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Wednesday 15 May 2002

A Model for Online Media Royalties

There appears to be another proposal afoot to legalize online music-trading:

Kazaa lobbyist Phil Corwin says a $1-a-month fee per user on Internet providers alone (it’s unclear whether costs would be passed along to subscribers) would generate $2 billion yearly: “We’re talking about a modest fee on all the parties who benefit from the availability of this content.”

This isn’t the first time a tax (whether or not the government collects it or not, this kind of charge is a tax) has been proposed to pay royalties to creators of intellectual property, and I’m generally against this sort of thing. My mother, who doesn’t listen to any music at all, would be forced to pay $1 a month to pay for a product she doesn’t consume.

At least this proposal carries something like a reasonable fee, though. To date, all the proposals from the recording industry have involved much greater amounts of money for much less convenience. Their ideas involve charging consumers significantly more than they’re paying now ($0), while at the same time expecting them to give up more control over their purchases to the sellers. It doesn’t give the users an opportunity to legitimize the activity that they have already expressed a clear preference for; it just substitutes a much less-desirable activity that happens to mean a huge potential increase in margin for the recording companies.

Naturally, then, we shouldn’t be surprised to read what they think of the Kazaa proposal:

Recording Industry Association of America president Hilary Rosen calls the proposal “the most disingenuous thing I’ve ever heard. It’s ridiculous.”

Record companies are, at their hearts, specialized banks. Let’s imagine that you live in a universe without record companies, but with recorded music as we know it today. Your band wants to put out a CD. You first have to go to a bank (or some other source of capital) to raise money. Once you’ve got your loan, you have to record the album, have it mastered, hire a CD pressing plant to make copies, get record stores to stock it, ship copies of the CD to them, get radio stations to play the song, make a video, get MTV to play that, fund a tour, promote the shows on the tour, etc., etc.

These are all functions that the record companies handle, or subcontract, for bands today: they, in effect, lend themselves money (with the artists on the hook) to finance the deliberately-inefficient system their business rests on. And the problem is that the capital-intensive functions in that process — the manufacturing of the CDs, the promotion of the product to thousands of influential people across the country, the distribution of all those physical artifacts, and payola money to radio companies, etc., all the things that allow the record companies to make a killing — are made totally obsolete by the fact that you can now distribute music electronically, and get it played by truly independent “broadcasters” online.

[Jim] Guerinot [a board member of the Recording Artist’s Coalition] is upset that the labels have tried to combat technology with alternatives that have been widely rejected by the public. MusicNet and Pressplay offer limited downloads, but not in the preferred MP3 format, and they usually can’t be transferred to portables or burned to CDs.

“It would be like me opening a video store, charging 10 times what others were charging and only offering videos in the Beta format,” Guerinot says. “In any business, when you have billions of downloads occurring, you don’t say we’re going to ignore that market and try to create something else. You serve your customers.”

Someone buy that man a drink. Perhaps this is the dawn of a new era in American business, one where companies focus on the customer again (and thus resulting in profits), instead of the past decade’s strategy of focusing on profits (and thus resulting in disaster).

Posted by tino at 11:22 15.05.02
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This tax is of course no different than the current tax on mini-discs or the taxes on blank CD some contries currently have (and is in place for ‘music quality’ CDs in the US). It doesn’t matter if you are using the media for copy righted works or not the appropriate powers that be get a cut.

Posted by: Paul M Johnson at May 15, 2002 12:46 PM

Gee, I wish someone at AOLTW would recognize the futility of the venture, (musicnet.com) but it seems like the only people who see the problems are the users…and the marketing people HAVE ALREADY DEFINED THEIR PRODUCT, DAMN IT, and they really don’t want the users to ask for something else.

If you don’t listen to feedback from your customers, you can just say it failed because people want the content for free.

Posted by: Nicole at May 15, 2002 01:37 PM