How the Music Industry’s War on Sharing Destroys Markets and Erodes Civil Liberties

Chapter 7: “This Sounds Way too Good”: No Good Idea Goes Unpunished

1 Leave a comment on paragraph 1 0 In moments of quiet reverie, I often return to a favorite fantasy of mine – one most likely shared by many media and technology enthusiasts of a certain age. In this fantasy, I have been transported back in time to visit my teenage self, equipped with the latest twenty-first century gadgetry. I watch with amused delight as 15-year-old me familiarizes himself with the smooth contours and intuitive interface of my MacBook, test his mettle in the multiplayer mode of the latest Halo installment on a 60-inch HDTV, and reminisce with him about our childhood as we retrace the geography of our shared past via Google Earth. All of this, naturally, blows his little analog mind. But the thing that gets his heart – and mine – racing the fastest is the music technology.

2 Leave a comment on paragraph 2 0 I amaze my younger self with Shazam’s ability to identify any song just by listening to it for a few seconds. Together, we search for rare Bob Dylan concert videos on YouTube (for some reason, I have an Internet connection). I set up GarageBand on an iPad and help him cut a demo of his latest peace-punk anthem. But I save the crowning achievement of my era for last. Holding up a sleek little box about the size of a half-deck of cards, I tell him “this device holds up to 40 thousand songs!” His interest seems piqued, but the ecstatic response I expected fails to materialize. I watch him do some mental calculations, and then he frowns. “I don’t get it,” he tells me. “How can anyone afford to fill one of those things?”

3 Leave a comment on paragraph 3 0 Unfortunately, I have no legal answer to this question. Nor does the music industry. Over the past two decades, thanks to Moore’s law, massive capital investment, and the loving labor of thousands of independent developers, innovations in hardware, software, interface design and communication networks have profoundly altered musical culture and practice. Today, there is little we can imagine doing with music that can’t be realized through some kind of digital intervention – and our imaginations are growing more adventurous with every passing year. Yet, despite (or because of) this rapid change, the music industry seems unwilling or unable to match its pace by developing new business models that take advantage of these innovative technologies and emerging cultural behaviors.

4 Leave a comment on paragraph 4 0 “Now, wait a minute,” you may be thinking. “Every day, I read about some hot new digital music startup. And I get all the music I could ask for, legally, from services that didn’t even exist a decade ago. What more could I want?” This is a perfectly reasonable objection. Yet if we look at the digital music companies that dominate today’s industry, they are precisely those that offer the least innovation, and are therefore the most viable partners for an inflexible recording sector. As I discussed in Chapter 3, part of the reason iTunes was able to dominate the music market for much of the past decade is because it replicated the traditional wholesale/retail relationship with the labels, requiring very little adaptation on their end. The price, as I discussed in Chapter 5, was the “unbundling” of the album, which has simultaneously depressed music sales revenues and limited consumers’ ability to fill their own iPods with legally obtained music (as my younger self noted, it would cost $40,000 at a dollar a song). Pandora, the reigning titan of the webcasting sector, innovated as much as it could without crossing the line into “interactive webcasting” as defined by copyright law. This way, the company could go about its business using statutory licenses and without ever having to negotiate with the labels or publishers.[1] The result isn’t quite traditional radio, but it’s certainly not the most functional or adventurous service that the company’s “music genome” technology could support – nor is it yet profitable.[2] And Spotify, the newest darling of the digital music business, is essentially relying on a business model first proposed at the dawn of the digital music era[3] – yet it took the company five years from its founding and three years from its European launch to become available commercially in the US, largely because of licensing difficulties.

5 Leave a comment on paragraph 5 0 Thus, while digital technology has certainly played a transformative role in the music industry, this transformation has been hindered to a considerable degree by the difficulties faced by innovators in their dealings with the legacy cartels. Unlike iTunes and Pandora, most new digital music services must face a choice between entering into extended, and likely fruitless, negotiations with the major labels before launching, or being branded as “piracy” enablers and litigated out of existence. Either way, only a small fraction of the good ideas ever make it to market, and only a handful of those become stable, revenue-generating businesses. This isn’t simply an annoyance to those of us hoping to impress our inner adolescents with the wonders of the digital future – it’s a significant hindrance to the development of the industry, and a serious drain on economic growth. As business professors Jeff Dyer, Hal Gregersen and Clayton M. Christensen write in the introduction to their recent book The Innovator’s DNA, innovation is “the lifeblood of our global economy and a strategic priority for virtually every CEO around the world.”[4] In other words, an industry incapable of adapting to – and capitalizing on – technological change is doomed to obsolescence.

6 Leave a comment on paragraph 6 0 Unfortunately, innovation has never been one of the music industry’s strong points; as I discussed in Chapter 2, even in the pre-digital era, the labels’ attitude toward to new technology always mixed optimism and distrust in equal measure. And as Steve Blank, tech entrepreneur and author of Silicon Valley bible The Four Steps to the Epiphany,[5] explained in a recent blog post, the music business has often innovated in spite of itself. In his words, “The music and movie business has been consistently wrong in its claims that new platforms and channels would be the end of its businesses. In each case, the new technology produced a new market far larger than the [negative] impact it had on the existing market.”[6]

7 Leave a comment on paragraph 7 0 This resistance to new ideas has only increased in the digital age, as the gap between the innovators and the industry has widened. The resulting stalemate has essentially ground the wheels of progress to a halt, hurting businesses old and new, as well as consumers and musicians. In the words of Rutgers law professor Michael Carrier, who recently published an extensive study on this subject, the music industry is largely to blame for its own economic collapse, due to its single-minded focus on “preserving an existing business model and ignoring or quashing disruptive threats to the model” and its consequent reliance on “overaggressive copyright law and enforcement, [which] has substantially and adversely affected innovation.”[7]

8 Leave a comment on paragraph 8 0 In the remainder of this chapter, I will tell the story of five promising digital music businesses that suffered as a result of such policies. While these are only a handful among hundreds, if not thousands,[8] each is in its own way emblematic of the dysfunction at the heart of the music industry in the digital age. Through their stories, I hope to provide a glimpse of what’s been lost and what the costs have been to both musical industry and culture, as well as a sense of the human toll, measured in terms of wasted hours and diminished dreams.

9 Leave a comment on paragraph 9 0 [1] Although there was a prolonged arbitration regarding the Webcasting royalty rates, followed by additional contractual negotiation with digital performing rights organization SoundExchange.

10 Leave a comment on paragraph 10 0 [2] According to the company’s most recent public filings at the time of writing.

11 Leave a comment on paragraph 11 0 [3] Sinnreich, A. (2000). Digital music subscriptions: Post-Napster product formats. Jupiter Research.

12 Leave a comment on paragraph 12 0 [4] Dyer, J., Gregersen, H. & Christensen, C. M. (2011). The innovator’s DNA: Mastering the five skills of disruptive innovators. Boston: Harvard Business Press.

13 Leave a comment on paragraph 13 0 [5] Blank, S. J. (2005). Four steps to the epiphany: Successful strategies for products that win. (2nd Ed.). CafePress.com.

14 Leave a comment on paragraph 14 0 [6] Blank, S. (2012). Why the movie industry can’t innovate and the result is SOPA. SteveBlank.com (blog), 1/4/12. Available at: steveblank.com/2012/01/04/why-the-movie-industry-cant-innovate-and-the-result-is-sopa/

15 Leave a comment on paragraph 15 0 [7] Carrier, Michael A., Copyright and Innovation: The Untold Story (July 3, 2012). Wisconsin Law Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2099876

16 Leave a comment on paragraph 16 0 [8] Many of which I personally interviewed and/or advised in my capacity as a digital music analyst and consultant at Jupiter Research and Radar Research.

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Source: http://mcpress.media-commons.org/piracycrusade/chapter-7-this-sounds-way-too-good-no-good-idea-goes-unpunished/