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

Music in the Cloud: MyPlay

1 Leave a comment on paragraph 1 0 In early 1999, while Jeremy Silver was still sitting at his desk in the Capitol Tower and Napster was just a germ of an idea in Shawn Fanning’s mind, David Pakman was already fed up with the state of digital music. As Vice President of Business and Product Development at online music retailer N2K (which had recently merged with competitor CDnow), he realized that the newly popular MP3 format represented the future of his business, and the writing on the wall for the CD format. Yet, as it stood in those days, the digital music experience was “hugely frustrating.”[1] There were only a few, low-capacity portable MP3 players available on the market (the iPod was still almost three years away), and the process of “ripping” CDs and transferring songs to such a device was “very cumbersome, it wasn’t very elegant. A layperson couldn’t really do it.”

2 Leave a comment on paragraph 2 0 Pakman and his former Apple colleague Doug Camplejohn decided there was good money to be made in streamlining the process, using the internet’s growing speed, capacity and ubiquity as the foundation for people’s personal digital music libraries. The basic value proposition was simple. In Pakman’s words, “if you’re going to be ripping CDs, you should store your music in the sky[2] so you can get to it from any device.” So they prototyped a solution, which they called a “digital storage locker,” and co-founded a new company around this concept, which they named MyPlay.

3 Leave a comment on paragraph 3 0 Although the service represented a significant step forward for digital music users, it wasn’t quite as powerful as Pakman and Camplejohn would have liked. The problem was getting all of the ripped digital music into the locker in the first place. At dial-up broadband speeds (typically 28.8 or 56 kilobits per second), which were standard at the time, a single song could easily take fifteen minutes, and a library of 100 CDs could take over 2 weeks (assuming constant transfer, which would mean no outages and no telephone usage on the dial-up line). In other words, there was virtually no way that MyPlay users could store their entire music libraries on the service.

4 Leave a comment on paragraph 4 0 There was a simple engineering solution to this problem. MyPlay could create its own library of music, allowing its users to stream the songs that corresponded to their CD collections without having to rip them and then transfer the files themselves to their lockers. But this solution entailed some problems of its own. While there was a strong argument that copyright law’s “fair use” provisions[3] covered self-transfer of files, Pakman believed that the automatic streaming solution “was not something we could employ without licenses. And so we didn’t go that route, although it’s more elegant.” This was a considerable compromise; as former Apple product developers, “elegance” was almost a religion for MyPlay’s founders. Yet, as experienced music industry executives, they also “knew it was a litigious and dangerous place to play, and so [they] carefully designed a solution that was not copyright-infringing.”

5 Leave a comment on paragraph 5 0 Thus, when MyPlay launched in October, 1999, it was legal, but inelegant. Pakman and Camplejohn immediately set out to rectify this situation, reaching out to copyright owners in order to build a “more streamlined, licensed version.” Yet despite “constant conversation with the record labels,” they were not successful in reaching an accord. As Pakman recalls:

6 Leave a comment on paragraph 6 0 They required huge advances. They wanted all sorts of changes in the product to conform to whatever their views were about how the product should behave, which was a problem for a bunch of Silicon Valley guys, who frankly knew a lot more about how to design products than record company execs. They wanted all sorts of promotional guarantees (“you’re gonna use your inventory to promote our stuff, this often and this much space”). They wanted equity in the company, they wanted the advances, and obviously a piece of revenue as we built the service up. . . . it was just all not practical.

7 Leave a comment on paragraph 7 0 In other words, the major labels made the same set of crippling demands on MyPlay that they would make on Muxtape a decade later. And, like Ouellette, Pakman found the pill too bitter to swallow. In his words, “we never signed any deals because the terms were so onerous.”

8 Leave a comment on paragraph 8 0 In the Spring of 2001, despite a year and a half of fruitless negotiations, the company had managed to attract 8 million users, but the service was still inelegant (especially in comparison to the booming unlicensed P2P services), and revenues were paltry. Soon after a proposed $200 million acquisition by Yahoo imploded due to disagreements over a preexisting partnership with its rival AOL, the tech bubble burst, and MyPlay’s horizons narrowed. Without major label licenses, there was little chance that newly-cautious investors would continue to support MyPlay’s business.

9 Leave a comment on paragraph 9 0 So Pakman and Camplejohn sold the company (for considerably less than $200 million) to the only buyer still on the market – Bertelsmann eCommerce Group, the sister company to major label BMG.[4] Presumably, the company would now have an easier time obtaining licenses, and the plan was to integrate its locker service with the soon-to-be-obsolete CD subscription service BMG music club. Though Pakman was disappointed about the earlier setbacks, he was still optimistic about MyPlay’s future at Bertelsmann. He was “excited to work for” his new boss, Andreas Schmidt, and “thought he was going to do great things.” Unfortunately, Schmidt was fired three months later (due in large part to his “great vision” of a post-retail, digital future for music), and “the new guy had no vision.” So Pakman left Bertelsmann as soon as his contract expired, a year to the day after the acquisition. Soon thereafter, the eCommerce group itself disappeared beneath the waves, bringing MyPlay down with it.

10 Leave a comment on paragraph 10 0 Today, Pakman is a partner at New York venture capital firm Venrock Associates, and is still an influential thinker when it comes to the music industry (Billboard magazine considers him one of the “music industry characters you need to follow” on Twitter). Yet despite his love of music and his history in the business, he says he won’t invest in digital music startups, and has “not found a single investment in the space worthy of our capital.” In fact, when he meets promising young tech entrepreneurs, he actively “tries to steer them away” from music. The problem, he says, is that the record labels are incapable of providing licenses on equitable terms, because “no one [at the labels] is rewarded for cannibalizing the existing business,” even if it means building a better long-term strategy and insuring the continuance of the sector. Consequently, “getting licensed is death” for startups, Pakman says. “The economics do not allow you to build a business that’s sustainable. . . .  And you end up scarred and broke at the end of it, before you even have your product to market. To know whether consumers care.” Which is, of course, all that any innovator truly wants.

11 Leave a comment on paragraph 11 0 [1] All quotes from Pakman are from an interview conducted via phone on July 18, 2012.

12 Leave a comment on paragraph 12 0 [2] Remote data storage and maintenance, which is typically referred to as “the cloud” in contemporary internet parlance, was then a nascent idea more frequently referred to as “the sky.”

13 Leave a comment on paragraph 13 0 [3] As I’ve previously discussed in this book, fair use is a poorly-defined concept that often must be defended in court, at great expense, in order to be exercised in new technological and social contexts. This uncertainty can have what legal scholars call a “chilling effect” on innovation. For thorough analysis of the subject, see: Aufderheide, P. & Jaszi, P. (2011). Reclaiming fair use. Chicago: University of Chicago Press.

14 Leave a comment on paragraph 14 0 [4] Bertelsmann eCommerce Group also made a bid for Napster (which had been bankrupted by major label lawsuits) the following year, and had purchased Pakman’s former employer CDnow the previous year.

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