December 19, 2005
Volume 11, Issue 8
SML Partners with Magnatune & LimeWire
Three pioneers in the online distribution of music files have joined forces. DCIA Member Shared Media Licensing (SML), UK record label Magnatunes, and peer-to-peer (P2P) innovator LimeWire will cooperate in distributing and promoting Magnatune's 200 artists via SML's unique Weedshare file-sharing service.
Under the agreement, Magnatune's entire catalog of more than 400 albums will be converted into Weed files that can be freely downloaded and legally shared with others through any means, including P2P networks. File sharers can play the songs 3 times for free and, after buying the tracks, automatically earn commissions when they share them with others.
Magnatune music will be offered through the Weedshare and Magnatune web sites, as well as through LimeWire's upcoming LimeClick.com site. LimeClick is designed to provide a launchpad for populating the Gnutella P2P network with legal content, which can then be searched for and retrieved with LimeWire's software.
Magnatune CEO John Buckman said, "This agreement enables our company to move into three distinct new areas. Firstly, we can now work with P2P companies, as well as fans of that technology, to enable much wider distribution, exposure, and experimentation with our music catalog. Secondly, this establishes an affiliate network, where every buyer of a Weedshare-enabled Magnatune song is effectively a reseller, enjoying a profit every time the files they share are themselves purchased. And finally, this allows single songs to be purchased, where currently only albums may be bought."
Buckman says he had long been intrigued by Weedshare's business model, and was won over when he met Weed co-founder Steve Turnidge at a Future of Music Conference in Washington, DC. The two shared excitement in finding new business models for music. Both companies aim to promote diversity in music, lowering the costs of distribution and sales, so that musicians can focus on their art.
Telcordia's Discovery Chosen by Hydro One
DCIA Member Telcordia Technologies announced last week that Hydro One Telecom, a provider of broadband telecommunications services to carriers, large enterprises, and Internet Service Providers (ISPs), has selected Discovery, a new module of Telcordia Granite Inventory, to perform network asset discovery and reconciliation to their existing Granite Inventory database.
"Our goal is to have a synchronized database that matches the equipment as it is actually deployed in our network. Deploying the new Discovery Module in our Telcordia Granite Inventory system will provide an immediate payback by enabling us to fulfill new services faster and with greater accuracy," said Aaron Cheng, Director of IT Systems, Hydro One Telecom.
"We looked at several options and Granite was a clear solution that offered truly integrated discovery and reconciliation. With this new functionality plus Granite Inventory's open and flexible architecture, complex IP services are even easier to design and implement."
Hydro One Telecom is an innovative carrier that currently offers Transparent LAN, Private Line, and Internet Transit Services to its customers. Discovery will "talk" to the IP and SONET networks that provide the foundation for these services by supporting 12 different types of equipment provided by five different vendors. In addition, Granite Inventory with Discovery will help Hydro One Telecom easily scale to accommodate over 1,000 network devices.
"The complexity of today's sophisticated telecom networks makes it increasingly difficult for carriers to manage and reconcile network assets and drive revenue through the quick and accurate turn-up of new services," said Don Wadas, Corporate Vice President of Sales, Telcordia.
"The addition of Discovery in Granite Inventory was inspired by the need for absolute and real-time accuracy of the inventory in order for carriers such as Hydro One Telecom to successfully provision advanced IP services and ensure a superior customer experience, exceptional flow through, and expeditious order-to-cash process."
Australian Federal Court Hearing
Opponents of P2P software program Kazaa failed in their latest attempt to shut it down last week. In an Australian Federal Court hearing on December 15th, DCIA Member Sharman Networks, developer and distributor of Kazaa Media Desktop (KMD), reaffirmed that it had complied with Order 4 of the September 5th Judgment by ceasing distribution of the Kazaa application in Australia before midnight on December 5th using geo-targeting technology and implementing warnings prohibiting existing users from using the application.
The record companies also failed in their attempt to have Justice Murray Wilcox order Sharman immediately to apply keyword filters to the Kazaa application.
According to a spokesperson for Sharman Networks, "Yet again, the Australian record companies are pushing for an implementation of keyword filtering, which is not as effective as other filtering solutions embraced by their parent companies and international affiliates. Obviously they don't want an effective solution implemented in Australia. They would prefer to destroy our business."
Report from CEO Marty Lafferty
 Isn't it time finally to turn the corner on the divisiveness that has to date limited commercial development of the P2P file-sharing channel to its fullest potential? Wouldn't P2P revenues have been able to more than offset the 12% decline in 2005 major label CD sales if file-sharing technologies had been embraced and harnessed starting two-and-a-half years ago?
The technical solutions, such as digital rights management (DRM) optimized for file sharing, attractively priced micro-payment offerings, and targeted behavioral advertising tools, have been well proven in the marketplace with a limited quantity of independent content licensed for distribution via open P2P applications.
More importantly, the P2P business models, including paid download, subscription, packaged, sponsored, cross-promotional, and ad-supported delivery options also have been demonstrated.
But the entertainment-industry-sanctioned closed P2Ps, as well as non-P2P online entertainment offerings, are still challenged in their efforts to compete by the continued availability of an ocean of unauthorized copyrighted works on the exponentially more popular open P2Ps, which have still not been adopted by leading content rights holders.
This is only exacerbated by the advent of swarming technologies like BitTorrent, with their vastly improved efficiency in content delivery.
What has been sorely missing is the licensing of open P2Ps by major entertainment rights holders, including music labels and movie studios.
We must accelerate the conversion of open P2P software programs to content-provider-acceptable offerings, whether these are operated by current distributors of these applications or accomplished through arrangements for user migration to entertainment-industry-sanctioned closed P2Ps.
Reliance on litigation, in which the entertainment industry has generally prevailed, must at last give way to licensing in order to make meaningful progress in the marketplace.
And licensing alone will not be a panacea. The challenges to effectively civilizing the P2P channel for copyrighted works redistribution will continue to be with us for some time to come even once the corner has been turned, and the affected parties are working together as collaborative partners instead of engaging in highly publicized disputes.
In the physical world of retail stores, by way of comparison, consumer products are protected by multiple means. It is not enough to use bar-codes and scanners. Cashiers are stationed at check-out points. It is not enough to staff cash registers. Surveillance cameras are also deployed. And it is not enough to rely on such in-store protections. Police officers also walk their beats on the sidewalks in shopping zones and up-and-down the aisles of malls.
So too, in the digital realm, it will not be enough to rely on copy-protection introduced at the level of individual files. It will not be enough to rely on software content-identifiers and related filters at the client level. Nor will it be enough to rely on forensics, such as watermarks, hash codes, or acoustical fingerprints, to track and prosecute infringers at the network level after the fact.
It will be the unique combination of each of these efforts – call it the three "Fs" of P2P security: "File-protection, Filters, and Forensics," that will enable content rights holders, P2P developers and distributors, and service-and-support companies to achieve an equilibrium marked by ninety-plus percent of non-infringing traffic instead of the diametrically opposed current state.
The DCIA and our Members stand ready to work with willing major entertainment firms to achieve the optimal combination of the three "Fs." But to do so, settlement for past liabilities with open P2P distributors must be resolved, going-forward goals clarified, non-overlapping roles defined and responsibilities assigned, and a process for adapting best practices put in place as a new set of business standards are established.
A tall order, but one from which we do not shirk. Let us resolve in these closing weeks of 2005 to make 2006 the year of fully legitimized P2P. Share wisely, and take care.
Online Sharing Can Work
Excerpted from NewsFactor Report
It's no surprise P2P programming is taking off. While traditional music spaces, such as neighborhood record stores, offer a logically laid-out shopping experience, Internet music sites can be more difficult to navigate. With thousands of artists and more than 300 legal online music sites, the need for tools to refine searches is growing.
The record industry has long considered online file sharing a serious threat to its livelihood. But a new study released Tuesday suggests that consumer-to-consumer music recommendations – a growing feature of online music stores and websites – will benefit the industry, artists, and fans alike.
The report, released by the Berkman Center for Internet & Society at Harvard Law School and research firm Gartner, surveyed 475 so-called early adopters, or computer users who are among the first wave of frequent music downloaders. The findings suggest that the opportunity to give and receive recommendations could become an important force in the online music business.
Nearly one quarter of frequent online music users say that the ability to share music with others is a key factor when selecting an online music service. And a third were interested in technology that helps them discover and recommend music, such as tools that allow Internet users to publish and rank lists of their favorite songs. Perhaps most important for the recording industry, a tenth of those surveyed said they frequently make music purchases based on others' recommendations.
"The industry has fought all forms of sharing for eight years," says Berkman Center fellow and study coauthor Derek Slater, "and the fight has largely been a miserable failure. We argue that they need to embrace what's already happening. Word of mouth has always been the most powerful marketing tool."
Slater and his collaborator, Gartner research director Michael McGuire, predict that by 2010, twenty-five percent of online music store purchases will be driven by consumer-to-consumer recommendations. But to encourage and sustain legal downloading, the authors say, the industry must relax its licensing and use rules to allow consumers to easily publish playlists and include music in podcasts or on blogs.
Considering the bad rap online sharing has among record companies and artists, this will require industry insiders to tweak their perspective.
"Rights holders and policy makers have been distracted by illegal downloading, but sharing isn't equivalent to stealing," says McGuire. "As labels look at this, some of the people who should be at the forefront of discussions are the A&R and marketing and promotions people. This is an easy way to get attention for a new act or a back catalog, too."
"There will always be people trying to get music for free," says McGuire. "But if you continue to enhance the legitimate services so that they're more compelling and less complicated – if it's frictionless, you make it much more attractive."
Digital Downloads Lost Heat in 2005
Excerpted from Reuters/Billboard Report by Antony Bruno
Digital music news dominated the music industry landscape in 2005.
Digital downloads got off to a strong start in 2005. More than 155 million tracks were downloaded in the first half of the year, quickly surpassing the 141 million tracks downloaded during all of 2004.
Digital revenue overall, including ringtones sales and subscription services, now accounts for 5% of label revenue on average, double that of last year.
But as the year wore on, the growth of downloads began to slow. In May, about 6.4 million downloads were selling per week; average weekly downloads for the third quarter were only up to 6.6 million, according to Nielsen SoundScan.
The Supreme Court's July ruling that P2P file-sharing sites could be held liable for copyright infringement did little to stem P2P traffic: According to BigChampagne, 26.8% more files were being traded this year. But it did spur a flurry of activity.
The RIAA, the lobbying arm of the major US labels, in September began issuing cease-and-desist letters to seven major violators, including BearShare, LimeWire and WinMX.
That same month, eDonkey chief Sam Yagan pledged to rid the network of unauthorized files. On November 7th, Grokster settled with the music industry for $50 million and announced it would convert to an authorized service.
In November, SonyBMG ignited a storm of controversy when computer programmer Mark Russinovich discovered the major label's CD copy-protection technology secretly embedded hidden files in users' computers, making them vulnerable to attack.
Class actions in California, New York, and Texas were filed within weeks of the discovery, and SonyBMG later recalled and offered to replace the affected CDs. The company also issued a patch to fix the damage on users' computers.
The controversy may mark a turning point for the role of digital rights management (DRM) in the industry at large.
"We need to see a change in perspective on the part of the rights holders," Gartner G2 analyst Mike McGuire said, "to DRM as a tool for accounting and tracking content as opposed to just locking it."
Meanwhile, subscription services emerged as an alternative to a la carte downloads for those looking to take their music with them. Napster launched its portable subscription service February 3rd with a $30 million advertising campaign highlighted by a Super Bowl ad.
Yahoo later raised eyebrows with the introduction of a $4.99-per-month offer for both portable and standard music subscriptions, undercutting its competition by almost $10 and sparking a pricing debate. Eventually, the company raised its portable rates to $9.99.
Overall, subscription services continue to struggle to gain a mass audience compared with a la carte services. IDC estimates there are 11.5 million pay-per-download users compared with 3.4 million subscription service users.
"The overall industry needs to foster and enable the transition to grow the mass consumer market," Gartner G2's McGuire said. "We're going to need all industry partners to highlight the proposition that getting music online is actually a better way to get music."
Music 2006: P2P Ascends
Excerpted from Email Battles Report
In the beginning, it cost a bundle to stamp and promote a record. One of 10,000 artists who chased a recording contract got lucky. Of those, a few became big names. Even got houses, cars, pool boys, and chamber maids as hot as those enjoyed by recording execs.
As for creations by the undiscovered... like trees falling deep in a forest, they didn't make a sound, vanishing without a trace. The old system was swept aside by the Internet, P2P file-sharing networks, home recording studios, and iPods.
Musicians can share their art and develop their skills, build reputations, and sell their CDs on sites like SongRamp and CD Baby, which leads to more butts filling seats at concerts, which leads to more CD sales.
Listeners search for fresh faces by genre or consult sales and review charts, then try the music before plunking down their hard-earned cash.
It's all perfectly transparent with no monthly charges or additional fees for burning songs to CD (a la Napster). All with self-perceived talent are welcome to submit music. If a lot of folks like your work, you'll earn a huge living. Earnings scale down from there, all the way down to... well... the Internet can be a brutally critical space.
So where do the record moguls fit in this low-budget, everybody-gets-a-shot picture? They don't... but they could.
Those who still have a bit of street-cred could take a page from c/net's Download.com shareware site. Encourage all artists to upload, then promise downloaders "Safe, Trusted, and Spyware-Free" music, combined with music reviews, listener voting, etc., just like the smaller competitors. The brand name will do the rest.
Will lower retail prices stop free file sharing? Nope. The lunatic fringe of the P2P universe won't lay out a dime, no matter what. But reasonable pricing will put a whole lot more folks in the purchasing camp, while easing some of the legal threats facing network managers trying to stomp out illicit file sharing.
There you have it. Use the brand name to attract artists and visitors, provide a system that people consider worth the price, and make sure the talent gets its due.
Can Big Music make a living like this? Tiny distributor CD Baby claims it's paid about $21 million to artists since 1998. Those who follow this path may have to shed a few pool boys, but at least they'll be around to explain the new model to their shareholders.
Unwilling to Play by Rules of 'Fair Use'
Excerpted from LA Times Report by Michael Hiltzik
Scarcely a week passes without the entertainment industry warning us that its business model is about to be exterminated by some new technology.
The Internet, satellite radio, and TiVo are among the mortal threats that have sent media executives scurrying to Washington with proposals to rein them in, tax them, even ban them. The music labels, TV networks, and movie studios never propose to alter their own models to accommodate new technologies – they merely insist that everybody else change to accommodate them. When they don't get their own way with lawmakers, they take it out on consumers.
The most brazen recent example of the latter approach was a copy-protection program that SonyBMG Music Entertainment added to 52 of its CD titles by artists ranging from Sinatra to Van Zant. When any of these CDs was played on a personal computer, it secretly installed software designed to prevent copying of the disc. But the program also surreptitiously transmitted data to Sony about what was on the PC, rendered it vulnerable to hackers and was configured to wreck the machine if the owner attempted to uninstall the program.
After all this was exposed this fall, Sony recalled the CDs and gave buyers a safe way of eradicating its coded mole. The label still faces lawsuits, and possibly government action, in the matter.
Sony's rationale was that the ability to make flawless reproductions and distribute them over the Internet could destroy its business. It's not alone in exploiting this supposed threat as a pretext for imposing new limits on what consumers of CDs, DVDs, TV programs, and books can do with them.
To this end, DVDs bought in one country sometimes can't be played on players bought in another. Buyers of songs from Apple Computer's iTunes Music Store are subject to tight restrictions on how often they can copy the songs to CDs or computers. Hollywood is asking Congress for restrictions on the design of TV recorders like TiVos, so that consumers will have to pay a fee for each recorded show.
Plainly, the media companies are engaged in an all-out attack on the principle of "fair use."
Fair use is a legal limit on the rights of copyright holders. It's a compromise: In return for the exclusive right to profit from the initial sale of a work for a given term (in the US, up to 70 years after the death of the creator), the copyright holder allows some non-commercial copying, limited quotation by critics, parodies, and a few other uses.
Media companies detest fair use. They regard your ability to make a backup copy of a CD as a lost opportunity to sell you a new disc. They worry that a song parody by "Weird Al" might be mistaken in a store for the real thing. They don't understand why a critic with the knives out for a book should be permitted to quote from it in a review. If they had their druthers, you'd pay them a few bucks every time you played a DVD at a party or put songs on a mix CD to give to a friend.
Fair-use rules are constantly changing because new uses keep emerging, and then landing in court. In perhaps the most famous case, the Supreme Court ruled in 1984 that recording a TV show at home to watch later, or "time-shifting," is fair use. The justices rejected the movie studios' demands for a ban on the pioneering Betamax videocassette recorder and for damages from Sony, its manufacturer. This was years before Sony, as a copyright owner, landed on the other side of the fair-use debate.
The next court case might well involve Google Print, the search company's proposal to scan the full texts of millions of published books into its database. A search would return only a few sentences of context on either side of a search term, but the publishing industry has already called this process a potential copyright violation.
It's true that copying entertainment content is much easier today than it was in the days of analog LPs and audio cassettes. Back then, you couldn't easily distribute copies of a song or movie to millions of strangers. Moreover, every copy you made was less crisp than the original.
Today, a digital copy of a digital content file is identical to the original and every file can be exposed almost instantaneously to the entire world online. That's a prospect the entertainment companies say could cost them billions.
Yet, it's a mystery why anyone believes the entertainment companies' claims about their losses from online piracy, given their record of ludicrously inflating the dangers of earlier technologies.
Consider the studios' long campaign against home VCRs. In 1982, Jack Valenti, then president of the MPAA, wrote himself into the history of cocksure misprediction by warning a Congressional committee that, "The VCR is to the American film producer and the American public as the Boston Strangler is to the woman home alone." He demanded a steep tax on recorders and blank tapes, to compensate for the damage they would do to Hollywood.
We all know the punch line: The movie industry survived, nay, thrived in the VCR era. Most VCR buyers used them exactly as the Supreme Court anticipated – to tape TV shows for viewing a few hours later. Rates for commercial airtime didn't fall, and the VCR didn't make free TV disappear.
Are today's technologies any different? CD sales have declined in the years since free file sharing became possible, but there's evidence that this has more to do with the dearth of exciting new acts than with Napster and its successors. Bootleg songs and video clips often enhance, not suppress, interest in the commercial product.
The industry wants our money, but they also want to dictate all the ways we can use their products once we own them. As the copyright expert Lawrence Lessig says, this "permission culture" will only make us less free. In short, the media moguls are making arguments that we shouldn't buy.
Boys Are Online Gamers, Girls Listen to Music
Excerpted from Center for Media Research Report
A first-ever survey of American children ages 6-11, highlighting their multimedia usage, lifestyles, thoughts, and feelings, by Mediamark Research, found that gaming is the top online activity, and CD players outnumber MP3 players for music listening.
The American Kids Study says that during the survey period, more than half of the 6-11 age group went online in the last 30 days, and 8% went online every day. 43% of respondents played games online, while 23% "did stuff for school/homework." More girls than boys used e-mail, and less than 3% of respondents visited chat rooms.
Boys are more likely to play a video, Internet, or computer game every day. The majority of both boys and girls say friends are an important part of their lives, and most report they want to go to college. For more information about the study, please click here.
TextPayMe Delivers P2P SMS Payments
A new PayPal-style P2P payment service using SMS text messages has been launched in the US. The TextPayMe service, which is entering the public beta phase of testing, allows users to send money via their mobile phones, without having to install any new applications.
Customers set up accounts at the TextPayMe website which can be funded by bank accounts or paid for with credit cards.
To deliver a payment, a user sends a text message to the recipient stating the amount to be transferred. After the payment request, the sender receives a phone call to verify the information.
The sender then enters a PIN to authorize payment. Both the sender and the recipient each receive a confirmation message when the payment is processed. The message also asks each to verify a security phrase contained in the text.
Funds are then debited from the sender's TextPayMe account and received by the recipient's account.
Founded in 2005 by a group of entrepreneurs who had worked at Microsoft and Lockheed Martin, TextPayMe is a privately held firm based in Redmond, WA.
Coming Events of Interest
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Digital Hollywood at CES – January 5th-7th at the Las Vegas Convention Center North Hall. The Consumer Electronics Show will have over 140,000 attendees; 2,500 exhibitors; 4,000 press representatives; and keynotes by Bill Gates, Chairman, Microsoft; Howard Stringer, Chairman & CEO, Sony; Paul Otellini, CEO, Intel; and Terry Semel, Chairman & CEO, Yahoo. The DCIA will moderate the "Next Generation P2P" panel on January 7th.
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Copy Protection Technical Working Group (CPTWG) Meeting – January 10th at Sheraton Four Points Hotel, Los Angeles, CA. If you are interested in offering a presentation at this meeting, please as soon as possible so that CPTWG may schedule the agenda accordingly. Presentation guidelines can be found on the CPTWG website at www.cptwg.org.
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Grokster, The Case, The Holding, The Future – The January 11th meeting of the Los Angeles Copyright Society will feature a panel discussion by Robert Schwartz, Russell Frackman and Josh Wattles regarding the recent US Supreme Court decision in the Grokster case, which addressed the issue of secondary liability for copyright infringement by companies that produce and distribute P2P file-sharing technology.
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MidemNet Forum at MIDEM – The World's Annual Forum for Digital & Mobile Music January 21st-22nd, Cannes, France. Confirmed keynotes to date are EMI Group Chairman Eric Nicoli; Ken Lombard, President of Starbucks Entertainment; Patricia Langrand, Senior EVP of Content for France Telecom and Nokia's EVP and GM of Multimedia Anssi Vanjoki. MidemNet forum will welcome the world's leading digital music experts and global authorities on mobile music.
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NATPE 2006 – The National Association of Television Program Executives conference January 24th-26th in Las Vegas is the only American market serving the worldwide television industry, whether you're looking to meet with colleagues, find new partners, learn about the burgeoning business opportunities of mobile and digital, or share ideas. Preview NATPE 2006 here.
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Digital Commerce Summit 2006 - January 31st in New York. Digital Media Wire invites you to attend this one-day executive forum for content owners, merchants, payments & technology companies, banks & financial services institutions, ISPs, MSOs, P2P vendors, and wireless & mobile companies focused on payment solutions and commerce strategies for digital content, including games, music, film, television and video products.
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Media Summit New York – February 8th-9th in NYC. The 2006 Media Summit New York is the Premier International Conference on Motion Pictures, Television, Cable & Satellite, Broadband, Wireless, Publishing, Radio, Magazines, News & Print Media, Advertising and Marketing. The DCIA will participate with the CEA and MPAA in discussing "The Piracy Freight Train: As Entertainment, The Law & Technology Collide."
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Defining the Problem, Developing Solutions – The Anti-Spyware Coalition's first public workshop to be held on February 9th at the Capitol Hyatt in Washington, DC will address the impact of spyware on businesses and individuals and will include interactive panels on public education, policy and enforcement, corporate security, and industry guidelines. Confirmed speakers include FTC Chairman Deborah Majoras, Wall Street Journal Columnist Walt Mossberg, and Pew Internet and American Life Associate Director Susannah Fox.
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New Communications Forum 2006 – March 1st, Palo Alto, CA. NCF brings together the industry's leaders from around the globe to discuss the impact of participatory communications on media, marketing, PR, and advertising. This year the conference will examine how blogs, wikis, podcasts, and other emerging tools, technologies, and modes of communication are affecting organizations.
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