Thursday, April 07, 2005

Podcasting: Legal Pirate Radio?

Originally uploaded by Tommy Perkins.

Intrigued by the possibilities of podcasting, I just downloaded Adam Curry’s iPodder software, which is available for download here. Presently, I don’t have the free time to put together my own podcast, but I’m looking forward to experimenting with it.

My more immediate interest with podcasting has to do with the medium’s ability to reach early adopters and its potential to influence sales of music and other media. This week, a couple of interesting tidbits about podcasting came to light.

The first was a report by the Pew Internet & American Life project, which revealed that more than 6 million Americans have listened to a podcast, including 29% of all owners of mp3 players. Among the findings:

  • There are no differences between men and women owners of iPods/MP3 players when it comes to podcasting. They are equally likely to have downloaded podcasts.
  • Nearly half of those who own iPods/MP3 players between the ages of 18-28 have downloaded podcasts, compared to about 20% of the owners iPods/MP3 players over age 29 who have done so.
  • Somewhat surprisingly, there is no notable gap between those who have broadband access and dial-up users when it comes to podcasting. Some 33% of the owners of iPods/MP3 players who have broadband at home have downloaded podcasts and 28% of those who have dial-up at home have done so. This is not a statistically significant difference.

The second interesting tidbit showed up or, rather, didn’t show up, in release 5.0 of the American Society of Authors, Composers and Publisher’s (ASCAP) experimental license agreement for Internet sites and services. This agreement is for non-interactive services, such as webcasts. In an earlier version, podcasting was mentioned as a use that would require licensing. I find it very encouraging that in the latest version, there is no mention of podcasting.

At this stage, I’m not sure what kind of licensing fees ASCAP or BMI would have wrung out of podcasters, since podcasting currently is largely the domain of people interested in music on independent labels or produced by unsigned acts. I suspect very few of these acts have agreements with the major publishers and that most are likely happy to have their music podcasted as broadly as possible with as little friction as possible. By promoting and distributing music for free, podcasters are doing artists and labels quite a favor. And, judging purely from anecdotal evidence, podcasters as a group seem to be pretty conscientious about securing permission from artists and labels

I’ve always found the effort by publishers to license digitally distributed music somewhat perplexing. A download is an act of distribution, as opposed to a performance, which is what publishers collect fees for. As David Touve noted in a recent posting to the Pho List, “Do we need a performance license to drive a truck filled with CDs from Anaheim to Vegas? No.”

Anyway, on to the larger point, which is the emergence of podcasters as a promotional force. If these guys remain unburdened by publisher license obligations, then they can podcast music they truly admire, as opposed to music they can afford to podcast.

The music industry would do well to embrace podcasting, given the medium’s expanding reach and its ability to facilitate discovery by consumers. I hope that ASCAP’s latest licensing document is a sign that the industry has learned something from the ugly p2p wars and will resist the urge to put its foot on the throat of what is quickly becoming be a powerful web-based community.

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Friday, April 01, 2005

Downloading is Killing Music! Really! We mean it!

In related news, Dallas Mavs owner and digital media mogul Mark Cuban offered an interesting rebuttal to claims made by the RIAA’s Mitch Bainwol about the impact of downloading on CD sales.

To summarize, Cuban points to the sales increases in digital media such as DVDs, digital photographs, video games, software and ringtones and asks how such increases are possible if downloading is such a proven leach on music sales, which, according to RIAA figures, increased 2.7% from 2003 to 2004. (As an aside, RIAA figures are by no means the end-all, be-all summation of music sales activity, but they're not a bad proxy either.)

I respect Cuban's overall stance on the issue, but I’m not sure that any of his examples are particularly good analogs.

I’ve never tried to download a movie off of p2p, but given the time it can take to download music, I would imagine that the time, bandwidth and frustration required to download that much data is prohibitive to most people.

Maybe I misunderstand the digital photographs example, but the only digital photographs I’m interested in buying are ones I shot or those that feature me and/or people I know. To get such photos, I can either buy them from oFoto or ask the person who shot them to e-mail them to me. Either way, it wouldn’t occur to me to log on to KaZaA to get these photos.

Video games: see DVDs. Downloading games is probably easier than downloading Lord of the Rings, but I’ve never been enough of a gamer to find out either way. Could be a good analog.

Software sales, Cuban notes, are flat, which is, obviously, better than declining, but it’s hardly a resounding contradiction. Plus, unless you’ve got access to serial numbers, user IDs, passwords, etc., downloading software illegally is sort of pointless.

So that leaves us with ringtones, which is an interesting contradiction. Ringtones are a fairly new phenomenon and I have no idea whether sales will continue to grow here. As many have noted, ringtones are more of a fashion statement than a statement of music taste. Kinda like wearing a Ramones or AC/DC t-shirt.

The whole “downloads kill music” debate has become a tiresome subject, largely because of the spin on both sides of the issue. I did a bit of private research on this purported tradeoff last year and a more comprehensive analysis by UNC-Chapel Hill economist Koleman Strumpf and Harvard Business School’s Felix Oberholzer can be found on Strumpf’s site

My own theory is that the business of CDs was a bubble economy that burst in 2000. Over 10 years, CDs went from occupying just over a third of the shelf space at record stores to nearly 95%, if you go by Recording Industry Association of America figures. Accordingly, labels forced retailers to ratchet up prices to an outrageous $20 and promptly based their business models around the assumption that those margins would last into perpetuity.

Then came a combination of events that amounted to a perfect storm:

  • The most significant and far-reaching event was that our country and, by extension, the world, landed in a recession. People lost jobs or disposable income at the very least.
  • Video game technology catapulted forward and that industry’s sales doubled those of the music industry in music's best year.
  • The DVD player hit a tipping point and DVD sales soared and, along with games, ate deep into consumers’ finite discretionary budgets.
  • Napster’s disruptive technology became a popular disintermediary.
  • Clear Channel effectively became a radio station monopoly, shrunk playlists and thereby limited people’s exposure to – and, consequently, interest in – music.
  • Major labels went into something of a death spiral: decreasing resources led to a decreasing number of new releases, which led a decreasing number of massive hits, which led to decreasing resources. Rinse, wash, repeat.

As much as I admire p2p as an innovation in content distribution and marketing, I’m not going to play Pollyanna about its impact on CD sales. I have no question that some sales have been lost as a result of downloading. But, as we’ve learned from the experiences of the automotive, banking, energy and airline industries (to name but a few), we should be deeply skeptical when an industry asks the government to act so that it doesn’t have to. Specifically, I wonder about the extent to which those CD sales were redistributed.

As Strumpf and Oberholzer noted, countless downloaders used p2p as a filter to either spare them spending $20 on a release that wasn’t worth it or to validate that an act recommended by a friend was as good as advertised.

Also, how many of those lost sales were made up for by sales that RIAA figures don’t include? For example, how many people downloaded some Drive-By Truckers tracks, liked the band, went to a DBT show and bought the CD directly from the band at either the show or off its web site. Either way, that’s one of thousands of sales that SoundScan and the RIAA don’t count.

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MGM v. Grokster: A wish and a modest proposal

I’m not a lawyer, didn’t play one on TV and haven’t slept at a Holiday Inn Express, so there’s no point at all in my speculating what will happen in this case. I'm not even much of a court watcher. So today I’ll just discuss what I’d like to see happen, which is that the justices tell Grokster’s and MGM’s executives to sit in a room and not leave until they’ve hashed out a licensing deal, at least in principle.

If downloading is as widespread as MGM’s lawyers claim, then it is certainly worth the effort to explore a deal with Grokster, particularly if the couple of cents a song that Napster To Go provides was deemed a worthy effort.

If Grokster were to go legit, as it were, by inking a licensing deal with majors, it seems safe to assume that Grokster’s value as both an advertising and a subscription vehicle would spike. Users would no longer have to fear prosecution by labels, which, in the weird world of p2p, would add value to a service. Subsequently, Grokster could adjust its advertising and subscription rates to reflect the growth in traffic and/or download activity.

Grokster deserves to be as profitable as they were before the Supreme Court hearing (because they were a legal operation then, regardless of what the Court rules in the coming weeks), but they could arrive at an equitable split of the added revenue by paying each label royalties based on the extent to which traffic was driven by people who downloaded said label’s content. I don’t think the blanket or flat-rate license sounds equitable or necessary, since it is rather possible to quantify via downloads the relationship between downloading and site traffic.

Just a thought. As always, I welcome comments, suggestions and criticisms.

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