More of AllofMP3

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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.