P2P In Review

Everyone Suing Everyone Else

It looks like the RIAA lawsuit plan is largely a geographical one. The first round seemed to be New York-based; the next seems to center around St. Louis.

Who is next? Who knows, but the pattern is likely to continue. It guarantees at least local media coverage, and maximizes the impression made in a particular locale.

Some ISPs are going to court to quash subpoenas, but that’s mostly a public relations operation. They could get lucky in court, but even if they don’t, their actions tell their customers, “We’re on your side.”

You have flurries of lawsuits by P2P software makers and vice versa, but what’s interesting about those is that the P2P software folks seem to be getting increasingly desperate to establish some sort of legitimate relationship with the record companies.

Considering that the RIAA and Company rather understandably finds theft enablers who can’t even get a large proportion of their users to accept their advertising less than suitable business partners, so far, they’ve said, “Hell, no.”

It’s hard to see how the U.S. legal system in the long run given current laws could make them (though some wacky judge might make such a ruling).

Opening up competition is a political matter. If this is going to be opened up, it will be Congress that will do so.

New Myths of Our Time…

New Myths of Our Time

I must say, there’s one area where the P2Pers are extraordinarily creative: making up slogans.

Problem is, they’re being awfully creative with the truth.

The first slogan of note is something like, “The record companies aren’t embracing the technology.”

This implies that all technology is good, and if you don’t embrace it, there’s something wrong with you.

Expecting RIAA to embrace a technology essentially designed to rip them off is like expecting lock makers to embrace picks.

But that’s shallow. There’s a far deeper flaw in the argument. Not all technology is good, or appropriate.

Rambus and Intel wanted you to embrace RDRAM technology. Did you? No.

You’d hardly want people helping al-Queda to embrace nuclear technology.

More important than that, though, P2P is lousy technology for the distribution of material. There’s a far better current solution for legitimate distribution. It’s called the World Wide Web. Ever heard of it? 🙂

You can search it far more easily than any P2P network. You can provide much faster downloads which far less chance of corrupt files.

Yes, it’s centralized. Yes, webhosting and serving file requests cost money, but at least in the developed world, it’s hardly an exorbitant cost, especially compared to the cost of a computer and Internet connection.

It is hard to see why anybody doing something legitimate would ever choose P2P over Web-based technology.

Sure, if you’re a Chinese dissident, there’s an excellent reason to prefer P2P. If you live in a country where the cost of a Web-based service is the straw that breaks the camel’s back, there’s a case for P2P, too (though there is this thing called email, too).

However, the vast majority of P2Pers are hardly in this position.

So why not embrace this far-superior technology instead?

So much for the slogan.

The issue is not technology. The issues are power and control.

What the P2Pers are really saying (well, at least the relative few who understand what they’re saying) with the “embrace the technology” slogan is, “We rule now. You do what we say.”

Sure, the RIAA and Company are control freaks. One can reasonably say they are excessively so, excessively so to the point where it might well be a good idea to loosen that control up legislatively.

However, the wilders among the P2Pers don’t want the record companies to loosen control, they want them to forfeit control. It’s “Yeah, yeah, we’ll pay you, (now where’s that crack)?”

I mean really, if a significant proportion of P2Pers crack their way out of advertising for the theft enablers, do you really think they’re going to start paying the Extremely Evil RIAA and Company without a murmur?

Get real.

Getting Paid For Record Sales…

Getting Paid For Record Sales

Slogan number two is “Most artists don’t get paid for record sales.” Often, artists chime in and agree with this. This is at best misleading, at worst a flat-out lie.

What the artists seem to get amnesia about are all the advances the record companies put out to get the album recorded. Some of that money was handed to you. What do you think that was for? That’s not Santa Claus or the Tooth Fairy. That was the record company paying you for record sales even before you made the record, much less knowing how many records were actually sold.

Book companies work this way, too. For instance, Senator Hillary Clinton got paid an eight million dollar advance to write her book. That means she got paid eight million dollars upfront to write the book. She and most other authors gets credit for every book sold, but she and most other authors don’t get paid anything more from the book publishing company until their credits exceed the advance they received.

From what I’ve read, it is unlikely that the total book royalties Senator Clinton earned/will earn from the book will exceed eight million dollars (though it will probably get close, the book did sell extremely well), so she’ll probably not get another check for it.

Would you say Senator Clinton didn’t get paid for her book? Of course not. She got eight million dollars for it. If Senator Clinton tried to claim that she didn’t get paid for her book (which she never would), she’d be called an idiot from sea to shining sea.

But that’s precisely the kind of idiocy some artists are claiming.

Granted, the financial picture is normally nowhere near as bright for the average musician.

Record companies put out all kinds of other money, too, money without which the album doesn’t get made. Sometimes, they advance money so that the act can go on tour. They also perform services like publicity for the act.

All these expenses get charged against album royalties, so it’s not surprising that musicians don’t end up with extra checks as a result, and especially if an album doesn’t do terribly well.

If you want to say that the record companies overcharge artists for certain services, or charge them for expenses they ought not be charged for, or don’t pay a high enough royalty rate given all the expenses acts end up paying, you may well be right.

But not getting paid enough is a much different matter than not getting paid at all, especially in P2Pland.

When an artist cries out, “I don’t get paid for my album sales,” what he’s really saying is “I don’t get paid enough.” In P2Pland, though, when they hear the artist say that, the wilders say, “Oh good, we don’t have to pay you, either.”

These artists never learn.

An Extra Bonus

This one’s been around a while, but it’s worth addressing.

“It’s not stealing. They’re not losing anything by it.”

Go to work for a week. Show up for your paycheck. See that your check has been reduced. Go to complain, and have your boss tell you you aren’t getting any more because he thought some of your work sucked and he thinks you get paid too much, anyway. Then he tells you, “What are you complaining about? You’re not losing anything by it.”

It’s the exact same thing.

Alternatives To The Record Companies?…

There’s some folks out there who are attempting to give the artist a better deal. Two of them are Magnatunes and CDBaby.

The deal is:

You’re on your own to record the music. Submit it to the place, and if they like it, they’ll sell it for you. Promotion is either through Internet radio stations (Magnatunes) or simple webpages, search engine listings (CDBaby) and streaming audio.

Sales are either through downloads (Magnatunes) or sale of CDs that you make for the company (CDBaby).

What do they get out of the deal? Half of sales revenue (Magnatunes) or $4 a CD (CDBaby). The act gets the rest. (CDBaby will also act as your agent to sell digital downloads to others like iTunes.)

How much do they charge per album? Magnatunes suggests $8 an album, though it will let you pay as little as $5 or as much as $18. Moat of CDBaby’s albums cost $10 or more (and if it’s selling well, rather more than $10).

Paradox On Top Of Paradox

On the one hand, you can’t expect to ever make very much money from these companies. They just don’t do very much for you.

On the other hand, the amount you do make may well be a lot more than what you’d get from the established record companies. Maybe. Remember, no money up front for signing, no advances to pay for anything. This is just a cash-and-carry business.

Grow a third hand, and while it seems that these companies are getting paid an awful lot for doing very little, they’ll probably not make money simply because of the low volume of sales they can expect from each act. There’s no economy of scale here.

Mutate a fourth hand, and that means prices stay high for the consumer. Magnatudes is trying to pass the savings from digital distribution along, but 50% of $5 is only $2.50. That may well be better than you’d get from RIAA and Company, but in return, you pay all the expenses of the album upfront, and you’re the one out of pocket if the royalties don’t meet the expenses.

With CDBaby, you set your price, which means more money per album, but again, you take all the risk, and $10 per album isn’t too good if you only sell 23 albums.

Chickens And Golden Eggs…

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Chickens And Golden Eggs

The problem with these companies (and any others coming any time soon) is simple: lack of money. It’s a low-input, low-return business.

On the other hand, the record companies are high-input, high-return enterprises. They throw a lot of money into an activity in the hope of making a lot of money out it.

Neither makes a lot of money, but for opposite reasons. The first will only get you low-returns, but it’s a low-risk operation. It will never generate a hit (by current standards), but because there is relatively little risked, which there aren’t any smashing successes, there aren’t any smashing failures, either (and if there is, it’s the artist holding the bag).

The conventional record industry is the opposite. It’s a high-expense, high-revenue, high-risk operation. They throw a ton of money (compared to the other group) to get an act going, and then it’s sink-or-swim. If they ignite, great, if they don’t, write it off and try somebody else.

Rather complicating the whole picture is the overwhelming fact that no one can take more than an educated guess at what act will work and what act won’t. That’s because all the customers can’t make more than an educated guess as to what they’ll like and what they won’t, and what they like today, they may not like tomorrow.

Just take yourself. I don’t care who you are or what you like, there’s no way ahead of time you can guarantee you’ll love a single particular song. It could be your favorite band for whom you would gladly die, that just improves the odds. You just won’t love everything they do. Even after hearing the song, you can’t guarantee your opinion of that song won’t change sooner or later.

If you can’t guarantee what you’ll do, how hard do you think it is to figure out what a planet of strangers will do?

There’s a rather deep issue under the radar screen that is affecting the music industry. Historically, the music industry has acted as a filter. Given the relatively expensive nature of recording technology, distribution and promotion, it could have hardly done anything else.

The record industry also is deeply affected by economy of scale. Yes, in all likelihood, you’ll spend considerably more with a million-copy seller than one that sells ten thousand copies, but it’s not a hundred times more than with the ten thousand copy seller.

The irony the record companies face is that they must spend money to have any chance of making money, but there’s no guarantee they’ll do so.

Modern commercial music has always been a sort of lottery. There are many, many musicians out there. Relatively few get a serious record contract, and of those that do, most of them flop right away, and practically all flop over the course of time.

In the last couple decades, the lottery has intensified. The costs associated with promoting an album commercially have skyrocketed (for good and not so good reasons), so what used to be acceptable sales no longer are. The middle of the food chain get dismissed, and you end up with have-a-lot and have-nots rather than have-a-lot, have-some, and have-nots.

The core issue is the cost of promotion. If you spend a medium amount of money on an act with medium potential, odds are you won’t get noticed at all these days. The threshold of public awareness is much higher.

So the record companies are faced with getting golden eggs from chickens. They’ve figured out how to filter out the roosters and frogs and ants out, but they still can’t tell which hen will lay a golden egg. All they know is that if they don’t force-feed a hen, they definitely won’t get one.

What the record companies essentially do is feed=feed a lot of hen, and if one doesn’t lay a golden egg sooner rather than later, they stop feeding it and start force-feeding the next chick.

That sound pretty bad until you realize the alternative is having a ton of chicken, and letting them scratch out a living on their own, which is basically what these companies are doing. That could well be better, a lot better, for ordinary chickens, but nobody gets the chance to lay golden eggs, even those that could if force-fed.

And mind you, there’s a hell of a lot more hens out there who think they can lay golden eggs than actually can.

Supply And Demand

While all this is going on, some of the filters used by the record industry has largely broken-down. Technology is expotentially dropping the cost of the act of recording. This makes more recorded material available. Current technology can certain exponentially drop the cost of distribution. However, technology has not exponentially drop of cost of effective promotion, and it cannot exponentially increase the demand for the product (you can listen to just so much music, there’s still only twenty four hours in a day).

So what is going on in the background is that the supply of recorded music is increasing expotentially, but the demand isn’t, and there’s just so much promotion money available.

What do you get? You get fragmentation. Extreme fragmentation, with nobody with the money to make much more of an impact than the typical garage band today.

This is what you’ll get if mass music doesn’t work any more, if music becomes a general freebie.

The future of music may not be some dozens of heavily-developed and promoted acts selling millions of albums. That causes some problems.

On the other hand, millions of hardly-developed or promoted acts selling dozens or hundreds of albums (or zero if recording becomes a promotion expense rather than a source of revenue) may not be too good, either, though for entirely different reasons.

Let me emphasize “hardly-developed” a bit. Record companies spend a lot of money developing acts (yes, sometimes “manufacture” is a better term for it), polishing raw talent. That money isn’t going to be available in the Brave New World when everyone has an album.

Look at it this way. Imagine if the TV and cable networks vanished and in its place were a million people having their own Web TV shows. You’d have a ton of choice, alright, but how would you find what you liked, and just how good would it be when none of them had any real budget to produce them? It wouldn’t be quite that bad for music, but you get the idea.

There are many complaints that the record industry caters to the lowest common denominator, and there’s some truth to that. However, when you there is no filter, you become the filter, and that’s a heavy burden. You end up with a different lowest common denominator: acts with enough money to get recorded and little more. If the old system falls, it’s likely the replacement is going to be a million garage bands, most of whom are garbage that you’ll have to pick through, and the rest stunted to one degree or another.

When you blow up the old world, you don’t just blow up the aspects of that world you don’t like. You blow up all of it, and that has consequences, both positive and negative, you’ve never imagined.

Discussion

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