I thought this might be a good time to revisit a piece I wrote last year for Kings of A&R and Indie911 about the value of commercial mp3s.  I have to tip the hat to Nile Rogers, who was the guy who first convinced me of the value in selling mp3s when I co-produced the Advent Rising soundtrack for Nile's game music label.  What a difference a year makes...

Why Not Sell mp3s?

In 2004, I asked an executive in a major label sales department what the dominant configuration was that fans used to listen to music.  His reaction was predictable, which was why I phrased the question the way I did.  The dominant configuration was the compact disc.  I suggested to him that the dominant configuration that fans used to listen to music was the mp3 file—the dominant configuration that he used to sell music was the compact disc.  Not the same thing at all.  My friend looked at me like a dog on a mirror.

Then I asked him if he thought he would be doing a good job if there was a configuration that resulted in hundreds of millions of “listens” a month and he wasn’t selling music in that configuration.  Again, dog on a mirror.  But I knew the truth: The lawyers won’t let him.  He has to sell digitally in either Microsoft’s or Apple’s DRM. 

Locks Keep Out the Honest People

In case it hasn’t dawned on anyone—DRM, like locks, keeps out the honest people, whether it’s Microsoft’s, Apple’s, or whatever’s DRM.  The DRM for sound recordings on digital files will always be relatively weak if for no other reason than the simple fact that you can’t put a $99 security solution on something that sells for $0.99.  Plus, copy protections on CDs have not been uniformly successful (to be extraordinarily kind).  The fact that DRM is hackable is not a reason not to use it.  The day man invented fire the first arsonist was born, but thankfully that did not stop the use of fire. (You can put a $99 piece of security on something that sells for $999, however—the industry had a chance early on to try to persuade [or force] the computer manufacturers to install copyright-respecting copy [or serial copy] protections.  But they didn’t.) 

Some of the debate about DRM sounds moral in nature, and it sounds like only pirates use mp3s and only a pirate would oppose DRM.  There is every reason to believe that the extraordinary damage that has been done to the creative community by piracy will never be repaired, so it is reasonable to anticipate that there will always be some level of stealing of music and video online.  That level is likely to be higher than the historical levels of theft in our business.  Music Ally’s recent focus groups on consumer behavior suggest that the common pattern is for a fan to buy a single track or two online, and if they like the music, steal the rest of the album on eMule.  So when people say we’re now in a singles business, don’t forget the rest of that equation—we sell singles so people can steal albums.

mp3s are Good Business

In spite of all this, I believe there is a good business case that can be made for selling in mp3.  At the risk of stating the obvious, I would point out that the iPod, and almost every music player in the market, supports mp3.  So the reason to sell in mp3 is not because DRM is bad.  I completely support a copyright owner’s decision to sell in any format they wish—DRM or non-DRM.   

But the business argument over selling in the unprotected mp3 format shouldn’t have anything to do with how you feel about DRM.  The reason you sell in mp3, and the reason you sell in Fairplay, Windows Media and any other common format is because—they are common formats.  A lot of people use them.  It just happens that more people use mp3 than use Windows Media, Fairplay or AAC.  If a copyright owner sold an mp3 file, it could be suitably watermarked to carry identifiers that would allow accounting if an online service wanted to sell the tracks.  The point is that if you sell in mp3 you are not giving a fan anything that they couldn’t make themselves if they bought a CD and ripped it using current technology.

One can argue that the font of all file bartering was the mp3 format, computers used as copying machines and the ripping software that permitted these things to happen.  One can also argue that it is the parasitic—and typically amoral--nature of certain sectors of the technology industries that makes profiting from the woes of others the foundation of an entire commercial enterprise. 

Because there was no effort on the part of CD-ripping software publishers to make their work completely legitimate and copyright respecting, massive numbers of consumer-created mp3 files have no accounting or identifiers in place that can be used for identification and tracking purposes so that artists, writers, producers and labels could get paid for the monetization of their works by others.

If copyright owners would permit the legitimate sale of mp3 files, it would be possible to watermark these files to permit more accurate accounting.  It would be easy to distinguish legitimate mp3s from illegitimate mp3s. 

And—mp3 files will play on virtually any music player, including the iPod, hands down the market leader.  Knowing that (1) there is a multi-billion copy library of illegal mp3s floating around the Internet that will play on any music player; (2) the illegal services have shown almost no interest in becoming legitimate businesses; (3) the creative community is not able or willing to stop the distribution of music players that support illegal files (in part because distinguishing an illegal mp3 from a legal mp3 is tricky); (4) the industry has obsessively supported Windows Media DRM well before the iPod, and (5) the industry clearly backed the wrong horse on DRM given the wild success of the iPod—is the correct business decision to continue to back the wrong horse, or to back many horses?  Including mp3?  Do you want to bet your business on one horse to win, or that several horses may win, place or show?  Or wait until somebody steals your horse?

Thus, while permanent downloads purchased on every major online music service except iTunes and eMusic are only available in the Windows Media format, none of those downloads can be played on the worldwide standard for music players and one of the great consumer products of all time—the iPod.  Not surprisingly, Apple will not allow transcoding of its proprietary Fairplay/AAC technology to permit, for example, permanent downloads purchased on Yahoo! Music in the Windows Media format to be playable on the iPod.

The record companies—always fearful of creating another MTV—have certainly benefited Apple’s business by making sure that the only two formats in which a fan can buy legitimate music online are Fairplay/AAC (which will play on the world’s dominant music player) and Windows Media (which will not play on the world’s dominant player).  It is hard to understand this fixation. This is like telling Yahoo! they can only deliver search results in Arabic.  Sure, a lot of people speak Arabic, and it would be great for those who do, but mass audiences are just not going to care, particularly if Google delivers search results in English and French.

If the labels merely permitted online services that currently sell in Windows Media DRM to also sell in mp3, then those online services would be handed a very significant benefit overnight.  They would be able to sell onto the iPod.  Even if they bundled a Windows Media file at the regular retail price with an mp3 for free or near free, there would still be a significant boost in competition that must benefit everyone. 

Another question may be if people will buy mp3s given the billion copy illegal library that floats around the Internet.  I think that there probably would be sales because I believe that the reason people buy files is not because the files are in one format or another, it’s because the files will play on their music player, and statistically that player is an iPod.  But I think it’s undeniable that it can’t hurt to try selling mp3s. 

No one can take away the sheer genius that is the runaway, worldwide success of the iPod, and no one can blame Apple for not agreeing to transcode Fairplay (except the Green Party in France).  But if the labels were worried about creating another MTV (meaning a business built on their backs but from which they do not participate, particularly when that business has significant influence over the labels), refusing to sell digital files in the mp3 format pretty much guarantees that Apple will be just exactly that because not selling in mp3 keeps competitors off of the iPod, and limits the distribution of the online services.

Let’s just once try to give fans what they want, and not what somebody else thinks they should have.  We can’t afford to make many more mistakes.

Just try it.

Copyright 2006 Christian L. Castle.  All Rights Reserved.

One of the problems with the distribution of unauthorized transmissions is that it is virtually impossible to tell the good from the bad in a packet-switched environment.  Most, if not all, filtering technologies try to look at files at either the network or client levels and try to determine what the file (or packets) is or is identifying itself to be. 

This is not a trivial undertaking due to the sheer volume of traffic.  Some would tell you that more than half of all Internet traffic is the unauthorized transmission of music or other content.  Trying to sniff all those packets is going to be very hard and will not, as they say—scale.

Less difficult is determining the IP address of the source of the transmission.  So imagine if there were a “sponsored” top level domain that would be a trusted source of licensed content for commercial purposes, such as a “.music” domain that would be owned and operated by a board of artists, musicians, songwriters and copyright owners such as MERLIN, RAC, SGA, NSAI, IFPI, NMPA, SoundExchange, PPL, AFM and AFTRA.  If a university, for example, permitted traffic originating from servers with the .music TLD, they could be assured that neither they nor their students would be sued for permitting that traffic and federal funding would flow uninterrupted.  (This could be accomplished by contract, if nothing else.)

Companies such as Akamai (that provides edge servers for the legitimate services) would be able to use the .music TLD (and might even be required to use it under license agreements with content owners).

While this wouldn’t clean up piracy overnight, it would certainly make it simpler.  So if an ISP had a user who was a heavy uploader or downloader from a DNS address that wasn’t a .music address, that ISP would know that they could rule out legitimate commercial music as a source of the transmission and act accordlinly.

That has all sorts of interesting implications.

Taking a cue from the trendsetters at Stanford University, the President of France is backing an industrywide agreement between the creative community and French ISPs that would drop DRM from French-language repertoire sold digitally in France in return for ISPs cutting off Internet access to heavy downloaders on illegal p2p networks accessed through all-you-can-eat Internet accounts. 

This important decision continues and extends the world wide trend toward dealing with Internet piracy by cutting off access to abusers.  While there is no silver bullet that will stop the behavior in its tracks, making Internet access very difficult may well be one of the thousand cuts.

For those who follow anti-piracy policy in France, President Sarkozy’s plan is a striking turnaround.  Two years ago almost to the day, a bill drafted by the far Left snuck through the National Assembly (France’s lower house of its legislative branch) during the 2005 Christmas recess that would have essentially codified the EFF/Terry Fisher program by legalizing p2p downloading.  Due to a quirk of parliamentary procedure (also known as stupid lawyer tricks), the bill “passed” the National Assembly with fewer than 10% of its members present during a legislative recess and the works of various anti-copyright law professors being read into the record.  That bill was, of course, resoundingly defeated when it came for a vote of the full body after the National Assembly reconvened after the Christmas family holiday.

While the details of President Sarkozy’s plan have yet to be released, his stated intention is to "underline his attachment to culture but also his wish to see artists live from their work and have their rights respected on new platforms".  Is this policy goal really so hard to understand?

President Sarkozy’s support for the creative community is remarkable for a couple reasons.  First, the leader of a major world economy is not ignoring the gutting of his country’s artists and is standing foursquare with the creative community against "business models…[whose] principal object was use of [Internet accounts] to download copyrighted works" to paraphrase one court.  That’s more than you can say for any other world leader.  So far.

But neither is President Sarkozy cowed by those who would have the government not just legalize but also encourage the attack on his country’s rich cultural heritage from illegal p2p file bartering.  Starting in the recent past, France is developing a significant literature rejecting American solutions, such as the wonderful book Google and the Myth of Universal Knowledge by Jean-Noël Jeanneney, the former president of the Bibliotèque nationale de France (“I wouldn’t want to see—although I’m amused by the thought—the text of Saint-Exupéry’s Le Petit prince accompanied by an ad for a sheep merchant”)l

It’s pretty obvious really—an ISP may not be able to tell exactly what is being downloaded or uploaded, but they can tell fairly easily that a lot of it is going on.  Considering that the overwhelming view is that at least 50% of Internet traffic is taken up with illegal file bartering, the scope of the problem is clear.  If a user has a legitimate reason to download large quantities, then they can come forward and demonstrate their needs.  Until then, it is well to remember that the Internet was not developed and does not exist for the benefit of illegal activity, any more than the postal service or telephone lines are supported for illegal uses.

One would have to imagine that the levels of illegal activity are getting so high (and probably costly in terms of bandwidth charges to ISPs) that the next step beyond cutting off Internet access is metered pricing.  While passing the costs of illegal activity through to be paid by those engaging in the illegality is an attractive proposition, it will be unattractive to deny all consumers in France the benefit of all-you-can-eat pricing due to lawbreaking by even a large number of bad actors.

This is why an independent commission in France as well as President Sarkozy have determined that there needs to be a national law that applies to all ISPs.  Otherwise there would no doubt be some dedicated followers of the anti-copyright professoriate who would rather find ways to violate the law rather than comply with it.  As the independent commission’s chairman wrote: "It is a little like . . . big store chains putting out free stocks of stolen CDs and DVDs to attract new customers into their shops".

Expect to hear the answer to the unasked question from the anti-copyright crowd and their amen chorus:  Cutting off Internet access won’t stop piracy.  No kidding.  No one ever said it would “stop” piracy.  Unlike many other countries, France has a long tradition of protecting its creators, so if there’s anything unusual about President Sarkozy’s policy, it’s that it took so long.  Jean Renoir is rolling in his grave.