Music 2.0 - Exploring Chaos in Digital Music

The World Trade Organization has granted the Caribbean nation of Antigua the right to pirate American goods and services like films and music until the U.S. government either permits Americans to gamble over foreign-based sites or eliminates its own exceptions for remote betting on horse and dog racing, including over the Internet.

It is a rather bizarre situation that seems to expose the duplicity exhibited by the US, which does not waste any opportunities to evangelize and impose its holier-than-thou moral views on gambling and music, film and software piracy upon other countries often for the purposes of simply aiming to protect its own trade interests spurred on by powerful internal US lobby groups.

A quick summary of how things have come to such a dramatic head:

BACKGROUND

Earlier this decade, powerful US casino groups with their own vested interests in preserving their gambling businesses lobbied the government to prevent access to offshore gambling in the name of protecting public morals - and the US government subsequently banned Internet gambling while still sneakily allowing other forms of cross-border gambling and betting services like horse-racing.

In 2003, Antigua then complained to the WTO about this as a violation of free trade treaties. A WTO panel then ruled against the United States in 2004, and a WTO Appellate Body upheld that decision a year later. In April 2005, the trade body then gave the United States a year to comply with its ruling, but that deadline passed with the US feebly claiming that it was in compliance, while it was obvious to all that even as the US pushed other nations, notably China to comply with other WTO regulations, it was itself defiantly refusing to comply.

In 2006, the US then went a step further by ordering U.S. banks and credit card companies to stop processing payments to online gambling businesses with the Unlawful Internet Gambling Enforcement Act. This then had the dramatic effect of cutting off a lucrative overseas online gambling market valued at $15.5 billion that was heavily dependent on the US which accounts for at least half of the world’s online gamblers.

This dramatically impacted Antigua, a former British colony of about 80,000 people which was seeking to wean itself off its reliance on tourism - which had been affected by a series of devastating hurricanes in the past – and focus on online casinos, which at one point during the good times in the past even generated annual incomes of $1 billion. Not only did the US continue to refuse to comply, but in May this year, it even attempted to rewrite its trade rules to remove gambling from the jurisdiction of the WTO. It then bought off influential WTO members from the 27-nation European Union, Japan and Canada by agreeing to compensate them while notably ignoring Antigua, Costa Rica, India and Macau amongst others. However, until the US gains the approval of all 151 members of the WTO, the US online gambling ban is deemed to be illegal, but with the more powerful member nations out of the way, the US could impose its will by brute force against the remaining lesser nations.

THE AWARD

Seeing that the US had no intention of complying, Antigua then claimed damages of $3.4 billion a year from the US with the latter countering that its actions only caused $500,000 in damages to Antiguan commerce. As the WTO panel agreed with Antigua that it had no effective way to sanction the collection of damages or impose effective trade sanctions against the US, it then allowed Antigua to suspend its WTO obligations to the US in respect of copyrights, trademarks and other forms of intellectual property including industrial designs, patents, protection of undisclosed information up to the value of $21 million. The Register pointed out that:

“Repeated violations of WTO commitments in the face of contrary WTO rulings allows a victimized member country ultimately to suspend its own WTO obligations to the offending nation - a form of restitution much more punitive than tariffs alone. America runs a steady and hefty trade deficit in virtually every category of international trade other than intellectual property.”

The awarded amount is still being disputed by Antigua as being lower than their expectations but both the US and Antigua cannot appeal this final decision as unlike other WTO rulings, “awards of arbitrators are not subject to review by the WTO Appellate Body. Antigua would however retain the right to have WTO reassess the damage award should online gambling in the US expand and generate even more revenues beyond the WTO’s current estimation.”

It has to be noted that the WTO Appellate Body concluded that the US had the right to prevent offshore betting as a means of protecting public order and public morals but since the US was not applying the rules equally to American operators who were notably offering remote betting on horse and dog racing, this was a clear violation of trade laws.

IMPLICATIONS

Legalized piracy
It sounds like a contradiction in terms but there we have it, the tiny Caribbean nation of Antigua is now allowed the right to distribute music, movies and software produced in the US without obligations to pay US rights holders. As Antigua has now been given carte blanche to distribute music as such, this has major implications globally in that companies registered in Antigua, can distribute US copyrighted music for free or for their own profit and would be to some measure, operating legally based on this latest WTO ruling.

Free Music, Movies, Software
As a result of the US wanting to protect the billions of dollars in local gambling interests above all, we now have a situation where the WTO has officially deemed it fair game for US musicians’ (and film and software producers’) products to be distributed and consumed by Antiguan businesses without any recourse to revenue. Musicians are certainly going to be thrilled that their own government has allowed a situation to arise where they are just a mere pawn in the game resulting in the fruits of their labor being given away for free to a foreign government.

Morality & the Political Economy of Intellectual Property
There does not seem to be any more morality in the rights or wrongs of gambling or movie, music or software piracy. The next time the IFPI, RIAA or some other self-serving organization spouts the morality bullshit, let’s examine further to see who’s paying them and what is the bigger business agenda at play. The exercising of copyright or gambling restriction laws are usually accompanied by rhetoric about compensating the creators of original content or protecting public morals respectively but if one looks closely, we will find that legal actions and public policies are often enacted and lobbied for by large corporations, in order to preserve their own profitability

Schoolyard Bully
The United States Trade Representative Sean Spicer warned Antigua from proceeding with “acts of piracy, counterfeiting or violations of intellectual property rights” while they try and negotiate further. Ominously, he warned that continuing with any such planned actions would “undermine Antigua’s claimed intentions of becoming a leader in legitimate electronic commerce, and would severely discourage foreign investment” in Antigua. With the US wielding undue power with regards to financial services critical to global e-commerce like Visa and Mastercard, and not being hesitant to withhold these essential global services from not only Antigua but as we have seen in the past, renegade Russian music site Allofmp3.com also, we have to ask ourselves if the US should continue to be allowed to be in a position to use these essential services as a means to browbeat those that don’t comply with its wishes and own laws. (As a point of contention, the local Russian courts subsequently deemed Visa’s and Mastercard’s withdrawal of service to be based on areas of law not within their jurisdiction and hence illegal)

False Valuation Tactics
Notwithstanding the Americans’ might to strong-arm its companies into witholding services from Antiguan related enterprises, lawyers state that it will still prove difficult for Antigua to execute this ruling. As reported in New York Times, Brendan McGivern, a trade lawyer with White & Case in Geneva pointed out,

“Even if Antigua goes ahead with an act of piracy or the refusal to allow the registration of a trademark, the question still remains of how much that act is worth. The Antiguans could say that’s worth $50,000, and then the U.S. might say that’s worth $5 million. The U.S. is going to dog them on every step of the way.”

As proof of this in action, we have seen how the RIAA has constantly inflated the valuation of damages to its member companies in previous litigation efforts against consumers. But I can’t help but also note that how when it suits its purpose, the US sought to place a grossly reduced valuation of a measly $500,000 in damages to Antigua for the US cross-border gambling ban.

China
The US continues to complain to WTO about China and even goes to the extent of almost interfering with China’s internal laws in its effort to obtain greater control of music, movie and software distribution in China while seeking to reduce the levels of piracy of US content that exists in the country. However, it will be rich irony if the US itself sees it fit to ignore this recent WTO ruling allowing Antigua (and offshore companies from all over the world registered there) to legally pirate US music, but then use this very same body to seek sanctions against China on charges of piracy of US copyrighted products. As Lode Van Den Hende, an international trade lawyer with the firm of Herbert Smith in Brussels put it,

“The U.S. is not behaving as one would expect. One day they’re out there saying how scandalous it is that China doesn’t respect W.T.O. decisions, but then the next day there’s a dispute that doesn’t go their way and their attitude is: The decision is completely wrong, these judges don’t know what they’re doing, why should we comply?”

With this latest ruling, Antigua has now set a precedent for other countries to sue the United States for unfair trade practices, and in retaliation be within its rights to withdraw its recognition of US intellectual property rights.
It will certainly be interesting to observe the next roll of the dice.

Update:
As reported by CasinoGamblingWeb.com, in a conference call on Friday the successful lawyer for Antigua, Mark Mendel pointed out that “Antigua cannot be vilified by the United States government as criminals as they will not actually be breaking copyright and piracy laws”. He insisted that “Antigua was not aiming for this judgement, rather, they simply would like for the US to follow the rules of the WTO by allowing Antiguan gaming operators to offer horse race betting to Americans, just as American gaming operators are currently allowed to do. Until they do meet the legalities of the WTO rulings it will be legal to sell copyrighted materials.”

Although the online gambling industry would see the $21 million per year limitation as a setback, Mendel highlighted that for a start as of now, they can cumulatively add the amount for 2006 combined with that for 2007, and the sanctioned amount will add up to hundreds of millions of dollars after a few years. More worryingly for the US music industry, as this will also include the right to distribute digital music and as anyone who deals in this will be only too aware, there is no reliable recourse to monitor revenues, and for all practical purposes it seems that Antigua is basically getting an unlimited free pass to gorge themselves silly on US copyrighted and trademarked products.

This article was also reproduced in Gambling911.com and also P2Pnet.net

References:
WTO Arbitrator Decision, New York Times, The Register, Associated Press, Techdirt

Credits:
Pirates of the Caribbean image: Courtesy of Disney Pictures
Antigua Ancient Map: Courtesy of Grace Galleries
LEGIT design: Courtesy of Rumor Reporter

The IFPI has just announced that it has finally won a ruling against Yahoo China, after it prevailed against a Yahoo appeal to the Beijing Higher People’s Court and so the original penalty of RMB 200,000 awarded in April - for music copyright infringement against 11 music labels - by the Beijing No.2 Intermediate Court stands. At the same time, the same court reaffirmed that its ruling in favor of Baidu in the case brought against it by the IFPI in 2005 also stands.

The IFPI has in the meantime been touting that its loss to Baidu is due to changes in copyright law. John Kennedy, CEO of IFPI claimed that,

“We are disappointed that the court did not find Baidu liable, but that judgment was about Baidu’s actions in the past under an old law that is no longer in force. The judgment is irrelevant since it has effectively been superseded by the Yahoo China ruling. Baidu should now prepare to have its actions judged under the new law.”

However, this claim has been debunked by a few lawyers in China as told to Music2.0. As also reported in Sina (in Chinese), a prominent lawyer Yu Guo Fu pointed out,

“Even though the Provisions of Copyright Protection regarding Transmissions through Digital Networks was introduced in July 2006, it is not the underlying reason for the different results in both the Yahoo and Baidu cases. Fundamentally, the higher level Copyright Law and also the General Principles of the Civil Law were unchanged throughout both cases and that has been the basis for both rulings”

It is also important to note that these Provisions were only introduced by the State Council to make existing laws clearer and easier to enforce. John Kennedy’s spurious claims of an “old law that is no longer in force” is ignorant or at worst, an act of misinformation. The Provisions which are promulgated by the State Council CANNOT supersede the existing higher level General Principles of the Civil Law and the Copyright Law which are made by the People’s Congress.

Under the existing Copyright Laws. copyrights with regards to online transmissions (i.e. music downloads and streaming) are already protected, and any online distribution of this music by any party without proper license clearance is considered a direct infringement. Where a party does not engage in this infringement directly, but helps or induces others to commit an infringement, they will be jointly liable for the damages suffered by the victim. This is similar to the concept of contributory infringement in the US. Before liability can be proven, it is critical that the infringer is proven to have knowledge of or made to know that their actions have contributed either directly or indirectly to the infringement act.

So what exactly happened with IFPI in the Baidu case?
It does seem that the IFPI has either been using the introduction of the superfluous (in this instance) new law as an excuse for their embarrassing Baidu loss or more worryingly, were unfamiliar with Chinese laws and did not even realize that there were existing Chinese laws in place to put forward a more viable case against Baidu in the first place. Another contributory factor is that the IFPI, in its constant war footing mode decided to go for the jugular and accused Baidu of wholesale direct infringement without undertaking the necessary burden of proof to establish a more watertight case against it.
And that was a chance gone a begging especially when it is common knowledge that Baidu has been more than just an innocent bystander in the facilitation of mass copyright infringement. And this act of failure by the IFPI to nail them has not only served to embolden Baidu but given it a court endorsed legitimacy to persevere with its dubious activities.

O’Reilly’s Nat Torkington from his vantaged position, thousands of miles away from the scene of the alleged crime volunteers a more contrarian view that the IFPI might welcome to cover up its deficiencies:

“I suspect that really it’s because Baidu is viewed as a local (Chinese) product rather than a foreign one. China’s institutions (from the courts down to rules on currency movement and company ownership) are used to tilt the playing field in the favour of local companies. Expect to see more of this as big western Internet companies want a piece of the big Chinese market.”

(Hmm, it’s also nice being a big Western financial institution reaping the rewards of its investment in Baidu via ill-gotten gains, while keeping its hands clean, ain’t it?)

Once bitten, the IFPI duly attacked Yahoo like a wounded animal with twice the venom trying to prove that Yahoo was both a direct infringer (as per their Baidu case) and also a contributory infringer. They again, however failed to prove the former as part of their suit seeking damages of RMB 5.5 million and only got a fraction of this as they only succeeded with the latter. Yahoo’s refusal to act on a prior de-link notice - so that they could profit from the offending access to unlicensed music - was the main reason that they were eventually found guilty of contributory infringement. It has to be noted that even though the IFPI did not seem to have served Yahoo the necessary take down notices listing each offending link and instead simply dished out a general notice seeking a de-linking of all related artists content without specific song links, and the fact that the first instance verdict was announced at the start of China’s Intellectual Property Week, it was indeed a fortuitous outcome in some respects.

The snafus of these cases should not be allowed to detract us from a few home truths:

Music Search engines in China are not your typical search engines but offer grey area deep links and some also clandestinely host music files on their servers and actively promote the accessible content to their users as they seek to actively profit from unlicensed music. Other than Yahoo, Baidu, Sogou, Sogua and a few other local search engines, even the venerable Microsoft is not above slugging it out in the dirt in China. And they cry out about Windows piracy?

Yahoo’s conduct is totally disgraceful and Chief Yahoo Jerry Yang, Alibaba CEO Jack Ma, and head of music, Ian Rogers, who has been held in high esteem in the music industry, should be totally ashamed at yet another blight to the Yahoo name in China. What the hell are they thinking?

Baidu could probably have been found guilty of contributory infringement. But that’s nothing compared to the direct infringement liability that it (and CSFB, DFJ, Goldman Sachs and its other American investor cohorts) should be slapped with, as rumor has it that Baidu itself hosts large quantities of music files on its server farms to conveniently serve up illegal music files as part of its mp3 search service. Now all we need is someone more competent to turn hearsay into a foolproof case.

John Kennedy would instead have us believe,

“We are confident a court would hold Baidu liable as it has Yahoo China”

I fought the law and I won
I fought the law and I won
The law don’t mean shit if you’ve got the right friends
That’s how this country’s run
Twinkies are the best friend I’ve ever had
I fought the law and I won
I fought the law and I won

- Dead Kennedys

Music2.0 would like to state that we have yet to have access to the second instance judgements for both these cases, but with our ground-level proximity, this should serve as a close reflection of events.

Update (7 Jan 2008):

Music2.0 managed to find out more details of the case and has come to the following conclusions:

1. We have observed through our various contacts with the related judicial fraternity that it does seem that the Appeals judges probably deemed it necessary to allow the first instance verdicts to stand as over-ruling it would have been too major a disruption to the system and also untenable for reasons best known to themselves.
2. Even though philosophically there seems to be an incongruence between the final verdicts of both cases, the different approaches that the IFPI took for each case, with the Yahoo action being stronger helped in maintaining the favorable result for IFPI in that instance, whilst upholding the IFPI loss against Baidu was easier due to the weaker initial attempt against Baidu
3. Also, in order for #1 to be achieved, it was conveniently cited that the “Provisions of Copyright Protection regarding Transmissions through Digital Networks” which was introduced in July 2006 helped IFPI get a favorable result against Yahoo. However, it has been pointed out by various lawyers in China that the existing “higher level Copyright Law and also the General Principles of the Civil Law were unchanged throughout both cases, and these already provide the foundations of the legal application” while it has to be noted that the Provisions were only introduced by the State Council to make existing laws clearer and easier to enforce. Even under the existing laws before the introduction of the Provisions, Baidu had been found guilty of music copyright infringement by the courts. On Sep 19, 2005, a Beijing court ordered Baidu to stop providing downloading services related to songs copyrighted by Shanghai Busheng Music Cultural Media Company and to pay the company RMB68,000 yuan.
4. A detailed examination of the Yahoo second instance judgment does throw a monkey wrench into the customary and universally understood safe harbor provisions as it stated in effect that Yahoo should have known that it was infringing on copyrighted material and it should have taken it upon itself to divest all links to the offending copyrighted material on its own. Failure to have done so is the reason cited for Yahoo losing its case.

Music2.0 concludes that the incongruence presented by these cases are made all the more difficult to comprehend by some of the obfuscation at play here by the parties concerned, and as such, it is not advised to use this as a basis to draw a definitive out-of-bounds marker for search engines in China. Also it is important to note that China does not adhere to the Common Law system and rulings are not necessarily bound by precedent.

Credits:
Dead Kennedy’s ‘Give Me Convenience Or Give Me Death’ album cover: courtesy of Amazon
Twinkie the Kid image: courtesy of Twinkies

It is ironic that in recent months, label chiefs have been stealing center stage from their more illustrious label acts but for all the wrong reasons. Where Britney had teased to reveal too much of her inner self, Doug Morris, for a man in his position as Universal Music’s CEO shocked the industry with revelations of the basic inadequacies of his anterior cortex when he claimed to have been clueless on not only technology but as a CEO, unable to even organize and hire the right talents. The recent pronouncements and actions of Doug and his cohorts give us cause to wonder if they really know what they are doing and if they have learnt anything since the onset of digital music activity almost a decade ago. Either he was putting on an act of stupidity to hide the greater offense of devious and greedy turf protection which the labels had been engaging in for the best part of the past decade or else he was just simply too inane.

Howie Klein, who previously worked under Doug Morris as President of Reprise Records takes him to task for his throwaway comments on not being being able to find a suitable technologist. As Howie states it, “in 2000, Steve Jobs snagged our VP of new media, Jimmy Dickson…to help with Apple’s music strategy… 6 months later: iTunes 1.0.” But Howie and Jimmy had already realized that the Internet was an opportunity and brought it forward to Doug and the corporate honchos as,

“not an opportunity to sue teenagers and/or their parents, but a new opportunity to let people purchase their music the same way they do at record stores… Our proposal, after lots of corporate headscratching, hummimg and hawing, was denied. So what happened?
They aggressively sued music fans. They didn’t give connected music consumers any alternative to piracy.”

For charity’s sake, let’s just grant the music label bosses a leave of their senses in 1999 BUT then over a sustained period of at least 8 years , they still haven’t got it - not one out of the sorry parade of major label CEOs. Instead of progressing with technology coupled with changing business models, they have instead variously been in denial, and then they subsequently regressed ethically with their main use of technology being for defensive, deceitful and destructive purposes - DRM, rootkit subterfuge, P2P spoofing, fake torrent sites and online scam ads. As Thomas Hesse, Sony-BMG’s digital head who was behind the rootkit fiasco stated with arrogant smugness, “Most people, I think, don’t even know what a Rootkit is, so why should they care about it?”

We can’t all as armchair CEOs figure out the best transition to the digital future and that is why it is a well-paid job. But if all the budget and energy is being spent protecting their turf to preserve the hubris that they have been accustomed to - instead of finding solutions to facilitate this shift to digital - then the obvious suggestion as the first step in this transition is for the Luddite label chiefs to be fired as they have totally lost the plot. Granted that few of us are shareholders of these labels in order to have a say in executive office appointments or terminations - but with major labels controlling up to 80% of commercial music combined with their failings which are obvious to all but themselves, they do have an effect on our lives too.

WE WAS WRONG

If they were simply passively ignorant, it wouldn’t be half as bad, but their Sisyphean efforts to stymy the changes engendered by technology, are at best negligent, and at worst, criminal. And finally after all these years, Warner CEO, Edgar Bronfman admitted as much during the recent GSMA Mobile Asia Congress in Macau as to how they actually saw it as a war against the very people who were supposed to be financing their business:

“We used to fool ourselves. We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and as a result of course, consumers won.”

But words are cheap, and besides paying lip service to customers’ needs, for now there are still no immediate benefits for them while Warner is still holding out on non-DRM music. Oh yeah, half of the major labels got rid of DRM but too little, too late and still too expensive as most music fans will probably still get their fix in DRM-free formats from their favourite free download services. And in a new development, Mad Doug is regressively introducing DRM again with his Total Music concept where music will be locked into Nokia phones. Nothing they do seem to be in favour of their customers and as Seth Mnookin of Wired stated it pointedly,

“Over the years, the label has for the most part used its market power to squeeze money out of others’ ideas. And its current moves - DRM-free songs and the Total Music subscription service - aren’t about serving consumers, at least not principally. They’re aimed at taking on Steve Jobs and, specifically, limiting the power of iTunes.”

HUBRIS

And their other aim has been to preserve the hubristic lifestyles that they have been accustomed to, with tales of excess in the music industry rife at the highest levels and then some, even permeating down the ranks. As highlighted by the Telegraph last week, Ste Williams, lead singer in a band called Cecil, who was signed to EMI’s Parlophone label for eight years said,

“There were a lot of people just employed to say yes and no, and you were never quite sure what their jobs were. I’m from Liverpool, I don’t need someone to get paid ridiculous amounts of money just to hold my bottle of water during a photoshoot. So much money was wasted.”

The Independent & The Telegraph also reported more skeletons in the closet being revealed on the excessive lifestyles that the top executives had been indulging in at EMI,

“A Mayfair hideaway reserved for record label EMI’s top brass has been deemed surplus to requirements by the company’s new owner, city financier Guy Hands and his Terra Firma private equity vehicle. The house has been sold for £5.6m, marking the end of an era of excess at Britain’s biggest music company. Gone too are the £200,000 a year spent on the euphemistic “fruit and flowers” for EMI’s west London offices, and the £20,000 bill for candles.

Despite these kind of changes, Josh Homme of Queens of the Stone Age, in an engaging interview with the blog Antiquiet is still sceptical of the labels and pointed out,

“The last thing they’re stripping down is their own expense accounts and shit. I mean, Jimmy Iovine of Interscope Records takes a private jet or rides first class to tell a band they don’t get tour support. I’m really sad for the days of the glorified groupie with the fucking hundred thousand dollar expense accounts. They’d drop bunches of bands before they would ever cut their expense accounts.”

In a prescient interview in 2003 with Rolling Stone, Steve Jobs himself observed,

“We think there’s a lot of structural changes that are probably gonna happen in the record industry, though. We’ve talked to a large number of artists that really don’t like their record company, and I was curious about that. And the general reason they don’t like the record company is because they think they’ve been really successful, but they’ve only earned a little bit of money. They feel (they’ve been ripped off).”

In the ensuing panic in the past week, all of this has resulted in blood letting and inevitably, a lot of talented but probably underpaid and passionate music executives are going to be released as reported in detail by Hypebot and Velvet Rope. At the same time, we should also spare a thought for the many label executives who have been forced to blindly comply with royal decrees about DRM and other luddite policies by their misguided label chiefs - which they might not be in agreement with. I know for a fact that, especially in countries outside of the US and Europe, major label executives have had no choice but to secretly undertake deals - legal, mind you - which would not have been approved by the company’s ignorant policy makers, just to meet their budgets and pay the rent. Not only have some labels chiefs lost the customers, but they’ve also lost their own people - and more famously in recent months, their artists.

NUMB AND DUMBER

We’ve all heard the recent misgivings of Trent Reznor, Prince and Thom Yorke in their rants against their erstwhile labels but Josh Homme is remarkably even beyond that,

“I’m also beyond pissed, as in not pissed, because I kinda figure they just don’t know better by now. It’s like when a dog shits in the house, you can hit ‘em with a paper but they really don’t know what the fuck happened. How can retarded kids know to not throw a Frisbee at the forehead of another retarded kid?”

I DIDN’T KNOW, I DON’T WANT TO KNOW

There is no shame in first realizing and admitting lack of experience in certain areas of the music industry and then keeping the hell out of there, or else learn quickly or hire experts in those fields. Steve Jobs, himself no less, clearly recognized his limitations,

“It would be very easy for us to sign up a musician. It would be very hard for us to sign up a young musician that was successful. Because that’s what the record companies do. Their value is in picking that 1 out of 5,000. We don’t do that.”

In 2003, FORTUNE talked to a few high level label executives and they also concurred with the view of sticking to their expertise in music production and A&R:

Rolf Schmidt-Holtz, then CEO of BMG (before taking in Sony as well into his portfolio) thought that BMG should be in the business of producing music, not worrying about how it is distributed. He said, “What we need are good songs, good records. I don’t care if they are sold by bicycle, by plane, by CD, online. We’ll license them to anybody. But I’m not going to run an Internet platform. I have no clue how to do that.”

Arista’s CEO, mega-producer L.A. Reid when asked about the fact that Avril Lavigne’s songs couldn’t be downloaded legally then, said, “I didn’t know. And I don’t want to know. Honestly, that’s just not what I focus on at all. I really feel that my role here and my passion is finding artists and helping them come up with material that we think will work.” His attitude is fine with his superiors. Schmidt-Holtz doesn’t want Reid to worry about downloading; he wants him to find the next Avril Lavigne.

And the larger-than-life Clive Davis seemed surprised when asked if he is thinking about digital sales and stated “The strategy is one of creativity,” Davis says. “Really, the technology I leave to others.”

Even Rick Rubin, producer extraordinaire and now co-head of Columbia Records in that interview with NY Times three months ago revealed a degree of naivety in assuming that subscription is the only way forward but still, he is to be lauded for embracing an innovative mindset that has been hitherto lacking in the collective mindset of label chiefs.

360? YOU MUST BE HAVING A LAUGH!

But now as we approach the end of 2007, the 360-degree model is all the rage, and one can only conclude that they must be intoxicated on their expense accounts.
Specifically Edgar Bronfman told analysts on 29 November that they had “made a decision about our business … and the way we are going to build our business … and we’re not going to continue to sign artists for recorded music revenue only.” Instead of simply focusing on their areas of expertise and strengths, they are now moving into other areas of the music industry to impose their well-documented inefficiencies, being drawn shamelessly like sharks to blood in search of revenue to sustain their erstwhile hubristic lifestyles. Leopard, spots, come to mind - but like fish out of water, if the labels pursue this direction, 8 years from now, there is a high chance that Bronfman’s future successor will likely issue another admission of failure but will still not be wiser to the cause. Or do we collectively say enough is enough as Ian Rogers, head of music at Yahoo defiantly did so recently in a speech entitled “Convenience Wins, Hubris Loses“,

“8 years. How much opportunity have we lost in those 8 years? How much naivety and hubris did we have when we said, “if we build it they will come”? What did we spend? And what did we gain? We certainly didn’t gain mass user adoption or trust, two prerequisites to success on the Internet. If the licensing labels offer their content to Yahoo! put more barriers in front of the users, I’m not interested. Do what you feel you need to do for your business, I’ll be polite, say thank you, and decline to sign. I won’t let Yahoo! invest any more money in consumer inconvenience. I want to delight consumers, not bum them out.”

PIRACY  INSURANCE

So far into a long article on the music industry and still no explicit use of the word “piracy” is quite a feat indeed! Piracy exists as the executive insurance for inefficiencies and bad business decisions of label chiefs. “Budgets not met? Can’t keep up with the changing economy and technology?Blame piracy. Not to absolve the negative role that piracy has played in the digital music environment, but we also have to realize that its role as the bogeyman serves other parties’ interests well. Piracy, in a bizarre way is the lifeblood of the RIAA and IFPI - without it, they cease to exist and the labels (and their artists) would be at least $132 mil richer annually. To the outsider, it is shocking that years of continued high levels of payment to these trade bodies has still have not yielded what the labels have set out to achieve - and this exercise in futility and wastage of funds has finally been identified by at least one label chief, EMI’s Guy Hands as a target for cost-cutting

LOOK BACK TO LOOK FORWARD

Cory Doctorow succintly sums up the evolution of technology and copyright in media development and this is how the label chiefs should view it:

“The record industry (which only exists because the phonogram producers of a hundred years ago “stole” compositions from sheet music publishers before the law was passed that legitimized their piracy) deserve no sympathy if their best excuse for their inability to keep up with change is “We couldn’t figure out how to recruit people who understood technology.”
Technological shifts have always resulted in copyright shifts. In the past century, US copyright law has been changed to legalize widespread ‘piracy’ in the form of sound recordings, radio broadcasts, cable, jukeboxes, and VCRs. Each one of these changes has had winners (the public, and the companies that capitalized on change), and losers (the companies that didn’t capitalize on changes, the artists who bet on them). The record industry exists due to the legalization of a form of technological copyright infringment a century ago, and the fact that they responded to the current change by suing 20,000 American music fans speaks poorly of their sense of history and their business acumen.”

Some say the music’s stopped for the labels but that would mean a closure is at hand - instead we still hear music…but that of Nero fiddling.

Credits:
Doug Morris Cartoon: Courtesy of Joel Watson