Friday, June 29, 2007

RIAA flexibility?

In the appeal of the CRB's decision, the parties have now filed their papers concerning whether the decision should be "stayed" while the appeal goes on. (Recall that if the court grants a stay, the present system would remain in place during the appeal; if they deny the stay the rates set out by the CRB's decision would come into effect on July 15 even as those rates are being appealed.)

Among other things, the CRB's ruling would impose a $500 minimum annual fee per channel. This would be a heavy burden to internet radio stations that offer multiple channels, and many of those stations have pointed to this provision as particularly damaging. It now appears that RIAA may be signalling some flexibility on this point in their court filing opposing the stay.

SoundExchange opposed the stay, because RIAA wants the new rates to come into effect immediately. But SoundExchange's opposition also said that should the court grant a stay:

...any stay should be limited to the minimum fee provision and should allow pre-existing minimum fee requirements ($500 per channel, capped at $2500 per licensee) to remain in place pending appeal.

This could be very important. It shows that RIAA is afraid of the Internet Radio Equality Act, and it may be a signal that RIAA is willing to be flexible.
While this is encouraging news, it would be far better if the court granted a stay of the entire CRB ruling.

Thursday, June 21, 2007

Department of Justice Opposes Stay

On Monday, the Department of Justice filed papers opposing the stay that DiMA (and others) sought in the DC Circuit. Why is the Department of Justice getting involved in this case?

First a quick recap. As we’ve noted earlier, the decision of the Copyright Royalty Board has been appealed to the United States Court of Appeals for the District of Columbia. Several parties have indicated that they will appeal, but the process will be a slow one. In the meantime, they have asked the DC Circuit to “stay” the CRB’s ruling while the appeal goes on. This would preserve the status quo: internet radio stations would continue to pay the same royalties during the appeal.

The Department of Justice represents the various agencies of the federal government in court. In this case, the Feds are acting as lawyers for the CRB, defending the CRB’s decision. The DOJ will not be the only people to oppose a stay. We can probably expect SoundExchange, an arm of RIAA, to file papers opposing it as well.

The court will probably act relatively quickly. As of today, July 15 is only three and a half weeks away...

Wednesday, June 20, 2007

July 15th, an Important Moment For American Broadcasters

On July 15, absent a stay by the appellate courts, the new license rates for internet radio stations come into effect. As I’ve noted before (see my post “Jesse And Me”) – we’re headed down a path of pushing American broadcasters overseas. Where has the value of free speech gone? At BroadClip we're confident that our business won't be much affected by the new rates, but like everyone else we think that the variety of internet radio is worth protecting, and we feel that our government should not be taking a stand against the small operators who are responsible for so much of its vitality.

Several parties have filed notices that they will appeal the Copyright Royalty Board's decision to the Federal Circuit, and DiMA has sought a stay of the new rates, but as of now the Federal Circuit has not made any decision about the stay. In Congress, while the Internet Radio Equality Act now has 119 co-sponsors in the House, and three Senators have signed on. Congress has moved quickly (for Congress!), but time is running out.

Therefore, we are joining with other internet radio focused businesses to call attention to this issue by participating in the Day of Silence on June 26th. New users can sign up for an account, but we will not be recording any songs on that date. We do not want to take this step, but we feel that this issue is important enough that we must participate.

Thank you for your understanding, and remember to keep contacting your Senators and your Representative in the House to keep internet music alive!

Tuesday, June 5, 2007

More CRB Appeals

Apparently the National Association of Broadcasters has also filed an appeal of the Copyright Royalty Board's decision. This brings us to at least three appeals, including the DiMA/NPR one and the Intercollegiate Broadcasting System.

I should be more accurate. The full substantive appeals have actually not yet been filed. The parties have filed a document indicating that they will file an appeal. The Court of Appeals for the DC Circuit will come up with a briefing schedule. At the same time, as I mentioned last week, they will come up with a schedule about filing the motions related to the request for a stay, which was filed by DiMA and NPR.

Friday, June 1, 2007

CRB Decision Appealed

On May 30, the Digital Media Association (DiMA) and NPR appealed the Copyright Royalty Board’s decision to the Court of Appeals for the District of Columbia. These are not the only parties to appeal the CRB’s decision--the Intercollegiate Broadcasting System filed its appeal earlier this month. DiMA and NPR also filed an additional motion yesterday requesting that the court issue a “stay” while the CRB decision is under appeal.

What does this all mean?

The appeals are what they sound like. They are asking the DC Circuit to reverse the decision of the CRB.

A “stay” is a legal concept. A court issues a stay to preserve the status quo. In this case, DiMA and NPR are asking the court to keep the present royalty system in effect while the court decides the appeal. If the court refuses to issue a stay, the new CRB imposed royalty rates will take effect on July 15, even though they would be under appeal.

So the court has two decisions. In the next few weeks, it will have to decide whether to issue the stay. Then, over the next several months, it will decide the actual appeal of the CRB’s decision. It is impossible to predict what the court will do, but we’ll keep you informed.

Note that this is entirely separate from ongoing efforts to reverse the CRB’s decision in Congress. Congress has the power to set the rates and overrule the CRB and make the appeal to the DC Circuit unnecessary. While the DC Circuit mulls over the appeal, Congress will hopefully step up to the plate and pass the Internet Radio Equality Act. Keep contacting your Senators and your Representative to encourage them to vote in favor of the Internet Radio Equality Act.

Friday, May 11, 2007

Internet Radio has Senate Support

We have been touting the Internet Radio Equality Act (H.R. 2060), introduced on April 26th in the House of Representatives. This Act, which now has dozens almost over one hundred co-sponsors, would reverse the decision of the Copyright Royalty Board and impose a mandatory license fee of 7.5% of revenues for internet radio stations.

On May 10, Senators Ron Wyden (D. Or.) and Sam Brownback (R. Kan.) co-sponsored a companion bill in the Senate, S.1353. This is encouraging news. We hope that this bill attracts the same kind of bipartisan support in the Senate as has been shown in the House.

It is important that you contact your Senators to tell them how important it is to support this bill. In addition, if your Representative has not yet supported this bill, please contact him or her as well.

Monday, May 7, 2007

Internet Radio Picks Up Congressional Support

We have another post by Broadclip's General Counsel, Matthew Drake. Thanks Matt!

The Internet Radio Equality Act (H.R. 2060) is attracting strong bipartisan support. Originally sponsored by Rep. Jay Inslee (D. Wash.), the bill now has Donald Manzullo (R. Ill) as an additional sponsor, and dozens of co-sponsors ranging across the ideological spectrum. Whatever else they may disagree on, they can agree that Internet radio is good and should not be squashed by jacking up the royalty rates. The following members of Congress have signed on as co-sponsors:

Michael Arcuri (D. N.Y.)
Tammy Baldwin (D. Wis.)
Roscoe Bartlett (R. Md.)
Earl Blumenauer (D. Or.)
Rick Boucher (D. Va.)
Corrine Brown (D. Fla.)
Vern Buchanan (R. Fla.)
Michael Capuano (D. Mass.)
Stephen I. Cohen (D. Tenn.)
Joseph Courtney (D. Conn.)
Barbara Cubin (R. Wyo.)
Susan A. Davis (D. Cal.)
Peter A. DeFazio (D. Or.)
Keith M. Ellison (D. Minn.)
Brad Ellsworth (D. Ind.)
Sam Farr (D. Cal.)
Bob Filner (D. Cal.)
Luis Fortuno (R. P.R.)
Virginia Foxx (R. N.C.)
Raul M. Grijalva (D. Az.)
Luis V. Gutierrez (D. Ill.)
Brian M. Higgins (D. N.Y.)
Baron Hill (D. Ind.)
Maurice Hinchey (D. N.Y.)
Michael M. Honda (D. Cal.)
Jesse Jackson, Jr. (D. Ill.)
Dale E. Kildee (D. Mich.)
Mark S. Kirk (R. Ill.)
John Lewis (D. Ga.)
Jim McDermott (D. Wash.)
Cathy McMorris Rodgers (R. Wash.)
Michael H. Michaud (D. Maine)
James P. Moran (D. Va.)
Ron Paul (R. Tex.)
David E. Price (D. N.C.)
Dave Reichert (R. Wash.)
Tim Ryan (D. Ohio)
Carol Shea-Porter (D. N.H.)
John M. Spratt, Jr. (D. S.C.)
Lee Terry (R. Neb.)
Lynn Woolsey (D. Cal.)

If your Representative is not on this list, contact him or her about just how important this legislation is.

Time is important. The final decision of the Copyright Royalty Board was published in the Federal Register on May 2. According to the final decision, initial payments, retroactive to January 1, 2006, will be due July 15.

In the meantime, the deadline for appealing the decision to the United States Court of Appeals for the District of Columbia Circuit is 30 days after it was published, i.e. June 1. The first appeal has already been filed by the Intercollegiate Broadcasting System. It will not be the last.

Wednesday, May 2, 2007

Those who do not remember the past are doomed to repeat it

Today we have another post by Roy Smith - co-founder of Turtle Beach Systems. Thanks Roy!

The battle of record industry versus their customers is eerily similar to a battle that was fought and lost before many of today’s music lovers were born. The issues were quite similar and the results of that battle shed light on the likely outcome of this one.

Back in the early days of the PC in the early 1980’s, software was a very new concept. There had never been a product that could be replicated at will by the customer. And replicate they did: “Oh, you want a copy of WordStar? Here you go.”

Like RIAA in the '90’s, the software developers got legislation passed to identify and protect their intellectual property rights, but in practice these new laws were almost unenforceable. Most developers of high dollar value applications then moved to an early form of DRM called “copy protection”.

Just like DRM for music today, copy protection used a variety of crafty methods to prevent users from making multiple copies of programs. Some systems required a hardware key that had to be installed in the computer, others used specially prepared diskettes with known errors that disk copy programs could not duplicate.

The hacker community responded rather quickly. (Sound familiar?) Patches soon appeared online to unlock all popular copy protected applications.

Unfortunately, copy protection had two unintended effects on the legal purchasers of software. The first was that many legal users encountered problems with their legal copies because of the copy protection and publishers were forced to spend great amounts of effort to make their product work through the DRM issues.

The second unintended effect was that legal customers developed an adversarial attitude because they were indirectly being accused of being thieves. Even when it worked, the DRM was still an annoyance that didn’t provide value.

In the end, the honest people who were not likely to copy and distribute the software were inconvenienced and angry about it, and the dishonest people who were inclined to copy the software were still able to do so. (Again, sound familiar?)

Eventually the software industry abandoned copy protection in favor of installation keys and online registration ala Microsoft's genuine Windows testing and those 30 digit install codes.

The PC Software industry didn't fall apart when it dropped copy protection. As we all know, it has flourished.

Yes, there is piracy. Every business has theft, fraud, shrinkage, and bad debts. The point is that DRM is one solution of many for these problems. Will the music industry learn anything from the battles lost by the software industry of the '80’s? Time will tell.

Sunday, April 29, 2007

Congress Moves to Save Internet Radio!

Broadclip's General Counsel, Matthew Drake, gives us an update about Congress and the future of Internet radio....

Good news! Rep. Jay Inslee (D. Wa) has introduced the Internet Radio Equality Act to allow internet radio stations the opportunity to be successful.

First, the bill expressly nullifies the CRB’s March 2 ruling. This alone is a good start.

Next, the bill pegs the royalty rates paid by internet radio stations at 7.5% of their revenue. This number would apply to all commercial stations large and small. (Different rules would apply for noncommercial stations, such as NPR.) The Copyright Royalty Judges would have the authority to impose a minimum annual fee, which could by no more than $500 per year per “provider of services”. This is an extremely significant improvement over the CRB’s ruling, which would have imposed a $500 fee per stream.

The bill would apply from January 1, 2006 to January 1, 2011.

This bill is a step in the right direction. If it passes Congress, Internet radio will be protected and will be allowed to flourish.

Interestingly, the proposed royalty rate, 7.5% of revenue, is the same as paid by satellite radio stations. This also makes sense. Internet radio and satellite radio are competing in the same market of listeners. It’s logical that they should pay the same license fees to the music companies. Internet radio and satellite radio should be on the same level playing field, so the public will be able to decide what kind of service is best.

You should continue to send emails and telephone members of Congress. This Act has been introduced, but that is just the start of the process. Let your Representative and Senators know just how important this issue is to you!

Friday, April 27, 2007

America Last – pushing the best parts of our culture and innovation overseas!

Jesse Helms and Me

Jesse Helms and I often find ourselves on the opposite side of an issue, so, when we find ourselves in agreement I have great confidence that anyone who disagrees is wrong. Many of these issues are ones that reasonable people can disagree on. For example, when people argue about stem cell research the argument pretty much boils down to ethics vs. economic loss. We all know that other countries are willing and eager to conduct the research and we’ll end up losing business, jobs, and technological advantage to those countries – however, whether you believe America should allow stem cell research or not, there’s at least a plausible argument that those are acceptable losses in order to better society. The arguments for disallowing gambling (either on-line, or in a state) are similar – once again we as a society may think that losing business to other areas of the world is acceptable because of the negative societal costs of gambling.

The United States is now faced with losing the creative and economic benefits of a nascent Internet Radio industry – but in this case there’s no plausible argument that this is for the good of society. Even Jesse and I agree on this one! The last time it came up Jesse Helms spearheaded the legislation that put an end to the foolishness and saved Internet radio.

The Background

By our count, the US currently accounts for about 8000 internet radio stations--around 40% of all stations. The vast majority of those are the equivalent of ham radio operators – i.e. do it yourself’ers who make no money but are passionate about music. This decision will effectively silence their creative voice or (more likely) force those stations to switch to foreign servers and ISPs.

Why should this be the case? While the details and history of the regulatory scheme were outlined on Monday, I think this is a simple example of a regulatory board getting confused about what their role is. Copyright law, in general, is intended to promote the betterment of society by allowing creative works to thrive. The CRB, however, has lost sight of this and believes their sole purpose in life is to line the pockets of copyright owners.

Copyright owners (in this case music labels) are monopolies – their goal is to make as much money as possible. Good for them, I say - but they shouldn’t believe that the copyright law gives them blanket license to do so. Once again, the law is there for the benefit of the public. I can’t see any way in which the public is helped by silencing the creative voices of stations (and losing jobs, services, and technological innovation) or forcing them to find safe havens in foreign lands. The CRB’s mandate is that it can only look at “economic” factors in making it’s decisions – unfortunately, they didn’t look at any of the economic impact (either short or long term) on America. Moreover, in their motions for rehearing, many of the radio stations pointed out the mistakes the CRB made in its own economic analysis. No regulatory agency of this country should ever forget where they are and whose best interests they serve – the American public’s. With a little prodding chances are that Congress will step in, and we should let our representatives know that it’s a mistake to put America last.

As we mentioned on Monday, the best thing you can do to keep Internet radio alive is to tell members of Congress how you feel. This is your chance to let them know how important Internet radio is to real Americans. Email and call them! For more details on how you can help, go to

Monday, April 23, 2007

Copyright Royalty Board Decision

Today we have another post by Matthew Drake, our General Counsel at Broadclip. Thanks Matt!

You may have heard about the March 2, 2007 decision by the Copyright Royalty Board, known as the CRB, a previously obscure government panel, to almost triple the royalty rates for US based Internet radio stations. What’s going on here?

The Copyright Royalty and Distribution Reform Act of 2004 gave the CRB the responsibility of revising the license fees paid by Internet radio stations. As with terrestrial radio, individual stations do not negotiate their own licenses, rather the federal government sets mandatory license fees.

The old royalty structure was scheduled to expire January 1, 2006, and the CRB was given the task of setting the new rates. The CRB started gathering evidence in early 2005, heard testimony from dozens of witnesses and experts, and issued its decision in March of 2007. (The final rules will probably be applied retroactively.)

Like terrestrial radio stations, Internet radio companies already pay the music industry for the right to play music. Small stations pay a percentage of their revenue, while larger stations pay by the song. The CRB had to decide whether the rates should change, and if so, by how much. The CRB imposed a fee structure that will drastically increase the license fees that Internet radio stations must pay. The fees are on a “per play” basis, meaning that the station must pay for every listener, for every song. The “per play” rates adopted by the CRB increase rapidly over the next several years:

2005 $0.000762 (the present rate for large stations)
2006 $0.0008
2007 $0.0011
2008 $0.0014
2009 $0.0018
2010 $0.0019

While almost tripling the rates is bad, it’s not even the most damaging part of the decision. Under the old rate structure, small broadcasters paid a royalty fee of about 12% of their revenues. The CRB’s ruling would end that practice and force them to pay the same rates as the larger stations, driving small broadcasters out of business. Additionally, the decision imposes a new $500 “per channel” minimum fee. The exact definition of a channel is somewhat vague, but, for instance, if a station creates a new stream every time a user logs on, every stream might be counted as a separate channel.

The decision could be a disaster for Internet radio, if it stands. But first, the ruling will surely be appealed. The first step was a formal request for rehearing. Several motions were filed, but on April 16, 2007, the DRB denied them. (In its April 16 decision, the CRB did offer a “clarification” to its earlier ruling, deciding that for 2006 and 2007 only, payment may be based on Aggregate Tuning Hours (ATH), measuring cumulative hours of reception by all listeners, to ensure a “smooth transition” to the new regime.)

Since the CRB refused to rehear its decision, the next step is an appeal to the United States Court of Appeals for the District of Columbia, which often hears appeals related to the federal government. How long will it take? Probably around one year, give or take. What will the outcome be? Your guess is as good as anyone else’s.

What should happen? Congress should step in and do what it did last time government bureaucrats threatened Internet radio. In 2002, the Librarian of Congress (who had the power to set Internet radio royalty rates at the time) decided that Internet radio stations should pay 0.07 cents per song per listener. However Congress stepped in and passed the Small Webcaster Settlement Act of 2002, which said that small stations could instead pay a percentage of their revenue.

Rep. Edward Markey (D. Mass) has already voiced his concern with the CRB’s decision, saying, “This represents a body blow to many nascent Internet radio broadcasters and further exacerbates the marketplace imbalance between what different industries pay.” Congress should pass a similar law today to ensure the continued growth of Internet radio.

You should tell your Congressional representative that Internet radio is too important to be shipped overseas. You can email them directly or you can visit here to find your Representative's contact information.

Monday, April 2, 2007

EMI removes DRM - finally acts pro-consumer .. Sort of ..

Today's post was penned by Roy Smith - co-founder of Turtle Beach Systems, an early trail blazing company in the sound card industry. Thanks Roy!

Yesterday on April 1, the web was full of rumors about a big press event today in London from EMI Records. Supposedly Steve Jobs was going to participate – what would it mean? The Beatles on iTunes? No more DRM? Or was it all an April Fools joke?

Well, it turns out that EMI is the first of the “Big 5” record labels to crack on the DRM issue, allowing downloads of individual songs without DRM. As an added bonus, they are releasing these DRM-free tracks in a higher quality AAC format.

A great victory for all who decry DRM and its many inconveniences.

But as always with mega corporations, the real story is in the fine print.

A few paragraphs down in the press release, EMI announced that it will be charging more for the DRM-free versions. $1.29 per song. Let’s not cancel the celebration, this is a big step toward the end of DRM but let’s step back a bit and examine the situation we are now faced with.

If I buy a 12 track Coldplay CD at, I get 12 tracks with no DRM, and at maximum audio quality (better than AAC) for $11.97. Add a few bucks for shipping (or tax if I bought it locally) and we’ll call it $16. When I get the CD, I pop it in a player and I instantly have top quality music. The record company’s cost to produce the CD (including artist royalties) was probably about $2.50. They sold it to Amazon for about $6, so figure $3.50 profit on the CD.

Now, If I download the same Coldplay album (sans DRM) from iTunes, it will cost me $15.48, about the same. But I have a lot less to show for my money. I don’t have any physical back up if my computer’s hard disk crashes. I don’t have any artwork or credits if I want to know who played on it or produced it. It will take me 15-20 minutes to download it.

The record company’s cost for the download was whatever royalty they had to pay the artist. Did you know that most standard recording artist contracts call for less royalty to be paid to an artist for music that is delivered using “New Media/Technology”? Typically record labels pay 10-20% less royalty to an artist for music that was downloaded, despite the fact that their costs are much lower than a physical CD.

It's been widely published that the record companies split profits with iTunes about 50/50, so on the download version, EMI makes about half of the $15.48, or $7.75 gross. They pay the artist 10% less royalty ($0.70), and pocket the rest ($7.05).

Now as we celebrate that we have successfully picketed and petitioned the record industry to remove DRM, the net result is that we as consumers have less, the artists have less, and (surprise) the record industry has doubled profits.

But still, this is progress. Let’s hope a year from now we’ll be looking back at this like we do to the day the wall came down in Berlin… a small act that grew to symbolize a big change.

Friday, January 12, 2007

What’s That Sound? THWAP goes the long tail! – Part II

How “Sampling” Will Save RIAA
Sampling is an industry term for users listening to new music in order to find music they like. Broadcast radio is probably still the primary means of sampling music for most people. However, with people starting to express more varied tastes traditional radio formats are less and less effective because they try to cater to the broadest set of tastes and ignore niche tastes. So, to summarize so far, RIAA makes less money off of each individual artist and therefore spending more on any one artist is a bad investment. On the other hand, there is no effective way for them to spend less but expect the good artists to organically rise to the top and spark more sales. The answer, of course, is better sampling.

The Economics of Sampling
As I’ve said before, I have two main beliefs about why RIAA is making less money these days: 1) the product (music) is relatively less compelling than DVDs and games as each passing day goes by; 2) people have fixed budgets and RIAA is losing share to other markets.

You might be thinking that sampling doesn’t make music more compelling and therefore it can’t alter the purchasing choices of individuals – and I think that’s right. However, sampling does have two incredibly powerful economic aspects in its favor:
1) it reduces marketing costs dramatically thereby increasing profit;
2) it brings a new set of pocket books into play – advertisers!

The first point about reducing costs is self-explanatory so let’s get right into the advertising opportunity. You may not realize this but every time you listen to a song on the radio, RIAA gets paid. The more you listen the more money they make. Stated differently, the more you sample the more money they make. Who pays for all of this? Every other industry except the music industry – that’s who! While advertisers try and reach you to sell everything from sneakers to bubble gum, RIAA gets a slice of the pie when you sample music off of broadcast sources. Nice, right?

Listen And Love It
I’m sure you’ve figured this out by now, but we view BroadClip as the ultimate sampling tool. We view these changes as the natural progression of the radio market to match what’s happening in other markets. Fifteen years ago there was only one way marketing – print ads, broadcast TV, billboards etc.. Today we live in an interactive age of clickthroughs and targeting. That trend hasn’t caught up to radio yet.

When you time-shift/place-shift radio that you like, you discover new music in the process. Everybody wins – you get to listen to targeted radio without spending countless hours sifting through stuff you won’t like, RIAA makes more money, and internet radio stations have a viable business model because we can clear ad dollars to them (think along the lines of what Google does for bloggers and other content sites). Now that’s free love!

Wednesday, January 10, 2007

What’s That Sound? THWAP goes the long tail! – Part I

Nielsen’s numbers for 2006 music sales are out and to quote the article that summarized the report RIAA, “can’t stem the bleeding.” Given my last post I don’t find that all too interesting. What I do find interesting is the shift in the kinds of music being sold. What seems to be happening is that the big artists are selling less and small artists are selling more.

Hindsight is 80/20
For a long time in the video-on-demand industry I tried to convince people that the vaunted “80/20” rule of retail – that 80% of the sales come from only 20% of the SKUs - was an artifact of limited inventory selection. You see, my first job in that industry was to figure out how to maximize the effective use of digital storage. I think the facts are starting to bear out my earlier argument. Most people in the industry believed that the 80/20 rule would hold true when users had tens of thousands of titles to choose from. I don’t think I had any particularly bright insight since in my eyes Amazon had already disproved the 80/20 myth, but, as they say, hindsight is ….

It’s Catch 22, All Over Again
If you read my blog regularly, the exercise of “putting on your RIAA” cap is getting a little worn so today I’ll just cut to the chase. If you’re a label trying to figure out whether to invest marketing dollars into your favorite talent, you’ve got a real catch-22 on your hands. 1) Invest more dollars and possibly not get as much money back because the stars don’t sell as many copies; or, 2) Spread out your money on more artists with the knowledge that you may not be spending enough to move the needle of public opinion on any one artist.

Unfortunately for the music industry the option of “don’t spend at all” doesn’t make sense because “sampling” hasn’t found a better form of expression. That last sentence might have sounded like gobbletygook and I think it deserves its own post – stay tuned for Part II.

Tuesday, January 2, 2007

The Year Was 1982

My assertion for today is that the recording industry has seen its heyday and it’s absolutely unclear how they’re going to save themselves. Let’s see if you agree with me.

In 1982, the audio compact disk or “CD” was introduced to the eagerly awaiting public. If you were an exec in the record industry that year it would have seemed that the world was yours for the taking! The once-in-a-lifetime chance to sell music lovers a new, more expensive copy of the same thing they already owned and loved! Ironically, the very technology that brought superior sound quality to the masses signaled the apex of power for the recording industry rights holders. How could that be, you ask?

The Hi Def Moment
Despite the claims of audiophiles, most people can’t perceive better sound quality than is provided by CDs. For the recording industry their “hi def” moment was over 20 years ago when CDs started supplanting records and tapes. Unfortunately for the industry there’s now no more product innovation to be had by increasing the quality. Contrast that with TVs, DVDs, and games. Those products have been progressing steadily over the past decades.

The difference between video games in 1982 and now is stunning. We’ve gone from the Atari 2600 to the X-Box 360 – and gaming technology has no end in sight with things like modeling individual hairs on a character or shards of glass in a broken window pane. DVDs didn’t even exist then – and they are about to be upgraded to Hi-def standards like BluRay and HD-DVD. Conceivably, 15 years from now we’ll look at current HD video and think “yuck”.

Perhaps I’m mistaken but 15 years from now we’ll look back on current CD quality audio and think “same old, same old”. CDs may be outmoded by then, but the new media storage won’t give perceivably better audio quality.

When Quality Is No Longer A Possible Innovation Point
Let’s put our RIAA caps (helmets?) on for a little while. I guess when you can no longer make your product better in the most obvious sense your options are as follows:
a) re-invent the product
b) co-opt a related product
c) attempt to preserve the status quo

As RIAA execs we view our $15 Billion+ annual industry as a sacred cow. With regard to option (a) I’m not sure about you, but I’m a little scared to walk into the boss’s office and tell him “let’s do the ‘New Coke’ thing!”

Let’s then look at option (b). The first big problem with this is ... what related product could be co-opted? There is no equivalent of the web-browser to be integrated into our operating system. Even if there were, with the exception of Microsoft, most enterprises don’t successfully co-opt new technologies within the context of multi-billion dollar industries. Microsoft co-opted the web browser and killed whatever chance Netscape had of becoming their angel of death. However, Microsoft has the advantage of having some really gutsy executives like Bill Gates around. I’m pretty gutsy but no one in the music industry commands the power that Mr. Gates does in Microsoft.

So, as RIAA execs we’re left with whatever the final option is.

Preserving the Status Quo, Consumer Revenge – Now What?
CD sales still account for 96% of music sales. iTunes seems pretty successful but it has barely made a dent. The only way to read this is that RIAA has been phenomenally successful at maintaining the status quo. The truth is, RIAA has a monopoly – they’ve got the rights to songs and we (the consumers) have to live by their rules in most circumstances.

Life is good as a monopolist because if you’re the only guy selling water in the desert you can charge pretty much anything you want. The problem RIAA has is that illegal download services like Napster and Grokster gave expression to what I call “consumer revenge”. Consumers have been gouged by RIAA for a long time, there’s no disputing it. Unlike some, I think that consumers generally shy away from activity that is generally understood to be illegal. Therefore, when consumers engage in widespread illicit behavior they do it only when they really feel like they’re getting screwed. When that happens, if the opportunity presents itself, consumers fight back with a vengeance and the phenomenon is something akin to civil disobedience.

In the final analysis, RIAA is now trying to figure out how to bring the glory days back. Unfortunately, they haven’t offered us anything new or exciting in over 20 years. Maybe, just maybe, some enterprising company will invent something new and compelling that grows the music industry - if and when that happens its unlikely that RIAA will go along with it willingly.