The Download Dilema

Published: MEA

The Download Dilema

With downloads becoming the common currency of music distribution, there’s a lot of money to be made in ‘free’ music. Dan Daley writes.

We know all about the Long Tail, but what about the Short Nose? The front end, whether it belongs to a car or a consumer, is the place where the first impact generally takes place. It’s where the nature of the experience is determined, and Western content companies have had mixed results with their encounters with the digital front end. Their obsession with monitoring and monetising every pixel and audio sample has led, many would agree, to a misplacement of priorities that has hobbled the evolution of their business models into fully digital economics.

Listen to what Benjamin J Higginbotham, director of new technology for the introspective geek site www.technologyevangelist.com, has to say about the e-book, which is presently a niche product but one that typifies the divide between what content providers think is their primary mission (to protect content, both before and after a sale) and what knowledgeable consumers actually are looking for (to access content when and where they want it): ‘How much money are these [content distributors] losing in developing DRM [digital rights management] that’s cracked before it hits the streets, implementing the DRM, taking support calls on DRM-based material and lost sales because users would not tolerate the DRM? Is it really worth all the headaches to stop a few pirates? Won’t the pirates find a way to steal the content anyhow? Why not allow the law-abiding consumer to do with the media as they please? Seems to me that it’s just as easy to steal a paper book as it is to steal a digital book. Now, rather than protecting assets, DRM seems to be pissing people off while the content is still stolen. It appears to me to be a lose-lose situation.’

Higginbotham is hardly alone in railing that copy protection hinders commercial progress, and the success of companies like Apple (which has stripped DRM from its music products in stages) shows that the flaw resides not in infinite flavours of copy protection, but rather in the increasingly irrelevant business models it seeks to protect. That suggests that the sooner new attitudes towards content control are implemented, the better. In other words, the red flag of digital piracy may actually be more of a red herring in terms of the larger context of digital economics.

The instinct to protect content has become less organic and increasingly institutional in the digital era, from the ubiquitous litigation that began against replicators in the 1990s and that has since been extended down to consumers via the RIAA and IFPI, to seemingly endless extensions of copyright law, especially in the US, where it is driven by content-owner lobbying, and that has had the effect of limiting IP exploitation rather than encouraging it. As author Michael Heller has noted in his book The Gridlock Economy, it took World War I and Federal intervention to get the dozens of holders of aircraft patents nearly 100 years ago to let loose enough of them so there could actually be an aircraft industry. The creation of the same kind of patent pools is what gave DVD its own astounding success.

The imperfect protection offered by anti-piracy technologies – the notion that every lock can be picked – is no reason to completely give up on them. Speed bumps do work, slowing down the casual illicit downloaders who make up the vast majority of users of illegally obtained music, and the implementation of anti-piracy technologies does send an important message: creators deserve to paid for their effort. But the lessons of America’s notorious Prohibition period, when the sale and distribution of alcoholic drinks was banned, goes well beyond the whiskey – forbidding things that people want will not stop people from getting them, and when they do get them the losers in the end are the entities that didn’t want them to have it. The taxes that government could have collected on alcohol between 1919 and 1932 combined with not having had to pay the costs of enforcing the complex legislation of Prohibition could have offset some of the effects of the Depression. Now that we’re deeply into Depression 2.0, that lesson looms even larger.

Free music is no longer economic so much smuggled goods; a Google search of the phrase ‘free music’ turns up over 127 million responses, most of them likely completely legitimate, from give-aways to library music for corporate video productions. Expect plenty more hits of this sort as various ‘free’ propositions continue to roll out. For instance, Universal Music Group’s Total Music plan would charge the cell phone makers and/or wireless services providers the approximate equivalent of a US$5 monthly fee, which is factored into the consumer’s cost for the device, and that would compensate the content owners – in this case Universal Music Group – for unlimited digital access to the all of the label’s music. Consumers get a device with all-you-can-eat music that’s essentially free, while music companies collect the subscription fee, and hardware makers theoretically would move many more players. On paper at least it’s a win-win-win proposition.

Taking it a step further, Nokia, which sells hundreds of million of phones each year, launched its Comes With Music programme last year and acting as its own aggregator lined up both Universal and SonyBMG for content. Nokia is being coy about exact terms – if the phone maker is indeed paying US$35 per phone sold as the licensing fee for the service, it could give the music industry payments significantly in excess of the US$2.9bn that digital sales posted last year. In September, Sony Ericsson followed up by expanding their new music distribution scheme, called PlayNow Arena, by making one million DRM-free tracks available from SonyBMG, Warner Music and EMI vaults. Phone service provider Orange also has one on the way. In all of these scenarios, the consumer putatively gets the music for free, and isn’t that half the fun of illicit downloads?

It should be mentioned that these schemes are launching mostly outside the US, mainly in Europe, where cellular service comes without the contractual restrictions common in the US, making the phone itself the focus of all marketing strategies. But Europe is also a place that’s a bit less legislatively obsessive about IP controls, making it a better place to test and assess how it will work. And if it does, expect to see these models in the US shortly – the Wall Street Journal reports that Sony Ericsson expects to have five million tracks available when it rolls the service out globally this year.

All this is the tip of a very, very large iceberg. With content so broadly defined in the digital world, film, video and game executives will be closely watching how all this ‘free’ music will work out. The stakes are significantly higher for video and film – the cost of making records continues to go down while the average costs of major-studio feature films still hover in the US$100 million neighbourhood. It’s not unreasonable to suggest that the music industry’s experience with protected versus ‘free’ music product is already having an effect on film industry strategies. Disney’s decision last year to include digital copies of some of its movies with DVD purchases is likely the first step in this direction. Film and video will eventually go from DVD to iPods to Flash drives to home and personal networks and PCs. Ultimately, consumers will do whatever they want with the video they purchased, just as they now do with music. The real shift in strategic thinking has to be away how to protect that which cannot be absolutely protected and figuring out how to make some money off of all that ‘free’ content.

Published in July-August 2009