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Bye Bye, CBGBs.

Cbgb The demise of CBGB's in New York reminded me of several things I learned from performing there in 1986. I was in an unsigned rock band from Winston-Salem, N.C., called The Allisons*, whose other four members were veteran rockers with connections in the music biz. I played keyboards and saxophone, and sang back-up vocals into a mic that usually wasn't amplified (out of respect for the audience). Hoping to expose our hook-laden songcraft to the major record labels' talent scouts, we trekked to three of the Northeast's great indie rock venues: CBGB's in New York, Maxwell's in Hoboken and the Rathskeller in Boston. The tour, although brief, helped drive home several points that shape how I think about the music industry and intellectual property rights in general.
CBGB's was iconic, but you don't really get that sense playing there in an obscure rock band. Under those circumstances, it's just another dank place with lousy parking and no built-in audience. We were on a bill with two other forgettable bands, and the only people attending were those with some personal connection to the players. That meant a crowd of a few dozen, with folks shuffling in and out with each of the acts. In our case, it was my college roommate and a handful of other pals from my days in New Jersey. (It was a different scene in Boston, where we opened for Tommy Keane. The place was packed to the gills, although I don't think anybody in the crowd paid us much attention. We were just the band delaying the arrival of Tommy Keane.)
Anyway, it was clear to me after the tour that we had a couple of alternatives if we wanted to keep going. We could work the heck out of the clubs in North Carolina, building up enough steam regionally to generate a decent gate every time out. It would be exhausting, but we might be able to quit our day jobs. And we'd certainly be able to put out at least one record on an indie label, although it wasn't likely to get any airplay outside of college stations. Or we could keep playing "showcases" for major label execs in the hope that one actually showed up and liked us enough to sign us. With enough of an advance and some tour support, we could be full-time musicians for a while and put out an album or two that might get onto the radio and lead to something larger. (This is a bit of a false either/or; the first path might be the best way to get to the second.) Either way, we'd need to work really, really hard, something the Allisons eventually proved unwilling to do. When the industry failed to beat a path to our door, each of us moved on to safer ventures. Like journalism.
Today, some defenders of file-sharing say it's OK to rip off the music companies because they rip off their artists. But from where I stood 20 years ago, any offer from a major would have been better than what we were getting. It cost us thousands of dollars to make one little three-gig swing through the Northeast. As much as we wanted to live the rock 'n' roll life, we needed full-time jobs to pay for it. So the prospect of having a powerful ally was alluring, even if it meant giving up much of what we might make if we somehow hit it big. We would have loved to be in a position to be able to make that choice.
Another thing to bear in mind is that bands choose to sign with major labels. No one forces them to do it. They sign because of the prospect that their hard but often fun and occasionally glamorous lives will become easier and more glamorous. They could continue the DIY path or get some degree of help by signing with an indie, but they choose to roll the dice for a bigger return. It's a lot like entrepreneurs choosing how much venture capital to take on. You won't get significant investors if you're not willing to give up significant control and profits -- not that you're guaranteed to make any. So to rationalize file-sharing by saying the major record companies are evil and treat their artists like dirt is to overlook the fact that every band on the labels' rosters chose to be there. You can debate the wisdom of the choice, but you can't deny that it was theirs to make.
A final lesson from CBGBs is that there's only one sure thing in a band's life. You don't know how many people will turn out the night you play, so you and the club stand the very real chance of taking a bath. Even if you have a guaranteed fee, that amount isn't likely to cover your expenses. But no matter what happens, the sound guy will always get paid -- typically, by you the band. That axiom can be applied broadly, inside and out of the music industry. It's sexy to be the talent, but it's smart to be the sound guy.

*No, the name was not an homage to the stock-car driving family, or to the British Invasion duo by the same name. Our sound was about halfway between engine whine and Merseybeat pop -- densely muscular but melodic. The band recorded about a dozen tracks, most at Mitch's Drive-In, but as far as I know the songs never made it to the Internet. You'll just have to believe me when I say that I'm not just making this up.

More of AllofMP3

Allofmp3_logo_1 I wanted to elaborate on an editorial we had today on a Moscow-based online music store that has become a stumbling block for Russia's entry into the WTO. In particular, I wanted to explain why we accepted the music industry's argument that AllofMP3 was not, in fact, a legitimately licensed outlet. On Sunday I was downloading my monthly allotment of MP3s from eMusic -- the single most fun thing I do without the wife or kids -- when I hit an unexpected hurdle. The download page for "Paper Television" by The Blow said, "We're sorry. This album is unavailable for download in your country (United States) at this time. We apologize for any inconvenience this may cause." That's when I was struck by how weak the case was in favor of AllofMP3.

AllofMP3 sells music by the megabyte, then gives a percentage of the proceeds to a Russian royalties collection agency called ROMS. It asserts that it has licenses to sell music from ROMS and FAIR, another Russian rights organization, and that it complies with those licenses by paying royalties to those organizations. The exact amount of the royalties hasn't been disclosed, but a spokesman said he believed it was at least 15% of its revenue. The major record companies disagree, saying they never granted ROMS the right to issue licenses for downloadable music sales.

The fact that AllofMP3 sells music as unprotected files in formats shunned by the major labels is the first clue that something's amiss here. So is the business model: despite valiant efforts by the likes of eMusic and Wippit, the major labels simply won't do revenue-share deals for permanent downloads. They want somewhere between 65 cents and 80 cents per track. Likewise for the music publishers, who charge a per-track fee for reproduction rights (not performance rights). With a fee structure like that, it's just not possible for an online music store to do what AllofMP3 does -- for better or for worse. One could argue that significantly lower prices would create such an increase in demand that labels and artists would collect more money, but none of the majors has been willing to test that hypothesis.

Just for the sake of argument, assume that the ROMS and FAIR folks plied the IFPI negotiators with vodka one night and somehow persuaded them to authorize licenses such as the one AllofMP3 claims to have. No individual country's licensing body has the right to authorize sales across its borders. It's an insane and inefficient system, I know, but that's the Balkanized way it works in the global entertainment industry. The best ROMS could have done would have been to authorize a deal for sales within Russia, and AllofMP3 would have been required to do what folks like eMusic have to do: if they want to serve customers in other countries, they have to strike deals with those countries' licensing authorities, which typically results in different inventories for different sets of customers (which explains why "Paper Television" wasn't available to eMusic subscribers in the U.S.) And AllofMP3 hasn't done that. Nevertheless, it caters to customers everywhere, and it offers handy charts to see what its customers in the US, the UK, Canada, Germany, France and Europe are buying. The German sales seem particularly egregious, given that a German court ordered the company last year to stop sales there.

I know there are plenty of consumers who want to believe that AllofMP3 is legitimate, but it's simply too good to be true -- particularly for anyone outside of Russia. The fact that Russia hasn't forced the site offline says less about the legitimacy of AllofMP3 than about Russian authorities' laissez-faire approach to intellectual property rights. And yes, I know, some critics of the major record companies (including some AllofMP3 execs) say the attack on AllofMP3 is aimed at preserving those companies' dominance over the music industry, but AllofMP3 is violating every label's copyrights. In the free market system that Russia is trying to join, manufacturers get to choose their business models. AllofMP3 can't simply take songs and sell them by the megabyte, no matter how compelling the offer might be.

Happy Birthday, iPod

Ipod_nano_red On the fifth anniversary of the first iPod, let me borrow a phrase from Apple's recent line of commercials: "I'm a PC." Not only am I nearsighted and dorky, but I left the Mac platform in the late 1990s after almost 15 years of fealty. My wife was not pleased, but hey, snakes on a plane. In the early days of the digital music scene, the vast majority of apps were being written for Windows. That was my beat, so that's how I made my investment decision.

These days, I'm still a Windows guy when it comes to portable music players. That's because, for all the fabulousness of the iPod design and execution, not to mention the experience it enables so well, it does not support what I think is the great leap forward that digital technology makes possible for music fans. That would be subscription music services, the audio equivalent of cable TV's all-you-can-eat-for-one-low-price business model.

I'll quickly concede that even my Windows-powered player doesn't do the subscription thing particularly well. And my Yahoo! Unlimited subscription belied the name in a most unsatisfying way. I suspect the customized devices peddled by Napster and Rhapsody, as well as the Zune player soon to be sold by Microsoft, will do a better job at portability. But Apple doesn't do it at all, so iPod owners can't even get onto the field.

The iPod has also contributed to the format incompatibility problem that bedevils online music buyers. Apple, Microsoft, Sony and RealNetworks all use dueling forms of copy protection to satisfy the labels' demands for protection against piracy. Having an iPod means you can buy major-label music only from Apple's iTunes Store or on CD; having a Windows player means you can't use iTunes to sync your player to your collection. (Insert relevant Simpsons audio clip here.) In the long run, though, this is a bigger problem for the major labels than for music fans. The incompatibilities among devices and services discourage some consumers from buying downloadable music, which is the major labels' hope for the future. This problem is well nigh intractable, given that Apple uses its proprietary copy-protection technology to lock users into its product line. In other words, Apple has little incentive to share its technology with competitors, and even less to make iPods compatible with competitors' technologies. And if the compatibility problem isn't solved, it's conceivable that the labels would start selling downloadable songs in the one format that works with every player on the market: MP3. That means giving up on copy protection for permanent downloads, a move that many major-label executives refuse to consider despite the fact that CDs have no copy protection (in the U.S., that is, despite the labels' sporadic efforts to force copy-protected CDs on the public). I wouldn't even have entertained the possibility of a major-label shift to MP3s, but a label executive floated it recently at a music conference in West Hollywood. Hunh.

Still, there's no way to do a subscription service without copy protection, so that issue would remain even if the majors embraced MP3. And at this point, at least, Apple doesn't do subscriptions. Therefore I'll stay in the Windows camp with the rest of the uncool kids. What can I say? I'm a PC.

Tower Records, iTunes and Napster

The impending demise of Tower Records has prompted a bunch of odes to the 1970s, when LPs were $5 and record stores were social honey pots. Much is being made by commenters about Tower's "stack 'em high, sell 'em low" approach, that is, its strategy of maintaining a huge inventory in stores and selling at a discount. Maybe I have freakish tastes, but Tower's inventory didn't do it for me. I like places where the clerks not only know the inventory, but will play it for you. That's what the folks at 99 Records on MacDougal St. in Greenwich Village used to do. I shopped there a lot in the early 1980s. It was a hole-in-the-wall storefront related to the indie label by the same name. I'd walk in, ask the guy behind the counter what new stuff he liked, and he'd start spinning it for me on a turntable next to the cash register. Almost everything was from the UK or Germany. The first Smiths single. The first Blue Nile single. Holger Hiller. Weekend. It all sounded, well, different. Rather than trying to stock everything I might be looking for, the people who worked there told me what to want.

Much to Tower's disadvantage, the Internet can outdo it on inventory while also replicating the music-discovery magic of 99 Records. Ann Powers makes this point well in her eulogistic Tower piece in today's Times. Online music shops let you hear songs before buying them, get recommendations (from individuals with similar tastes, from critics or from the masses), buy at a discount, and thumb through the complete digital catalog from thousands of artists. And once they have a title, they never run out of it.

Still, online stores don't have LPs that never made it off of vinyl (Fingerprintz, anyone?), and they're short on foreign releases. That's why the real analog for Tower online is the original Napster and its file-sharing successors. Once they had attracted millions of users, p2p networks could offer the deepest catalog imaginable -- not just songs from CDs, but tracks from LPs, live shows and TV appearances. They also offered a sense of community, particularly in the early days, before the RIAA's lawsuits led users to stop showing their collections to the world. Oh and yes, everything's free.

I don't think there's anything magical about p2p technology, at least not for music shoppers. Song files are so small, the efficiencies that p2p provide aren't meaningful. The exhaustive p2p catalog, though, is a different story. It's a shame the labels, artists and music publishers have failed to make everything available for sale, and that they (and Apple) have resisted the idea of cheap, bulk sales of older material. The urge to dive deep into an artist's work is what separates a casual listener -- the kind who's satisfied by the selection at Wal-Mart and Best Buy -- from a real music fan. The latter were the Tower Records shoppers of yore, and they are the lifeblood of the industry today. They need to be indulged.

Google, YouTube take fingerprints

Youtubelogo_2Maybe Google's chieftans read Mark Cuban's blog before buying YouTube for $1.65 billion worth of stock. During today's conference call with analysts and reporters, executives from Google and YouTube spent almost as much time talking about respecting copyrights as they did explaining how they're going to turn YouTube into a real business.

I'll leave the latter question to others. What made the copyright comments interesting to me were the hints of a split between what Google has been doing and where YouTube plans to do. The discussion was long on generalities about the importance of protecting intellectual property and short on specifics. The most concrete comments came from YouTube co-founder Steve Chen, who said the company's engineers were working hard on improving the way users and content providers can identify the videos on the site through such techniques as audio fingerprints and metadata. This work should begin to bear fruit next month, by Chen's calculation.

The eyebrow-raiser for me came from Google's biz-dev chief David Drummond, who said that YouTube's vision and commitment on copyright protection were very consistent with Google's because both companies rely on the safe harbors provided under the 1998 Digital Millennium Copyright Act. As Chen's comments hinted, though, YouTube is moving away from basic DMCA compliance to the more proactive approach demanded by the major record companies and other content suppliers (for example, see the deals announced today between YouTube and Universal Music Group and Sony BMG). The DMCA simply requires companies to take down infringing material when a copyright owner complains. It's passive, reactive. By contrast, a fingerprinting system would enable YouTube to filter out infringing material as soon as it's posted or, better yet, identify and track it so copyright owners can share in whatever revenue it generates. The latter approach takes advantage of the viral marketing capabilities of the Internet; the former pretends that the rest of the Net doesn't exist.

But then, even though Drummond's remarks didn't acknowledge it, Google is moving in that direction, too - witness the deals it announced today with Sony BMG and Warner Music Group. You might recall that the latter's pioneering deal with YouTube broke new ground in several areas, including the use of fingerprinting technology. It remains to be seen if the technology works, but it appears that both Google and YouTube have accepted the terms offered by entertainment companies, and they're willing to play by new rules.

AT&T, Verizon and TV

Fiostv_monitorGov. Arnold Schwarzenegger made AT&T and Verizon's day on Friday, signing into law a bill that makes it significantly easier for the companies to sell video service through their phone lines. The bill, AB 2987, emasculates city and county cable regulators by allowing phone companies to obtain a single statewide license to offer video services, rather than having to cajole a franchise agreement out of every local governing body.

This is also a big deal for cable operators, who can avail themselves of a similar agreement as soon as their current franchises expire or a telco starts competing on their turf. But I don't believe the hype voiced by lawmakers and telcos about the impact on consumers. The limiting factor for competition in pay TV hasn't been regulation, at least not since Congress banned monopoly video franchises more than a decade ago. It's been the high cost to build networks capable of delivery video. Compared to that expense, the cost of obtaining local franchises is chump change. Long before this bill passed, telcos were making those upgrades because cable operators had launched a competing phone service that lured away customers.

The billions of dollars in upgrades required by the telcos is one reason to dismiss the idea that competition is going to drive down prices for video service. More likely, it will help slow cable price inflation, and even there a lot will depend on the demands made by must-have programmers (witness Fox News Channel, which originally offered cable operators $10 per subscriber to add it to their lineups -- it's now asking for $1 per subscriber). The telcos themselves have said they plan to compete "on value," which means offering more features for the same not-so-low price. That's similar to what the cable guys do with phone service, which they price well above the cost of a no-frills phone line. Their target is the margin-fattening customer who pays $50 or more a month for extra features and toll calls.

The most promising feature of the telcos' approach to video, as Dave Burstein points out in a recent DSL Prime newsletter (sign up for it here), is the potential for real innovation in equipment and programming. Granted, I may be falling victim to the hype. Verizon has talked about enabling customers to use the digital video recorder inside its set-top boxes to store video from the Internet. Talk about cable bypass! At the very least, that would give foreign broadcasters, YouTube and other independent programming outlets a direct route to the TV set. Given the right software, it could also provide a huge boost to downloadable movie sites like Movielink and CinemaNow. AT&T is poised for a similar leap, thanks to an IPTV strategy that treats a Web-based channel the same as a broadcast network. If the new California law prompts these developments, it will have done viewers a tremendous favor. But that's an if, not a when.

The image is from Verizon's FiOS TV sign-up page. Click here to find out that you're not eligible today!

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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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