KUHN CAPITAL Tuesday, March 20, 2018
Dispatches from the front

A Digital Music Anthology

In the hall of mirrors that is today’s music recording industry, we’re seeing a bewildering series of piracy charges and countercharges, lawsuits, legislation, innovative technologies, experimental business models, and celebrity outbursts.

Is all this the sturm und drang of an industry in terminal meltdown? Doubtful, but it sure means change with broader implications: whatever happens to the music business is likely to foreshadow what could happen to the even larger video (Hollywood and TV) business, or even all publishing businesses. So as a service to our readers, see below for just a few of the more interesting recent music biz developments:

Is Jobs Up to the Job?
Apple’s ironman Steve Jobs has spent several years running the major label gauntlet, prying loose content deals to build iTunes, another online music service in which users pay 99 cents to download a song. While the site is reported to be off to a strong start with a million visitors in its first week, of course audiophiles can still get music for free at one of the dozens of metastasizing file-sharing sites the industry can't seem to quash. As a result, up to now no one has made the “by-the-drink” pay model work. Maybe Jobs is thinking differently again.

Jobs is also rumored to be mulling over the acquisition of Universal Music Group, a move that would at least initially only sate some fraction of his listeners' varied music appetites, and which has inspired criticism for its potential to take Apple’s eye off the PC design ball.

Piracy Trumps Privacy
The RIAA got a boost to its anti-filesharing program this week when a Federal District Court ruled that the company could demand personal information on Verizon customers who use such services. "If users of pirate peer-to-peer sites don't want to be identified, they should not break the law by illegally distributing music. Today's decision makes clear that these individuals cannot rely on their ISPs to shield them from accountability," said RIAA’s Cary Sherman.

While the Verizon suit is likely to be appealed, the RIAA continues to make progress, albeit bloody, in its door-to-door street fight using pricey lobbying efforts and hard-ball legal tactics. And they’re also beginning to use the tools of their enemies: this week, the RIAA hacked into filesharing firm Kazaa’s chat room, sending threatening warnings to users, a move that redefines customer service.

Madonna’s Hissyfit Rebounds
Cultural icon Madonna attempted a similar strategy in April, only to have it push back. Apparently thinking herself clever, she inserted a profanity-laced voice-over chastising fans for stealing her music into some advance singles from her critically panned “American Life” CD, then placed these tainted copies into the Kazaa fliesharing system.

The “What the &*!%# do you think you’re doing?” clip has since become an underground sensation, finding its place in countless DJ remixes and inspiring an online contest to see who can make the best use of Madonna's stern dressing-down. More embarrassing, a hacker subsequently broke into the singer’s site, posted all of the mp3’s for instant download, and left a message saying "This is what the &*!%# I think I'm doing!”

Hummer Winblad, Litigation Magnet
While Napster has long-since exited the file-sharing conga line, major music labels EMI and Universal have nonetheless decided to make an object lesson of Hummer Winblad, the VC firm whose eleventh-hour funds kept the service alive long enough to get pummeled by extensive lawsuits. The new lawsuit seeks punitive damages of up to $150,000 per alleged copyright infraction, placing blame on Hummer Winblad and their Hank Barry, the exec who took over the helm from founder Sean Fanning. These damages would of course exceed the GNP of New Guinea.

A Stolen Song in Every Pocket
In other media copyright litigation, St. Louis based 321 Studios, makers of a DVD copying tool called DVD Copy Plus, is suing several major film studios in an attempt to affirm the “fair use” rights of consumers to make backups of the content they purchase. Pundits regard the US District Court lawsuit as a potentially defining moment in the running battle over copyright control as computer users begin buying DVD-RW’s then subscribe to broadband services that handle massive movie files.

Two Steps Forward, One Back?
Last month saw a recording industry setback in which a Federal judge found filesharer StreamCast Networks not guilty of copyright infringement. That was followed several days ago by a judgement in which four college students were found guilty of operating "mini Napster" filesharing sites on campus, and fined from $12,000 to $17,000 each.

Then yesterday, a much more aggressive industry move was unveiled: several large music companies are financing the development of virus-like programs to be embedded in downloaded music files

One such program, "Freeze," locks up users' PC's for a period ranging from minutes to hours, causing loss of data when the machine is restarted, and displays a warning about downloading pirated music. Another program called "Silence," rummages through the user's hard drive for pirated music files, then deletes them. A third program launches an attack to terminate the downloader's Internet connection.

While we think such an approach obviously promises some technical succcess, it's fraught with legal questions and poses the question: "Who's hacking whom?"

Score One for the Filesharers
According to Wired News, new software lets filesharers "cloak" their network use from snooping lke that conducted by pursuing record labels. Used in P2P networks, the free "Peerguardian" software creates a personal firewall that blocks IP addresses. Outsiders can see what songs were downloaded but they can't tell by whom or whether the process observed copyright protections. Sort of the reverse of the Cockroach Motel. And so it goes.

Real Rhapsody
And finally, Listen.com, once the darling of the music industry, was acquired this week for a modest $36 million by Real Networks. The company’s “Rhapsody” service provided one of the better online music sources, and took in millions from all five music labels and various prominent entertainment figures to field impressive music conferences and compilations created by the firm’s youthful music critics. As the online hopes of the music industry vanished, the company was forced to turn to Real Networks, a significant competitor with its MusicNet property, for funding to stay alive.

This week Real took the Rhapsody technology, leaving behind the firm’s flair for eye-catching design and reliable editorial content. RIP.

What Does It All Mean?
1) Uncontrolled copying made possible by digital technology threatens the established business models of all publishers.
2) Expropriating content that costs somebody something to produce is theft.
3) Music labels are unsympathetic victims. While we admire the entreprenurial gumption needed to succeed in the business, we don't like the industry's attitude toward its market: it seems motivated mostly by a desire to retain the role of tollkeeper between the artist and the fan at all costs and regardless of the value of services rendered.
4) Many of these services -- packaging, promotion and distribution -- are being more cheaply replaced by digital technology alternatives. And digital technology defeats music industry games like the locking up of one or two hit tunes in a $20 CD package.
5) At the end of the day, at least one music industry service will survive: financing deserving talent. Maybe the industry will downsize and find ways to profit from this fundamental function without continually interfering in the crucial dialog between artists and their audience. Right now, they look like the univited guest at the party.

Ryan Kuhn

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