Blocking the Pirate Bay: A Tale of VPNs, Proxy Servers and Carrots

Today the UK’s High Court ruled that UK ISPs must block access to the Pirate Bay on their networks.  The idea isn’t a new one, Wippit’s CEO Paul Myers first touted the idea of UK ISPs voluntarily blocking access to P2P sites nearly a decade ago.  In some ways it is intriguing that it has taken so long for media industries to come round to the idea of enforcement via domain blocking rather than going straight after file sharers themselves.  The Sopa / Pipa legislation had many faults but it was markedly more forward looking with its focus on blocking domains than the old school French Hadopi bill which opts instead for the ‘punish your own customers’ approach.

Of course domain blocking itself is beset with challenges and moral dilemmas, but of the tools available to media companies domain blocking can make a pretty compelling case for being the best blend of effectiveness and consume friendliness.  After all, the aim of any piracy enforcement is not just to stop the activity but also to persuade illegal downloaders to become paying customers.  It is much easier to try to convert a file sharer who is getting frustrated not being able to find free unlicensed downloads than it is one who you have just taken to court and sued for damages.

There are however two key technical challenges surrounding domain blocking:

  • VPNs: Virtual Private Network (VPN) applications can enable a user to tunnel out of their ISPs’ network, bypassing domain filtering systems such as BT’s Cleanfeed system which will be used to implement the Pirate Bay ban. Although VPNs have well established legitimate business uses, a number of VPN providers, such as BT Guard, are positioning themselves explicitly as tools to evade piracy enforcement. VPN providers may become the next front in the war on piracy, with media companies likely to start subpoenaing their user activity logs.  Some providers have already started putting anonymity systems in place, such as not tracking IP addresses and deleting logs after 7 days.  Proxy servers – which can be used to circumvent domain filters – are another option, often used in conjunction with VPNs.
  • New domains: the most challenging aspect of domain filtering is keeping track of all the new domains.  Earlier this month in Belgium the Antwerp Court of Appeal imposed a Pirate Bay domain block on two Belgian ISPs, a band which covered 11 associated domains.  Within days the Pirate Bay had registered a new domain depiraatbaai.be though that was swiftly added to the ruling and Belgian users now get this message if they try to access any of the Pirate Bay domains.  The Belgian example illustrates how easy it is for new domains to come into play.  Effective domain filtering is an iterative and continual process that can only work well with willing cooperation from ISPs.  Going to the High Court to secure a new ruling every time there is a new domain is simply not viable.

The aim of domain blocking, as with all piracy enforcement measures, is not to turn off the tap entirely but instead to make it so inconvenient for mass market consumers that the activity will become unappealing.  So the technical challenges need not be fatal flaws in domain filtering strategy if the net result irritating inconvenience for most users.

The Pirate Bay has had the unusual effect of creating a centralization of activity for decentralized file sharing.  As networks went decentralized to evade enforcement, the Pirate Bay pulled the Torrent diaspora together to create a nice big juicy target for media companies.  Removing the Pirate Bay from the UK web will have a significant impact on file sharing, at least in the short term.  There are only a handful of other public sites that index torrent files and have a working tracker, though there is a longer list of sites that have indices but not trackers.  If the music industry acts quickly and puts something new and compelling in place to capture the demand of frustrated Pirate Bay users then there is a strong chance that a host of new digital music customers can be won.  But that means a new generation of product.  The 99 cent download and 9.99 subscription have proven patently uninteresting to the majority of digital music consumers (by which I mean people who listen to music digitally and / or access it digitally).

The alternative is the risk of some of those users simply falling out of the music consumption arena (as appears to have happened in the US) with the rest soon being catered for by a host of new unlicensed alternatives filling the demand vacuum.

A carrot and stick approach is always going to be an evolving strategy.  But when the stick changes, so must the carrot.

What Happened to the RIAA’s Missing 3.5 Million?

The RIAA has highlighted research which indicates that its closure of P2P site Limewire has significantly reduced P2P levels in the US.  Unfortunately the evidence is not as clear cut as it may first appear.

According to the various sources the RIAA cites (mainly a combination of Nielsen and NPD data) the effects between September 2010 and September 2011 in the US of Limewire’s closure were:

  • 95% reduction in usage of Limewire by its users
  • Total P2P users declined by 9 million
  • Total legal downloaders grew by 5.5 million

An immediately apparent trend is that 3.5 million P2P users appear to have disappeared entirely from the digital music consumption landscape (i.e. 9 million ‘lost’ P2P users minus the 5.5 million new paid downloaders).  For argument’s sake let’s assume that 100% of those consumers that abandoned P2P switched straight to paid downloads. That would mean that 39% just dropped out of digital music.  But of course a 100% transition is improbable.  Also many (the majority?) of the new downloaders will not have previously been P2P users.  So what happened to the missing 3.5 million?  The answer is found in a combination of three factors:

  • P2P is a technology in decline for music piracy.  Consumers are going elsewhere, to what I term Non-Network piracy.  That is, activities such as Bluetoothing, harddrive swapping, phone ripping, darknets, binary groups, lockers etc.  Individually each activity is small but collectively this is where music piracy is heading.  I remember in my days as a JupiterResearch analyst that as we watched German P2P penetration decline steadily year-on-year in apparent response to music industry anti-piracy measures, we also saw Germany become Europe’s largest Non-Network Piracy market, actually exceeding P2P penetration.  And that is going back a lot of years now.  Today much more still needs to be done to better understand Non-Network Piracy, particularly so in the age of cloud-based music experiences.  Because the same arguments about ownership mattering less for legitimate services apply to piracy.  Downloading an MP3 file from BitTorrent may seem as incongruous to a Digital Native as buying a CD.  Measuring piracy effectively in the age of cloud means viewing illegal streaming services and even music blog streams in the same way as illegal downloads.
    Bottom Line: many of those missing 3.5 million will actually be happily sating their appetite for free unlicensed music via Non-Network Piracy.
  • People lie.  I’ve been tracking music piracy for long enough to know that it is unwise to draw definitive conclusions about year-on-year trends.  In Sweden for example, in the early and mid-noughties P2P penetration dropped from 28% to 18% following the closure of a legal loophole and then again to 12% following government enforcement.  Within a couple of years penetration was back up in the mid 20’s%.  Furthermore the main ISP Telia reported that it had seen no noticeable decline in P2P traffic levels.  As Dr. House’s mantra goes ‘People Lie’.  On the one hand this proves that enforcement is effective in that it makes people conscious they are doing something wrong and don’t want to admit to it, until the heat dies off. But on the other it suggests that the impact can be superficial for many file sharers.  Though untruthful respondents should be less important for Nielsen’s panel methodology than NPD’s survey methodology, bear in mind that file sharers are often pretty savvy consumers who use dedicated computers for download.  So it is not unreasonable to expect many to switch their P2P activity from their metered PC for the same reason they wouldn’t admit to file sharing to a survey vendor.
    Bottom Line: surveys are better at measuring consumer attitudes to piracy than they are actual behaviour. 
  • Limewire is closed! A 95% reduction in usage of Limewire by Limewire users sounds pretty impressive until you consider that the site was actually been closed down by the RIAA in October 2010.  Limewire agreed to ‘stop supporting and distributing’ its P2P client.  A number of unauthorized spin-off clients (such as LimeWire Pirate Edition) were created but a visit to Limewire’s site reveals a message urging users to refrain from using these apps and to remove them from their computers).
    Bottom Line:the majority of Limewire users unsurprisingly stopped using the defunct client. 
  • P2P users are holding their breath. A significant share of the missing 3.5 million may well have stopped downloading illegally for now.  But if they are not buying downloads nor using Non-Network Piracy then they have markedly changed their music consumption behaviour,  perhaps increasing their use of YouTube, listening to more radio, watching more music TV.  For active music downloaders this means an effective dis-engagement from music, falling on the ‘supporting’ channels as their main behaviour.  This will have 1 of 3 long term outcomes: 1) they remain disengaged, casual music fans 2) they finally opt for legal services 3) they eventually go back to piracy.  Of the three, the third is the most likely outcome.
    Bottom Line: nature abhors a vacuum.

Whack-a-Mole Remains Firmly Game-On

The last factor is arguably the most important, particularly in the context of locker services running scared in the wake of the Megaupload arrests.  The demand for free music remains whatever happens to supply.  Closing most of the current illegal channels creates a demand vacuum that will unfortunately be filled, and the history of music piracy to date teaches us that what comes next will be even more difficult to enforce than its predecessor. However there is a fortuitously timed wildcard factor which may help aid the digital transition.  Since July 2011 Spotify has been available in the US, so many of those lost Limewire users may quench some or all of their free music thirst there.  But because we still don’t have any definitive data to suggest that Spotify is reducing piracy so we must keep Spotify as a wildcard for now.

The slightly depressing conclusion in all of this is that the Whack-a-Mole game is not over. But encouragingly the RIAA’s Joshua Friedlander states:

The single most important anti-piracy strategy remains innovation, experimentation and working with our technology partners to offer fans an array of legal music experiences.

I couldn’t have put it better myself. Of course enforcement remains an important part of the mix, but there is an increasing risk of negative ROI (both in financial and publicity terms) that the music industry can ill afford at the moment. Closing down sites hits supply not demand. The solution to piracy lies first and foremost in innovating to meet those clearly demonstrated consumer needs.


When the Media Industries Really Need to Start Worrying About Piracy (and it’s not yet)

I’ve been a digital media analyst pretty much as long as mainstream music piracy has been around.  I’ve tracked the rise and fall of many sites, services, networks, applications and protocols, including MP3.com, Napster, Music City Morpheus, iMesh, Audio Galaxy, Bear Share, eMule, Gnu Network, Kazaa, Limewire, Pirate Bay, Rapidshare, Megaupload etc etc.  The point I’m trying to make – other than my career’s slightly concerning alignment with the rise of music’s grey market – is that the sector is built upon reinvention.  And that power of reinvention is the key reason why the music industry has a bigger piracy now than it has ever had before.

Of course there are statistics that suggest the file sharing is on the wane in a few markets – notably Germany – but overall the problem is getting bigger because:

  • Non-network piracy is in the ascendency. P2P is declining in importance as a medium for piracy.  Non-network sharing (hard drive swapping, darknets, Bluetoothing, mini-nets, digital lockers, forums, binary groups, Instant Messaging, music blogs) are collectively more widely adopted than P2P in many major markets and are growing fast.  All tactics of course which are much more difficult to track and police than P2P
  • P2P is getting smarter.  And for those who still do use P2P there is an ever growing array of tools at their disposal that make it harder for their activity to be tracked, ranging from encrypted versions of mainstream P2P apps through to the Pirate Bay’s current shift from Torrents to Magnets

Of course media industries are upping their game too, with major legislative efforts in the US, UK and France, though all with mixed levels of success.   The lesson of the last decade plus though, is of course that whatever actions the media companies take, the piracy problem will be more than a step ahead.  Legislation, judiciary process and enforcement are all slow moving beasts.  Typically by the time media industries catch up technology and consumer needs have moved on.  For example the Pirate Bay looks like it could be blocked from consumers in the UK but a quick search on Google for the name of your content of choice followed by the word ‘torrent’ will serve you up an exhaustive list of alternatives.  Pirate Bay simply isn’t needed anymore.

Do we have the right services?

All of these dynamics are probably familiar to most, but I think we may be on the verge of something very different and of far greater concern for rights holders.  One of the key reasons – some would argue *the*key* reason – piracy is still growing is because the $0.99 cent download and the heavily delayed movie release  simply don’t appeal to most digital consumers.  US VC Fred Wilson recently stated in a Paley Centre debate that ‘we are all pirates’ and that if ‘99% of people are breaking the law then it is the wrong law’.  My twist on that statement would be that if ‘99% of people aren’t using the services that they are the wrong services’. (Of course more than 1% use legitimate services but we are still talking about a nice minority).

Don’t get me wrong, we have some absolutely fantastic services out there for the current installed base of digital music customers, but they are patently not the right services for majority of consumers who account for the 95% of total downloads which are illegal (according to the IFPI).  Regular readers will know that I have been building a case for a music format revolution (you can download my Music Format Bill of Rights report here for free).   There are some really promising first steps happening from some promising start ups but rights complexities are acting as a major decelerator on innovation in this space.

What happens if digital piracy starts to learn from the mobile App revolution?

Of course the grey market has no such problem.  They only ever concern themselves with rights issues if they get taken to court or decide to try to go legit (Napster, Limewire, iMesh, Kazaa etc).  To date the focus of piracy technology has been evading the music industry.  But now, with the revolution in high quality user experiences that the App market has created, there is a very real risk that much of this ethos will bleed through to the grey market.  Indeed there is undoubtedly some direct overlap between the App developer community and the piracy developer community.

The nightmare scenario for media companies is that the pirates turn their attentions to developing great user experiences rather than just secure means of acquiring content.  What if, for example, a series of open source APIs were built on top of some of the more popular file sharing protocols so that developers can create highly interactive, massively social, rich media apps which transform the purely utilitarian practice of file sharing into something fun and engaging?  If you though the paid content market was struggling now imagine how it would fare in the face of that sort of competition.

In the longer term one could hope that such a scenario would act as an accelerator for liberalization and innovation of rights owner practices, but in the nearer term it would be a death knell for many of the current services that have worked so hard to get achieve what they have within often suffocating confines.

Content monetization strategies need reworking too

I’ve said it many times before and I’ll say it again now, and many times again: fighting piracy requires a big fat carrot to go along with the stick.  More than 300 $0.99 download stores in Europe and North America alone is not a carrot.  Now is the time to give the legitimate sector the tools, licenses and support to innovate like never before.  It is also time to recognize that just because piracy users don’t always spend money does not mean that they are not spending.  In the digital age consumers transact in three equally valuable currencies:  Money, Data and Time. Those currencies however are not equally valuable to all industries (e.g. TV broadcasters value time more than record labels, online newspapers value data more than book publishers etc) But it is time for those three currencies to be equally tapped by digital content strategies across all industries (regardless of whether that currency is valuable to them), with supporting ‘virtual commodities’ trading marketplaces in the backend to ensure that all stakeholder ultimately end up getting paid in the currencies they value most.

Unless user experiences and monetization strategies are innovated beyond recognition then the grey market will do it instead, creating a wave of digital piracy that will do for media revenues what the iPhone did for Nokia’s smartphone business.

The Music Format Bill of Rights

Today I have published the latest Music Industry Blog report:  ‘The Music Format Bill Of Rights: A Manifesto for the Next Generation of Music Products’.  The report is currently available free of charge to Music Industry Blog subscribers.  To subscribe to this blog and to receive a copy of the report simply add your email address to the ‘EMAIL SUBSCRIPTION’ box to left.

Here are a few highlights of the report:

Synopsis

The music industry is in dire need of a genuine successor to the CD, and the download is not it. The current debates over access versus ownership and of streaming services hurting download sales ring true because a stream is a decent like-for-like replacement for a download.  The premium product needs to be much more than a mere download.  It needs dramatically reinventing for the digital age, built around four fundamental and inalienable principles of being Dynamic, Interactive, Social and Curated (D.I.S.C.).  This is nothing less than an entire new music format that will enable the next generation of music products.  Products that will be radically different from their predecessors and that will crucially be artist-specific, not store or service specific.  Rights owners will have to overcome some major licensing and commercial issues, but the stakes are high enough to warrant the effort.  At risk is the entire future of premium music products.

D.I.S.C.: The Music Format Bill Of Rights

The opportunity for the next generation of music format is of the highest order but to fulfil that potential , lessons from the current digital music market must be learned and acted upon to ensure mistakes are not repeated.  The next generation of music format needs to be dictated by the objective of meeting consumer needs, not rights owner business affairs teams’ T&Cs.  It must be defined by consumer experiences not by business models.  This next generation of music format will in fact both increase rights owner revenue (at an unprecedented rate in the digital arena) and will fuel profitable businesses.  But to do so effectively, ‘the cart’ of commercial terms, rights complexities and stakeholder concerns must follow the ‘horse’ of user experience, not lead it. This coming wave of music format must also be grounded in a number of fundamental and inalienable principles.  And so, with no further ado, welcome to the Music Format Bill of Rights (see figure):

  • Dynamic. In the physical era music formats had to be static, it was an inherent characteristic of the model.  But in the digital age in which consumers are perpetually online across a plethora of connected devices there is no such excuse for music format stasis.  The next generation of music format must leverage connectivity to the full, to ensure that relevant new content is dynamically pushed to the consumer, to make the product a living, breathing entity rather than the music experience dead-end that the download currently represents.
  • Interactive. Similarly the uni-directional nature of physical music formats and radio was an unavoidable by-product of the broadcast and physical retail paradigms.  Consumers consumed. In the digital age they participate too.  Not only that, they make content experiences richer because of that participation, whether that be by helping drive recommendations and discovery or by creating cool mash-ups. Music products must place interactivity at their core, empowering the user to fully customize their experience.  We are in the age of Media Mass Customization, the lean-back paradigm of the analogue era has been superseded by the lean-forward mode of the digital age.  If music formats don’t embrace this basic principle they will find that no one embraces them.
  • Social. Music has always been social, from the Neolithic campfire to the mixtape.  In the digital context music becomes massively social.  Spotify and Facebook’s partnering builds on the important foundations laid by the likes of Last.FM and MySpace.  Music services are learning to integrate social functionality, music products must have it in their core DNA.
  • Curated. One of the costs of the digital age is clutter and confusion: there is so much choice that there is effectively no choice at all.  Consumers need guiding through the bewildering array of content, services and features.  High quality, convenient, curated and context aware experiences will be the secret sauce of the next generation of music formats. These quasi-ethereal elements provide the unique value that will differentiate paid from free, premium from ad supported, legal from illegal.  Digital piracy means that all content is available somewhere for free.  That fight is lost, we are inarguably in the post-content scarcity age.  But a music product that creates a uniquely programmed sequence of content, in a uniquely constructed framework of events and contexts will create a uniquely valuable experience that cannot be replicated simply by putting together the free pieces from illegal sources.  The sum will be much greater than its parts.

Table of Contents for the full 20 page report:

Setting The Scene

  • Digital’s Failure To Drive a Format Replacement Cycle

Analysis

  • Setting the Scene
  • (Apparently) The Revolution Will Not Be Digitized
  • The Music Consumption Landscape is Dangerously Out of Balance
  • Tapping the Ownership Opportunity
  • The Music Format Bill Of Rights
  • Applying the Laws of Ecosystems to Music Formats
  • Building the Future of Premium Music Products
  • D.I.S.C. Products Will Be the Top Tier of Mainstream Music Products
  • The Importance of a Multi-Channel Retail Strategy
  • Learning Lessons from the Past and Present
  • We Are In the Per-Person Age, Not the Per-Device Age

Next Steps

Conclusion

Megaupload: Another Mole Down The Hole

By utterly amazing coincidence, ahem, just as the US Congress is considering Sopa and Pipa, cloud locker service Megaupload gets closed down and its top executives arrested and refused bail.  The timing is of course important, but nature of the media industries’ latest scalp is even more intriguing.  Megaupload, along with Rapidshare, Filestube and other such services, has been more than a thorn in the side of media businesses, it has been making tens (perhaps hundreds) of millions of dollars of annual revenue by essentially sticking the middle finger up at copyright owners.

Megaupload’s closure has wreaked the wrath of the hacker community with Anonymous taking down various sites in retaliation.  But Anonymous’s anger is misjudged.  This is no blow against Internet Users’ rights, and Megaupload is no evangelist for the hacker community.  Napster’s Shawn Fanning thought he was changing the world, the Pirate Bay’s Peter Sunde thought he was leading a revolution in copyright.  But Megaupload’s Kim Schmitz (aka Kim Dotcom) had no such ideals, for him it was all about the cash.  Just take a look at the opulent excess of his mansion and fleet of luxury cars with registration plates such as ‘Mafia’ and ‘CEO’.   Schmitz earned his wealth not just through advertising but also by charging users premium fees for better download speeds, thus charging people to download illegal content.

Megaupload et al are an interesting anachronism in the digital piracy landscape.  The overriding trend has been for piracy destinations to get more sophisticated and more difficult to tackle each time the media industries take a step forward.  Think darknets, encrypted P2P applications, anonymous networks etc.  Commercial locker services though are easy targets, typically with central servers and clearly defined commercial operations.  If anything, it is surprising that it has taken so long to get Megaupload taken down.

But as with any piracy victory for the media companies, the sweet taste of triumph will be short lived.  Close down one upload site and another one will arise.  In fact there are already alternative IP addresses for Megaupload circulating around Twitter.

So Megaupload’s takedown is simultaneously a landmark victory and just another furry head smacked downwards in the never ending game of digital-piracy-whack-a-mole.

 

‘Music As Free’ – What You Think

I’m going to do something I’ve never done before, I’m posting the highlights of the comments from a blog post.  The quality and the quantity of the comments was such that they deserve extra attention.  In fact the quantity is part of the reason I’m doing this summary: they added up to just under 8,000 words(!) so for those who don’t have the time to trawl through them all, this is for you.  For those who do have the time I heavily recommend reading them here

I’ll be writing up a follow up piece to my original post soon, addressing some of the recurring themes in the comments.

In the meantime, here are the comments.  I’ve tried to keep a balanced representation of opinion and they are largely chronological.  There are some real gems in there too.

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Your nostalgia for a golden past is wrong-headed because there was never a golden age in the first place, except for a small minority of superstars

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As an artist, it’s my choice whether to give my music away or try to force the common public to pay for it.

Do I deserve to be forced to? No.

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If everything is for free then how do artists make money. Why should art be free but not anything else?

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Music doesn’t have to be free to be fair to the consumer, it just needs to be sensible.

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A strange thing happened to me this morning. I had to get a new car battery and you know what? The guy from AAA wanted me to pay him for it!!! I said to him, “How are you gonna build any brand equity this way?!?! I finally caved in and paid the guy. Unbelievable!

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The profits labels experienced years ago were inflated….Those days are over…

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Record labels and artists are just as guilty as consumers for not being innovative and either going along with it blindly because the got a deal or because the same old prehistoric fat cats that have been exploiting artists for decades are still there and refuse to give up the excess they are used to.

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Not everyone fits the profile of an indie band. If every person on the planet wants to work for free, maybe the people in the music biz will join in. In the meantime, everyone needs to buy food, provide shelter, and take care of their families.

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It seems like the music business is disappointingly LAST to realise that giving something away for free isn’t the end of a relationship

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Composers and songwriters do not have “add-on services.” They do not have advertising revenue….not everyone fits the newcomer “indie band” model that can sell T-shirts and CDs at their next concert.

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$0.99 for a song is a ridiculously good deal for something you want, can keep forever and play on all your personal devices.

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Good tunes aside, everyone who wants my stuff for free should also want to pay – UPFRONT – for the cables, gear, time, talent, etc that went into the music they like.

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Q. EVERYBODY GETS PAID FOR WHAT THEY KNOW AND HOW THEY EXECUTE. WHY SHOULD MUSICIANS BE TREATED ANY DIFFERENTLY?

A. Because if people CAN pull it, they will.

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People are happy to pay McDonald’s, tobacco companies, and anyone else their hard-earned money to kill them slowly and break their bank, but to pay for something you enjoy, that does all of the things that art does for us, if you can steal it, why bother?

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Frankly, anyone should be happy to assign a reasonable value to the work of those responsible for creating the soundtrack of our lives. I know I do. The Music Business is indeed an incredibly tough one to survive. Thank goodness for those willing to stay the course.

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I believe piracy in general does the industry more good than bad and my livelihood will depend on this fact, since I’m getting in the music promotion business

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As far as giving away 200 digital copies online to sell 20 – that makes perfect sense to me – much more so than giving a plugger or publicist $2k!

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We are all learning. That’s why we’re blogging about this topic. But so far, I’ve only gleaned that you gotta be well established in order to devalue your main craft and make a living at it.

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I mean look, you believe free stuff is the way to go, too…
That’s cool if you pay my bills. When I can afford to be a philanthropist, I will.

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I’m not in favor of free music, but when it comes to 30-second snippets and other promotional tools (even a CD if a band WANTS to give it away), I believe they ought to be very, very free.

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Why the ‘Music As Free’ Argument Just Doesn’t Hold Water

Regular readers of this blog will know that I take a pretty hard line on the idea that music can ‘just be free’ and that I take a fair share of flak for my position  (see my previous post here for background).

Numerous sites, forums and discussion boards pride themselves on their ‘everything should be free stance’ and argue that only money grabbing cynical artists would ever take the side of record labels in the piracy debate.  This is patently not the case.  Last week’s statement on tackling piracy from a 100 UK artists illustrates that artists care about this.  They understand that if people stop buying their music and download it for free that they simply won’t be able to be professional musicians anymore.  I for one used to be a struggling recording artist, many years ago.  I never made enough money from music sales to give up the day job, but I would have loved to be able to.  Not so that I could be rich, but so that I could spend more time doing the thing I loved: making music.

It is easy to argue that if consumers want music for free that the industry will simply have to adapt and develop free business models. But we don’t like our favourite artists because they or their record labels are good business people.  If the music industry proves inflexible enough to adapt to a free model and many professional artists go back to their day jobs who has won?  If the music business (in whatever guise it may evolve – i.e. it doesn’t have to be record labels at the centre of it) locks into a race to the bottom, ultimately less money will filter back to the artists.  That means that fewer artists will get contracts, and artists will have shorter careers.  Many more aspiring artists than today will never make it out of their MySpace page or their day jobs.

One of the counter arguments used by commentators is that having a MySpace page is an ends in itself these days.  No, it is a means to an end, and the VAST majority of artists see it that way.  If an aspiring artist doesn’t get signed to a label / publisher / agent they’ll remain one of those many tens of thousands of artists struggling to stand out from the crowded pack on MySpace.

The majority of artists just want to play their music to their fans and to be able to make a living out of doing so.  Most artists with record deals won’t and don’t make much money out of it, but they get to do what they love, and we get to enjoy their music.  But that model breaks down if people stop paying for music, whether that be buying CDs, downloads, gig tickets, ring tones etc.  And yes, of course, ‘feels like free’ models can pick up the slack, but they won’t do the job on their own, and they certainly won’t do enough whilst illegal free services continue to dominate.

But rather than try to persuade you with my words alone, please take the time to read this blog post from an artist that just felt the impact of file sharing (note this was recently reprinted in the UK’s Guardian by UK Music).  This is the pain of a real life artist and reveals the fallacy of the music ‘must be free’ argument

http://blogs.myspace.com/index.cfm?fuseaction=blog.view&friendId=62653487&blogId=485944356

Monkeying Around With Mobile Music (Updated)

Today the triumvirate of Universal Music, UK broadcaster Channel 4 and UK mobile operator Orange announced a Pay As You Go (PAYG) mobile music service called Monkey.  The service is aimed squarely at younger consumers, which matches the demographic of PAYG users and Channel 4’s audience.  The underlying principle of the service is that it has a low barrier to entry: it utilizes the voice network rather than data network and is thus available across all handsets and does not require any application download.  Instead consumers simply dial 247 to listen to playlists streamed at 64 kbps.  Most of the more sophisticated behaviour, such as playlist creation, music discovery etc., is expected to happen online, using a cloud based player, where tracks will be streamed at 128 kbps.  Playlists can also be shared using widgets for major social networks and via text.

So what impact is this offering likely to have?  It’s clearly aimed at enticing young consumers away from file sharing and the positioning point is effectively ‘free music when you top up your phone’.  I think there is a risk of worst of both worlds here.  Firstly, I don’t buy into the argument that streaming reduces file sharing penetration.  It may cause file sharers to download less from P2P networks, but it’s unlikely to entice them away from them as they’ll still want music for their MP3 player, to burn onto CD for their friends etc.  Granted, Monkey steps closer to being a replacement in that it has a portability story (of sorts) and it has a sharing story (of sorts).  But it doesn’t provide true portability (what do you do when you’re underground for example) and it only offers partial catalogue.

The killer point though is that it uses voice minutes and the cost of calls is 20p per minute.  So it will cost about 70p to listen to a single and an entire 10 pound top up will give you about 1 album and no time left for talking.  So consumers are paying the same amount as an iTunes single download (even more for an album) but only getting a low quality analogue audio stream.  (And what happens when somebody wants to call them when they’re listening over the voice line?)

*Orange just called me to clarify their press release.  The press release reads:

  • “Monkey customers can access the service on their phones by dialling [sic] 247.”
    and
  • “Calls cost 20p per minute”

However, following my phone call from Orange it transpires that the per minute pricing applies to voice only and not music calls, even though this isn’t actually explained in the release.

Also another interesting detail emerges: the service is actually a limited mobile music service, not an unlimited mobile music subscription, hence the careful use of the term ‘access to music’ in the release.  Customers are only allowed to listen to 600 minutes of music per month on their phone (again not in the release), which translates into 14 albums.  If you take a 30 pounds top up, that then translates into 2 pounds ten per album listen, so if you listen to an album, say 3 times in a month, that’s 6.30 an album.  Which isn’t far off the cost of a standard album, but of course you don’t get to keep it after you’ve finished listening . The ’3 listens’ cost drops to 4.20 for a 20 pound top up, 2.10 if you just take a 10 pound top up.  So still far from free, even though they’re being told it’s ‘free’ music,  which in turn reinforces conceptions that music is a free commodity (thus further undermining perceived values of music).

The additional fact that Universal will make some releases available here before anywhere else is a brave move and underlines the major’s persistently adventurous product innovation.  It will certainly be a key asset for demonstrating consumer value, but it will need careful positioning alongside premium products.  How, for example, would a high-end 15 pounds a month subscriber to Virgin’s unlimited MP3 subscription service (also in conjunction with UMG) feel if they realized they were getting new releases after the lower end Monkey customers were?

The other interesting sub text here is the underwhelming success of Comes With Music (Universal and Orange are both key UK partners for Nokia).   Is this picking up where CWM has failed to do so?  As I’ve stated here many times before, I am a firm believer in the CWM model and I believe it is the best tool that the music industry currently has for fighting piracy.  It is a genuinely compelling alternative to file sharing as it has a viable portability and ownership story.  Unfortunately it’s been hindered by channel issues, marketing problems and limited consumer awareness and understanding.

When I asked how Monkey would be positioned alongside CWM, UMG’s Rob Wells said Monkey was aimed more at younger, lower end consumers and Orange’s Pippa Dunn said that Monkey was for PAYG customers whilst CWM was for subscription customers.  Orange’s positioning is clean and elegant, but it’s a shame that CWM is effectively being marginalized as a high-end proposition.  That is not its sweet spot. Indeed the strong CWM association with the 5800 illustrates Nokia’s understanding that CWM is best positioned at younger, lower spending consumers and that it does not stand up as well when held up against higher end digital music offerings.  Also, from a broader music industry perspective CWM needs to be reaching younger consumers.  I hope Monkey doesn’t distract from that.

Sicilian Musings

I’m currently on holiday in Taormina in Sicily for a couple of weeks and though I come here every year (my wife is Sicilian) I never cease to be amazed by just how different the profile of technology adoption is here compared to northern Europe.  Just trying to get online over the last couple of weeks has been a case in point.

I had a few pressing work tasks which I needed to do during my stay so I ensured I was well stocked up with credit on my USB modem.  Unfortunately the Italian network of my UK mobile operator didn’t seem to have read the script about discounted international data roaming fees and I managed to burn through 35 pounds of credit in 2 and a half days (which included 3 extended ‘help’ line calls – I use the term ‘help’ in the loosest possible sense – and getting a relative to buy more credit in the UK).  The fact that the download speed made a 56k modem look like Fiber just added to the pain.  Unlike my friends and family in northern Italy, the majority in Sicily don’t have home Internet connections so I have to resort to Internet cafés, the majority of which share one sub standard connection between a couple of dozen computers.  However this year I needed to connect my laptop directly and my normal Internet café of choice wouldn’t let me plug in my laptop directly.  Finally, I found one with Wi-Fi (just arrived this year) and got online.

It really shouldn’t be this difficult just to get online in the 2009.  Which got me thinking about the implications of these sort of technology hurdles on European digital content strategies. Taormina is no decrepit backwater, it’s a sophisticated and prosperous town, but the Internet just doesn’t feature that highly in most people’s priorities here.  Life functions perfectly well without it.  And sure, the Italians love their mobiles, but most of the people I know here use their phones to talk and text, not to download digital content.

So how do you reach would-be digital content buyers here?  You might argue that they don’t need to, that they’re still buying CDs and DVDs.  I’m afraid that not many people I know here buy much music anymore.  There are a couple of hardcore aficionados who I normally rely on for tips for new sounds, but even one of those (who’s actually an ex-minor Italian pop star) has stopped buying CDs.  Where’s he getting his music from?  He’s one of the few who has broadband at home and he got it mainly to download music and video from file sharing networks.  So file sharing plays the familiar role of the killer app for driving broadband adoption.

None of this is new of course, Europe is a diverse region of technology adoption, but what my experiences here have reminded me of is that headline figures about technology adoption hide the fact that sub regional adoption trends vary massively.  It’s all well and good saying that Italian broadband penetration is x%, but what is more important to understand is how adoption varies between Milan and towns in the south.  It’s simply not realistic to expect consumers in so many areas of Europe to be ready yet for paying for digital content.  They are however, easy and quick converts to file sharing.  We could debate the pros and cons of that equation, but it’s a fact.  Better to spend the time deploying compelling free and ad supported services which are genuine immediate alternatives to illegal downloading.

Future Business Models for the Pirate Bay and Historical Revenues

Yesterday evening I spoke with Hans Pandeya, CEO of Global Gaming Factory, the company that bought Pirate Bay.  I asked him a few specific questions about his plans for the Pirate Bay.

The plans revolve around building a new  peer-to-peer network from scratch, with a new application that uses smart peering technology to ensure bandwidth usage is as local as possible.   The intention is then to sell this localized peer based distribution capacity to ISPs (though I’m not quite sure why ISPs would buy back this bandwidth when it is theirs in the first place).

Mr Pandeya stressed his commitment to supporting rights holders’ interests and incentivizing users to download legal content.  The direct implication of incentivizing users of course is that they’ll get to chose from unlicensed content also, which suggests that the commitment to rights holders will fall far short of what they’ll need.

Besides likely rights holders problems, the other challenge will be to convince Pirate Bay users to download a new application to run on a new  and unproven network that at outset will have minimal content.

He also explained that he expects to generate strong ad revenues from the Pirate Bay website.  Yet the site, which he positions as a ‘search engine’ is a massive series of links to torrents which have been established in the Swedish court to contain extensive unlicensed content.  So either he removes these and loses his traffic, or he retains them and puts himself on a collision course with the rights owners.  Basically it looks like the Pirate Bay site could just be continuing as is with stronger and more robust financial backing.

My Pandeya was very bullish about the ad revenue potential of the site (though he insisted the peering business would be the main revenue source).  Based upon his calculations of Pirate Bay impressions and page views he expects the site to generate €40 million a month.   (FWIW those numbers feel high to me, but I’m not an online ad expert).  When I asked him what he though the Pirate Bay was currently earning he said he didn’t know because it had been ‘illegal’.  I found it hard to believe he will not have done the due diligence.  Indeed, to have such a strong sense of the inventory and audience of the site suggests he has in fact delved deeply.  So I pressed further, and eventually he said he thought that the Pirate Bay “probably” generated about €3 million a month in ad revenue, but that he “couldn’t know because it was illegal”.

Even if we say that Pirate Bay was earning a third of that, it still gives the site an annual income of €12 million, which doesn’t sit very well with the founders’ claims that it was not a strong revenue generator.  Indeed if you consider the upper end of Mr Pandeya’s estimates the Pirate Bay was a €66 million business.  Not shabby at all for a bunch of Robin Hoods, and far above the $1.2 million estimated in the trial.