joegratz.net

Blogging is likely to be sporadic over the next several months. I’ll be taking a rather long trip — around the world, in fact. I depart in 48 hours, and I’ll return in mid-November. If you’d like to keep tabs on me during my travels, I’ll be blogging from the road at Forty Thousand Kilometers Around. And if you’re a joegratz.net reader living in Japan, Singapore, Malaysia, Thailand, India, England, Finland, Estonia, Latvia, Lithuania, Poland, or the Czech Republic, drop me an email or leave a comment on this post.

See you in November (or, perhaps, in Ahmedabad or Panevėžys).

Even Brown at internetcases.com has this excellent post on Arista Records v. Tschirhart, a RIAA filesharing case. Generally, the defendants in these suits are quite sympathetic. Here, the defendant started out sympathetic, then really fouled things up.

The defendant destroyed data on her hard drive after receiving notice of the suit and after the court had granted the plaintiff’s motion to compel inspection of the drive. The defendant had a duty to preserve the data on that drive as evidence and make it available to the plaintiffs, and knew about that duty, but irretrievably destroyed the data anyway. In an order filed Wednesday, the court entered the ultimate sanction against a defendant: default judgment in favor of the plaintiffs. This means that the plaintiff just wins without having to prove anything, and also receives fees and costs associated with the suit. Because the defendant destroyed all of the evidence, it’s likely that the allegations in the complaint will be taken as true for purposes of determining damages.

The court’s order is understandably a bit thin on technical details, but it seems that the defendant didn’t completely nuke the drive, but instead used “wiping” software to delete files irretrievably. But wiping software, as I learned at this year’s DEFCON, leaves a tell-tale pattern of data on the disk, so the plaintiffs’ investigators were able to figure out that the defendant had used two different disk-wiping programs even though she’d deleted both to cover her tracks.

So, the takeaway: No, you can’t just circumvent the judicial process by destroying evidence in your control after you have notice of a lawsuit against you. Moreover, it makes courts really, really mad, and you’ll deserve whatever sanction you get.

The New York Times has a very nice story today on LibriVox, a project working to create volunteer-read, public domain MP3 audio books. The project uses texts from Project Gutenberg, and the recordings’ complexity ranges from a solo recording of nonsense verse “The Purple Cow” to a full-cast recording of Hamlet.

I came across the project this past spring and recorded one letter’s worth of definitions from The Devil’s Dictionary by Ambrose Bierce — an old favorite. The recording is being checked and combined with others’ contributions, and should be released soon. Among its other volunteer constituencies, LibriVox makes a great hobby for pedantic old hams like me.

It’s wonderful to see how people are squeezing as much utility as possible out of the frozen pool of public domain works we’re left with after the last 30 years of legislation. Imagine what could be done if the public domain were larger!

The EFF, along with a team at Akin Gump led by Elizabeth Rader, represent Dr. Stuart Frankel in a declaratory judgment action filed yesterday against Lyons Partnership, owners of copyrights and trademarks in Barney, the fictional purple dinosaur. Lyons sent numerous C&D letters to Frankel regarding a parodic page on his website. Highlights of those C&Ds include:

• Sending two more nearly-identical C&D letters directly to Frankel for four years after being notified that he was represented by counsel, in apparent violation of DR 7-104 of the New York Lawyer’s Code of Professional Responsibility;
• Asserting that implicit threats of violence toward an imaginary purple dinosaur are actionable under copyright law; and
• Claiming that any use of Barney — evidently even parody or other fair use — is unlawful without permission from the copyright holder.

The EFF, it would seem from the exchange of correspondence attached to the complaint, was already a bit peeved at Lyons for sending a C&D in 2001 threatening to sue over the EFF’s mirror of a rather tasteless but nonetheless noninfringing essay about Barney written in 1994 and stored in an archive of BBS textfiles.

There’s certainly room for settlement. However, unconditional capitualtion on the part of Lyons, while the wisest course, may not be the likeliest. I wouldn’t be surprised if Frankel settled for nothing less than a judicial declaration of the parodic nature of his use. He doesn’t have much to lose, since he has some of the best copyright lawyers on the planet working on his side pro bono.

Weird Al Yankovic has just released “Don’t Download This Song,” putatively an anti-filesharing anthem. Here’s the download link.

While the lyrics are full of intentional ironies, the song’s promotional website reveals an unintentional one. The song is being released by Volcano Records, which is owned by Zomba Music Group, which is owned by BMG, a plaintiff in the RIAA filesharing lawsuits.

To quote the song, “It doesn’t matter if you’re a grandma / Or a seven-year-old girl / They’ll treat you like the evil hard-bitten criminal scum you are . . . .”

The Times reports that the Online Guitar Archive, or OLGA, a fan-created database of guitar chords and tablature for popular songs, has been shut down again due to complaints of copyright infringement.

OLGA was first shut down ten years ago, when a complaint from EMI caused UNLV to kick the site off its servers. I was a teenage keyboard player, and had been using OLGA (and the USENET posts out of which it grew) as an online fakebook since 1992 or so. It seemed totally unjust that a noncommercial resource created by and for amateur musicians could be destroyed by one letter from a lawyer. It was my outrage at this apparent injustice, in part, that led me to start learning about copyright law. While I no longer think the copyright holders’ allegations of infringement were entirely without merit, I still feel the sting of losing access to music available nowhere else, at any price.

Here’s a wrap-up of my posts from the Bandwidth Conference.

First up was The Tuning Fork, in which some very experienced and thoughtful radio programmers talked about the reasons radio isn’t dead, contrary to convenntional wisdom.

Next was an hour of conversation with Terry McBride, founder of Nettwerk. His wisdom and savvy was astonishing, and I think his session outlined the future of the music business better than any other part of the conference.

A la carte downloads? Subscriptions? Mechanical licensing? Ringtone licensing? Fred von Lohmann and his smart panel of lawyers helped to sort it all out on The Licensing Panel.

Chris Anderson then led a great panel on the long tail called Nouveau Niche.

Saturday morning was a panel on the role of the listener — especially in promotion — called High Speed Fan.

Next was a panel on online music pricing, featuring very smart provocations from John Buckman.

Finally, Thomas Dolby and other visionaries gave us their predictions about the future of the music industry in the Crystal Ball panel.

Thanks to Toby and crew for putting together such a great conference, and thanks to all the panelists who shared their insights. I had a great time, and learned a lot about the business end of the music business.

I’m at the Crystal Ball panel at the Bandwidth Conference. The moderator is Kurt Wolff, and the panelists are Thomas Dolby, Jordan Kurland, and Tim Westergren. (I came in late.)

Dolby: I make more money from sync licensing than anything else. If I’m trying to get something into a movie, I don’t want to be tied to an album cycle. On the other hand, I want my work to be a cohesive whole. Digital allows a lot more flexibility. I can put recordings on my website, check the response, and polish it if there’s good response. There’s a shift in the balance of power from musicians dependent on labels to labels as one small part of an overall business, shifting the power away from the labels.

Tim: CDs will become more like baskets — there will be a $15+ item, but it will include behind the scenes DVDs, great art, and other materials that add value.

Kurt: I wonder if it will become more limited. People are unloading their CDs. they’re becoming throwaways.

Jordan: I have trouble getting rid of stuff. And people put up with worse sound quality. Ont he other hand, people listen to the radio, and that’s terrible from a sound quality perspective, with the compression and so on.

Dolby: The problem is the necessary evils that go along with physical manufacturing and distribution. You’re paying for all the mistakes the music business has ever made. Ten years of business has tought me that there’s a limit to how far in front of the revenue curve you should be investing. I look very carefully before I press 10,000 CDs. Digital is great, since there’s almost no risk.

Kurt: Do you feel a loss of sond quality?

Dolby: Oh, yeah. I can’t listen to MP3s. But having “ears” is sort of a curse. Over time, they’ll sell high quality back — uncompressed, then 96 KHz. That’s the oldest trick in the music business.

Jordan: Pro Tools doesn’t sound as good as analog, but if it’s all going on iPods anyway, how does it matter?

Kurt: Mobile devices. How far can we go?

Tim: Muni WiFi will eventually be a reality, and sooner than we think. Then, every MP3 player with a wireless card will be connected to the internet. That might allow virtual collections, or online radio. There are 15 million iPods, 700 million mobile phones, and when those are connected to high speed internet connections, it’ll inevitably go there.

Kurt: Is the home stereo out the window?

Tim: The home stereo offers a great sound experience. We did a deal with SlimDevices that allows Pandora use on the home stereo.

Dolby: Once there are wifi networks, we can have subwoofers on streetcorners to help out tinny ringtones.

Audience Q: Why is music so important to us as human beings?

Tim: One of the things I’ve been doing int he last six months is having townhall meetings with Pandora users. What it has really reminded me is how universal and profound people’s connection is with music. You can get in a room with 200 complete strangers and have two-hour discussions about music. There will be 75 year olds as well as teenagers. It confirms for me that it’s a deeply held belief and passion that everybody has. Music draws people in, and we all get that feeling, when a song reminds us of something or makes us fgeel a particular way.

Jordan: I have no idea.

Dolby: If I could find the words to answer that question, I wouldn’t need to be a musician. The world is so fucked up that it gives you a giant migraine, and music is the aspirin. It beautifies the world.

Audience Q: Gaze deeply into the crystal ball. There’s a lot of hate, with the record company lawsuits. What will it look like in 10 years? Will the majors do intelligent things, or do we need to completely kick them out?

Jordan: I don’t know what the music business will look like in 10 years, but I’d guess major labels will still be partof it. They serve simple, specific functions. It’s people power, financial, and elbow grease. They’re starting to figure out already what to do. It’s great to think that music will come just

Dolby: I don’t think there will be major labels in 10 years. The major labels exist today because 40 years ago it was hard to manufacture a piece of plastic with music on it. When you take out the need for physical manufacturing and distribution, you take away one major function of the majors. You also take away the need for the investment up front. The capital required to make a record is so much less now than it was that the source of income you need can be found in more places. So the moneylending is out and the manufacturing is out. Not much is left. There’s no reason to sign over to a corporation anymore. If they don’t own the recordings, they don’t exist anymore.

Jordan: The reason to sign to a major is to be a superstar — sell 10,000 tickets in a major market. I worked with Death Cab’s move to a major label, and they’re happy. They’re making a lot of money. Will that playing field be level in 10 or 20 years? Maybe. But will book publishers and movie studios go away too? They’ll just serve a different purpose.

Tim: Labels will look more like management companies. Labels are like VCs. They throw a lot of money at acts and hope one hits. There are a number of approaches in Silicon Valley. Some have a lot of moeny and throw it around, and others are incubators — they give support and expertise. That’s how record labels should operate. They’re good at A&R, putting together tours, marketing. They should start iincubating bands. The bands can come to you with a finished CD — they just need a management support group.

Jordan: That exists — Warners is doing that. It’s a little more evil than record label model, though, ’cause you’re signing bands for less money than before. Stardom is a carrot, always. I can’t figure out how a completely new process would work.

Dolby: If you want to be splashed across the media as a whole, there’s going to be a level you’ll have to reach, and that won’t happen through self-promotion, but what happened with Death Cab was like an incubator — no huge debt, and they proved themselves, and then they convinced someone to pull them up and take them to the next level. It’s less of a crap shoot now. They spent hundreds of thousands of dollars marketing my stuff with no idea what would happen or how it was working. Now, artists can prove they have an audience in an economically sane environment.

Tim: And when you sign that deal, it won’t be for a 6.5% royalty rate. You’ll be able to get more.

Dolby: You may see 50% rates back to the artist early on, then much less if the star trigger gets pulled.

Audience Q: What will the next big genre leap be?

Tim: The next big movement in the US will be the pulling in of international music. We’ve done pathetically little of that here. The rest of the world knows that there’s great music made in different places. There’s amazing music coming out around the world. The US audience is likely to welcome it, especially mixed with US artists.

Dolby: The middle eastern influence is coming in to rap records. I’m not the right person to ask. Kids are influenced in music choices by peer pressure, and it’s not terribly susceptible to conventional marketing and advertising. Every time I used to sit down at the piano, I had to think about what the hitmakers would think. Only if A&R and the retailers and the label bosses liked it did the public get it. Now, I’m freed up. the stuff that’s coming across my plate is quite eclectic and doesn’t fit into pigeonholes, and that’s because artists don’t feel that pressure. This is a fantastic time for music fans and musicians. I feel sorry for people in the industry, but there’s a lot positive that’s going on.

Audience Q: I just left a major label. Where are the majors at this conference? That’s crazy to me. I left because there was nobody with vision. There are these old guys — LITERALLY, old guys in khaki pants and polished shoes — trying to keep the CD alive. Everything that Thomas is saying — how can people not see how great it would be to have a spigot of music coming out everywhere. It’s so much fun.

Tim: People bitch and moan about the fact that their favorite radio station went off the air, or that the record store closed. But it’s their fault. We get what we ask for. The music business leads us, but also reacts to what we want. People don’t think about the effects of listening to Clear channel stations or buying at Best Buy.

Jordan: Are any indies doing it right?

Dolby: I’m here trying to meet them. I definitely need someone to navigate me through promotional opportunities, and I want to know what it takes to get on the front page. I want somebody to take care of distracting logistics. But I don’t want an manager and an agent and a label and all of these people, because you don’t need all of these people. You’re feeding a lot of mouths. I don’t want the people problems of a huge team. The same when I started a company — it was great until we had 10 employees, then I was dealing with interpersonal problems all day.

Audience Q: I’m an ex-VC. VCs PRICE risk; labels TAKE risk. In a VC portfolio, there’s a 3/10 hit rate. For labels, it’s about 1/20. As you think about the label model, there are a lot of challenges there. Is it possible to imagine a world with no labels at all?

Dolby: It’s not that we don’t need intermediaries; it’s just that th services they provide need to get consolidated.

Tim: A few years ago, Amazon had this thing called Amazon Advantage. They’d take anybody’s CDs, warehouse, them, make 30-second samples, and sell them. You can imagine a cartoon about what it’s like to be in that warehouse. How do you find your audience in there? That’s what labels try to solve. They’re inefficient about it, but somebody has to play that role. What does that player look like? A label? A management company? Certainly, a more competitive landscape than now. Anybody can be a label now, but it’s hard to do effectively.

Audience Q: VCs and labels are different in that they keep different stakes in the eventual product.

Tim: Most bands get their $200,000 advance and build a studio. They figured that would be the last dollar they’d ever see.

Dolby: There are entrepreneurs who see VC money the same way. It’s going to take a wad of cash to get someone off the ground now, and it used to take a lot of moeny to get a record recorded, but not anymore.

Audience Q: 10 years from now, where will my money come from, percentage-wise? Mobile? iTunes? Selling CDs from my website?

Jordan: I think it’s artist-specific and goal-specific. Artists will make more money per CD sold, but it’s hard to get noticed enough to get people to buy your stuff.

Dolby: If you’re going to sell your soul, there will be other corporations to sell your soul to, other than major labels. Phone carriers, for example.

Tim: Artists will keep a much bigger piece of the pie than they used to.

Dolby: My friends from high school, who quit making music to get a sensible job long ago, are now gigging again, and making a living.

I’m at the Bandwidth Conference at a panel called, “What’s It Worth To You?”. The moderator is David Harrell, and the panelists are John Buckman, Neeta Ragoowansi, Layne Fox, and Yobie Benjamin.

Q: How is Magnatune’s pricing approach working out?

Buckman: Magnatune asks how much the user wants to pay. Everyone knows they don’t have to buy music to get music. If they’re already on the site, they’re willing to pay for it, so we want to reward them by letting them decide how much the artist deserves. They can buy for as low as $5, but the average is $8.50. People feel good about buying someplace that trusts them.

Q: You only do full album downloads, not individual songs, right? Why?
Buckman: Right. On one level, it’s an artistic choice. We’re not selling music that plays on the radio, so people are picking the music because they like it. I don’t like registration systems — it’s an impediment to purchasing. There’s a high credit card merchant fee, so $1 transactions only work with registration.

Q: Terry McBride said digital dcownloads would end up in the 25 to 49 cent range per song. Thoughts on that?

Fox: I own my own label in addition to working at a distributor. From a distributor standpoint, we want whatever will bring people into the space. That requires balancing what’s best fo the consumer and what’s best for the content owners. We have to keep waiting tosee what happens with unusual models like eMusic and other subscription services.

Buckman: That’s the wrong question. We should actually be looking at gross revenue per customer. Individual cost is meaningless — we need to look for the way that makes people shell out as much as possible per month.

Q: How do you see pricing shaking out when the consumer-as-seller takes a cut?

Benjamin: We empower both consumers and large organizations. Music is one of the things in our toolkit. We don’t price under 99 cents — we work with the big digital distributors, and within that construct we can’t price too low.

Buckman: Can the price go up based on the selection? Would people pay more to download from a well-selected blues blog than from the full catalog?

Benjamin: We have an 800-blogger beta. The lazy guys have few to no sales. The guys that actually write about the music sell, and sell for a higher premium. We sell CDs, too, through those guys who put work into it.

Q: The premium you’re talking about is one thing, but 8 of the top 10 top-selling iTunes albums are priced higher than physical CDs on iTunes. They’re doing a lot of premium-level specials, too. There’s flexibility you’d never have with a physical CD.

Benjamin: We’re not a pure-play music site. We have a very wide SKU set. We have four million books. The types of products you can sell is different. We can do cross-merchandising of products. The other thing we do is allow for variable pricing, with a floor.

Q: When connection speeds go higher, will people be re-sold WAVs later?

Benjamin: Sure, that could happen.

Q: Magnatune has WAVs, though, right?

Buckman: Yeah. WAVs, FLACs, anything. The Russian sites sell by the megabyte, incidentally, which is an interesting model.

Q: Let’s talk about SoundExchange. There’s some confusion.

Neeta: SoundExchange is the nonprofit organization designated to collect and distribute royalties for artists and record labels for use by XM, Sirius, cable digital radio, and webcasters. They have to pay for the use of sound recordings. It’s like ASCAP or BMI — they collect for the composer or publisher for the musical work. There’s a relatively new right to publicly perform sound recordings by certain methods, and people collect that money through us. The area of confusion arises because the section 114 statutory license doesn’t cover interactive subscription services, only non-interactive services. There are gray areas.

Buckman: Do you know numbers?

Neeta: when we did our first distribution, we’d collected $3.5 million — not a big deal, when split among 40,000 recording artists. This year, we’re up at about $68 million, and it’s going up. We’re in the middle of an aribtration with the webcasters. We’re asking for 30% higher, they’re asking for 30% lower, we’ll probably meet somewhere in the middle.

Audience Question: What’s “commercially released”?

Neeta: Well, that’s a subject of debate. But probably anything that’s been distributed on the internet is “commercially released”. Some say it must be sold, but that’s a minority view. [She describes the division of the SoundExchange royalty.] Who’s the “featured artist”? Our policy committee deals with those questions.

Buckman: How does a label or musician register?

Neeta: They come to our website and register. Tell everyone to register! There’s money waiting! It takes 15 minutes. We pay out based on reports from licensees.

Buckman: For years, major label artists only saw ASCAP and BMI royalties. As those perhaps fade, does anyone think we’ll see government-like organizations to replace sales?

Neeta: It’s definitely an argument in the webcaster arbitrations when we’re setting rates. When determining value, we look at other pieces of the pie. If there’s more statutory pricing, they’ll look at the overall economic pie.

Buckman: It seems like most things will be interactive streaming. Should we just tax everyone abd pay it out?

Benjamin: There are other mechanisms. GoodStorm does something like this.

Q: Terry Fisher has proposed an alternative compensation system. Everyone’s competing for dollars now — if we were in a pro rata situation, do the rich get richer?

Buckman: ASCAP and BMI have dual accounting for big players versus small players. The expectation is that the big guys will pay off the government to make sure that continues. The same thing could happen in a pro rata situation, and that woudl be bad. But 2/3 of the money made is licensing, not sales to consumers, so I don’t see the industry being in trouble even if P2P takes over, so long as they can stil lmake stars and sell licenses.

Q: How’s the licensing for sync and similar rights on your website going?

Buckman: It’s great! We’re doing a lot of licenses for independent films, and we’re the only place you can do licenses like this online instantly. One of the cool things is how many people in the music and related businesses hate the people they work for, so some of those people enjoy giving money to us, who are not evil. How strange that the record labels get in trouble for payola, but won’t license podcasts. Collecting money from people who have money — like ad agencies — works great; suing welfare moms doesn’t.

Q: When is the single-price model going to change?

Fox: It’ll be a while.

Benjamin: Once one major gets rid of DRM, it’s all coming down. They’ll immediately go to variable pricing, higher than current rates.

Buckman: People are willing to pay 30% more for music without DRM.

Fox: Will that send everyone to subscriptions?

Benjamin: I don’t like subscriptions — I think it’s fundamentally horrible for the artist.

Fox: Some day, music will be like water as Fisher says.

Buckman: Allofmp3.com is the future. I use this all the time. The utility model isn’t as good as the by-the-megabyte model allofmp3 uses.

Fox: Allofmp3 doesn’t pay the artists, and they’ll get closed down soon. Alternate revenue is coming from branding, which allows people to enjoy music for free. Instead of looking to a subscription service, artists should be looking to different new types of licensing.

Benjamin: People are donating their music to be sold for good causes on our site. There will be a lot of experiments. Moving away from DRM is on the horizon. I’m optimistic.

Fox: We’re just starting to see that the majors might consider getting rid of DRM.

Buckman: The majors know that their audience despises them. You’ll die eventually if that’s true. They’ll have to do something eventually.

Audience Q: Why are we charged for sound recording performance when terrestrial radio companies don’t?

Neeta: Around the world, there’s a sound recording performance right. Terrestrial broadcasting in the US is an anomaly. Terrestrial radio should pay. That might even out the playing field between new and old technologies.

Audience Q: As your popularity goes up, your costs just for bandwidth goes up, which isn’t true for terrestrial radio.

Buckman: The internet radio isn’t as strong as the broadcasting lobby. Yet.

I’m at the Bandwidth Conference. The next panel is called High Speed Fan, “a discussion on future trends in the fan experience, and what it will mean to be a music lover a zillion years from now, or maybe even next year.” The moderator is Brian Zisk, and the panelists are Matthew Adell, Matthew Dunn, Naveen Jain, and Srivats Sampath. (I’m just taking notes on the particularly relevant bits.)

Q: How will fandom change?

Adell: All we can do is maintain our business and be well-positioned for what’s to come. Truisms have arisen. One is that those under 24 steal music and are a lost cause. People are willing to pay for relationship and convenience; if you are stoned in your dorm room with six hours to kill, you’re going to use P2P. Bands need to be honest with themselves about who their fans are. Those who won’t transact with you aren’t fans, they’re freeloaders. Make sure you’re targeting the people who actuallhave credit cards.

Dunn: Music will become more fragmented; distribution will be faster. The hit of tomorrow lasts two weeks, not two months.

Q: How will people get their music?

Jain: It will be a combination. Consumers still get attached to an artist.
Sampath: There’s a core group who spent time discovering, and they influence their friends.

Adell: Now that many services have 2 or 10 million tracks analyzed, it’s not the end of hit-based culture, but the waning years of the superstar act. you’d have to have a movie, a record, and a TV show at the same time. You’ll see the fat middle instead of the long tail. [That’s what Anderson is saying, actually, isn’t it?]

Q: The fat middle comment doesn’t make any sense, because the long tail is a logarithmic function — there are long tails within the long tails. There are a whole bunch of fat middles in the long tail. They are smaller than the “big head” but there are these markets inside. We should use a better term than “fat middle”.

Zisk: By aggregating the tiny niches, you can make a larger market.

Q: “Fan club” sounds awfully dorky. How do we fix this? “Fan”?

Sampath: Call them community. Linkin Park calls them “LP Underground”. For Madonna, fans are “icons”. They’re all fans, but you don’t have to call them by dorky names and make them feel inferior. We’ll call them whatever they want to be called. If Clay Aiken fans want to be called “Claymates”, that’s their own problem.

Adell: Cool people are rarely good customers. If you’re concerned with coolness, you’ll be bankrupt next week.

Q (Rob Kaye): How can we make the 18-24 year olds part of your PR team?

Sampath: People do that anyway. The problem with street teams is that the kids will take advantage of you. There’s going to be a group of kids who do a lot of work, but some who just want free shit. People will do whatever they do.

Adell: Some of this will shift with the penetration of3G mobiel phones. Then, the kids will have their parents’ credit cards in their hands all day.

Q: I completely disagree. Kids are gonna spend money on SMS, not $3 tracks.

Adell: It drives me nuts that the kids who will spend $3 on a MIDI ringtone of a 50 cent song will download it for free on P2P.

Sampath: Nobody sees that the kid owns the record.

Adell: That’s a real problem. Looking at a record collection was a social activity. MySpace is replaceing some of that, but the loss of a shelf has hurt all of our business.

Dunn: There’s a lack of opportunities for conspicuous consumption in the digital music market.

Q (Thomas Dolby): There’s been an interesting evolution on the relationship between the industry and fans. It’s not crystal clear yet. Music fans and musicians belong to each other. The role and the obligation of the intermediary is to empower that relationship to happen more easily and more effectively without the wastage that’s sent the industry down the toilet in the last few years. Labels want to push their own brand, but the fans don’t care about that. Kids want to feel they’re beingbrought closer to the music and the musicians that they admire. All you, as intermediaries, should be doing is facilitating that relationship. You’ve got to put the fans and the musicians first. Secondarily, if you’re a SV entrepreneur, you shouldn’t base your assumptions on your 15 year old son in private school in Menlo Park.

Adell: The labels have been really good filters. 99% of everything is crap. Anyone who can help fans discover music is valuable. Nobody wakes up in the morning and wants the new Warner Brothers release, but some people have that relationship with Six Degrees.

Zisk: Could you talk about how you as a musician connected with fans?

Dolby: My position is unusual — I have to be thankful for what the industry did back then. It’s a joy to an artist to be able to know who your fans are, first, and how they find out about you. My first album went gold, my second album didn’t. Nobody knew who the fans were — they were just units sold. Now, I can see reviews on blogs when I get back to the hotel after a show. I can blog. I can get comments immediately. There’s a closeness with the fans that never existed before, on radio playlists or royalty statements. I’m a tech guy as well as an artist, so I can do this all myself, but a lot of artists need help with that, and you need to help them.

Q: What about High School Musical, which was the #2 album, and sold mostly digitally? 10-15 year old girls spent a huge amoutn of money.

Adell: The kids weren’t spending the money, their parents were.

Sampath: It sold to the parents, not the kids.

Q: I respectfully disagree. It was a mastery of a demographic.

Sampath: I’m not saying kids didn’t like it. I’m saying the parents approved and bought it.

I’m at the Nouveau Niche panel at the Bandwidth Conference. The moderator is Chris Andersen, and the panelists are Gray Gannaway, Kevin Arnold, Tim Quirk, Ted Cohen, and Rusty Rueff.

Q: How are things changing?

Tim: 48.5% of sales at an offline retail environment are generated by the top 100 artists. That goes down to 28% on P2P. For Rhapsody, it’s 24%. Everybody becomes a music geek when they can explore.

Q: Do you see this as an early adopter pehnomenon, or as a generational shift?

Ted: People are taking their blinders off and exploring their passions further. With digital, we can make things available that wasn’t getting any attention. The taste has always been there, this just takes away the limitations that masked them.

Tim: There are airplay charts (what people are fed) — then there are sales charts (what people are eating) — and then there are usage charts (what people actually listen to the most). The differences in the charts are striking. It’s not just what you can get 10 million people to buy — it’s what you can get people to listen to again and again.

Ted: I have 6,000 CDs in the living room. I rarely reach for them. I use Rhapsody instead.

Rusty: If you’re the band, you’re the most relevant person, not the niche.

Q: How do you see this, being just the niches?

Gray: It’s more than a third of our sales at CD Baby. being able to say “check us out on iTunes” is a big benefit for artists. Rising above the clutter is hard.

Tim: There are ways not to do this. For example, writing a program to play your tracks over and over.

Q: Sure, listenership is increasing. Is this enough to change the economics of being an individual artist?

Ted: Maybe more bands can work part time, maybe some can quit their day jobs, but it’s not about the chosen few anymore. It comes down to recommendation and discovery tools.

Tim: If I was 23, I’d quit my day job. I’m making more from record sales now, doing it in my spare time, than I did doing it 24/7 on Warner Brothers.

Kevin: Sync licensing is becoming a big market, since it’s so much cheaper and easier through small distributors.

Q: Tim, you play music for free because it works better that way. What are the models that revolve around free music, and making money from something else.

Ted: First, there’s ad-supported. Free music with ad-share isn’t so hot.

Rusty: We at SNOCAP got all dressed up for a P2P party that never happened. P2P is stll happening, but it’s not with strangers anymore. It’s happening in the social networks now. That’s what myspace is.

Ted: Some of the things going on on Myspace could get smacked down if they happened elsewhere.

Kevin: Buying the music at the point of discovery is a great benefit.

Ted: I moderated a panel many years ago on which Duncan Sheik said a track from his album is the trailer for his movie. Giving the trailer away is OK. Their worry was that they’d end up giving the whole movie away.

Q: Now what for SNOCAP?

Rusty: The digital registry we created can be used for other things than P2P. We’re interested in the unsigned artists. There’s a new relevance for that marketplace. How do you take user-generated and make it user-enabled? We’ve never had an opportunity to let the fans help. We have a 24/7 connection — how do we let that surge?

Gray: Going to iTunes is going to a music store. Going to Myspace is like going to a used car lot. [I’d say it’s more like a bazaar.]

Kevin: You can end up with your own ecosystem.

Q: How has marketing the live experience changed?

Ted: There are other ways to take the moment with you. It’s easier to go to a club and see an act and have a great time than going to some huge venue. You’re connecting. As good as Radiohead is, it’s a little far.

Tim: That’s the band’s damn job, and most of them are doing it. If you’re at all savvy, you’re collecting postal addresses and emailing when you’re coming to town.

Ted: PassAlong.com figures it all out from your music collection.

Audience questions.

Q: I love LaLa. Is the CD really dying?

Ted: I got quoted saying they were a bit disengenuous. Just say it’s friends trading with friends.

Chris: There’s precedent for this — used books. Even on Amazon. “Out of print” is an obsolete term. The authors aren’t getting revenue, but they’re getting read. Publishers are mad.

Tim: Amoeba is the best place in the world. But it’s partially a generational thing.

Q: I work for a digital distributor. There’s no money coming in from subscriptions, in comparison to downloads. How long do we have to wait to see real money?

Tim: I have two answers. In the near term, having your music in a subscription service has more promotional than monetary value. This ties into the number of downloads. When streaming is on, downloads go up by 100%.

I’m at the Licensing panel at the Bandwidth Conference. The moderator is Fred von Lohmann, and the panelists are Todd Gascon, Marc Morgenstern, Tuhin Roy, and Colette Vogele.

Q: What trends do you see?

Tuhin: We’re seeing the emergence, in the last 6 months, of mobile-based sales of permanent downloads. In the permanent download world, the rates are pretty steady. Of the $1 the consumer pays, the distributor gets about 70%, then the label gets paid out of that, and is responsible for the mechanical. In the mobile phone downloads, the breakdown is worse, since the carriers have more leverage. They take a bigger bite, but they’re selling downloads for twice as much. There’s a lot of negotiation and jockeying yet to be done in the subscription licensing area.

Q: How does eMusic fit into this?

Tuhin: It doesn’t have a negative impact on sales in other channels, so it’s a lot like a record club. We don’t put everything in, but it generates real revenue, even though the amount we get is smaller.

Q: From the artist’s perspective, are you seeing new trends in licensing to big download stores? Is it cookie-cutter?

Todd: Digital looks pretty good — no worries about not getting checks, less delay, more income from digital sales. The things you heard about in the 90s are starting to come true.

Q: What about interoperability? Will there just be one interoperable solution, or give up on DRM?
Marc: eMusic makes their money on breakage — those who don’t use their fill. This business model apparently works for them. It’s too difficult to make everything work together — PDAs, cell phones, etc. If you create a new rights bundle with a new price point — a higher price point — we’ll give you windows, AAC, and mobile formats. This solves the consumer’s problem. The consumer is speaking very loudly, saying that they don’t like being walled in. So we need to make the walls lower.

We don’t care about DRM. We distribute MP3s when our clients want to. The majors aren’t there yet, though. You’ll see some experimentation with baby bands, but frankly there’s a long way to go.

Q: MP3 blogs and podcasts are taking over. What’s going on?

Colette: Users are generating their own content, and are mixing it with other people’s content. People are using Creative Commons licenses. [Fred explains CC licenses.]

Q: The latest Decemberists pre-release leaked. What would you do?

Tuhin: It’s understandable that fans want to hear it, but I’d say people should respect the artist’s wishes. I wouldn’t get heavy about it, but you can communicate with your fans about your wishes.

Colette: The practical solutions are probably better than the legal solutions — the RIAA lawsuits have shown us that.

Marc: Rather than being punitive, you should create a way to make your fans legitimate sellers. Let the biggest seller meet the band.

Q: Thoughts on the user-generated video revolution?

Tuhin: The film and TV industry learned a lesson watching RIAA. YouTube now is like Napster at its height. But they’re fully engaged in a licensing conversation. The mashups, you can do some licenses, but there are still issues. The 14 year olds should be allowed to do what they’re doing, and YouTube should just share revenue with the copyright holders.

Audience questions.

Q: What about artists’ moral rights? Is that deep-sixed?

[Fred explains moral rights.]

Tuhin: Musical artists have no moral rights under American copyright law.

Q: Music publishers are poorly run. Like, Dickensian. Is anyone going to do something about that?

Colette: I look at these contracts and think, “How did this become the most efficient way for this to happen?”.

Marc: Having been at ASCAP for a few years, part of the situation is getting tougher — there are split copyrights. On a hiphop song, you could have 12 writers with 12 different publishers. It takes forever.

Fred: They’re trying to change the system. You might see some reforms. But it’s slow. It would eb great if there was one-stop shopping, but we’re far away.

Q: Publishers are still using index cards. The S1RA was pretty bad. Is there anybody who’ll go to bat and put together something better?

Marc: The owners of the music distribution services have clout, and are starting to push.

Tuhin: Sticking the onus on the label works pretty well. They already have contact with the publishers.

I’m at the Bandwidth Conference, at a conversation with Terry McBride, founder of Nettwerk. (I’m omitting the questions, since they’re implied in his responses.)

We sued the P2P downloaders, and that felt good for about nine months, but then we realized that those people are our marketing and promotions team. They’re passionate music lovers. We developed street teams. We’ve taken the behavior of these kids and made them into street teams. We’re mobolizing them, sure, but also monetizing them through recommendations.

You should never tell the consumer how to consume — give up control, let them decide how to do it.

We sell more digitally than other labels because of our philosophy of making music available. Sarah McLachlan fans aren’t on Myspace, but The Format fans do. But also, the Barenaked Ladies are selling single instrumental tracks for kids to remix in a pseudo-creative-commons way.

Pricing started being an issue with the CD — with filler songs. What if we take away the control — the DRM? You’ll see the price of music drop to 25 to 49 cents a song. The kid who’s really good at downloading 10-20 songs an hour could make more working at McDonald’s instead. When the price comes down, P2P disintegrates for music — at least music you can find. That, combined with the ability for fans to sell music to other fans, will completely change the marketplace.

I don’t believe in fear. The use of litigation in anything is negative energy. The RIAA is using fear as a tactic to push kids ot use legitimate systems, but fear doesn’t work in the long run. I didn’t like that they were suing a fan for sharing an Avril Lavigne song, so you have to stop using the names of the artists I manage. I want the fans to build the brands of my artists. The lawsuits have hurt the business and have hurt my artists. This is my attempt to stop the litigation. I like copyright, but I think copyright hsouldn’t be controlled the way it is. It’s wrong. It’s manipulative, and it’s not where copyright law came from. We need to stop these lawsuits. I’m hoping it’ll get to the point where the RIAA backs off because losing is too costly in the larger picture. I’m hoping, with the changing attitudes toward DRM, that we can change things. They’ve gone down the DRM / lawsuit rabbit hole, and they don’t know how to get out. We need to help.

In 10 years, there will still be physical CDs. The majority of music consumption will be digital portable — interoparability issues will be gone. Most music will be sold fan to fan. Tou’ll have 2 million web sites selling music. Music will finally be consumed in the market the way it is in the real world — everywhere, all the time. The behavior of the public will be monetized in a fair way. The artists will be back to writing good songs and not releasing the filler. Build the brand and the sound — the album cycle will be gone. You don’t need to do an album before you tour. The connection between the artist and the fan will be more direct, and anything that gets in between is a deterrent to growth.

The big labels have found it difficult to break big bands because radio formats make it difficult to introduce new styles. Zeppelin could never happen today. But when artists pull, there can be huge artists, and they can be artists that wouldn’t be played on any existing radio format.

Artists who sell fewer copies are getting bigger crowds. Howbig a band is should be the total value of what the band brings in, not how many CDs they sell.

Streaming is growing faster than digital downloads. The most effective way to use the P2P marketplace would be to take a huge band, put out an MP3 with an ad on the beginning and the end, get some metric, and the single all of a sudden generates millions of dollars, given away free.

I’m telling my artists to keep their copyrights together, and not split them up into masters, publishing, etc. This allows greater innovation in ways you can allow listeners to get the music. Divided copyrights in a single song is an incredibly economically inefficient way to operate. Labels will be bankers and facilitators, not owners. They’ll be forced to give stock options to artists. The tax code was recently changed to alllow artists to sell copyrighted material for stock options, and then be taxed for the capital gains rather than straight income. [Sounds interesting. I’ll have to look that up.] I look at Korea, where 60% of music sales are digital. Mobile phone companies are buying record companies and signing artists. Radio is going to be programmed by the listener. Those running the labels now are all about control, and that has to change.

Band-to-fan is great, especially when you collapse the copyrights in a single owner. We just own the majors for physical distribution — we can do the rest with street teams and online.

The only thing we’re missing is A&R, but it’s been a bad job for a while — finding the hit single. Business. The creative team of A&R, promotion, production, and artist has been gone for a long time if it ever existed. The artist is still surrounded by people — now including the fans — who will call a shitty song a shitty song.

We’re inviting fans to make the next Barenaked Ladies video. We’re selling 16 multitrack stems for each of the first 5 songs. The best mixes are going to get put on a charity EP and sold on iTunes. We sell music in open source. The fans make their own mixes and give those mixes away. Only 40% of the money they generate on these copyrights will be from their physical CD sales — the rest is from selling the content in other ways, especially selling the multitrack stems. The majors can’t do this, they’re scared, but it’s so much fun. This all comes with the artist owning all of the relevant copyrights. They made $3 million on their little Christmas album. You get your creativity back, you get the same financial reward as playing the selling-millions-of-records game, and it’s a hell of a lot more fun.

I’m at the Bandwidth Conference. The first panel I’m attending is called The Tuning Fork, which promises to be “a look at the future of programming in all its forms.” It’s moderated by Ben Fong-Torres, and the panelists are David Benson, Mark Lam, and Chris Mays.

As with all of my liveblogging, these are my own impressionistic notes on the proceedings, and they are not intended for attribution either to me or to the speakers.

Q: What is the state of radio today?

Mays: Our demise is over-recorded. Radio will outlive many other media. Competition is revving up again. You can’t go in as a group platform; there has to be competition even among stations owned by the same conglomerates. Local, compelling content is what we do; it’s immediate. As things grow more homogenous, this local, immediate nature is what will lead us into the future.

Benson: Go ahead — think that radio is dead. We’re just doing what we do. We’re part of the digital world. The writing about the subject has been strangely skewed — we’re in the audience business, and it’s not about the medium. We’ll be around, whether it’s over FM or satellite or streaming. We know music. We’re not threatened by iPods or streams — people liking music is great, and when they want our experience, they’ll choose it. It’s 97% instead of 94% now — that’s not so bad.

Q: What do yoour numbers show you, Mark?

Lam: Content is king. Radio is local, I agree. We offer the world’s most diverse contents — 10,000 broadcasters, and listeners in 216 countries.

Mays: Satellite radio generates a lot of good press. In reality, penetration in SF of satellite radio is less than 3%. they’ve done some things well — they got to Detroit first, and they’re in cars where HD radio should be.

Lam: They’re burning through cash very fast. $5 billion. They’re not breaking even any time soon.

Q: What’s happening 3-5 years down the line for them?

Lam: XM just went for another round of financing. New technologies are likely to overtake them.

Q: Has their widening of the palette been a challenge to you?

Benson: We at KFOG are doing a lot more local music. It’s not a challenge — this is just what we do. The satellite model may be broken.

Q: What did you hear when you came into the SF market? What prompted the adjustments you made?

Mays: Radio programmers are entertainment directors. There are too many radio stations programmed for women by men. Many women grew up with rock and roll, and maybe they don’t want to hear Metallica, but they do want to hear great music. Less Beyonce, more Death Cab. Less Mariah Carey, more U2. Even the commercials — the good ones — are local content. There’s a new kind of local — “tribal”, perhaps. As we interact socially less, we need things that generate a sense of belonging. A radio station that plays the right music and has the right style of DJs can create a certain vibe, creating a community that could be international.

Q: Mays is starting a new SMS program on Alice. Dave Benson has a Music Matrix — very broad, much broader than you’d expect for KFOG. What does this mean for Mark Lam?

Lam: We offer a platform — we’re content-agnostic. HD radio has potential, but it depends on execution. We have all kinds of stations. We have a station from Mexico playing nothing but various renditions of Ave Maria. Hundreds.

Q: HD radio gives commercial stations subchannels. Alice and KFOG have started streaming your subchannels.

Benson: You can’t get that many channels out of it. We put out our regular FM program, and then also our side channel — we’re doing a straight-ahead CHR top 40 station. There isn’t one in SF right now. But nobody’s listening at this point other than radio and music geeks with $400 HD radio receivers.

Mays: As an industry, we’re not running commercials on our side channels for the first year and a half. This is to get traction.

Q: A little Texas company called Clear Channel got in the news for asking the FCC to relax ownership requirements. There’s a sense — true or not (Benson: That’s baloney!) that all of the stations are broadcasting from some compound someplace.

Benson: It’s never been easier to get airplay. It’s always been hard. There was always Eric Clapton to compete with. Who are we to say that people shouldn’t like the music they listen to, or the stations they listen to? People try to find community

Audience questions.

Q: Chris, when you cut Beyonce, did you get a lot of complaints. When you read Billboard, you hardly recognize any of these artists. Do you believe Soundscan?

Mays: You develop your musical taste at a certain time in your life. Everyone has those favorites. We have to have a sense of the sound and style that allows us to develop a community. Give them the new so our listeners don’t have to go find them on Myspace. I’m a filter. If you like U2 and Coldplay, you’ll like THIS. I’m not always right, but I do pretty well.

Benson: I don’t think they manipulate Soundscan. I started as a DJ who wanted to play the music I liked. We have to separate our personal perspective, and see a larger viewpoint. It’s all about the audience, and WE are not the audience. Millions of people care about Mariah Carey.

Q: How do you discover new music? Digital sources?

Benson: We get 300 CDs a week. We’re using the same universe that’s made available to everyone else. Music blogs. We do make decisions. We narrow it down. There are some who think it shouldn’t be narrowed down, but that’s not the best entertainment. Audiences just don’t prefer that.

Lam: We are limited only by the section 114 royalties we pay to SoundExchange. Terrestrial radio doesn’t pay performance royalties for sound recordings. It’s over 20% of our costs.

Q (from Colette Vogele): Are you involved in the Copyright Office proceedings settign the new rates? What’s your impression?

Lam: There’s no way of telling. i’m involved. RIAA/SoundExchange is arguing for 2.5 or 3 times what they’re getting now. They’ve already destroyed the entire commercial webcasting industry, other than us. It’s about making sure that there’s a platform for the people who want to share music with the world.

This Friday and Saturday, I’ll be liveblogging from the Bandwidth Conference here in San Francisco. The conference’s slogan is a thing of unimpeachable beauty: “Music. Technology. Cocktails.” The speaker schedule is here. There are two speaking tracks, and I won’t be able to make it to everything, but expect in-depth coverage of the sessions on this blog’s core subject matter — technology and law in service of art.

I’ll also be moderating a panel at the Bandwidth Shindig on Sunday. While the Bandwidth Conference is an industry event requiring registration, the Bandwidth Shindig’s educational panels are free and open to the public, covering more mainstream subjects. My panel is called “Download on Download: Getting Your Music Online and Getting It Heard”. The panel will include Windy Chien of the iTunes Music Store, Tim Mitchell of IODA, and Ali Partovi of Garageband. It will take place at 2:00 PM on Sunday, August 20 at the downtown San Francisco Apple Store. I hope to see you there!

So Iran’s president, Mahmoud Ahmadinejad, now has a blog (http://www.ahmadinejad.ir/). It’s sorta neat to see the varying rates of propaganda-mechanism uptake by various world governments. But what’s really interesting is what happens when you visit the blog from an Israeli IP address.

Unconfirmed reports indicate that the site tries to exploit a vulnerability in Microsoft’s Internet Explorer in order to infect your computer with a trojan.

I wonder what the trojan does.

I’ve never seen a deliberate attack on individual civilians’ personal computers from the government of a hostile nation. If this is the first, I suspect it won’t be the last.

UPDATE: I emphasize that those were unconfirmed reports. The Register — home, itself, to frequent unconfirmed reports — has this skeptical analysis.

If your editor is Kevin Poulsen, you won’t be able to get away with sending corroborating emails purportedly from a “source” you never talked to from the same IP address your personal emails come from.