From: Linda (joelinda1@home.com)
Date: Wed Jun 14 2000 - 08:01:53 PDT
From Mike Masnick's post:
<<Let's not call the major labels "labels." Let's call them by their real names: They are the distributors. >>
More on Napster and the current distribution system, from Briefing.com:
http://www2.briefing.com/Scripts/PowerAnchor.asp?varArticleID=SB20000612012230rvgreen
Napster And The Future Of Distribution
12-Jun-00 01:22 ET
[BRIEFING.COM - Robert V. Green] On Friday, MP3.com announced that they had settled two of the five copyright infringement lawsuit
brought by the major record companies. As we move into the next era of the internet, broadband distribution of multimedia, the most
important internet company to watch is now Napster.
MP3.com
The settlement MP3.com made with Time Warner and BMG Entertainment (each will get between $15 and $25 million from MP3) was forced
by a US District Court ruling in April that MP3.com had infringed on copyrights. Three other record companies are likely to settle for
approximately the same amount.
MP3.com has nearly $300 million in cash, primarily from its IPO, and could probably weather even a $125 million total settlement payment
($25 million to each of the five plaintiffs.)
But MP3.com now will have to pay a royalty for every song played through its site, even if the music is loaded on MP3.com's site
(my.mp3.com) by a user.
What the MP3.com settlement does is simple: hand control of music distribution back to the music industry. Although MPPP stock went up on
Friday, because expectations had been for a $100 million per company judgment, MP3.com has lost its potential position for liquefying the
music industry.
Just one year ago, MP3.com CEO Michael Robertson told Fortune magazine, ``The system is broken and we can fix it." But now, it looks more
like MP3.com was broken, and the industry has put them in their place.
As such, MP3.com's potential for astronomical earnings just vanished. With the right to royalty established, and the level of royalty in
the control of the record companies, MP3.com will always be a vassal to the recording companies.
What MP3.com needs to do is develop their own artists. So far, there isn't much evidence that MP3.com is doing a good job of that.
Napster
Napster poses a much more difficult situation for the music industry.
The Napster product allows individual users to exchange music files, without Napster the company storing the music. Napster is not even
aware when a user actually makes an illegal music file download.
All Napster does is allow users to view shared, searchable directories of music that other users have placed on the internet-connected
computers. This makes it virtually impossible to police the Napster community by suing Napster the company.
Some are trying. The rock band Metallica sued Napster, and recently delivered a list of 300,000 Napster users to the company, who have
listed Metallica songs on their disk drives, demanding that their names be removed from the Napster service.
Napster complied, but the users simply reregistered.
Furthermore, Napster the company hasn't got the money that MP3.com has. Suing Napster isn't going to reap the rewards that suing MP3.com
produced. The money isn't there, despite the recent $15 million investment in the company by Hummer Winblad, the venture capital firm.
Nevertheless, the Recording Association of America (RIAA) has filed a lawsuit against Napster. But the very nature of the Napster product
makes it almost impossible for anyone to "shut down" Napster.
In short, Napster has let the genie out of the bottle by giving the world an example of how music files can be exchanged by millions of
users.
In fact, the Napster product is technically simple enough that it could probably be reproduced by a large number of its users, none of
whom, by definition, respect the copyright laws.
The Internet is a Distribution Revolution
Napster is important because it illustrates the key element of the internet: it is a distribution game.
All music companies really do is distribute music. They decide who creates music, because they decide who enters the distribution chain.
And they currently control the music industry because they control that distribution. You can't become a rock star without the backing
of an established record company.
What Napster does is destroy the existing distribution system!
Will the lock on distribution of other digital media also disappear?
All Media Will Be Digital
If it does, then all "media" companies are endangered. Without control of distribution, price cannot be controlled.
Napster's fate is important because all media will soon be in digital format. The America Online/Time-Warner merger is all about taking
existingcontent and converting it to digital format for distribution over the internet.
The killer application of the next era of the internet is expected to be pay-per-view movies. Delivered digitally, over the internet, to
any receiving device in the world. Digital video that can be started at any time, paused, and a payment made every time someone views it.
It is a powerful concept.
But, just as Napster has turned the music industry on its head, the minute video becomes all-digital, over the internet, control over
distribution is lost. Anyone purchasing the first copy of a copyrighted piece will be able to place it on the internet, for anyone to copy.
This problem is the largest problem facing the internet, far more important than taxing internet sales.
No Technical Solution In Sight
For now, there doesn't seem to be any technical way to ensure that digital media is not copied.
When CD's became writable, the music industry created a system to prevent direct digital-to-digital dubbing of published CDs. (SCMS coding)
But the PC CD-ROM device does not contain this coding scheme. Direct digital-to-digital dubbing of any music is possible with a computer
based CD-ROM burner.
In addition, some programmers have written SCSM-defeat programs, which allow the music on a published CD to be directly transferred, bit for
bit, to be transferred directly to other digital formats.
If someone were to invent an undefeatable copy-protection scheme for the internet, which became an industry standard, it would be the
greatest internet investment of all. But so far, we haven't seen any evidence of such a product.
Conclusions
The MP3.com settlement is only the first battle in the war for control of distribution of digital media.
The next battle, represented by Napster, is far more important.
Lacking a technical solution to control the distribution of digital music, any type of settlement reached between Napster and the music
industry will be the model for how all digital media is distributed over the internet.
Any Napster agreement will have to include some kind of method for controlling the actions of individual users. That won't be easy.
But if that method is found, it will likely affect us all.
Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com
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