"It would be in your best interest to accept our generous offer"

The guys at Torrentfreak do a terrific job of covering the torrent and p2p scene. I’m always amazed at the stories they break and the excellent writing. And if I understand it correctly, they do it in their spare time when not at their day jobs.

Last weekend they broke another story that I found particularly interesting. Torrentfreak’s Ernesto reported on DigiRights Solutions (DRS) a German company that published a powerpoint sales and marketing presentation to push its anti-piracy services.

After initially running through some pretty mundane stats about how much online piracy is costing copyright owners, the DRS presentation goes through their process of finding and pursuing users who illegally download songs and movies. They explain that after they find the alleged downloader, they send out an email demanding a payment of 450 euro ($650) per file. DRS keeps 80% of whatever they collect thus leaving 20%, or 90 euro ($130) per download, for copyright holders.

Then suddenly the presentation turns into a pitch comparing the profitability of legal and illegal downloads. Ernesto goes on to report :

“A legal online purchase of a song brings about €0.60 into the pockets of the copyright holders compared to the €90 per alleged file-sharer that pays up. So, the copyright holders get 150 times more from pursuing filesharers than from selling actual music, the company claims.

However, not everyone who receives a letter will pay up, but DRS says that an impressive 25% of all recipients do without asking questions. This figure is much higher than most people assumed previously.

DRS states that it’s realistic to track and pursue about 5,000 filesharers per month per title. Considering that 25% of those people pay the €90, then the copyright holders would have to make about 150,000 online sales. Which is equal to the number of sales that are required for a Gold record award in Germany.”

Needless to say, this is absolutely bizarre and outrageous. Rarely are such blatant attempts made to turn piracy into a profit center, especially when the labels do not have to share this type of revenue with the creators.

Evidently DRS is currently successfully operating in the UK and Germany at the moment, but are clearly looking toward other territories. The fact that the UK government, or any government in fact, would allow such legalized extortion is beyond the pale. I understand that European governments are moving quickly to quash illegal downloading and that’s fine. But to allow and condone the organized extortion of its citizens by a private for profit company heralds new lows in the war against piracy.

This brings to mind the famous confrontation between Joseph Welch and Senator Joe McCarthy at the Army-McCarthy Senate Hearings in 1954 when Welch effectively put an end to McCarthy’s reign of terror when he said “Have you no sense of decency, sir, at long last? Have you left no sense of decency?”

© 2009 – 2010, Wayne Rosso. All rights reserved.

Hey Guys, Don't Take Their Check!

Yes, I’m back. Apologies for the long hiatus, but I was busy with some knucklehead who had the world convinced that he was going to buy the Pirate Bay. Oy vey. What a story.

I’ll get into all of the details in the coming months. It’s one of the weirdest chapters of my extremely unconventional life.

But in the meantime, check out my column in The Music Void about the latest legal woes of my hero, the Baghdad Bob of digital music, the one, the only Allen Klepshitz of Qtrax. Read about it here.

© 2009 – 2010, Wayne Rosso. All rights reserved.

Now that we have finally found the perfect business model for Twitter, counter revolution, along comes the NPD Group with one of those annoying reports that it just loves to churn out. This time NPD says that Twitter users buy 77% more digital downloaders  than non users. There’s a bunch of other stats, but this is the one that will get every major record label awash in hormones, panting and frothing, rushing to shove every piece of shit down the Twitter pipeline.

Once record labels discovered that MySpace was full of music lovers, they completely drowned the service with every amount of crap imaginable, turning it into a total mess. They had a&r people scouring the service, looking for the next big thing. I’m not sure that strategy has been successful, but as a whole MySpace has become completely diluted. Look for history to repeat itself.

If you weren’t sick of Twitter to begin with, you sure will be soon.

© 2009 – 2010, Wayne Rosso. All rights reserved.

But the interesting ray of light was buried in the story.

“We’re not going to have $14 billion in iTunes and Amazon sales no matter what we do,” says NPD Group VP/senior industry analyst of entertainment Russ Crupnick. “There’s still tens of millions of people who haven’t tried the digital music model. Half of them have digital music players. Some of them use. We’re not making the case for them to buy as many CDs as they used to and not making the case for them to buy anything from digital. Variable pricing is irrelevant.”

This is where other new digital business models could come into play, such as Nokia’s Comes With Music model and the kind of collective licensing being pioneered by Choruss, both of which would bundle the cost of music into other services or products. Both rely less on a revenue-per-unit model and more on revenue-per-user. Or “pricing the consumer versus pricing the content,” as one label digital executive puts it. “We think the real story around price as it relates to the audience for digital music is with respect to the new business models that are user-based as opposed to wholesale price-based.”

I sure would like to know who the unidentified label exec is who spoke out of school, because it finally points to a hint of intelligence. Could it be that labels are finally catching on to the concept of monetizing traffic? Are they finally moving away from the unit sales mind set of the past?  Rumor is that the labels are restructuring their deal with imeem to reflect a per user rate instead of a per stream royalty rate. I hope for imeem’s sake that its true. But what’s to keep major label greed from being unrealistic in their pricing in a “per user” model? Nothing. If labels are finally moving in this direction, they deserve credit. Better late than never. After all they’ve already led to the loss of tens of millions of dollars that investors sank into a multitude of music services that failed due to the labels’ outrageous demands and shifting strategies, making it nearly impossible for a start up to get legitimate funding. And based on history they have always manage to get greedy and fuck things up. Nobody ever loses a job for saying “no”. If label execs don’t start saying “yes” they’re going to lose their jobs anyway because there won’t be any music companies around to work for.

© 2009, Wayne Rosso. All rights reserved.

A friend in London was telling me a crazy story. Everyone knows that EMI has been cutting staff like they were lepers over the last couple of years. During this “reorganization” period they apparently had decided to fire most of the digital media people with the intention of outsourcing it instead.

They’ve apparently now done a complete about face and are actually trying to rehire many of the same people they fired over the last year with the intention of bringing the digital media stuff back inside.

I don’t know about you, but my head is spinning so much that I think I’m going to throw up.

© 2009, Wayne Rosso. All rights reserved.

But something that I am definitely clear about is my assessment of the Virgin Media/Universal Music service and its potential. At first blush, one would be inclined to celebrate this as a great innovation and a huge step into the future. The media was all frothy about it. After all, the media usually likes to go out there and scratch the surface. But when I started to drill down a bit, I found some nagging, even troubling, details.

First of all, let’s do the math. According to Virgin Media, the 10-15 GBP per month will give you unlimited streaming and mp3 downloads from Universal’s catalog. Fine. But how much will the service be when the other 3 majors are signed on? They’ll certainly want the same amount of dough that Universal is getting. So this will effectively bring the price up to 25-40 GBP a month. That’s a significant price barrier. Many say that 10 GBP is too much. But let’s move on.

So let’s assume that you’ll have a service that is minimally 25 GBP per month, a tough sell by any means. What’s the value? How many itunes does the average user purchase every month? I would suggest certainly not more than 10-15, or the equivalent of 1 CD a month. So what’s to keep someone from subscribing to the service for a month, filling out their entire library with let’s say 3000 tracks, then dropping the subscription and and just purchasing the hit singles they want a la carte on itunes? Nothing. The truth is that the average consumer would actually be overpaying!

This service will only be valuable to extremely heavy music consumers. And when it comes to that type of customer, Spotify represents a much better value at 10 Euros a month (less than 8.5 GBP). In fact,  it is a better value for  casual consumers as well. Spotify offers what no record label sponsored service can: a lush user experience. The labels still don’t get it. It’s not just about their content. Users want a rich experience. It’s all about search and discovery. Spotify has that experience. The labels have consistently failed to deliver on that level. Look to the upcoming Vevo project and you’ll see. Who gives a shit about it. Vevo is just a music video channel on YouTube. So what? Doesn’t really show a lot of creativity on the part of Universal and Sony.  The Virgin Media/UMG service just smells way too corporate. And it will be. Third party services have to be extremely creative in order to compete and the arrogance of major labels makes them think that all they need to do is offer their content. Build it and they will come. Not necessarily. And I’m willing to bet that they’re incapable of building a compelling user experience with an organic, grass roots, music lover’s feel.

Virgin Busts Downloader

Now the troubling part. As part of the trade off, Virgin Media has agreed to use packet sniffing technology to police downloading. Now I ask you, do you want to give up your privacy in order to download all the overpriced music you want? It just doesn’t square. Another thing I’m not sure about is how would Virgin know if you’re illegally downloading something? Can they tell the difference between downloading a bit torrent of a Maria Callas recording that’s in the public domain and one that’s not? If any of you out there can bring some clarity to this, please do so in the comments section. I know that if I were a Virgin Media customer, I’d be on the phone to BT right now to switch my service. It’s a very slippery slope and if Virgin thinks that sucking up to UMG will get them anywhere they’re nuts. I’m sure that they’re also trying to brown-nose the government as well, but you don’t see the other UK ISP’s rushing to duplicate the model. If they did, that could then lead to every ISP snooping on their users and acting as a private police force for record labels. It just doesn’t sit well. The great Peter Kafka made an interesting comment in his ATD post today regarding  the US  music industry saying  ” [individual user] lawsuits are supposed to be relics of the past, replaced by a new strategy whereby music labels convince Internet service providers to help them police piracy. But while the industry floated the concept six months ago, it has yet to get a single cable company or telco to sign on. And even if they do, there’s not a whole lot of incentive for the likes of Comcast (CMCSA) or AT&T (T) to really crack down on music pirates, who don’t take up much bandwidth and don’t steal anything the pipe guys care about”.

And what about competition? Now that an ISP is doing direct deals with the majors, how does this effect the Spotify’s, iTunes, and Passionato’s of the world? Could Virgin make life difficult for these services? What would the EU say about that? I guarantee that the French and Spanish would bitch like crazy. And I don’t see that going over well in the US either. Consumer groups in the US like Public Interest would go ballistic.

What’s interesting is that the market has changed and this model will work, that is if it was 2004. Now, I don’t think so much. The industry, as usual, missed the window of opportunity and is again way behind the curve. The fact it that downloads matter less and less these days with the advent of inventive new streaming models, especially Spotify’s mobile app. In my opinion, the service will get a lukewarm reception at best. There will be an initial surge of interest and then it will die down substantially. Virgin will have done its best to actually lose customers, sending them into the arms of non-meddling competitors. They’ll learn that looking backward will have cost them more than they could ever make from some crappy major label sponsored subscription service. The only ones who win are the record companies. Don’t forget the major label mantra….”Heads, I win. Tails, you lose”.

© 2009, Wayne Rosso. All rights reserved.

Among 5-star Hong Kong hotels, Langham Place Hotel Hong Kong is unique…

Langham Place captures the vibrancy and buzz of local culture like no other. And presents it in a way that’s invigorating, engaging, fun! You’ll feel refreshed and inspired as soon as you step inside. You’ll also find every conceivable modern indulgence, including our luxury Chuan Spa.

Langham Place Hotel Hong Kong – the place to be in Hong Kong!

Sounds great, no? And looks pretty nice, as you can see from this link to a little photographic tour of the hotel. Now why in God’s name would anyone care about this beautiful hotel in Hong Kong? No one really. Except our man Honest Al Klepshitz who has been holed up there all week, dropping in on this site at least 40 times thus far. And it’s only Thursday.

Welcome back, Honest Al.

UPDATE: 49

UPDATE: 43

UPDATE: 41

© 2009, Wayne Rosso. All rights reserved.

There was also an interesting story in the NY Times yesterday about how record companies are becomming more “flexible” in their licensing terms. It’s about time. But my guess it that it is still not enough. Record companies have been stuck in their alternate universe for so long that they still don’t understand that the value of their content isn’t what it used to be. And they have to face the reality that now music is basically free. Anyone can get anything anytime. And suing the masses just doesn’t work. In fact, suing anyone just doesn’t work. So they sue a start up and put them out of business. So what?

When I was with Grokster, one of my mandates was to try to talk sense to the record companies and work with them to convert file sharers into music buyers. I would get one of two answers from every record label: 1) we don’t reward pirates; 2) shut down and then we’ll talk. Naturally both answers were utterly ridiculous. Addressing the later first, the labels were so stupid that they all thought that there was some master switch behind a curtain somewhere that we could flip to completely shut down the network. And they refused to believe it when we swore that was not the case. And even if we were able to shut down the network completely, what good would do to cut off millions of potential customers? They just didn’t understand that once you lose them you’ll never get them back. Just ask Napster.

In the first case, let’s dig into the history of the record industry. To say that they don’t reward pirates is utter fallacy. How do you think that they would combat rogue cd plants in Asia that they could not shut down? They made them authorized distributors! They just couldn’t understand that they could and should employ the same strategy with file sharing companies. Now I will admit, when the file sharing companies were winning in the courts before the Grokster case got to the Supreme Court, some of the p2p guys were getting a bit uppity. But that’s no excuse. The goal was to form an alliance that would work for everyone. The guy who tried to break the logjam was Andy Lack when he became CEO of Sony Music. But that’s another story for another time.

A lot of music people, most visibly Paul McGinnis (U2′s manager) want the ISP’s to protect their content. That’s ridiculous. As is the Warner Music proposal to get ISP’s (or colleges and universities) to pass on a “music surcharge” to its customers, just like a tax on your mobile phone. Also ridiculous. It’s just not the ISP’s job, nor in their best interests to do so. Content owners are responsible for their content, no one else. That’s always been the case. ISP’s are not government agencies and thus are not assigned that responsibility. And the bellicose arrogance that the recording industry has historically displayed have not exactly endeared them to anyone, including their own customers.

Jim Killock, executive director of the The Open Rights Group – a UK based group that works on digital rights and freedoms, told the BBC “We need a compelling ‘all you can eat’ music service to reduce illicit file sharing. But [we need] to remember that extreme enforcement measures would probably be very unfair and make people angry.”

So now we’re here in 2009 and something akin to the Sunni Awakening is being suggested by the NY Times article. But just like the Sunnis, record companies have to avoid overreaching. They have already made the investment climate nearly impossible for start-ups to get viable venture capital, as VC’s have learned not to trust them. The major label deals thus far have made it impossible for a start-up to succeed. What they now have to do is much more than is even suggested in the Times article. They have to truly want new companies to succeed and help them do so instead of looking at them as cash cows for big advance payments and high royalty rates in order to bolster their bottom lines. That was and is harmful short term thinking. What they have to learn is that they are all in it together. A-salaamu ‘alaikum.

© 2009, Wayne Rosso. All rights reserved.

But what is most interesting is that this particular case as well as the newly files case by Millennium Technologies and yet another case seem to establish a pattern of how Allen Klepshitz “settles” these matters. Two words: rubber checks. In the Alpha/Osher case, he had settled the claims at the last minute after dragging the case on for years. He gave the plaintiffs 2 post dated checks for $250,000 as settlement. But both checks bounced! So this latest judgment is a result of the plaintiffs new case to collect on the rubber that Klepshitz gave them. Are you following?

So as we see in the Millennium case, he bounced yet another check on them. But let me introduce to you a gentleman by the name of Peter Goerke. Mr. Goerke also sued Klepshitz and the case was evidently settled. Klepshitz paid Goerke with 2 checks, one for $88,900 and another for $12,700. And guess what? Both checks bounced. So Goerke had to file yet another suit, to which he was awarded a summary judgment, in order to collect on the bad checks. Not only that, but when Goerke got his summary judgment, Klepfisz had to be threatened with contempt of court in order to get him to pay up!

Is this man a serial check bouncer? You tell me. But one thing is for sure: if Kelpshitz owes you money, get it in cash and still make sure its real!

© 2009, Wayne Rosso. All rights reserved.