It’s quite a statement, but one backed by reality.
Because underneath the ‘legitimate’ iTunes success story, there lie billions of stolen MP3s and otherwise unpaid collections that powered the success of the iPod – not to mention the growth of iCloud. Even Spotify, arguably the most promising legitimate service in years, looks more like a subprime mortgage variant than a defensible business model. In fact, there doesn’t seem to be one completely legitimate, major-licensed model that is secure, reliably profitable, and consistently innovative.
And that’s one of the biggest points of a hard-hitting, rigorous research report just released by Rutgers School of Law professor Michael Carrier. The 63-page, post-Napster investigation involves interviews with former CEOs of some of industry’s most epic failures, including Imeem, mp3.com, Seeqpod, Audio Galaxy, and Scour, as well as conveniently-reformed RIAA ex-CEO Hilary Rosen. In total, 31 high-ranking music and media entrepreneurs agreed to participate in the study.
Michael A. Carrier: Copyright and Innovation: The Untold Story (full report)
This pops out immediately: A major problem lies in cloudy copyright law, which produces an overhang of legal threats and actionable gray areas. Everything is subject to interpretation, and litigation.
One innovator likened the uncertainty to ‘a protection racket’ or ‘the way that I imagine politics work in corrupt countries’ where ‘everything is OK until it’s not OK.’ In those settings, ‘you do what you want until one day you can’t and they come and your tail light’s broken.’ That situation, in which ‘there isn’t a strong rule of law,’ is similar to ‘the current copyright system’ in which it’s ‘actually impossible to run a fully legal music service.’
This report isn’t for the weak-stomached, and some brutish and harrowing details quickly surface. The post-Napster decade has been an exercise in utter brutality for digital innovators, thanks to extremely aggressive litigation, attacks on personal finances, psychological intimidation, and sometimes direct violence at the hands of the major labels. These entrepreneurs sound more like cowering Mafia victims than failure-embracing innovators, and Carrier’s report offers ‘witness protection’ by anonymizing all of the comments. The fear isn’t just palpable, it’s flatly admitted by entrepreneurs who’ve had their doors beaten down by process servers, been hung outside of windows, and faced the spector of personal bankruptcy and community college for their kids.
But the bigger issue is what this ‘lost decade of innovation’ means for the broader industry and music. Because the stunning reality – in 2002 and 2012 alike – is that launching a clean, legitimate, and profitable digital music business that involves licensed content may simply be impossible. Entrepreneurs described a parasitic game played by the majors, one that involves bleeding investor funding, while keeping the patient alive until its usefulness has been exhausted. Or, as one entrepreneur frames it…
The labels ‘don’t want you to become unfundable’ but treat you ‘like a good parasite’ by ‘bleed[ing] you slowly.’
But there’s another problem: general brain-drain, across the entire music space. Sources noted that major label executives are often fired and replaced, but the attorneys have largely remained – and still run the show. The impact has been to chase away smart and seasoned investors, not to mention highly-creative, experienced and truly innovative entrepreneurs.
Lawsuits against technology companies ‘ma[d]e it harder to raise capital’ since VCs were less likely to provide funding ‘if you’re just going to have to pay attorneys, or even worse, lose.’ As a result, ‘It’s harder to find experienced entrepreneurs as opposed to young and naïve people who are willing to start a company in this space…’