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When you have them by the bucks, their hearts and minds will follow

October 18, 2011 Comments off

The House is expected to introduce their version of the PROTECT IP Act in the next few weeks.  If there’s one thing that is clear about the debate on PROTECT IP it is this–on the one side, you have people who profit from piracy and those who invest in those companies.  Do not underestimate the influence of the interlocking boards, portfolio companies, underwriters, equity funds and venture investors in Silicon Valley.  In the popular cant, Silicon Valley represents some of the best in American innovation.  True.  But Silicon Valley also is filled with rich people who want to get richer.  I don’t begrudge anyone the ability to make a buck.  Honestly.

On the other side you have people who are being robbed blind by unscrupulous companies, frequently backed by members of this group of investors.  If you had asked early Googlers if they though that within 10 years the company would be paying a $500 million fine with stockholder money to keep from being indicted for promoting the sale of illegal drugs online, you would probably have been laughed out of the room.  But I also believe that if you had told employees at Drexel in 1985 that within 5 years Michael Milken would be in federal prison on a RICO charge and their company would be bankrupt that you would have been laughed out of the room, too.

The pressure that this club of investors can bring to bear on “hot” Silicon Valley start ups to grow and “get big fast” is hard to imagine if you haven’t experienced it.  It’s the kind of pressure that could convince the “adults” in the room to pay a $1 billion premium for a company what was clearly engaged in theft.  It’s the kind of pressure that can make crafting campaigns to sell illegal drugs seem like it is acceptable business behavior (as Google employees did in seven different FDA sting operations).

It’s the kind of pressure that can make splitting profits from ad sales on pirate networks seem acceptable.  Particularly if those profits come from some of the top 200 websites in the world (like Megavideo, which publishes Ads by Google) Not to mention the thousands of people who “make money at home” by selling stolen content online (see ZDNet’s excellent article on this topic “Make Money Online By Selling Pirated Content“)

It’s the kind of thing that can make people sign their names to letters that are going to sound pretty silly in a year or two–or right now if you’re on the other side of the bill, the side where your works are being stolen and everyone in the theft chain is profiting from your misery.

But when the big boys pick up the phone and remind you of all the money they have invested in your company now and in companies you want to start in the future, you know what is expected of you.  They may not even need to remind you, just the phone call sends the message.

Because when you have them by the bucks, their hearts and minds will follow.

Listen to “Can Creators Call 911?”

Good News: MusicCanada.com

October 18, 2011 Comments off

We don’t often visit trade association websites because most of them are deadly dull, bonechillingly boring and generally not the places you’d go online except to see if Anonymous had taken them down again.  Musiccanada.com is a striking 180 from the typical.

First of all, the site is focused on Canadian artists.  The first thing you see at Music Canada are  images and information about Canadian artists. Not just major label artists, either, but a mix of indies and majors.

Having worked with Canadian artists for a good long time, I’m very respectful of the level of talent in all aspects of the Canadian record business.  This goes from the old guard like Don Tarleton (who used to let Jerry Mercer and me do “security” at his shows so we could get front row seats at the Montreal Forum) to labels like Arts & Crafts, Indica Records and publishers like Ole.  I would say Bruce Allen is in the old guard as well, except that he’d probably bite my head off, so I won’t.  These are really world class outfits and Canada regularly produces world class artists.

Until the Music Canada site came along, there weren’t really many places to go that focused on Canadian recording artists, both developing and established.  Instead of feeling like you’re at a site that’s some kind of econometric study of the music business with a few pictures of superstars tossed, I actually found out about a couple bands I didn’t know (like Tara Oram) and some I was learning about (like Bedoin Soundclash).

Another original feature is the “News from the Road” blog posts by Canadian artists on tour in Canada—this is not on the artist’s Facebook wall, but it’s on MusicCanada’s website.  This is awesome—giving artists a platform on what is ultimately a website and organization for their benefit. 

I’m sure the site will evolve and influence others, but it’s a vast improvement over what you typically see and I’d love to see other groups take a page from that book.

PS on the more mundane side, lawyers and licensing folk will find the guide for licensing music in Canada a handy resource.
If you don’t do this every day, it’s a good scorecard.

Good news to get good faster: Stageit brings it live

October 17, 2011 1 comment

I’ve been very impressed with Evan Lowenstein’s philosophy to his company, Stageit: “Where performers can broadcast LIVE and interactive experiences directly from a laptop, while offering unique fan experiences that are never archived.”

There is a lot more to the company’s appeal than those few words would suggest.  For those of us who have actually toured to places like Waco, Roberval, Jacksonville, Lake Charles, Thunder Bay–as well as the centers–have had too much exposure to real fans in real places who come out to experience the artist live to believe that YouTube is the answer.  Why?

Because live music is not just a scarce good–it’s a mysterious good.  Great live music is an even scarcer good and emphasizes the mystery of “how do they do that?!”.  No Autotune, no samples, no drum loops.  An artist, a handful of instruments and–great songs.  It is no accident that towns like Nashville, Austin, Toronto and many others all celebrate songwriters and live performers.

Stageit actually recreates that mysterious scarcity, not because it profits anyone particularly, because there is nothing more egalitarian than a ticket price.  But because for a lot of fans, what is important is that direct connection with the artist that really only comes from the live show.  And rather than the sites that promote taking the artist’s recorded performance and either give the end user a way to avoid respecting the artist or forcing the artist to be heard in an amateur recording environment so that new fans have a sub-amateur sonic or video experience–Stageit let’s the artist be heard as the artist wants to be heard.

And then it’s gone–no archiving.  (And yes, I know that streams can be hacked.)

Stageit is a beautiful, beautiful, thing.  It uses the Internet in an artist friendly way and respects everyone’s rights, starting with the two who should be the most cherished if you ask me: the artist and the fan.

It’s not about the Silicon Valley fantasy of “endless choice creating unlimited demand” or “get big fast”–it’s about get good faster.

Because art doesn’t scale.

New Music Weekend: Phantogram, Off!, Jonquil, Hollie Cook, Tom Staar

October 15, 2011 Comments off

Staff picks this week:

1.  Phantogram (Saratoga Springs) “Running from the Cops” @phantogram

2.  Off! (Los Angeles) “Upside Down” @offofficial

3.  Jonquil (Oxford) “Get Up” @jonquilband

4.  Hollie Cook (London) “Body Beat” @holliecookie

5.  Tom Staar (London) “Two Tone Simms” @tomstaar

Opening remarks at the California Copyright Conference, October 11, 2011

October 12, 2011 Comments off

Great panel at the California Copyright Conference tonight with Curt Marvis of Lionsgate, Keith Bernstein of Royalty Review Council/Crunch Digital, Robert Allen of Universal Music Publishing and Dean Kay, ASCAP Board Member and publisher extraordinaire.  My opening remarks below.  For those who were there, the two startups I mentioned were Patronism and Stageit.

(Get the podcast here or on iTunes)

I’d like to thank the CCC for hosting this panel, especially the planning committee.  I’d also like to thank the panel for taking the time out of their days to come and talk about some positive developments in our business.  I’m going to make a few remarks and then the panel will introduce themselves.

The first time I spoke at CCC was 1994 and I remember a panelist saying that night that the reason there were not more deals with companies like AOL, Compuserve and what then passed for ISPs was simple—those companies were an immature industry and it was impossible to negotiate with them.

I suggested at the time that maybe it wasn’t that they were immature and did not know what they were doing, but rather that they were immature and knew exactly what they were doing.  And what they were doing was trying to roll over us.

It wasn’t that these companies didn’t respect property rights at all.  All of them respected their own rights to sell shares of their stock to the public and they welcomed government regulation that gave them access to the public financial markets.  They just didn’t respect property rights or government regulation that kept them from “getting big fast” and increasing their market valuations.  Things like copyright.

Fast forward to 2011, and we see the triumph of this thinking in the recent Google drugs debacle.  Google recently signed a nonprosecution agreement with the US government requiring it to pay $500 million of the stockholders money to keep their executive suite from being indicted for facilitating the importation of controlled substances into the United States.

Why?  Because it suited Google over an 8 year period and 7 different sting operations to profit itself not only from those selling counterfeit drugs, but also FDA approved drugs purchased without proper prescriptions.  Former Health and Human Services Secretary Joseph Califano believes these drugs were sold to children.

Now compare this to Apple.  Depending on the week, Apple is now the second largest American corporation.  How did Apple approach selling devices that allowed consumers to listen to music and watch movies?  Apple did not pretend they only knew about piracy when copyright owners notified them of it.  Apple did not wrap themselves in the flag of “innovation” to engage in “parasitic innovation.”  Instead Apple built the greatest filtering software known to mankind.  They got licenses.  They did the work.  They respected the property rights of others because stealing music is bad karma.

Apple got licenses because it was the right thing to do.  And the right thing to do paid off.

This is the paradox of our business.  I think everyone in this room is committed to a belief in property rights, yet we struggle to understand people who actually do not share that belief.  We honor respect for the rule of law and our place in the market economy, and we assume that the ability to do business in peace is a universal value.  We also assume that because we are willing to compromise and negotiate, others will, too.

One of my favorite political writers said “Lack of imagination leads to the conclusion that all conflicts can be resolved — if only we’d explain ourselves better, show others respect, address grievances, and offer more generous concessions. But this conclusion is erroneous.”

So what is to be done?  Where do we find more companies like Apple?

I think we must balance our attention between fighting to achieve the legal environment for survival with supporting the people who are doing legitimate business or who aspire to do legitmate business.  And we likewise have to do what we can to nurture a business environment where people with good karma can thrive.

I think this panel will explore the business choices we need to make in determining whether to do business with the kinds of people who sell advertising for counterfeit drugs and those for whom it is bad karma to steal.

There are many good ideas in our business and our embrace of technology to help our artists prosper is a story that often does not get past the typical narrative.  Maybe it was because Steve Jobs was a Buddhist that he chose to do the right thing—if that’s what it was,  I will take the Buddhist every time.  And so will Apple stockholders.

So tonight we will look at some examples of legitimate alternatives in the entertainment business, and how to be sure creators are collecting from them.  And there are a lot of examples of our business embracing technology and innovation.

Because the good news is that the bad news is not the whole story.

Searching for Answers: Eric Schmidt Comes Up Short

October 10, 2011 Comments off

For those of us who follow Google closely and understand how their business harms competition and consumers, it was hard not to notice three glaring trip-ups by Eric Schmidt at last week’s Senate antitrust subcommittee hearing on Google’s business practices.

Advertising Illegal Drugs — Google’s Eric Schmidt stumbled badly on basic factual questions from Senator John Cornyn regarding Google’s recent nonprosecution agreement with the U.S. Department of Justice and payment of a historic $500 million forfeiture to avoid indictment.  Schmidt tried to cut off Senator Cornyn’s line of questioning about the illegal drug deal, saying—under oath—“Unfortunately, as part of that agreement, and I have been advised very clearly by our lawyers, that we have an agreement with the Department of Justice that we are not to speak about any of the details of it, so I would have to ask you to speak to the Department of Justice for more of that.”

That agreement says nothing of the kind, as rampant audience whispering noted.  Senator Cornyn did his homework and knew Schmidt’s statement to be false.  He courteously handed Schmidt a shovel to dig his way out of the hole, but instead Schmidt dug himself deeper by acknowledging that the illegal behavior covered by the nonprosecution agreement happened with his  knowledge.  Senator Cornyn asked, “Was it the result of oversight or inadvertence or were there some employees in the company that were doing this without your knowledge or —“ and was cut off by Eric Schmidt, who replied, “Certainly not without my knowledge.”

As Senator Lee noted in his follow-up, “the primary focus of our antitrust analysis should be consumer welfare.”  Violating the Controlled Substances Act for the importation—essentially smuggling—of controlled substances into the United States is illegal and detrimental to consumer welfare. And now we know it was done with Schmidt’s knowledge.

Facilitating and profiting from piracy — Google search also routinely points millions of consumers to counterfeit and infringing non-pharmaceutical goods, another act that hardly maximizes consumer welfare.  Senators Klobuchar and Franken questioned Schmidt about how little Google does to prevent linking to known infringers. Schmidt opined that it’s easy for someone like Senator Klobuchar to recognize an infringing site, but very difficult to train a computer to recognize one, saying it is a “very hard computer science problem”.

Google could either use a human to “know it when they see it” or block infringers such as the Pirate Bay (criminal conviction confirmed months ago).  They don’t do this probably because Google knows that people want “free” content and Google intends to sell advertising to them where they get it. This also begs the question of how Google maximizes the consumer welfare of advertisers who don’t want their brands associated with illegal goods—Google fails that test miserably.

No content license, No problem! – As we heard from witnesses Nextag and Yelp!, Google’s modus operandi with content owners is consistent.  Google indexed web content without consent—copying web content without a license for use in its monopoly search.  Google then decided to compete with content owners and tries to license for a competing Google product the same content they just copied for search.  If Google can’t make a license deal it likes, Google takes the content anyway—until the government steps in.  Google used this approach with Nextag and Yelp! as well as YouTube, Google Books, Adsense,
Blogger—the alternative being that you can opt out of search altogether or don’t advertise with Google online.  Or as we in the music business refer to Google’s DMCA notice and takedown practices, ‘that’s notice and shakedown.’

Senator Al Franken drew the most incriminating answer in the hearing from Schmidt regarding Google’s biased treatment of its own products in search results: “[Senator Lee] asked you…do all your rankings reflect an unbiased  algorithm, and you said after a little hesitation, ‘I believe so.’   That seemed like a pretty fuzzy answer to me coming from [Google’s] Chairman.   If you don’t know, who does?”

Schmidt’s answer?

Crickets.

Steve’s Commencement Address

October 8, 2011 Comments off
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