"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.

Welcome EMI. Nice Meeting You.

I want to officially welcome Elio Leoni-Sceti, Ronn Werre and Sylvia Coleman of EMI to my little site. I was in London a couple of days ago with a friend and we just  happened to bump into the three of them and I was introduced. They told me that they were avid readers so I wanted to give them the royal treatment. In all fairness, they were very nice and had a good sense of humor about my stupidity and abuse of EMI. So I guess that I have to reciprocate and be nice. By the way Sylvia is extremely smart and Ronn and Elio showed that they could roll. Oh, and Ronn. We should talk about that friend of mine that I mentioned.  :-)

So guys, can I still beat up on Terra Firma?

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

Life Is Good At EMI

Here’s a really good one for you. Last week EMI sales reps started making calls to many if not all of their small accounts, mostly independent mom & pop stores, to tell them that they would no longer sell them product!!! Were these accounts bad payers? Nope. Would they not stock catalog or new artists? Nope. Then why in God’s name, you may ask,  would they simply cut loose paying customers? The answer given by sales reps — cost cutting.

So let me get this straight. EMI intends to save money by not selling their CD’s to independent retailers. Instead they want these retailers to go to one stops for their product.  These retailers are the only ones who buy catalog anymore. You sure can’t find it at Walmart and Best Buy. These are small businesses who have been loyal customers of EMI for 20, 30, 40 or more years. Like in the movie High Fidelity, these guys know every catalog number ever released. Every disk ever cut out of the catalog. They live and die by making personal recommendations to their customers–turning them on to new music. These shops are where music lovers go to discover and buy music. Several I have spoken with are so upset that they vow never to buy any EMI catalog again–or any new artist releases either. Only the certifiable hit product that they know will sell. They will no longer take chances on new EMI artists.

So I guess it just isn’t worth it to EMI to take these orders over the phone anymore. Too labor intensive. And after all, they’re doing so well that they really don’t need the business. Small potatoes. Let ‘em eat cake.

INTERESTING UPDATE: In making this policy change, EMI took the unusual step of notifying these retailers by phone instead of the standard letter. Could it be that they didn’t want anything in black & white?

Also, don’t forget that by being forced to buy from a one stop, not only does a mom & pop retailer pay more for his product (cutting into the already slim margins and pricing pressure from the likes of WalMart, etc.), but the one stops don’t carry nearly the depth of catalog that these guys need in order to make a living. And is this really a good strategy for EMI to introduce their new artists?  Another gripe they have is that now they won’t even get new and/or important releases (does EMI have important releases? Maybe the upcoming umpteenth release of remastered Beatles catalog) on Tuesdays, the new release day. It just makes it all the more difficult for them to compete and stay in business, even if it we were experiencing better economic times.

© 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.

The study was commissioned by Wiggin, one of the top media and technology law firms in the country. Firm partner Alexander Ross told the BBC “A letter would not be enough. It does take an ultimate sanction.” (By the way, Alexander is not only a great guy but brilliant too.)

The survey also revealed that ISP’s would rake in bigger profits if they switched from flat rates to a metered plan. A sort of pay as you go model.  Heavy consumers of video and online games would pay a premium to maintain their access to these sorts of content, according to Ross.”The suggestion is that if ISPs develop content services of their own and tier their access there are ready and willing customers for it.”

Consumers apparently are getting more and more comfortable with watching on demand TV on a PC.  The survey shows that use of the BBC iPlayer and similar UK TV web services has exploded in the last year. However the leap from laptop to family room TV set is still a bridge too far for many consumers, saying that it is still to difficult to make the PC to TV set connection. But once TV manufacturers and  device makers simplify the process and actually begin to build wi-fi connectivity into sets, the demand for services will skyrocket.

“The distinction between the sit back experience of scheduled broadcasting and the sit forward experience of on demand access is becoming ever more blurred, and consumers are driving the convergence,” said Mr Ross.

So will this convergence actually ignite more illegal downloading of movies and other video content? Could it become so second nature that the masses just won’t know the difference between what’s legal and what isn’t? The flip side of the coin is that ISP’s certainly don’t want to go around disconnecting their customers. Next week the British government is releasing a final version of the Carter Report, which will tackle the issue of web piracy and possible “technical solutions” to the problem that could involve slowing down connection speeds for habitual offenders.

In light of the Wiggin report, it will be very interesting to see what the government comes up with. The odds are better than 2 to 1 that it will be something goofy.

© 2009, Wayne Rosso. All rights reserved.

Eeeeuuuuu. What's That Smell?

I know that I have been writing a lot lately about EMI. I know that it seems as though I’m beating up on them. But to paraphrase the great Willie “The Actor” Sutton’s response when asked why he robbed banks, “Because that’s where the money is”.

Last week brought lots of news from the ongoing soap opera that is now EMI. Losses, write downs, artist discontent, and what seems like endless executive turmoil have marked the tenure of new owner Guy “Ham” Hands. Mr. Hands, when acting as CEO of EMI, alienated artists and managers to the point that it boiled over into name calling in the press and threatened liable suits. There exists in the UK music industry a group of very influential artist managers who are referred to as “The Black Hand Gang”, and they all have or had important clients signed to EMI. The group includes Jazz Summers, Tim Clark and David Enthoven, Brian Message, Dave Holmes and loosely works together as sort of an ad hoc artists’ rights group in regard to their EMI artists. The Black Hand Gang holds all of the EMI major artist assets and Hands did not make a very good impression on them. So he finally wised up, some would say too late, stepped aside and brought in the perfect man to save the business–an Italian executive experienced in marketing soap suds.

Now things seem to be lurching into high gear. The Rolling Stones, Supergrass and Radiohead left the label and Coldplay only delivered their last mega-selling album on the condition that EMI have absolutely nothing to do with the marketing. Coldplay would handle it themselves and EMI would foot the bill. Then Coldplay decides to give away their next album, a live throwaway compilation, denying EMI some much needed billing. But the UK’s Daily Mail broke the story last week that EMI’s young female superstar Joss Stone is so pissed that she’s actually willing to buy her way off the label! You know you have problems when an artist is actually giving money to a record company.

Prom King Guy With His Queen

To compound the situation, The New York Post also reported on a rift between the once good chums Guy Hands and soap selling EMI CEO Elio Leoni-Sceti. The Post reports that the two came into conflict over EMI North America COO Ronn Werre. It seems that Hands wanted to give Werre a “take it or leave it” offer once his contract had expired. Werre went out and got a better paying job at Sony. Hands got pissed and wanted Elio to hire back Werre at any cost. Elio was embarrassed and Sony sued. So the upshot is that Werre is swinging a big dick, Elio has been emasculated and Hands feels like Henry VIII with a new girlfriend. So don’t be surprised if Ronn Werre suddenly becomes Guy’s new Jane Seymour to Elio’s Ann Bolyn and is crowned queen of the EMI prom.

Jr. Moves To London

And just to prove that all of the action is in London these days, our genealogically advantaged little buddy Edgar Jr. is rumored to be moving there. So how does all of this play into Warner Music’s longstanding effort to gobble up EMI? Pretty well, I imagine. Jr. will now be siting on the sidelines with the ability to quietly stoke the overheated British press and further pick away at the ailing EMI. The Brits look upon EMI as a national trust in a sense. A part of the English fabric. So it will be interesting to see how Jr. will sow the seeds of public discontent with Terra Firma’s ownership of the company.

So who will be the next artist to jump ship at EMI? I have nothing but gut instinct to base this on, but my guess is Robbie Williams, arguably EMI’s biggest star. My guess is that Williams and his management are so disgusted with what’s been happening at EMI that they feel they just don’t need them anymore. Why? Because IE Music, Robbie’s management firm, has a longstanding business relationship with Ingenious Media, the top media investors in Europe and one of the few independent investment firms committed to the music space. And besides, the IE guys know what they’re doing. And they don’t need EMI. At all. And don’t kid yourself–EMI made plenty of dough on the first of what is now called a 360 deal. If you knew how much revenue Robbie Williams generates, mostly outside of the US, it would bring tears to your eyes.

When Terra Firma first took over I was in touch with Guy Hands and company. I was having one of several long conversations with one of Guy’s emissaries one day–they were still moving into the EMI building, it was that early– when I told him that everyone in the record business would do everything they could to make Terra Firma’s EMI fail. He was astonished and asked why on earth that would be. My answer was simple. Schadenfruede. In the music business its not good enough for you to succeed, you must also see your friends fail at the same time. That no matter how progressive EMI planned to be, they would meet resistance from every other label. It ain’t like running rest stops on the autobahn. As it turns out, I was wrong. They’ve fucked up so much that they didn’t need help from anybody.

© 2009, Wayne Rosso. All rights reserved.