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From Ezmo - an explanation

Ezmo_logo Ezmo CEO Petter Karal e-mailed last night to answer some of the questions I raised in my last post about the site's business model and licensing. As I suspected, the site -- an online music locker that lets users share their collections with a small group of friends -- is banking on a fair-use defense and is not paying royalties. In short, he argues that Ezmo is a new kind of music playing device, virtual instead of plastic. And using it to play one's music to 10 friends or less is akin to bringing one's CDs to a small party. That's a social activity, he reasons, not a commercial distribution or a public performance. His rationale is better articulated than the one I suggested yesterday; whether the labels and music publishers accept it is, of course, another matter. As for me, I still wonder how Ezmo can do on-demand streaming without licenses. But then, I'm not a copyright lawyer.

Karal's actual comments appear after the jump.

Our approach is to bridge the gap between ordinary folks and the music industry.  A lot of people feel alienated by the restrictive and aggressive approach of Big Music, and with that as a justification too many resort to criminal ways of getting the music they want.

Where the rights to share music experiences with friends and family are universally recognized in the physical world, the Napster story has led people to believe that any kind of online sharing must be illegal.  If you think about it, though, what are really the main characteristics of an illegal service (a Pirate Bay or Limewire, for instance)?  I think
there are two: (1) The main function is something that violates copyrights, and (2) there is no business model for rights holders.  Now compare that to Ezmo:

(1) Ezmo's main function is playback of music you own.  That is exactly what you are intended to do with the music.  Without music players, recorded music would be worthless for users and right holders alike. There is an added social feature, with a highly restricted friend sharing model.  It works according to the rights you have as a consumer to use your music socially - within limits.  These recognized rights include, for instance, that you can bring your CD to a party and play it to the 50+ people there, transfer the music to an iPod, or make a copy for backup purposes.  Compared to the party example, where you do not
necessarily know most of the people present, the restrictions on Ezmo are clearly very conservative.  It's not 50+ people it's 10, it's not "anyone" it's close friends and family, and they don't listen as a group but as individuals.  In the language of U.S. copyright law (which we are very familiar with): These are not public performances.

(2) Ezmo has a terrific business model for rights holders.  We will integrate a broad range of music discovery mechanisms into Ezmo.  Music you discover can then be purchased one-click and added instantly to your Ezmo - no download.  In this way, we believe we can bring impulse purchasing behaviour to online music sales.  We believe this could increase music sales per capita by a factor of 5-10x, just as it does for other Fast-Moving Consumer Goods with similar properties.  This would, to a large extent, happen by getting many current Kazaa/Limewire users into the more controlled and personalized Ezmo environment, and then transforming them into legal customers by the superior convenience of the legal/paid option for music acquisition.  We believe we can give the music industry back its traction with consumers and thereby revive declining music revenues.

We are in discussions with the record labels and rights organizations to get the music sales started as quickly as possible.  Most likely it will be available in Europe first, and thereafter rolled out to the U.S.

A clear sign that we have indeed found the middle ground is that we are receiving critical questions and remarks from both sides of the divide. For instance, Steve Bass of PC World wrote that he likes the service but complained that the ten friend limit is too restrictive.  Similarly, when I met with a crowd of music entrepreneurs and independent music industry in Germany a few weeks ago (at the Media In Transition conference), several bright people I talked to from the industry thought that we are putting too much focus on pleasing the major record labels. On the other hand, the record labels are also telling us that this is at
the outskirts of their comfort zones (exactly where a compromise has to be, by definition).

First and foremost, though, our vision is to create the next generation music device - an online music player that makes your music collection social and super-convenient to grow, and available wherever you can find an internet connection.  We are already working to expand availability to your PC desktop, to your mobile phone and to whatever other media
platform you have (e.g. Nintendo Wii).

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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