) are the only individuals that need to be served when these laws are drafted. Individual consumers as well as the artists/authors/composers/performers need to be strongly considered as well, and the real point of legislation ought to be asking this question:

What can changes in the current copyright legislation do to expand the number of creative works, and "promote the useful arts and sciences"?

This is certainly not something that is being asked by legislators (MPs or Congressmen), and nearly all legislation in the past couple of decades on both sides of the pond works to kill off incentives by individuals to create these kind of artistic works. International agreements, while they do seek to "equalize copyright laws", tend to take the lowest common denominator approach and offer the best possible protection for the publisher as any of the countries in the treaty organization (aka the "Berne Convention"). This question about what can be done to promote the development of these artistic works certainly isn't being asked at these treaty conferences either, nor by the legislative bodies when the treaties are being ratified.

Excuse me but the summary is wrong

[unity100]

in here : "The root cause is not the labels"

if they are making the same demands if the law permits it, they are the root cause.

Re:I tried and failed

[StrategicIrony]

Are you... joking?

Or are you a RIAA marketing consultant?

This is a stellar piece of propaganda. Even the part about the kids wearing shabby clothing. Priceless.

Of course, if it's true, you need to get out of that business immediately.

I don't give a flying rats ass about piracy. The entire concept of purchasing information that is tied to a small piece of plastic is silly in the digital age, prima facie.

Your grandchildren will look at you funny when you suggest that one day, music could only be purchased on round pieces of plastic. They simply won't understand why something so trivial as "data" had to be purchased by means of a physical medium.

If you want to blame the decline of your business on digital music distribution, you would be accurate, but blaming it on piracy falls somewhere between a straw man and a red herring.

Lets look at reality.

Physical CD sales declined by 88 million from 2006 to 2007. (from 588 million to 500 million)

At the same time (2007), the iTunes music store sold about 1.8 billion tracks. They were thought to have about 60% of the market, indicating that there are about 3 billion tracks sold LEGALLY online.

So, a decline in 88 million plastic thingies sold... however, 3 billion tracks legally sold (for cash-money) online during the same period.

No, it is not really a piracy issue, it's merely a change in the distribution method of music.

You're on the wrong end of it.

Get out now.

Limited scope

[overzero]

FTFA: "The root cause is not the labels - chances are if you were running a label you would make the same demands, since the law permits it."

Unless, of course, you didn't. The law also permits playing a guitar exclusively in a soundproof booth in the middle of nowhere so that no one will ever be able to hear your music, much less consider purchasing it, which seems like the business model the major labels are moving towards.

You could, for instance, start your own label specifically to avoid this, avoid DRM, allow anyone to stream your catalog as much as they want, offer a variety of formats and purchase options, etc. I think the law permits that too.

As for viability, it might have some issues, but Magnatune has been doing that for five years now and doesn't seem about to stop.

http://www.magnatune.com/

The law allowes it?

[houghi]

So if it is not strictly forbidden you MUST do it? That is a whole new twist and says more about him as a person then about the people who do it.

Re:I tried and failed (to search on Google)

[Mathinker]

First, I'm not sure why you posted ... without checking on the contents of the post you replied to.

Kind of hard to believe a Slashdot ID as low as yours has never seen that troll post before. Or are you some kind of "second-degree troll" who pretends to believe troll posts? Arrggh! My mind ties itself into pretzels thinking about the boasting conversation at a "fourth-degree troll" convention in the far future....

OTOH, I admit there has been a decided lull (thank the FSM!) in the posting of that particular one, in recent months. Maybe you just have the blessing, in this case, of a short memory. Or got stranded on a desert island for the wrong period.

Re:I tried and failed

[Technician]

But there is one, inescapable truth - Internet piracy is mostly to blame.

It's a common scapegoat, but missing the mark. Percieved value and retail price are an order of magnitude out of place.

Instead of wasting money on a shiney disk with about 45 minutes of stuff along with one good song, I can buy a DVD for half the price.

I can carbonate water at home and add my own flavoring and sugar, but I still purchase fountain drinks for the convience.

CD's are now the oposite of convience for more money. Downloads go right on to an MP3 player. CD's have to be found if still in print, ripped and put on a player.

Online is a-la-carte. CD is a canned package.

Some compainies wanted to make and install in store CD burning kiosks. Guess who killed that in the bud?

For an industry who doesn't listen to their consumers, they sure scream P-P a lot for their lack of adjusting to the market.

If you scream P-P enough, will the death of your scapegoat really fix your root problems?

Some people are offended by my blacklist system.

This would be mostly your best customers. Those who don't listen to music don't buy CD's. Those deeply into music purchases CD's and shares copies of out of print stuff or the one good song on a CD. Blacklisting them is a great way of killing the biggest part of your business. Thanks for providing great evidence the industry doesn't understand the market.

Much of the industry is selling pig in a poke packages. I bought the DC Talk album Supernatural because our church performed Red Letters, and I enjoyed the choir rendition. I hated the album, even the good track. I'm not into acid rock. Needless to say, once burnt, twice shy.

How many times have you bought an album because you only heard one song and then didn't like the rest of the album at all?

P-P expands music horizons. Most of the time when I bought albums, I heard it from friends first. (I quit buying entirely when the industry started dropping the nuke bomb on some unlucky few as a protest.)

My peak buying days was when I was in the military while in my peak piracy days with cassette tapes. The industry doesn't understand their consumers or the market.

Re:I tried and failed

[hey!]

Well, I think you have some good points, but the fundamental shift I see is not in how music is distributed, but how it is consumed

The LP album is, essentially, a concert piece. Thirty years ago, singles from an album were what hooked people into buying, but people sat down and listened to a whole album, all of the A side then all the B side. They didn't play one track, hop up and take the needle off, remove the disk and put it in its sleeve, remove another record put it on the platter, then carefully set the needle down on a specific track.

CDs are the same.

With digital music players, they can and do play a jumbled sequence of single tracks. It's a kind of return to the day when wealthy patrons had musician servants that composed short pieces like "Fanfare as Lord So and So Sits Down to Dinner". People use music players to provide that kind of soundtrack to things they do in their lives, like working out on a Stair Master.

The LP or CD is more like a symphony, a longer work that makes sense in the context of middle class people making an evening of going to the concert hall.

If the labels want to sell CDs, then they have to sell CDs that are more than random collections of mediocre songs tied to one or two song that the consumer wants. It's not the mediocrity of the filler material that's the problem, it's that it is filler material in the first place. I happen to like opera, but there a plenty of bits in even the best opera nobody is going to put on their play list unless they're listening to the whole thing through.

the root cause is not the labels?

[nimbius]

gimme a break. the root cause is a conglomerate of labels who arguably add nothing of value anymore to music, as online distribution has supplanted them almost entirely.

its not their fault. if you were about to be unceremoniously kicked off your pile of bloodmoney, you'd fight like hell too!

That's one person's opinion...

[xednieht]

The article clearly states that it is merely an 'Opinion' note the upper left hand corner tag.

Other than that I would offer another view. There's still plenty of opportunity to grow online music.

When the dust settles, many moons from now, the emerging model will be a hybrid between what Napster was and iTunes is. It will probably emerge outside of the US because the morons on Capitol Hill are too quick to appease the idiots at RIAA. But it will emerge. Think Janis Ian and many more like her.

Of course if by some miraculous turn of events RIAA decides to invest in technology instead of lawyers it may start here, but don't hold your breath. Blinded by greed, crippled by stupidity.

Re:Is iTunes succesful

[TheRaven64]

Apple is now the biggest music retailer in any medium. If they are making any profit on sales (I vaguely remember reading that they make something like 10Â per track) then the iTunes store is raking in money. The iTunes store and Apple-branded accessories (they don't break them down on the balance sheet, there's just iPod and 'other music-related products and services) are bringing in around $800m per quarter in revenue, which probably equates to around $100m in profit.

The root cause is overly long copyrights

[jmichaelg]

Back before there were lawns, copyright ran for 14 years. In 1790, it was extended to 28 years. From there, it slowly got extended until 1998 when Congress saw plenty of donations and all of a sudden, it shot up to the author's life plus 70 years.

Revert copyrights to the original 14 years and you'd see all kinds of music and art. Pandora.com (an outstanding music delivery idea) wouldn't be talking about pulling the plug and people would be exposed to so much outstanding music and video that we'd see a resurgence in creativity in this country.

Re:I tried and failed

[smoker2]

I agree, and significantly that's why I stopped buying CDs. I am a fan of Pink Floyd, the real Floyd, before Roger Waters left. Dark Side of the Moon, The Wall, Wish You Were Here. All of those albums were works of art, designed to be listened to in their entirety. But what happened on CD ? They put audible breaks in between the tracks. Ruined it completely for me, I may as well have recorded each track individually myself and slapped them together to form an album. Strangely enough, I can do that now and I make a better job of it than the official labels do.
This phenomenon is not unique to CDs either. Watching a movie on TV has got to be a pain these days due to the incessant ad breaks. You can't build an atmosphere and immerse the viewer in a situation when the dialogue switches to overly loud irrelevant material every 20 minutes. That's why I record things I want to see and rip the ads out - to restore the natural flow of the original work. I no longer have to keep the remote in my hand so I can rapidly turn the sound down to reasonable levels, I can sit back and absorb. Can you imagine a book where every 20 pages a loudspeaker erupts telling you that you're paying too much for car insurance ?