April 12, 2004
Volume 4, Issue 4
Welcome Shared Media Licensing
Please warmly welcome Shared Media Licensing (SML) to the Platform Group. We look forward to providing valuable services to this newest DCIA Member and supporting its contributions to commercial development of the distributed computing industry.
SML exemplifies a highly innovative business model for P2P music distribution. SML's Weed compensates end-users for redistributing encrypted music files, with artists receiving 50% of sales and the three users immediately preceding a recipient in the distribution chain sharing in sales commissions.
By buying Weed files at artist-established prices, buyers are entitled to redistribute them and earn a share of future sales. Buyers can also burn copies to CD and transfer titles to portable devices.
A group of musicians and software developers based in Seattle , WA created Weed to legitimize peer-to-peer (P2P) music redistribution.
SML's most recent offering lets music fans quickly put together a customized, legal music download website. Visitors can download songs and play them three times for free before being asked to buy them. Site owners earn 20% of all sales, plus a share of pass-along sales.
Starter kits offer $5 credited to every new Weed account and include a compressed ZIP file containing several songs chosen by SML's independent content providers.
Says SML President John Beezer : "You can download files and, if you like them, buy them, and encourage visitors to try them. When they buy, you earn 20%. When they share the files with friends who buy them, you earn a share of those sales too. If you want to expand your offerings, there are thousands of amazing songs available in practically every style of music."
Weed's decentralized retailing strategy benefits artists and fans alike. "A lot of people don't have time to search the Internet for new music. But if they trust a particular reseller's tastes, they'll come back often to hear what's new and buy the titles they like. And with Weed files, fans know the artist is being fairly compensated because rights holders get 50% of every sale."
Report from CEO Marty Lafferty
 Stepping back from the ongoing debate over the recently proposed S 2237 PIRATE Act and HR 4077 Piracy Deterrence and Education Act, it may be helpful to consider the relevant historical context.
Half a century ago, the roots were planted as the incipient recorded music industry sought to maintain control as shellac disc technology gave way to the advent of microgroove vinyl records carrying notes played from the strings, pipes, drums, and vocal chords of performing artists to the mainstream markets of the world.
Lobbying efforts in Washington intensified as investment stakes dramatically increased to protect capital investments in musical works. Publishers were equally interested in protecting the increasingly valuable works of musical authors. Two distinct sets of rights needing protection thereby arose, given the desire of companies to exploit the sale of record albums.
Congress heard the debate from all sides and determined that copyright controls ought to be strengthened to enable this industry to develop, and for the various parties involved to be treated fairly. The playing field was leveled and the game started.
Were it not for the immunity thus provided labels and publishers by Congress and governments around the world from territorial antitrust regulations, the recorded music industry today would be more fragmented, because copyright control would not have enabled extensive aggregation of rights.
As the market for vinyl discs expanded, however, ownership of recorded rights consolidated to major music labels. Distribution infrastructures were built to facilitate ever growing volumes of physical products. Radio promotion was extensively exploited. Retailers sprang up to sell singles and LPs. As technologies changed, the vinyl disc gave way to the audio cassette and finally the CD, but for the most part the physical nature of distribution remained the same.
Retailers bought recorded music from distributors and resold it to consumers. Resellers were not required to license music: they simply bought goods (most often on credit terms) and sold them. Independent stores, music clubs, specialty stores, mass merchant retailers, drug stores, book stores, convenience stores, swap meets, and markets participated. Music was sold everywhere.
Then the Internet arrived.
Digital distribution need not have been very different from physical distribution, but executives at music labels responded by burying it in business plans for as long as they could for fear that it would disrupt their terrestrial business interests and longstanding relationships with wholesale and retail distribution partners.
Many web sites opened their doors for business hoping to resell major label music in much the same way as traditional retailers. While the technology was different, essentially music could be sold, revenue collected, and payments made back to labels, as in brick-and-mortar retail.
To avoid having to deal with these disruptive new supplicants, and in stark contrast to what had become indiscriminate resale practices with terrestrial wholesalers and retailers, major music labels collectively agreed to just say NO and walk away.
They acquiesced to selling physical CDs through web stores, in an attempt to extend their offline business model to the online world, but this failed to meet the market demands of consumers or digital music retailers on the web.
Without digital music in legitimate circulation on the Internet, technologies like Napster and Kazaa sprang up to satisfy pent-up consumer demand. Consumers flocked to them. The music industry chose litigation over negotiation, squandering valuable time that should have been invested in building new businesses on the Internet.
Finally, the music industry opened Pressplay and Musicnet, initially owned by major labels, representing a step backward to centralized technology, and the only stores on the Internet permitted to sell music for almost two years. They used these primarily to establish price-points designed to be non-competitive with their offline retail businesses, despite drastically lower costs to serve consumers with digital content.
Only then did they permit the opening of other web stores - using centralized architecture - to a select few, then a few more, up to a current 80 or so globally, continuing to artificially protect CD pricing. It is clear they continue to exploit their privilege by abusing copyright to discriminate against other Internet distribution technologies by refusing to do business with them.
Today a variety of such technologies, including peer-to-peer (P2P) file sharing, are ready to do business with the music industry. They should not be boycotted. Major labels should open their doors fully to the business of selling music on the Internet in the same way they open their doors to selling music offline. Anything short of this is an abuse of market power.
Protection issues are no longer an excuse for market abuse. While more than 99% of music CDs do not provide any protection of the music tracks contained on them, P2P DRM technologies are already more secure than music CDs have ever been.
Music has been granted special consideration under laws passed to protect rights in its untethered form when not directly related to a performance. These laws provided immunity against antitrust actions to further industry development, but were not established to curtail the distribution of music through a process of collusion and market control.
Major labels should cease abusing that privilege and normalize the balance by trading freely with all qualified Internet wholesalers and retailers, applying the same business practices they apply to their existing terrestrial retail distribution channels, and facing the digital world in a manner that will benefit all and not just a privileged few.
DCIA Spring Quarterly General Meeting
Plan now to attend DCIA's 2004 Spring Meeting on Wednesday evening May 12 th from 6:30 PM to 9:30 PM US PT at the Wilshire Grand Hotel in Los Angeles, CA. The DCIA Meeting is being held in conjunction with the Electronic Entertainment Exposition (E3) at the adjacent LA Convention Center, which this year includes a Conference Program from May 11 th through 13 th as well as the Expo from May 12 th through 14 th .
The focus of the DCIA Spring Meeting will be on legitimate P2P distribution of games. Games represent the fastest growing entertainment category, and thanks in part to the industry's very strong technology component, game developers and publishers have been early adopters of Internet technology for highly innovative distribution models.
Stay tuned for our very exciting roster of industry-leading speakers to be announced in coming issues of DCINFO. Please pre-register online now simply by e-mailing your contact information to info@dcia.info . Space will be very limited at this event.
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