Make money with music: Connect with Fans (CwF) + Reason to Buy (RtB) = The Business Model

Mike Masnick of Techdirt has published a post that is a chapter he wrote for a book being presented at a conference for the International Association of Entertainment Lawyers (IAEL).

Its worth a read, not only for Mike’s thoughts on new ways for the music industry to make money, but also to consider how that business model might work for other industries. 

Here are some snippets to get a flavour:

It’s no secret that there’s a lot of concern these days about what the music industry will look like going forward — especially from those who work on the label side of the business and have been around for a bit. A variety of things have caused rapid change in the market. Competition from other forms of entertainment, such as the internet, movies and video games, have put more pressure on the industry, as consumers have been presented with significantly more options for their entertainment attention and dollars. And, of course, there’s the ever-present specter of unauthorized file sharing — or, as the industry prefers to call it (accurately or not), “piracy.”

However, there is another solution: stop worrying and learn to embrace the business models that are already helping musicians make plenty of money and use file sharing to their advantage, even in the absence of licensing or copyright enforcement.

In simplest terms, the model can be defined as:

Connect with Fans (CwF) + Reason to Buy (RtB) = The Business Model

Sound simple? It is, if you understand the basics — and it can be incredibly lucrative. The problem, of course, is that very few seem to fully understand how this model works. However, let’s go through some examples.

This is a business model that’s working now and it will work better and better in the future as more people understand the mechanisms and improve on them. Worrying about new copyright laws or new licensing schemes or new DRM or new lawsuits or new ways to shut down file sharing is counterproductive, unnecessary and dangerous. Focusing on what’s working and encouraging more of that is the way to go. It’s a model that works for musicians, works for enablers and works for fans. It is the future and we should be thrilled with what it’s producing.

QTrax raises privacy issues

There has been a huge controversy over the last day or so regarding the QTrax announcement that it has deals with major labels to allow free music downloads. The catch was that those deals areapparently not in place yet. There is also (in my mind at least) a looming privacy issue.

In return for the free downloads the user must watch advertising while it downloads. The labels are to get a share of the advertising revenue.

The privacy issue is that the revenue is apparently calculated on actual use, ie how often the songs are listened to, in addition to how often they are downloaded. That means there is a DRM mechanism that reports back how often you listened.

The Qtrax web site says there is no spyware, but I couldn’t find any details about the reporting issue, nor a privacy policy. Lets hope it does not report back any personal info, and that they explain how it works so consumers can make an educated decision about using the service.

Read a Times Online article

Read a GigaOM post

Digital security business threatens to sue Apple, Microsoft, etc.

I’ve said before that only the music industry would sue its customers to force them to buy their products. In another spin on that, CNet reports that “A California company that makes technology designed to prevent ripping of digital audio streams has accused Apple, Microsoft, RealNetworks and Adobe Systems of violating federal copyright law by “actively avoiding” use of its products”

The gist is that the US DMCA makes it illegal to circumvent technological protection measures that control access to copyrighted works. This company makes technology designed to prevent anauthorized copying. So their logic is that if a business that supplies/enables digital media does not buy their product, it must be violating the DMCA.

Read the CNet article

We must rethink…

New technology requires us to re-think a lot of things, including business models, laws, and how they apply. Web 2.0, or Internet innovation is one of those. Too often, though, people have a difficult time putting things in a new perspective.

A couple of recent articles illustrate that point.

Techdirt has a post about the Viacom suit against Google/YouTube claiming that YouTube should be responsible to prevent videos on YouTube that are not authorized by the copyright holder. Techdirt refers to comments made by Google legal counsel, stating:

… he then points out that Viacom has been making mistakes, forcing content offline that wasn’t actually infringing which leads him to note perceptively: “Viacom seems unable to determine what constitutes infringing content, [yet] its lawyers believe that we should have the responsibility and ability to do it for them.” If even Viacom is unable to police its own content correctly, how can they claim that it’s no problem for Google?

Michael Geist’s latest Law Bytes column talks about a disturbing push by some groups to have the CRTC step in and regulate Internet content delivery to enforce Canadian content rules.

The reality is that while disruptive forces are at work here, and traditional notions of copyright, and the protection one needs for creative works and culture are being tested, these forces also give new opportunities. In the end, the winners will be those who figure out how to use the new opportunities, not those who fight them.

Think back 100 years ago when the automobile was emerging. If a buggy maker tried to fight the automobile, they lost. Much better if they decided they were in the transportation business and found a way to work as part of the automobile industry.

Read the Techdirt post

Read Michael’s column

Music Industry goes after ISP’s again

Marketwatch.com has an article that starts by saying: The global music industry Wednesday threatened to take legal action against Internet Service Providers if they failed to take action against users who illegally upload and download music.

The ISP’s, of course countered that its not their responsibility to monitor information distributed over their networks. I agree with the ISP position. It would be kind of like making phone companies liable for phone conversations between people plotting illegal activity.

If I understand the music industry logic, it is that:

If company X makes product Y, and some people use Product Y to do something that might be illegal or undesireable from another’s perspective; then Company X should have an obligation to prevent or control that activity, or otherwise be responsible for it.

So following that same logic, the music industry should be responsible for / control, and be liable for things such as:

- students getting bad grades when they listen to music instead of doing homework

- accidents that happen when a driver changes his radio station or MP3 player to hear a different song, or is distracted by music

- someone doing something that is suggested in a song lyric

- any improper activity performed to music such as drug use

- noise complaints when someone plays their music too loud

Read the marketwatch.com article

DRM restricts our rights

David Canton – for the London Free Press – September 26, 2006

Read this on Canoe

Several countries have enacted or are considering enacting legislation dealing with Digital Rights Management (DRM).

DRM deals with electronic ways the vendor of digital content uses to limit what the buyer can do with that content. It might, for example, allow the buyer to play a song on a CD player, but not on a computer, or allow only a few copies to be made or make a song or video playable only on specific devices.

Canada is expected to make it illegal to break DRM in upcoming copyright reform legislation, which has caused much concern. Some say we need protection from DRM, rather than protection for it.

I believe legal protection for DRM is unwarranted and causes far more problems than it resolves.

The entertainment industry is not united in its support for DRM, either. While large media companies generally support it, many artists and smaller music and video companies do not.

The intent of DRM is to protect the vendor’s copyright. The reality is DRM is used to exert far more control than that and often restricts users from doing things they are legally entitled to do.

The U.S. protects DRM and has been criticized for the chill effect it has had on legitimate activity. Some countries have proposed to restrict DRM, rather than support it.

DRM often does not work as it is inevitable that ways are found to break it. The entertainment industry thus tries to lobby governments to make it illegal to break DRM.

Before content was digital, we could copy a vinyl record onto a cassette to listen to it in our car or walkman.

Until DRM, people were able to copy music they had purchased onto any recording medium.

DRM limits what we can do with music (or video or any other digital file) we purchase. It might, for example, limit us to playing it back on vendor-compatible devices.

It might limit us to playing it on no more than five computers — a significant limitation.

iTunes, for example, sells a lot of music, but the amount of music on iPods from iTunes is a small percentage. Many people download music for their iPods because they know about the restrictions.

One problem with DRM is it allows music vendors to limit consumer rights more narrowly than copyright law allows.

DRM advocates want to make it illegal for us to break DRM so we can exercise those rights the law has granted us — thus allowing the music vendor to limit the legal rights that the legislators have seen fit to give us.

To learn more on DRM and copyright legislation, see Prof. Michael Geist’s 30 days of DRM feature at www.michaelgeist.ca/daysofdrm.

Canadian Sony Rootkit settlement controversy

The settlement for the Canadian class action lawsuit over the rootkit has generated controversy because it was not as comprehensive as the US one.

In addition to pointing out the differences, CIPPIC has filed complaints with various Canadian consumer agencies and privacy commissioners.

More evidence that we need protection from DRM, not for it.

Read Michael Geist’s post on the subject

Read Howard Knopf’s post

Microsoft’s DRM cracked

The tech blogosphere was full of articles yesterday about a tool that will break the Windows media DRM, thus allowing users to do whatever they want with those music and other files.

To me the story is not so much about this particular tool, but another indication that DRM and TPM in the grand scheme of things is not that effective. It certainly doesn’t stop anyone illegally duplicating and selling content on a large scale. And it just makes life difficult for the average user who gets frustrated that the content they buy won’t work on some of their devices.

Read a Wired post

Read a Techdirt post

Read a Lifehacker post

Read a Gizmodo post

Digital rights management value questioned

David Canton – for the London Free Press – July 1, 2006

Read this on Canoe

Digital rights management (DRM) technology has been used by CD and DVD vendors to control what we do with them. It may, for example, limit what devices we can play them on, limit copying or limit where in the world we can play them.

The entertainment industry claims that without DRM, sales will plummet as everyone will copy their content rather than buy it.

Last week’s column talked about the Sony rootkit fiasco and concerns of the privacy community about DRM.

There have been anti-DRM protests at industry events by people dressed in biohazard suits to illustrate that DRM can cause more harm than good. (See www.defectivebydesign.org.) One problem is it allows publishers to enforce any form of restriction they choose, regardless of their legally granted copyrights or the user’s legal rights to use it.

In general, it just frustrates customers, the very people the industry should be catering to.

DRM often restricts use by the consumer of a legitimately purchased product. For example, a provider offers music you can play in only a few select devices. You discover you can’t play the music you purchased in your car’s in-dash player.

You switch to a service that doesn’t restrict you to certain players, only to discover your in-dash player isn’t capable of playing the media format provided by your new service. The free file-sharing software that provides a hassle-free alternative is very attractive in comparison.

David Berlind of ZDNet says DRM should be called Content Restriction Annulment and Protection (CRAP) and has written articles and created videos about what is wrong with it. (See www.ZDNet.com.) There is even an anti-DRM website at www.ihatedrm.com.

The entertainment industry justifies these measures by relying on a perception that it is losing money due to copying.

Losses due to piracy means lost profits, lost jobs and lost taxes and in the end everyone loses. This argument is also used to bolster support for tougher copyright laws.

A report for the Department of Canadian Heritage’s Copyright Policy Branch entitled The Economic Impact of Canadian Copyright Industries — Sectoral Analysis was recently obtained by Michael Geist. Although the report has not been released publicly, Geist obtained a copy under an Access to Information request.

The report is based on data from 1997 to 2004. It reveals that copyright industries — defined as music, movies, radio, television, publishing, theatre, software, and advertising services — make up 4.5 per cent of the Canadian economy and 5.5 per cent of Canadian employment.

The report studies the Canadian copyright industry compared to its American counterpart. While the Canadian industries are a smaller portion of the economy overall, they have actually outperformed the U.S. industries in growth rates and contribution to national employment.

Geist uses this data to question why critics of the Canadian copyright laws believe that we should emulate the heavily criticized American regime.

The report addresses declining sales in the music industry, but, according to Geist, ignores some fundamental factors in the analysis.

For example, the report calls peer-to-peer file sharing of music illegal without engaging in any kind of analysis of whether or how it is illegal.

There is also no discussion of evidence that changes in retail distribution, the decline of radio and competition from other consumer products such as DVDs and video games are the primary reason for declining sales.

Most important, however, may be the bottom line. The Canadian recording industry’s contribution to the GDP increased steadily between 1997 and 2004, jumping from $243 million to $387 million. Hardly an endorsement of the industry’s position.