usability factors in digital distribution services for music

Patrick Liu 790703-0378

[email protected]

Supervisor: Roger Wallis Examiner: Nils Enlund

Usability Factors in Digital Distribution Services for Music

A Study of On-line Distribution Services Today, Identification of Important Factors for an Attractive Service, the Interests of Consumers and Music

Creators

Master’s Thesis Media Technology and Graphic Arts

Dept. of Numerical Analysis and Computer Science Royal Institute of Technology

2003-04-15

Patrick Liu 790703-0378

[email protected]

Handledare: Roger Wallis Examinator: Nils Enlund

Användbarhetsfaktorer för digitala musikdistributionstjänster

En studie av online-distributionsmodeller, identifiering av viktiga faktorer för en attraktiv tjänst, samt konsumenters och musikskapares intressen

Examensarbete vid mediateknik och grafisk produktion

Institutionen för numerisk analys och datalogi Kungliga Tekniska Högskolan

2003-04-15

Landegren, J. and Liu, P. Usability Factors in Digital Distribution for Music Patrick Liu

Abstract The findings in this report are the results of an evaluation of the available digital music distribution services over a longer period, and an analysis the underlying rules, mechanisms, theories and opinions within the music industry to find what factors are essential for a commercially successful service.

The music industry has now acknowledged digital music distribution services as a new channel, but there is still no successful commercial service today. Commercial services are competing with Peer-to-Peer services that offer a wide diversity of music at a minimal cost for consumers. So there is a great need for the industry to find a commercial alternative that consumers will accept.

A number of factors important for a successful service have been identified. These include a relevant music selection, availability virtually as conveniently as unprotected files. They also include usability in the form of a good search tool and logical categorisation as well as an efficient revenue control utilising alternative revenue channels. Other important factors are copyright rules that need to be revised to become more globally coherent. The industry also needs to develop a working copy protection system that does not impose too many limitations for consumers without losing the ability to generate revenue for content owners. New pricing models are needed for consumers to accept payments for music files, and subscriptions. Eventually an indirect payment method seems to be the best solution.

Digital music distribution promotes diversity in music genres and services, and ventures with superstars will be riskier and less lucrative in an uncontrolled music environment. There are a limited number of different customer groups, and services should focus on groups interested in a more diverse market offering. At the moment only P2P services offer such diversity.

Up to now, music industry strategy towards file sharing and services such as Napster and Kazaa has been counterproductive. The notion that downloading is free (and therefore involves consumers stealing from artists and record companies) is far from correct. The annual estimated spend by consumers on downloading, in the form of feeds to telecom firms and Internet Service Providers far exceeds estimates of the record industry’s net annual revenue (income - costs).

When adapting from the current physical value chain, based on sales of CDs, to one including digital music distribution there are redundant steps. Restructuring and streamlining of the value chain is necessary in the new environment. There is also the possibility to tap informa-tion from various stages of the physical value chain and take advantage of it to create new revenue sources.

Disintermediation of steps in the physical value chain can benefit creators by bringing more independence from the industry and by creating new possibilities for distribution of their music, although this is dependent on how established the artist is. New artists will still need third parties, but need not necessarily be as dependent on the industry as today.

Landegren, J. and Liu, P. Användbarhetsfaktorer för digitala musiktjänster Patrick Liu

Användbarhetsfaktorer för digitala musikdistributionstjänster

Sammanfattning Resultaten från detta arbete kommer från utvärderingar av de nuvarande tjänsterna för musik-distribution gentemot konsumenter över en längre period och också en analys av underliggan-de regler, mekanismer, teorier och åsikter inom musikindustrin för att fastställa vilka faktorer som är nödvändiga för en kommersiellt framgångsrik tjänst.

Musikindustrin har erkänt digital musikdistribution som en ny kanal men ingen av deras kommersiella satsningar har hittills varit framgångsrika. De kommersiella tjänsterna konkur-rerar med P2P-tjänster som erbjuder musik till synes gratis. Där av finns det ett stort behov hos industrin att hitta ett kommersiellt fungerande alternativ som konsumenterna kan accep-tera.

Ett antal viktiga faktorer för en kommersiell tjänst har identifierats och dessa inkluderar ett relevant utbud av musik, en tillgänglighet jämförbar med den för oskyddade filer. De inklude-rar också användarvänlighet i form av goda sökmöjligheter och logisk kategorisering samt en effektiv intäktskontroll med hjälp av alternativa intäktskällor. Andra viktiga faktorer är upp-hovsrättsregler som måste ses över och synkroniseras globalt samtidigt som det bör utvecklas ett fungerande kopieringsskydd som inte inskränker användares rättigheter men ändå har möjlighet att generera intäkter för innehållsägarna. Ny prissättning behövs för att användare ska acceptera att betala för musikfiler och prenumerationer. Eventuellt kan indirekt betalning vara den bästa modellen att genomföra dessa betalningar.

Digital musikdistribution främjar mångfald inom både musikgenrer och tjänster och sats-ningar på superstjärnor kommer inte att löna sig lika bra på en mindre kontrollerad musik-marknad. Det finns ett begränsat antal konsumentgrupperingar och tjänsterna borde fokusera på den grupp som är intresserad av ett mer varierat musikutbud och erbjuda dem ett attraktivt utbud.

Fram tills nu har musikindustrins strategi gentemot fildelningstjänster, som Napster och Kazaa, varit att motverka dem. Uppfattningen om att nerladdning av musik är gratis (som då innebär att konsumenter stjäl från artister och skivbolag) är långt ifrån riktig. En uppskattning av konsumenternas årliga trafikavgifter till tele- och Internetbolag visar att det vida överstiger skivindustrins uppskattade nettointäkter.

När man gör om den nuvarande fysiska värdekedjan som är baserad på CD-försäljning till en som inkluderar digital musikdistribution blir en del steg överflödiga och därför krävs en omarbetning och optimering av värdekedjan i den nya miljön. Det finns också en möjlighet att utnyttja information från de olika stegen i den fysiska värdekedjan för att skapa nya intäkts-källor.

Borttagning av mellansteg (disintermediation) i den fysiska värdekedjan medför ett större oberoende från industrin för musikskapare och nya möjligheter för musikskaparna att sprida sin musik, även om möjligheterna beror på hur etablerad artisten är. Nya artister behöver fort-farande en tredje part, men inte nödvändigtvis i den utsträckning som idag.


Acknowledgements Foremost, I would wish to thank our tutor Roger Wallis for all invaluable help with providing contacts with important people in the business and also for all information sources I would not have been able to acquire myself.

I would also like to thank the people at Svensk Musik who let me use one of their rooms to install an office in the first stage of the thesis.

Other people I would like to thank for being helpful during the course of this thesis are Thomas Stenmo for lending me the IFPI report and the sushi bar Dosanko for keeping my stomach full during the writing process. More thanks to all the artists and composers that were willing to take part in interviews, and all the people that has helped providing helpful resources.

Lastly, and mostly, I would like to thank my co-worker Joakim Landegren, who has been a great partner to work with.


Table of Contents

1 REPORT STRUCTURAL DETAILS AND IMPORTANT DEFINITIONS_____1

1.1 Chapter Overview ...................................................................................................... 1

1.2 Division of the Report ................................................................................................ 2

1.3 Weaknesses in the Report.......................................................................................... 2

1.4 Important Definitions ................................................................................................ 3

2 BACKGROUND ___________________________________________5

2.1 History of Digital Distribution of Music .................................................................. 5

2.2 Digital Distribution of Music Today......................................................................... 5

2.3 Events in the Music Industry during the Course of the Thesis ............................. 6

3 PROBLEM DEFINITION_____________________________________7

4 RESTRICTIONS___________________________________________8

5 TARGET GROUP __________________________________________9

6 THEORIES______________________________________________10

6.1 Copyright mechanisms in the Music Business ...................................................... 10 6.1.1 Copyrights 10 6.1.2 Music Publishers 11

6.2 Intellectual Property Rights .................................................................................... 12 6.2.1 History of Laws and Agreements 12 6.2.2 Digital Rights Management on Music Files 14

6.3 Value Chain .............................................................................................................. 15 6.3.1 The Physical Value Chain 15 6.3.2 The Virtual Value Chain 16 6.3.3 The Value Matrix 18

7 METHODS ______________________________________________19

7.1 Evaluation of Services.............................................................................................. 19 7.1.1 Selection Models 19 7.1.2 Classification Matrices 20 7.1.3 Evaluation Methodology 22 7.1.4 Evaluation Factors 22 7.1.5 Music Bill of Rights 22

7.2 Interviews.................................................................................................................. 23 7.2.1 Music Creators and Artists 23


7.2.2 Interest Organisations 23

7.3 External Reports, Surveys and Statistics............................................................... 23 7.3.1 Internet Connection and Digital Music Usage Statistics and Surveys 24 7.3.2 Music Sales Figures 24

7.4 Keeping Up to Date with the MP3 News and Web Log........................................ 24

8 FINDINGS _____________________________________________25

8.1 Evaluated Services Findings ................................................................................... 25 8.1.1 Selected Services 25 8.1.2 Briefly Investigated Services 26 8.1.3 Overall Impressions of Pay Services 26 8.1.4 Overall Impressions of P2P and Non-Licensed Services 27 8.1.5 Differences between Licensed Services and Non-Licensed Services 27 8.1.6 Interesting Observations during Evaluation of Services 28

8.2 Interview Findings ................................................................................................... 28 8.2.1 Music Creators and Artists 28 8.2.2 Interest Organisations 29

8.3 External Reports, Surveys and Statistics Findings ............................................... 30 8.3.1 Telecoms’ Revenues Compared to Record Companies’ Annual Profit 30 8.3.2 Trends for Single Sales versus Album sales 35 8.3.3 Other Sales Trends 36

8.4 Study of Important Factors for a Commercial Service ........................................ 36 8.4.1 Usability 36 8.4.2 Availability 37 8.4.3 Music Selection 37 8.4.4 Copy Protection, Digital Rights Management and Other Limitations 38 8.4.5 Customer Groupings 38 8.4.6 Value vs. Fee 39 8.4.7 Extra Value 39 8.4.8 Offered Selection 39

9 DISCUSSION ___________________________________________40

9.1 Discussion of Important Factors For a Commercial Service ............................... 40 9.1.1 Usability 40 9.1.2 Availability 40 9.1.3 Music Selection 41 9.1.4 Value vs. Fee and Pay-Models 41 9.1.5 Copy Protection and Copyright on the Internet 44

9.2 Consumer Interests .................................................................................................. 46 9.2.1 Important Factors for Consumers 46 9.2.2 Customer Segmentation 47

9.3 Creator Interests ...................................................................................................... 47 9.3.1 The Disintermediation Process Affecting Music Creators 49


9.4 Bringing Together the Industry’s, Consumers’ and Creators’ Interests ........... 50 9.4.1 Conflicts 50 9.4.2 Common Interests and Possible Solutions 51 9.4.3 Connecting the classification matrices 51

10 CONCLUSIONS __________________________________________53

11 RECOMMENDED CONTINUED WORK _________________________54

12 REFERENCES ___________________________________________55

12.1 Literature................................................................................................................ 55

12.2 Seminars ................................................................................................................. 56

12.3 Interviews ............................................................................................................... 57

12.4 Web References...................................................................................................... 57

13 APPENDICES ___________________________________________61

13.1 Appendix I – Summary of Creator Interviews ................................................. 61

13.2 Appendix II – Summary of Interest Organisation Interviews ........................ 64

13.3 Appendix III – Interview with Niklas Zennström............................................ 67

13.4 Appendix IV – Questions to Alan Morris (Sharman Networks)..................... 69

13.5 Appendix V – Kazaa Bundle Acceptance.......................................................... 70

13.6 Appendix VI – Interview with IFPI................................................................... 72

13.7 Appendix VII – Second Interview with IFPI Sweden...................................... 73

13.8 Appendix VIII – Interview with SAMI ............................................................. 74

13.9 Appendix IX – Interview with STIM/NCB Internet group............................. 75

13.10 Appendix X – Interview with Jonas Nordin ..................................................... 77

13.11 Appendix XI - Interview with Trance Control ................................................. 79

13.12 Appendix XII – Interview with Jonas Berndt (Mörk Gryning)...................... 83

13.13 Appendix XIII – Interview with Pär Björling .................................................. 85

13.14 Appendix XIV – Interview with Anders Edenroth (Real Group)................... 89

13.15 Appendix XV - Interview with Atomic Eyes..................................................... 94

13.16 Appendix XVI – Evaluation of Musicnet .......................................................... 96

13.17 Appendix XVII – Evaluation of Pressplay ...................................................... 100

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1 Report Structural Details and Important Definitions

1.1 Chapter Overview Chapter 1: Report Structural Details and Important Definitions - This structural overview is meant to give brief descriptions of all chapters and clarify the structural design and correla-tions between them.

Chapter 2: Background - The introductory background covers a brief description on certain events that preceded this thesis and created the basis of some of the problems this report is trying to solve. It also gives a short summary of today’s situation with commercial services competing with Peer-to-Peer (P2P) services for the same consumers.

Chapter 3: Problem Definition – The problem definition describes what problems the record industry face and formulate the main questions to be answered by this report.

Chapter 4: Restrictions – Restrictions include all the restrictions made when choosing services to evaluate.

Chapter 5: Target Group – It explains what kind of readers the thesis is aimed at and what basic knowledge is needed for a good understanding of the material.

Chapter 6: Theories – The theories chapter include some theories that are of importance for an understanding of both the economic and commercial factors that are valid for digital distribu-tion of music. This includes an explanation of copyrights, intellectual property rights, economics of the Internet and the value chain concept.

Chapter 7: Methods – Methods gives an overview of how the evaluations and interviews of different services, creators and organisations were performed and what other research material has been used in the thesis.

Chapter 8: Findings – The findings have been structured into four subchapters where the first three have correspondent subchapters in the methods chapter. The methods chapter describes how the findings are achieved, and the findings chapter consequently displays what findings are achieved. From these findings several factors of importance for a commercial service are obtained and then presented in the fourth subchapter.

Chapter 9: Discussion – In the first subchapter of the discussion all the retrieved factors from the findings are discussed in accordance with theories from the theories chapter and other observations from the research. The subsequent subchapter gives a summary on the industry’s view of an attractive service, and in the last subchapter I try to bring these views together with the consumers’ and creators’ viewpoint presented in Landegren’s report1 and find common interests and complications for all three parties.

1 LANDEGREN, J. Usability Factors in Digital Music Distribution Services and Their Relationships with Established and New Value Chains in the Music Industry - A Study on On-line Distribution Model Used by the Music Industry Today and Identifying of Important Factors for a Successful Service.

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Chapter 10: Conclusions – Conclusions presents the results and conclusions of this thesis.

Chapter 11: Recommended Continued Work – Recommendations include suggestions of possible subsequent work in the same area of interest as this thesis.

Chapter 12: References – Here all references from literature, interviews and web sites used will be collected.

Chapter 13: Appendices – The appendices will include complete transcripts of interviews and some outsourced evaluations of Pressplay and Musicnet.

1.2 Division of the Report This report is closely related to Joakim Landegren’s thesis2 since we have performed the research together and achieved the same findings. From these findings we have treated the information differently and achieved different results and conclusions depending whether we look at it from the consumers’, creators’ or the industry’s interests.

Because of the above mentioned fact many chapters are common for both reports. Below are all chapters that are unique for this report. Remaining chapters are also included in Landegren’s report.

7.2.1, 8.2.1, 8.4.1 - 8.4.3, 9.1.1 – 9.1.3, 9.2 - 9.3, 13.1 – 13.2, 13.10 – 13.15

The theory chapter (chapter 6) has a clear separation of what subchapters have been written by whom while the methods, findings, discussions and conclusions chapters (chapters 7-10) are written in cooperation. Subchapters 6.3 and 6.1.2 are written by Joakim Landegren, and subchapters 6.1.1 and 6.2 are written by Patrick Liu.

The intention is to bring together all material in one report later including all three players’ different views for a more complete picture of the problems involved.

Since most research and literature studies have been made together with Joakim Landegren this report often refers to the author as “we”. This definition includes both me and Patrick since we have cooperated in acquiring and extracting the information.

1.3 Weaknesses in the Report Unfortunately several of the services have been disinclined to participate in interviews, and other services that did participate have been very restrictive with their answers to highlight themselves and not leak any negative information. We have chosen not to rely much on these interviews since their impartiality and relevance can be questioned. Most information of interest was omitted in the answers.

2 LANDEGREN, J. Usability Factors in Digital Music Distribution Services and Their Relationships with Established and New Value Chains in the Music Industry - A Study on On-line Distribution Model Used by the Music Industry Today and Identifying of Important Factors for a Successful Service.

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Another complication is that the music business currently experiences lots of changes on almost a daily basis and some events mentioned in this report might be inaccurate at the time of reading because of this fact.

Information concerning the music industry has been acquired from a large number of different sources. Same figures from various sources vary and we have chosen the information source we believe is the most reliable in consultation with our tutor Roger Wallis.

Because of limited resources (funds and time) user downloading behaviour figures have been taken from other companies’ studies and are not always exactly accurate for the desired purpose. An own user survey could have revealed more accurate figures for the study on telecoms’ revenues made in chapter 8.3.1, but to get any statistically relevant information the number of users included would require a lot more resources than what was available.

1.4 Important Definitions There are a few terms used in the thesis that might need to be clearly defined since they are words often used in media but the meaning of the words is often very broad.

Free music – P2P file sharing is often claimed to be “free” but as shown later on in the report this is a false statement. There are very many revenue sources from P2P but not to the record companies, and consumers do not pay directly for the downloaded music but indirectly through other channels such as Internet Service Providers (ISPs).

Illegal – P2P services are often called “illegal“, but they are not illegal until convicted by a court. The definition of who carries the responsibility for illicit downloading has yet to be made.

Legal – The term “legal service“ is mentioned at several occasions in the thesis and it refers to a service run by the major labels or at least including licensed material from them.

Piracy – Piracy is a word frequently used especially in connection with statements from the recording industry. This term is not used in this thesis, other than in quotations, since we believe there is a considerable difference between a technology-loving teenager and an illegal CD-copying factory producing thousands of illegal copies to sell on the black market. Thus the term piracy should be applied on the organised illegal CD manufacturing for a commercial purpose and not to P2P.

There are some terms mentioned that have the same meaning. User and consumer are both commonly used in the thesis and refer to exactly the same group of people, i.e. the people consuming music. Creator, composer and songwriter are also synonyms for the originator of the musical works. In reality these terms refer to originators of music from different genres but that difference is of no importance in this thesis. An artist or performer also included in the definition of creator when speaking about creators’ interests but not when dealing with copyrights and revenues. In that context artists are subject to other legislation and rules.

Mainstream – Mainstream music is popular music that is on different hit lists and top-ten-charts and can be found in nearly all music retail stores.

Telecoms – This definition includes both telephone companies and ISPs and is often used in conjunction with revenues from P2P downloading. In that context telecoms include both the

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players providing the physical network and the companies responsible for Internet traffic in the network.

Digital distribution – The term digital distribution is often used in the thesis and is actually referring to digital online distribution since we only deal with services operating over the Internet.

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2 Background

2.1 History of Digital Distribution of Music The idea of digitally distributed music on the Internet was started by Jeff Patterson and Rob Lord with the Internet Underground Music Archive (IUMA), using the proprietary audio compression format MP3. The idea was picked up by others and distribution via other websites and ftp-sites began appearing3. It was nothing big, and for many years the music industry did not care much about the websites. A few established bands picked up on the idea (Grateful Dead among them), and even more underground bands caught on the idea. A few tried commercial efforts, but nothing really came out of it. Some key persons went to the big record companies with proposals, but no one actually acted on it. The music industry did not seem very interested at all, until they were forced to look into this new uncharted area.

The digital distribution system that startled the music industry was Napster, having something between 40 and 70 million users trading music in MP3 format. The estimation of the number of users varies very much depending on the source. But no matter what the exact number was, it was a significant number of users swapping files. File-swapping created a massive value in itself, both by teaching consumers new ways of appropriating music, and generating massive traffic for telecoms.

The industry reacted negatively, and attacked Napster by legal means. Established artists were split between the parties, and the Recording Industry Association of America (RIAA) has since had their hands full. After a few years Napster was finally closed down. Shortly after Napster was closed down a flood of new decentralised networks arose, most notable Gnutella and Fasttrack and all Peer-to-Peer clients together today, such as Kazaa, are building net-works larger than Napster ever was. At a certain point the industry realised they had to counter the P2P networks with their own services, and the majors developed new digital distribution services.

2.2 Digital Distribution of Music Today Today there are numerous P2P networks and even more clients. Some have been around for very long, in the current context and others emerge and fade away rather quickly. Users adopt and change new ways of trading files relatively quickly. The P2P networks are huge and it is possible to find virtually everything from movies, music and computer software to books in these networks. All can be downloaded for free, apart from the cost of being online. The downloaded material and the connections are not always reliable, but a lot of consumers apparently think it is worth the effort.

There are few large legal services today, and all of them are centralised. Pressplay and MusicNet are the ventures of the five major record companies. Rhapsody is another service that provides a large selection of music from the major companies. There have been very few services offering music from the majors, but the number is now increasing. All of the above services use a subscription model for providing the music, with the addition of buying additional separate tracks and albums for burning.

3 ALDERMAN, J. Sonic boom – Napster, MP3, and the new pioneers of music

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Most other services provide independent or underground music. MP3.com is an exception that also offers some larger artists, but only single tracks for marketing.

Internet radio stations have also caught the industry’s attention, since most of them are independent stations broadcasted by individuals without a license. Most are not commercial stations, but still do not have the industry’s consent to broadcast.

2.3 Events in the Music Industry during the Course of the Thesis The music industry is moving very fast, and during the course of this work a lot of the condi-tions on the music market have changed. For example Pressplay, MusicNet and Rhapsody all have made great progress in increasing the size of their music selection and what is allowed in the agreements for downloading. Below are headlines in chronological order of a few P2P-related events from the last six months:

- October15th 2002: Songspy is closed down after a lawsuit.

- November 1st 2002: Court orders Madster to implement filtering technologies.

- November 6th 2002: BMG and EMI independently plan to only have copy-protected CDs in the future.

- November 8th 2002: New disc format announced with built-in copy protection.

- December 3rd 2002: Madster told to pull the plug.

- December 11th 2002: Canadian government subsidizes DRM, and decides to intro-duce a levy on CD media.

- December 14th 2002: Record companies pay for inflated prices. They were uncovered earlier that they have had a cartel to force higher prices on CD. They were convicted in court and have to pay back to buyers and/or donate huge sums to charity.

- December 23rd 2002: New Danish law prohibits music copying to MP3 format.

- January 3rd 2003: European copyrights expiring on recording from 1950’s. That means anyone can publish old recordings without having to ask for permission from the composer first.

- January 17th 2003: Apple silences iTunes P2P software.

- January 17th 2003: IFPI employee describes P2P sabotage activities. The industry is exposed trying to sabotage P2P networks with various methods.

- January 18th 2003: Rosen want to impose a type of fee on Internet Service Providers (ISP).

- January 18th 2003: Microsoft introduces CD copy protection ‘fix’. MS offers a new type of copy protection method that the industry finds quite attractive.

- January 22nd 2003: Rosen will step down as head of RIAA.

- January 31st 2002: EC proposes new antipiracy rules. The new rules are aiming at illegal copying for commercial purposes, and tones down the copying of individuals.

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3 Problem Definition The music industry today finds itself increasingly worried by the increasing number of Peer-to-Peer (P2P) users. Millions of people download music without any direct revenues for record companies or content owners. There have been efforts from the industry to compete with the P2P services but no commercial service has been very popular among consumers so far.

There have also been attempts to stop P2P downloading but we believe that it is impossible to stop these activities completely. The industry must find a way to live alongside P2P and exploit its possibilities instead of its disadvantages.

That leads to the two main questions for this thesis:

What factors are of importance for a commercial service that appeal to all parties involved (consumers, creators and the industry)?

How can economic efficiency be maximised for both music creators and the music industry in a digital environment?

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4 Restrictions In order to limit the scope of this thesis to a reasonable level, several restrictions listed below have been made.

• This thesis only deals with services specialised in distribution of music. Studies of Peer-to-Peer services will be limited to those functions related to music files.

• The evaluated services all have a target group consisting of ordinary music consumers. In some cases, for example OD2, the service itself is focused on other businesses, such as Internet portals, but the actual end users of the service are the consumers visiting the portal.

• The service evaluations are based on minor case studies of a selected sample of services that have been selected according to certain criteria described in the Methods section below.

• The sample of services is restricted to those whose distribution occurs over the Internet. The distribution occurs by transfers of files or as a digital transport stream (i.e. real audio streaming). No services providing mainly distribution by tangible products (CDs) are studied.

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5 Target Group This thesis is mainly of interest for people at record labels or new distribution services that need distilled and evaluated information of the recent changes in the market compiled and reviewed in one report. It is also aimed toward university students at Media Technology and Graphic Arts at the Royal Institute of Technology, or students with a special interest in digital distribution. Many terms and abbreviations used are implied that the reader understands and is well familiar with.

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6 Theories The theories below are needed to get a deeper understanding of how users behave and how business optimisation works in a digital environment.

6.1 Copyright mechanisms in the Music Business Below is a short explanation of the copyrights and revenue flows in the music business today.

6.1.1 Copyrights

Publishing Rights Each time a songwriter creates a new piece a publishing right is created, representing the composer’s ownership of the music. Any subsequent use or exploitation of the piece requires a payment to the owner of these rights. The publishing rights must not be owned by the actual composer but can be sold and transferred to a new owner. Publishers often design contracts so that artists or composers must give up shares on their publishing rights when signing the contract. In exchange they get money in advance for past, present or future material.

Mechanical Royalties Whenever a song is reproduced by a mechanical device you have to pay a mechanical royalty. Even though this term’s validity is somewhat diminished with introduction of digital equip-ment it still refers to royalties for reproduction of songs reproduced on devices sold on a unit basis. This includes CDs, audiocassettes, audio greeting cards etc. File downloads is a special case where the rules and tariffs still are under development according to Maria Wande at STIM4. Today they have divided the royalties for file downloads into one mechanical royalty part when the first reference file is created, and one performance part where every subsequent download is treated as an Internet performance and hence performance tariffs apply5.

Synchronisation License Synchronisation licenses are used when songs are used together with a visual image. Music publishers issue synchronisation to for example TV advertisers, motion picture companies, video manufacturers and CD-ROM companies. Usually about 50% of the net proceeds are paid back to the songwriter.

Transcription License Because radio is not a visual medium synchronisation licenses do not apply. For songs used in radio commercials there are instead transcription licenses that correspond to synchronisation licenses.

4 Interview with Maria Wande, STIM (Appendix IX) 5 Interview with Tobias Eltell, SAMI (Appendix VIII)

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Public Performance Royalty An exclusive right of the copyright owner is to authorise public performances of the copy-righted work. Thus radio and television broadcasters must acquire licenses from interest organisations such as STIM in Sweden and ASCAP in the USA. Performance rights organi-sations like those then collect incomes on behalf of the songwriters when songs are publicly broadcast. Even though publishers do not collect any income from performance rights they are still entitled to a big share of the income from those organisations.

Exploitation of Rights Rights can be divided in several components for a more lucrative exploitation of the rights. A possible division is shown in Figure 1 below. A more concrete example is a local distributor in Germany that can be assigned the rights to distribute the CD and cassette version of a certain track for a five-year period in the German market.

International Agreements To simplify licensing of music internation-ally, and on the Internet as a global net-work, the Santiago agreement was estab-lished during the CISAC Congress 2000. In short it means that the collecting society in each country is the licensor for all music licensed in their respective countries. Licenses granted to content providers are then global on a non-exclusive basis, and the applied tariff is the one used in the country where the material is published. The revenues are then distributed between each country’s collection societies.

6.1.2 Music Publishers Music publishers’ role in the past was to publish sheets of music from a composer6. Publishers have a less important role today

but continue to perform several functions in the music business, such as administering copyrights, licensing songs to record companies and collecting royalties for the composers.

Publishers may also help promising artists to record demos and assist in the process of acquiring a record deal. In return they most often get shares of the mechanical royalties or public performance royalties.

Foreign countries often have different laws on music distribution and licensing and hence another role of the publisher is to enter into agreements with foreign publishers to collect mechanical royalties in that particular region. Publishers often have their own network within

6 KORN, A. http://www.alankorn.com/articles/publishing_1.html

Figure 1. Exploitation of rights

Territory

Time

Medium

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different countries and can much easier than the artist strike a profitable deal with the local publishers.

6.2 Intellectual Property Rights The relevance of Intellectual Property Rights (IPR) in this report is to briefly cover how pricing and copy protection of music in digital format works. IPR is a fairly wide term including musical work amongst others, and it is of use when looking into licensing issues, pricing and protection of the files.

6.2.1 History of Laws and Agreements Most experts agree that legislation has had difficulties keeping up with the development of technology. A few years back legislation was far behind technology, but the last few years much work has been done, not least international agreements that apply to digital distribution. A problem that now arises is to enforce the new laws, and the public is slow in adapting new laws, especially when law enforcement on the Internet is virtually impossible7. One reason for this is that the public is not informed about the specific rules that apply to music on the Internet. Laws on itself will not help much. They have to be enforced by some sort of tools, such as DRM technology. Below is some history of the laws and agreements that are today. Most of it began in the US, and the US has also experienced the most radical changes, far more extreme than the international treaties.

The first IPR organisation is the 1967 World Intellectual Property Organisation (WIPO) that administers, amongst other agreements, the 1886 Berne Convention. In 1991 a major revision was planned, but its negotiations failed for several years until 1996 when a treaty was agreed on, the 1996 WIPO Treaty, which directly addressed digital information.

The US The US had in 1992 introduced the Audio Home Recording Act to adhere to the Berne Convention. The Audio Home Recording Act requires levies on recordable media, and tech-nology in media to prevent serial copying (Serial Copy Management System). It has since been successful in implementation only on DAT tapes, which in turn never became very wide spread. The Act was brought up when MP3 players began to sell (the Diamond Rio case), and also in the case of CD burners. It has not yet been very effective. The Diamond Rio player won the case, with the argument that the device does not directly copy music, but data from a computer and thus they are considered parts of computers. Though, after the case Diamond freely agreed to cooperate in development of new protections.8

The US did not allow public performances in sound recordings, unlike most other European countries. That caused a problem when streaming on the Internet was considered perform-ances and not reproduction, so it was solved with the Digital Performance Right in Sound Recordings Act in 1995.

7 Interview with Maria Wande, STIM (Appendix IX) 8 MIDEM 2000. Legal and Commercial Effects of Digitisation on the Music Industry: Snapshot of Current US Legislation, Midem 2000

13


The EU The EU has since 1994 had the Rolling Action Plan (RAP) where copyright is but one of several issues addressed. When making a transfer from traditional physical media to the Internet it involves new actors that have no experience in copyright issues, such as Internet Service Providers (ISP) that are addressed by the RAP. There are a number of directives in the EU that already applies to digital distribution, although they were not created for these purposes.

The Rental and Lending Directive in 1992 provides a legal framework for cross-border trans-missions in a digital environment. The Term Directive in 1993 and Database Directive in 1996 also provide protection for phonogram producers and on-line databases. Most executive work is done in the member states, though.

In 1997 the draft Copyright Directive was presented. Compared to the US these rules were more general and open for interpretation. One of the most central issues was liability. After some reworking some rules for liability were made and the main points of it were setting different levels of liability depending on how the service providers stored the data. Intermedi-ary providers could not be liable. Cachers would need to send out notices to users and remove illegal data. Lastly, hosts need to actively find and remove illegal data. There still needs to be some clarification of how to define for example “caching” and “storing”. Another problem in the EU is that all member states have their own rules, and are not always willing to change in favour of the directives from the EU.

The enforcement part of the Copyright Directive was presented through the 1998 Green Paper on Combating Counterfeiting and Piracy in the Single Market. The same year the Condition Access Directive was adopted, which resembles the DMCA (Digital Millennium Copyright Act, see below) rule of circumvention of copy protection, but is not equally specific.

Just recently the European Commission has proposed a new rule for intellectual property right enforcement that does not impose sanctions against individuals downloading music for non-commercial purposes. They only focus on copyright infringements for commercial purposes. P2P services would fall under the latter case because of advertisements in the clients.

1996 WIPO Treaty The first initiative that directly addressed digital information (in the US) was the National Information Infrastructure Task Force by the Clinton administration. Roughly explained it wanted to protect and control all information on the Internet on economic grounds, which sounded very good to the industry. It also addressed the issue of digital transmissions claiming to be performances. One much criticised rule was the new chapter that would prohibit any device that in any way, direct or indirect, would facilitate copying of any material. It was criticised because it would include anything ranging from encryption tech-nologies to sealed envelopes, and also all transitory storing such as the random access memory (RAM) and cache in computers. The US wanted to extend the later NII White Paper to an international treaty, which they brought forth in the 1996 WIPO Treaty. It ended up with a compromise - a quite unspecific formulation open for interpretation and free for the parties to implement: “…provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by authors in connection with the exercise of their rights inter this Treaty or the Berne Convention and that restricts acts, in respect of the their works, which are not authorised by the authors concerned or permitted by law.”

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1998 Digital Millennium Copyright Act However, the US went on making their own bill, the Digital Millennium Copyright Act that followed the previous White Paper more closely since the 1996 WIPO Treaty only provided minimum requirements. The problem here is that legislation only applies in the US. The DMCA has been strongly criticised, not least for the fair use issue (discussed later). The DMCA is now under revision.

Secure Digital Music Initiative When portable MP3 players were introduced, the RIAA set new rules that would apply to this group of players and the Secure Digital Music Initiative (SDMI) was born in 1999. The purpose was to develop specifications for secure digital distribution of music, and enable new legitimate business models in electronic music distribution. It also meant to improve dialogue between interested industries such as the music, IT and consumer electronics industry to name a few.9 The standards were going to be open, optional and interoperable between all partici-pants.

The SDMI has been working well so far. Very quickly they set up and implemented the so called Phase 1. Practically Phase 1 meant that all devices had a certain degree of copy protec-tion enabling reception of any file, including pirated, but not file transfers from the device. Phase 2 meant to fully use copy protection on new music with a copy protection flag, but it still allows illegal files. In practice, it has had a minor impact on the market. The Secure Digital format has for example had fairly successful penetration amongst consumers but is hardly any effective copy protection since most consumers are trading unprotected files.

Internet Radio Royalty Rates The main legislation for Internet radio has been done in the US (as most other Internet legis-lation). During spring 2002 the CARP and Library of Congress set new webcasting royalty rates, by recommendations from RIAA. The new rules were very unfortunate and would bankrupt most small Internet radio stations because of set rates. A lot of work has been done since, amongst them the Internet Radio Fairness Act, and just recently the Small Webcaster Settlement Act, that sets a royalty rate based on percentage of revenues that is fairer to small webcasters. So far the legislation for Internet radio seems to be going toward a more reason-able state.

6.2.2 Digital Rights Management on Music Files Digital Rights Management (DRM) is an overall name for technology systems for protecting digital material, such as books and music. All majors’ services are using some kind of DRM, and different companies develop different technologies, incompatible with each other. Examples of companies offering DRM-protected music are Microsoft, LiquidAudio and Real.

A DRM protected file is encrypted and registered in a database, and is independent of where it is used. Every usage of the file sends a license check through an online database query and if the use is authorised the file will work, otherwise it is useless. Encryptions have been

9 MIDEM 2000, Infringement of Rights in Sound Recordings in the Online World and IFPI

15


hacked, but continuous updates of the licenses are supposed to counter hacking attempts. DRM also enables tracking of file source, owner, contents and more.

The DRM system limits the music files in several ways. Firstly there is a time limit on every piece of music. For example the license is only valid as long as there is a subscription. When the subscription has ended, the next time the license is updated the music will stop working. Secondly the files are limited in media (sound carriers). For example they mostly only work on the computer where the files are downloaded, although moving to other computers is possible. And they cannot be moved to other portable players or burned to CD unless an additional fee is paid. Read more about limitation of copyrighted material in chapter 6.1.1.

6.3 Value Chain Michael Porter first introduced the concept of a value chain10. It enables a visual separation of the company’s activities into the technologically and economically distinct parts it is com-prised of. Porter also introduced an embedding of the firm into a value system that include all the players that create value both upstream and downstream the value chain. The primary use of the value chain is to create a limited number of functional bins into which the firm activities could be categorised.

This native value chain has been criticised to be very linear and that it resembles a Fordian assembly line11 and that many of the dynamics of the firm is lost on this linear visualisation. The value chain has, since its introduction, been extended to better suit the actual market. An extension of great importance for this thesis is the treatment of information as value given that digital distribution of music is technically a transfer of information. This will be more thoroughly described under the virtual value chain section below.

6.3.1 The Physical Value Chain A value chain that has been valid for record labels until the Internet made its impacts consists of roughly six steps as seen in Figure 2 below12. Some of these steps comprise of other intermediaries not listed below but a further investigation of that will be done in the findings section of the thesis.

10 PORTER, M. June. Competitive Advantage: Creating and Sustaining Superior Performance 11 KLIMIS, G.M. March. Disintermediation and Re-intermediation In the Music Business – the Effect of Multimedia Technologies and E-commerce 12 MARATHE, J. Impacts of Digital Distribution on the Music Industry. Durlacher Research, Ltd

Figure 2. A record company’s physical value chain

Development (Artist & Repertoire)

Production (Recording)

Sales & Marketing

(Publicity)

Distribution (Pick, Pack & ship)

Wholesale (Sales to retailers)

Retail (Sales to

consumers)

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1 - Development (Artist and Repertoire – A&R) The A&R department of the record labels seek up new promising bands and artists and sign them to long-term exclusive contracts. This part in the value chain is a very important part that the record labels play since it requires quite an expertise to spot the talent among the enormous amount of bands and artist looking for success. The labels spend considerable amounts of money on the development of the new artists.

2 - Production (Recording) The record label’s role in this stage has diminished since the price of digital recording equipment have fallen to a great extent and it is possible for bands to produce recordings in home studios or at least record and produce their CDs much cheaper than before. The labels finance production and often provide an advance payment for signed bands at this stage.

3 - Sales and Marketing (Publicity) The labels have a well-established relation with music stores and media channels such as press, radio and TV stations. Through these relations they are able to work out profitable sales and promotion deals. The label decides the amount of promotional spent on a single or album according to its potential popularity and profitability.

4 - Distribution (Pick, Pack and Ship) This stage of the value chain is quite different for a major label compared to an independent label. The majors often have a global network of branch offices that can handle sales, distribution and marketing issues and sometimes they even own the distribution channels as well. Independent labels, in contrast, have to license local distributors.

5 - Wholesale Distribution companies most often work towards the big retail chains and to some of the smaller chains dealing with large quantities. Because of the quantities smaller shops can have difficulties with striking a profitable deal and thus they make their purchases from a whole-saler to avoid being forced to buy a minimum amount of CDs from the distributor.

6 - Retail Retailers place their orders at the wholesalers as and when the albums and singles are required. The music is then sold to the consumers.

6.3.2 The Virtual Value Chain Rayport and Sviokla13 mean that almost every business today competes in the virtual world of information as well as the physical, and thus has to create value in both worlds accordingly. But the processes for value creation work are not the same for both worlds. Value creation in any stage in a Virtual Value Chain (VVC) involves a series of five activities: gathering, organising, selecting, synthesising and distributing information as seen in Figure 3.

13 RAYPORT, J.F. and SVIOKLA, J.J. Exploiting the Virtual Value Chain

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They claim that every company observed have adopted value-adding information processes in three stages. In the first stage, visibility, companies use information to acquire ability to overview their Physical Value Chain (PVC) as an integrated system rather than a set of discrete but related activities. In practice this means that the company performs actions in the marketplace while it monitors and coordinates those actions in the marketspace.

In the second stage, mirroring capability, companies have established a necessary infrastruc-ture for visibility and move on by managing operations and even implement value-adding steps in the marketspace. The latter is often done by studying the PVC and transferring the value-adding activities to the new virtual environment. By moving from the marketplace to the marketspace the company starts the creation of a VVC that parallels and improves on the PVC. But ultimately companies must not just add value to the VVC, but extract value from it. This is done in the third and final stage, new customer relationships, where customer relationships are established through the marketspace. Collecting information about the customer that can be distributed through the company or sold to other businesses is a method often used but not totally accepted since it often is done without the customer’s knowledge. The reason, however, is to create more value for users by serving a broader set of their needs. This is done by personalised and hopefully attractive offers that can be given to the customer when he makes contact with the company. One must not forget that it is still important to specify what information will be collected so the customer feels secure when dealing with the company. Customer feelings of insecurity are still a major concern for online transactions14.

14 LIEBOWITZ, S. Re-thinking the network economy: the true forces that drive the digital marketplace

Figure 3. The five steps for creating value of information

Gathering Organising Selecting Synthesising Distribution

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Physical value chain

Virtual value chain

Value matrix

New markets New markets New markets

Gather

Organise

Select

Synthesise

Distribute

Figure 4. The value matrix

6.3.3 The Value Matrix New relationships with the customers that companies develop can be derived from a matrix of value opportunities.15 From each stage on the VVC (mirrored from the PVC) an extract of information can be tapped and this could form a new product or service. In order to perform this the company must use processes to gather the information, organise it in a proper way for the customer, extract the valuable information, package or synthesise it and finally distribute it according to the five value-adding steps above unique for the information world. These five steps in combination with the VVC form a value matrix that makes it easier to identify the customers’ desires more effectively and fulfil them more efficiently. The resulting matrix is shown in Figure 4.

This model is a logical choice in this thesis since the traditional linear music industry value chain has become insufficient in the new marketspace.

15 RAYPORT, J.F. and SVIOKLA, J.J. Exploiting the Virtual Value Chain

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7 Methods

7.1 Evaluation of Services An evaluation of the available services gives an overview of the current implementation level of digital distribution. One effective way to investigate what a consumer experiences is to act consumer and actually use the services. This method was chosen because of its effectiveness and low resource consumption. Minor case studies have been chosen instead of major to enable coverage of as many different sorts of services as possible. To extend the coverage maximally the different kinds of services have been categorised in classification matrices and additional criteria have been divided into so called selection models described below. The tests were performed during a four months period.

The goal of the evaluation is to find the most important factors that are stated in the problem definition.

7.1.1 Selection Models All services have different ways of storing and distributing their material, and they also have different sources of income. Below are the main groups of categories for the services. The purpose of this categorisation is to easier decide which business models seem to be most successful. As shown later, the focus and main comparisons will be between the major services (Pressplay, MusicNet and Rhapsody) and the P2P networks without any licenses. MP3.com will also play an important role as an independent platform. There are also minor comparisons with other business models such as Internet radio, small services and user communities

Distribution Models There are several distribution models in use today. Some are easier to use than others.

P2P: Almost all P2P services are without any license today, with only a few exceptions that try to be legal. Some services like Wippit, have ensured legality, but are not very popular. There are both centralised services where a central server keeps record of all nodes in the network, and decentralised services that are true Peer-to-Peer protocols.

Internet radio: Internet radio works like traditional radio, but using the Internet as distribution channel. As with radio it is used mainly as a marketing tool, and not as a source of income.

Central server: A central server enables full control over the material, but requires a large amount of resources to maintain. It is often accessed through a web interface and a proprietary client. This model ensures a good quality of service.

Income Sources Several pay models are used by the services today, all with their own advantages and disadvantages for the user.

Subscription: A sum is paid in advance each month, which enables the user to obtain a limited or unlimited amount of music. Often an unlimited amount of streamed music is offered, a limited amount of downloads and a limited amount of music which can be burned to a

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writable CD. In most cases the music is in fact rented, since it will cease to work when the subscription is cancelled.

Pay-per-piece: A payment is made per downloaded song. This is a rarely used model.

Pay-per-listen: A payment is made every time a song is listened to.

Indirect: The above methods are all direct payment methods, while an indirect payment means that the music is financed by other means than directly buying music. All music can be seen as “free” for users. This model is commonly used in illegal file-sharing services, Internet radio and MP3.com. This is not in fact an income source by itself but by distributing free music this will eventually result either in a boost in CD sales, other revenues from the music in a later stage or even revenues for other parties than the service itself.

Networks Gnutella and Fasttrack are two networks open for different clients to use. Many of the P2P services choose to cooperate with such existing networks while other services create an own new network that can be used exclusively by its users. The advantage with the latter is that the user base is already there while a new network must attract a large amount of users before it becomes interesting in terms of network effects.

7.1.2 Classification Matrices The matrices outlined below were created to visually define a number of selection groups within each category below. The groups are defined by a number of parameters of importance for that particular category. Each axis represents one parameter and is based on a binary scale where each group is placed in the quadrant with the corresponding attributes.

Consumer Matrix The consumer matrix (Figure 5) is based on three parameters: Music Range (vertical axis), Interaction (horizontal axis), and Experience (depth).

Experience shows how IT-literate the user is, i.e. how much experience of computers and the Internet the user has. Low experience means the user have hardly any experience from computers, and an experienced user uses computers every day and has a lot of experience.

Music Range shows what kind of music the user wants. A wide music range means that the user listens to any kind of music, both different kinds of mainstream music and some niched music. A small music range means that the user only looks for one kind of music, and often niched music. Consumers only listening to mainstream music are

Figure 5. Definition of consumer matrix

IT-illiterate, inactive searcher interested in wide

range of music.

IT-literate, inactive searcher interested

in wide range of music.

IT-illiterate, active searcher interested


IT-literate, active searcher interested


IT-illiterate, inactive searcher

interested in narrow range of music.

IT-illiterate, active searcher interested in narrow range of

music.

IT-literate, inactive searcher interested in narrow range of

music.

IT-literate, active searcher interested in narrow range of

music.

Music Range

Activ

ity

21


considered to have a small music range. Even if the hit list includes different genres such as rock, pop, r’n’b and more, “hit list music” is considered a genre on its own.

Activity shows how much time and work the user is ready to spend on finding the desired music.

All these parameters interact with each other. For example an IT-literate user is probably also ready to spend more time using the computer to find the desired music. To ease the definition of the groups extreme typical cases are studied.

Creator Matrix The creator matrix (Figure 6) consists of two parameters – Fame (vertical axis) and Influence (horizontal axis).

Fame displays the relative amount of people that are familiar with the particular artist. A high value on the fame axis means that the artist is well known among people from many different genres and not just well known among for example jazz musicians. Little fame is quite self-explanatory - a new entrant on the music scene that has not gained so much popularity yet.

Influence is the possibility for the creators to control their own music. A creator with high influence over the music gives him liberty to decide what marketing, payment and distribution methods to use. A low influence is merely the opposite. Influence is strongly connected with ownership of music rights.

Service Matrix The service matrix is (Figure 7) also based on three parameters – Music range (vertical axis), Interaction (horizontal axis) and Income source (depth).

Income source defines how the service gains its revenues. The scale is divided in two different income sources – direct and indirect where the low value corresponds to an indirect income source, i.e. the user pays no fees or rates connected to the service. The indirect pay model is more thoroughly described under chapter 0 above. The direct pay model includes all of the three other pay models also described under chapter 0. They all imply a fee or rate for the consumer.

Figure 6. Definition of creator matrix

Figure 7. Definition of service matrix

Pay service with a wide range of music and little

interaction.

Free service with a wide range of music and little

interaction.

Pay service with a wide range of music and much interaction.

Free service with a wide range of music and much interaction.

Pay service with a small range of music and little

interaction.

Free service with a small range of music and little

interaction.

Pay service with a small range of music and much interaction.

Free service with a small range of music and much interaction.

Music range

Inte

ractio

n

Fame

Established creators/artists with

much control over rights and selling channels for their

music

Not established creators/artists with

much control over rights and selling channels for their

music

Established creators/artists

without much control over rights and

selling channels for their music

Not established creators/artists

without much control over rights and

selling channels for their music

Influ

en

ce

22


Selection shows how big selection of music the service offers. The difficulty with defining this scale is whether the scale is based on a big selection of songs from each of few genres or a modest selection of songs from each of a great number of genres. In this case a large number of genres mean a large selection, whereas a large offering from only one genre is a small selection.

Interaction shows how much the industry is able to interact and reach out to the consumers. A high interaction means that the service can be used to market new releases or sell material that the user did not intend to buy firsthand. A low interaction on the other hand is mainly a service where the labels have no way to get in contact with the consumers. Pressplay with their own site has a very good platform for marketing while Kazaa has few ways to communicate with the users through advertisement or other channels.

7.1.3 Evaluation Methodology After selection services, the evaluations have been performed from a user-oriented view, first playing the part as ordinary users to create an overall impression of the service. All selected services have then been assessed according to a number of factors important for the consumers’ experience of value.

7.1.4 Evaluation Factors Prior to this thesis we performed a minor user oriented study of the music services available in spring 200216. This earlier work helped us discover many of the factors that have been examined in this thesis. During our current work we have been able to look into those factors and investigate their importance and correlations more thoroughly since their existence has been known from the start.

Since file sharing services and subscription services are quite different from one another different factors apply on each kind of service.

7.1.5 Music Bill of Rights The Music Bill of Rights, according to Bernoff17, consists of the below statements that are a couple of very basic, but not obvious principles that may be helpful to have in mind when reviewing the services. Bernoff claims that no music service is prone to succeed without paying attention to the Music Bill of Rights.

• The right to find music – There is no use subscribing to a service that does not have the music you want.

• The right to control your own music.

• The right to pay as you want.

16 LANDEGREN, J. LIU, P. Studie av digital musikdistribution – vilka värden har skapats. KTH, Stockholm, Sweden. 17 BERNOFF, J. Downloads Save the Music Business. August, Forrester, Wholeview, TechStrategy Research.

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7.2 Interviews The purpose of the interviews is to get a deeper insight into the music industry and to get information and opinions from the different actors in the business. Interviews have been conducted with music creators, interest organisations and collecting societies within the business.

7.2.1 Music Creators and Artists Interviews with creators and artists have been done in order to get an overview of their opinions and demands on the music industry, with an emphasis on the impact of online distribution. The questions asked have been about the creators’ distribution models, marketing models, income models, ownership, copyright and the uses of digital distribution services.

The interviews have been performed both personally, by mail and by phone. The phone interviews were often regarding certain important questions that we needed answers on and thus a full transcript were not necessary. The interviews with creators situated in Stockholm were conducted in person and the whole interviews were recorded and fully transcribed.

The creators have been chosen from different sets of characteristics important for creators’ view on digital distribution. These characteristics include whether the artist is signed to a major record label, independent label or not signed at all and it also includes whether the successful artists has launched themselves by traditional CD sales or by digital distribution.

7.2.2 Interest Organisations Record companies, artists and creators each have their own interest organisation and collecting societies – IFPI, STIM and SAMI. The interviews have been performed by phone and personal meetings with the legal advisors of each organisation to form an opinion of how current and future rules and tariffs for digital distribution works. The interviews have been to collect information on a specific topic and thus the amount of information was small enough so that a complete recording of the interviews was not necessary.

7.3 External Reports, Surveys and Statistics To get the users’ view on digital music distribution, one way is to use user surveys, statistics and reports to get a snapshot of users’ attitude toward music files at a given time. There is not enough time and resources to actually conduct a reliable user survey in the span of this work, so other surveys conducted by professionals are used. The findings from the studied surveys are displayed in chapter 8.3.

Since all figures are estimated and calculated by other companies and external sources, they have been reviewed with a critical eye. Statistics and numbers of this sort are known to be easily manipulated, thus the accuracy and reliability of the used reports are thoroughly reviewed and discussed. Furthermore, the reports are from established and well-known companies, ensuring better reliability. Since changes may occur rapidly and radically all surveys and figures are from recent reports (end of 2002 – beginning of 2003). See references for a list of the studied surveys.

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7.3.1 Internet Connection and Digital Music Usage Statistics and Surveys Statistics on Internet usage among Swedish households were found in a report from Post- och TeleStyrelsen, Konkurrensverket and Konsumentverket18. Those organisations protect the consumers’ rights and ensure a rightful competition in several markets so the report is considered to be an impartial judgement of today’s Internet usage.

A Norwegian survey from MMI19 based on a survey to 2002 consumers is used in conjunction with the sales comparison to assume downloading behaviour for Swedish people.

7.3.2 Music Sales Figures Sales figures based on Quarterly reports from British Phonographic Institute20 (BPI) for the UK market were analysed to find any possible sales trends for CDs or singles since downloading became evident.

Figures from IFPI21 were used to compare sales figures from the Swedish and global market with ISPs revenues.

The McKinsey Quarterly report “Unchained melody”22 has given us some insight in how big shares of the CD price that comes from different steps in the value chain.

7.4 Keeping Up to Date with the MP3 News and Web Log All important news on the subject is gathered in a web log for easy access and tracking of recent events. Since the digital distribution business changes on a nearly daily basis it is necessary to keep this log to get an overview of all happenings in a chronological order. Many

of the events are mentioned in chapter 2.3. It has been of big help when tracking old news and events.

18 Alltid på! Bredbandsmarknaden ur ett konsumentperspektiv. 2002. Post- och telestyrelsen, Konsumentverket, Konkurrensverket. Sweden 19 EILERTSEN, R.T. September 25, 2002. Kopiering av opphavsbeskyttet innhold – Innehav av egenbrente CD’er og DVD’er i Norge, Nedlastning og bruk av MP3-filer. MMI for Norwaco. Norway 20 BPI. 1998-2002. Quarterly Reports from 1998 to 2002 21 The Recording Industry in Numbers 2002 – the Definitive Source of Global Music Market Information. October 2002. IFPI. London, UK 22 MAY, B. and SINGER, M. McKinsey Quarterly, Number 1, 2001. Unchained Melody

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8 Findings

8.1 Evaluated Services Findings

8.1.1 Selected Services The basis of this selection has mainly been the Services Matrix. Each service of interest representing different distribution models, networks and income sources has been placed into this matrix and then the most innovative and interesting services from all extremes are evaluated. Only the selected services remain in Figure 8 below.

Musicnet (owned by BMG, EMI, Warner and Real) and Pressplay (owned by Sony and Universal) are two similar services owned by the majors, and they both offer about the same content and features. All five majors are represented in these two services and they put a lot of effort to break the ubiquitous illegal download trend on the Internet by offering a legal alternative. Rhapsody23 is another subscription service that is not owned by, but has licences from all five majors. Emusic is also a subscription service but the content is provided from independent labels and they have no license agreement with the majors.

OD2 and LiquidAudio have a very interesting business model where they acquire licenses from the labels and provide E-tailers, Internet portals and outlets with a full end-to-end solution for selling music on their sites. Royalty management, hosting of files on high bandwidth servers and E-commerce systems are all part of their solution.

MP3.com was from the beginning a free service where small independent bands could market and distribute their work on the site. The site is now owned by Universal and acts as a promotion platform for mostly unsigned bands and artists. A user community site similar to early MP3.com is Dmusic.com.

Vitaminic is a similar service to MP3.com with many independent or unsigned bands, but unlike MP3.com it requires a subscription fee to access the songs as well as for uploading

23 Rhapsody is similar to Musicnet and Pressplay and is neither available in Europe, but it did have a limited offer for trying out the service for a few days even for European residents. This made it possible to evaluate the service and form an own opinion of the advantages and disadvantages with services like these.

Figure 8. Service matrix

P2P networks Internet Radio

Pressplay MusicNet Rhapsody

OD2

MP3.com

Vitaminic Emusic.com

Dmusic.com

Music range

Inte

ractio

n

26


your own work. It does provide a minor selection of music from larger independent labels and artists. Vitaminic is owned by the pioneers IUMA and Soundpeople.

Tom's Radio is a free customisable Internet radio service. Users can make their own playlists or choose between four different streams. A big player in Internet radio is Shoutcast, but it is more of a technology provided for anyone to use, and the website is just a collection of the sites that uses Shoutcast. Shoutcast allows no copyright control over the content, which can be streamed by anyone.

The selection of file-sharing programs has been the hardest to decide since there are numerous clients to choose from. We have chosen clients to represent each of the two networks Fasttrack and Gnutella. Some clients are focusing on music and some are general file-sharers and different search options and filters differentiate the focus. Kazaa is an obvious choice because it is the single largest P2P service available. It uses the FastTrack network, and it focuses on sharing music files. Morpheus 2.0 is the most popular client using the Gnutella network. Other investigated clients representing own networks are WinMX, Qtraxmax and DirectConnect (hub-based).

It is interesting to note that no services are in the quadrant that represents small range of music and little interaction and it is understandable that only few static sites offering niched music are successful and stay for very long under the current circumstances. There is also hardly any successful service that exclusively uses a pay-per-piece or pay-per-listen model, although the models are partly used in some of the evaluated services.

8.1.2 Briefly Investigated Services There were many services briefly investigated and discarded in this report because of their lack of usability or other factors, but they could be worth mentioning for reference:

• Numerous P2P-clients were examined and many of them were briefly tested such as: Shareaza, Imesh, Limewire, Bearshare and AudioGalaxy.

• A few legal music sites of interest: Philly Soul Classics, Liquid Audio, Liquid Audio BurnItFirst.com and RioPort.

• Internet radio stations: Live365, Shoutcast, Spraydio and icecast.

8.1.3 Overall Impressions of Pay Services Unfortunately because of the licensing restrictions the evaluation of Pressplay and Musicnet had to be made by Justin Maresh24 since the services are not available in Europe. Thus the impression of these services is not firsthand. These reviews can be found in Appendix XVI and Appendix XVII.

Fortunately Rhapsody had a limited worldwide trial period of a few days when even non-US citizens could try the service with full functionality. That made it possible to form a firsthand impression of a subscription-based service with content from the majors.

24 Independent musician and more important - US citizen

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The most apparent impression from most legal services is that they tend to have a very limited selection of music. Even though Rhapsody distinguished itself with a decent selection there were still many artists missing. Except in the case with Rhapsody, categorising and search functions on other services felt lengthy. Since the content on Emusic, Vitaminic and others mainly consisted of bands unknown to most users browsing through the music can easily be very random. These services lacked a good and organised way to browse through the categories compared with for example Rhapsody’s user interface that felt much more intuitive and appropriate.

8.1.4 Overall Impressions of P2P and Non-Licensed Services Non-licensed services consist mainly of P2P networks, and most Internet radio station also lack licenses. Internet radio has so far not been considered a serious threat by the music industry, although actions against it have been taken (for example the Internet Radio Fairness Act).

What characterises P2P services are huge amounts and selection of music, and they are free to use. The availability is also very good, since music can be attained from virtually any computer with a client, and clients can be downloaded and installed easily. Depending on what network and client, the level of organisation and reliability of downloads varies. Most clients, such as Kazaa and Morpheus, are much unorganised. Reliability on the downloaded material and connection are also very low, often resulting in broken downloads or being extremely slow.

More closed services such as DirectConnect that are based on hubs requiring a certain amount of shared material and connection speed, are more organised and are far more reliable. It eliminates so-called ‘freeriders’ (user not sharing any material), thus forcing a higher amount of material available in the hubs, and the speed requirement guarantees a certain download speed. There is a strong connection between control and quality. The free nature decentralised P2P networks result in poorer quality, while a little more control like restricted hubs enhances quality. Centralised services offer most control and quality of service (see below 8.1.6).

Search tools and other functionality are quite similar for most clients. A few clients claim to have a superior search tool, interface, and better speed. The tests have shown that among the about 10 most popular clients, there is not a single competitor superior to the others, but a few clients are inferior to the others regarding the above criteria.

Spy-ware and ad-ware has been a problem in many clients, but today there are so called ‘clean’ alternatives for most clients, and new clients are often free from spy-ware and ad-ware.

Overall, the reliability of P2P services is low, and a great mass of users do not bother going through searches and broken downloads to attain music. There is definitely room for improvements and other alternatives.

8.1.5 Differences between Licensed Services and Non-Licensed Services The most notable differences are that non-licensed services are free to access, while licensed services charge users to access the offered content.

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Non-licensed services are also mainly P2P networks, although there are websites that are not licensed but are seldom very popular or can even be called a service. Licensed services are only central sites, often with a proprietary client.

Licensed services with backup from a relatively generous budget for development usually are more user-friendly and easy to understand. They have focus on commercial services toward the common consumer, whether it is an IT-literate user or not. P2P clients tend to focus more on the technical solutions, offering efficiency, aimed toward IT-literate users. For the user these clients often lack apparent commercial purposes and are believed to be free.

The range of music is superior in legal services, because they do not have the hindrance of licensing and copyrights.

8.1.6 Interesting Observations during Evaluation of Services A very interesting observation is that all legal services offering digital downloads for burning onto a CD-ROM seems to have a price agreement since all downloads are priced at $0.99. It also seems that the common technology for all the services is almost the same. Every service provided by the majors offer subscription based services with optional burnable downloads for a pay-per-piece fee. The question is whether all the different players have developed this model separately and found it the most effective, all the players cooperated in the develop-ment or one major invented the model and was quickly followed by the others. The pricing level is also comparable with physical CDs.

There’s also an interesting observation considering controlled versus free nature of the services. In order to ensure a certain level of reliability and music quality the services must have a certain level of control over the content. P2P services are a very good example where Kazaa shows that a low control enables any user with any type of content to enter the network while Direct Connect provides a higher bandwidth for downloads and larger selection by restricting entrants with a low bandwidth and few files to enter the hubs.

Figure 9. Relation between control and potential listeners

Legal services with high control commonly achieve the degree of control by keeping a central server that contain all files available and a database that stores information of all downloads and streams. The files are often a copy-protected format that restricts the use of the file to the intended user.

8.2 Interview Findings

8.2.1 Music Creators and Artists The interviews with the artists and creators have given us an understanding of digital distribution from their view. The interviews have both confirmed some expected opinions and revealed a few surprises (further discussed in chapter 9.3). Most of the creators are aware of the digital distribution channels, but apparently do not know much more than a common consumer. Even Real Group who has material on for example Rhapsody was unaware of its existence. Starting from this level of knowledge of digital services, the artists’ opinions are

High control Low control

Many listeners Low Quality of Service

Few listeners High Quality of Service

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judged thereafter. There are two groups of creators: the established ones with a record contract, and the unknown ones with either no record deal at all or just newly signed.

The unknown artists do not find much interest in digital services, except for marketing in the form of samples. They still want to focus on selling physical records, because it is a familiar channel. They are not aware of what the digital channels actually offer, what the pros and cons are of the digital medium. They do not have the time or the money to get their music out, so the easiest way is still a launch through a label. It is very difficult for them to get noticed on their own. They are looking for alternatives, but have still to find one attractive enough.

The establised artists are generally open to trying new ways of getting their music out, and they can afford experimenting. Real Group (RG) is open to trying digital distribution, but has not taken the step yet. Looking at the current digital services, other big artists clearly see this as a complement to their physical sales if they have approved of the music being sold digitally. Mostly they have not had any good experience from labels, seeing them mainly as a redundant part of their career, as opposed to new artists who still need to get their name out.

One thing everyone has in common is that they do not find P2P services very attractive. They have taken a side against P2P networks that are normally associated with music piracy. They cannot see any business model that could be lucrative on a P2P network. Seemingly the only alternative is to eliminate P2P activity, or at least limit it.

Only one of our case studies has started with MP3s instead of CDs and can be considered a successful artist, Trance Control (TC). The other band (Atomic Eyes) has got exposure and performances through Napster, but cannot be considered an economically successful band. TC has expanded to selling physical records, but is clearly not satisfied how it has worked out with the record company. On the other hand TC are still selling records and a considerable amount of downloads through MP3.com. TC went from the digital format to the physical, and has not found the deal economically satisfactory. But they are not making a living entirely on selling files either. This case does not show which channel is the better, but shows that digital distribution actually is an alternative.

To conclude the creator interviews, creators do not have much to add to the question of how they want to develop their way of getting their music out, neither in marketing nor in distribution services. Most creators do not care and actually want to leave this to the record companies. They do not like their situation being dependant on major companies, but they do not see digital distribution as an alternative for now, though it might be a future alternative.

From the artists’ perspective, digital distribution could probably disintermediate a few steps in the value chain. The question is which and that is further discussed in chapter 9.3.1. Artists still need a good way to launch their music and labels should be able to fill this role. After they have been established, the publishers of today are no longer needed.

8.2.2 Interest Organisations The legal advisors from respective interest organisation have provided information of legislation, rules and future plans for each actor in the music industry. They were very helpful and had a lot of useful information of how the business works. The findings can be read in Appendix II.

The interviews with the legal advisors have given us a better picture of how the current legislation works and what rules there are for distributing music on the Internet. Apparently

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there are rules and tariffs set for now, but it seems like few people are aware of these rules, and even less interested in finding out on their own. The rules are only temporary and still under development. The question is if the rules will ever catch up with technical development, since distribution technology is constantly evolving too. They are usable as they are and people will have to accept they are still in a developing stage.

The most interesting comment from STIM and SAMI is the one about the involved parties allowing their material to digital distribution services. They both have said that it is often the record companies that do not allow this, while performing artists and creators often do. One reason for this is that the artists and creators probably have more to gain than lose from this expansion to digital channels, while record companies want to keep the income generated from physical steps in the value chain (producing CDs). Creators have the most to gain from this because in the end it broadens the market. The main cause of industrial losses is illegal copying, that is a lot easier with music in a digital format.

8.3 External Reports, Surveys and Statistics Findings Below are calculations and analyses from the gathered statistical reports.

8.3.1 Telecoms’ Revenues Compared to Record Companies’ Annual Profit The telecoms’ role in P2P downloading have been discussed occasionally but the maybe most important question have been left out of the discussions – How much money do consumers spend on downloading music? The term “free” downloading is definitely not valid as can be seen in Table 1 below.

Many of the figures above are approximations or generalisations since exact figures are impossible to estimate, but in order to create figures that have any reliability all assumptions have been made in the record companies’ favour. Thus the actual quote between the telecoms’ revenues and the record companies’ profit is actually much higher. Since the quote shows a considerable profit for the telecoms with these figures it is definitely worth to review the telecoms role in P2P downloading.

We have used an estimate of record company profits for this comparison, since the record industry’s rhetoric usually refers to P2P activities damaging their profits. The industry also regularly claims that, were consumers not able to download, they would go out and buy an equivalent number of physical CDs.

The Swedish figures are based on numbers from trustworthy sources (see chapter 7.3.1 for sources), and the accuracy should be considered good. The reason for choosing a Norwegian report as a basis for the user downloading behaviour is that any Swedish information source with the same scope and reliability not has been found.

The global figures in Table 1 are to a larger extent based on estimations and assumptions, but are still realistic figures.

The findings from this comparison is further discussed and analysed in chapter 9.1.4.

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Modem56K

TeliaADSL

0,5 Mbit

BostreamADSL

2,5 Mbit

BBBBroadband

10 MbitSize of song (kB) (1) 4 000 4 000 4 000 4 000Download speed (kB/s) (2) 7 62,5 312,5 1250Downloaded files per month (3) 64 64 64 64Time online per month (minutes) 610 68 14 3

Percentage of the population with Internet access in the household (4) 57%

Percentage of online users on different Internet access (4) 80% 7% 6% 7%Percentage using Internet connection for music downloading and webradio (4 18% 42% 42% 42%Number of online users downloading music or listening to Webradio (5) 738 720 150 822 129 276 150 822Total amount of data downloaded by users each month (TeraByte) 189 39 33 39

Telecom's ratesMonthly rate (SEK) 0 375 449 320Minute rate (SEK) 0,115 0 0 0Monthly rate exlcuding VAT of 25% (SEK) 0 300 359,2 256Minute rate excluding VAT of 25% (SEK) 0,09 0 0 0Monthly rate excluding VAT of 25% (USD) (6) 0 33,3 39,9 28,4Minute rate excluding VAT of 25% (USD) 0,01 0 0 0

Total cost per month for user (SEK) 70 375 449 320Total cost per month for user (USD) 10 42 50 36Total cost per month for user spent on music (SEK) 70 150 180 128Total cost per month for user spent on music (USD) 10 17 20,0 14,2

P2P perspectiveTelecoms' traffic revenues per month (M SEK) (7) 39 17 17 14Telecoms' traffic revenues per month (M USD) (7) 4 2 2 2Telecoms' traffic revenues per year (M SEK) (7) 466 204 209 174Telecoms' traffic revenues per year (M USD) (7) 52 23 23 19

ComparisonRetail value of recorded music sales in Sweden 2001 (M SEK) (8) 2 960Retail value of recorded music sales in Sweden 2001 (M USD) (8) 329Profit from recorded music sales in Sweden 2001 (M SEK) (9) 740Profit from recorded music sales in Sweden 2001 (M USD) (9) 82

Telecoms' revenues from all Internet access per year (M SEK) (10) 1 052Telecoms' revenues from all Internet access per year (M USD) (10) 117Telecoms' revenues percentage of profit on recorded music sales 142%(1) Average track length of 4 min and file size of 1 Mb/minute of track (2) Theoretical download speed (3) Average number of files downloaded by users of P2P. Swedish downloading behaviour is assumed to be similar to Norwegian (Rune T. Eilertsen "MMI - rapport", 09-25-2002) (4) "Alltid på - Bredbandsmarknaden ur ett konsumentperspektiv" PTS, Konkurrensverket och Konsumentverket 2002 Estimates from official Swedish sources. (5) This number is calculated assuming a Swedish population of 9 million people (6) All figures in USD currency are calculated using an exchange rate of 9 SEK = 1 USD (7) For each type of Internet access, excluding Swedish VAT of 25% (8) (IFPI, Recording industry in numbers 2002) (9) Profit from recorded music sales is approximated to be ~25% of the retail price (McKinsey Quarterly, Unchained Melody...) This is a very conservative estimate - Major record companies' profits presently seem to be in the range of 4 - 8 % of wholesale. (10) A sum of telecoms’ revenues from all types of Internet access

Table 1. Telecoms’ revenues and record companies’ profit from recorded music sales in Sweden 2001

Many of the figures above are approximations or generalisations since exact figures are impossible to estimate, but in order to create figures that have any reliability all assumptions have been made conservatively, in the "favour" of the record companies. Thus the actual ratio between the telecoms’ revenues and the record companies’ profit is probably much higher. Since the ratio indicates a considerable profit for the telecoms, then these figures suggest it is

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definitely worthwhile reviewing the telecoms' role in P2P downloading (but not via legal actions, which has been traditional Record Industry strategy as the Internet has developed).

The Swedish figures are based on numbers from trustworthy sources, and the accuracy should be considered good. The global figures are to a larger extent based on estimates and assump-tions, but are still realistic figures.

Assumptions in the Swedish Comparison 1. The Statistics from the Swedish report “Alltid på- Bredbandsmarknaden ur ett kon-

sumentperspektiv”25 (the "Always -On Broadband market from a consumer's perspec-tive") show that 57% of the Swedish households have Internet access. Based on that fact we assume that 57% of the Swedish population have Internet access and we also assume the size of the Swedish population to 9 million people. The same statistics also show how many of those Internet users that use their connection for music downloads. There are also numbers on what kind of connections the population has. VAT has been taken into consideration for connection rates, since the retail value reported by the record industry's organisation IFPI26 excludes VAT of 25% in Sweden.

2. The track length is usually about three minutes but since many tracks can be much longer we approximate an average track length of 4 minutes.

3. 1 Mb/minute of track is based on an MP3-file with a bit rate of 128Kbps. This is by far the most common file format and bit rate for CD-quality music on the net even though MP3s with 192 Kbps bit rate are becoming more popular.

4. The calculations are based on theoretical download speeds, but actual download speeds vary and P2P users are also dependent on the connection at the other end i.e. the person with whom one is sharing the files. The actual download speed will be the lower of the two ends. Average download speed for a 56k modem user would be about 4 Kb/s and for a BBB 10 Mbit broadband user the download speed varies enormously between 1-1000Kb/s so an average is very hard to calculate and depends very much on what other users are online.

5. A Norwegian researcher, Rune T. Eilertsen has carried out an extensive survey of music file sharing over the net27. He estimated from an extensive user survey that 16% of the Norwegian population downloaded files and they downloaded an average of 64 files per month and person. We assume the amount of downloaded music per person is the same in Sweden. This would amount to about 4 full length CDs per month. A Forrester research survey (august 2002: Downloads save the music business) also found in the USA that regular users of file sharing services ripped CDs to their hard drives on average around 4 times per month.

25 Alltid på! Bredbandsmarknaden ur ett konsumentperspektiv. 2002. Post- och telestyrelsen, Konsumentverket, Konkurrensverket. Sweden 26 The Recording Industry in Numbers 2002 – the Definitive Source of Global Music Market Information. October 2002. IFPI. London, UK 27 EILERTSEN, R.T. September 25, 2002. Kopiering av opphavsbeskyttet innhold – Innehav av egenbrente CD’er og DVD’er i Norge, Nedlastning og bruk av MP3-filer. MMI for Norwaco. Norway

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6. The assumption that 57% of the population have Internet access is probably too low since most people have Internet access at their work. The record industry maintains that much downloading occurs at places of work/universities and is presently starting a campaign to persuade employers how illegal this activity is (inferring that even they could be sued).

7. The minute rate for modem users is that charged by Telia, Sweden’s largest ISP28. The figure of 0,115 SEK is the rate for weekday nights and weekends. On weekdays 8:00 - 18:00 Telia charge 0,23 SEK. There is also a connection fee of 0,45 SEK every time a customer connects - this has not been included in the calculations.

8. The start-up cost for acquiring a broadband connection has been excluded. Usually it varies between 500-2000 SEK. Even the costs for buying, servicing and replacing computers every 3 or 4 years as well as those for electricity have been excluded.

9. The VAT for Internet access is assumed to be 25%. A figure most domestic consumers cannot deduct. It has though been deducted from the telecoms’ revenues.

10. Broadband users are assumed to use about 40% of their connection for downloading music. The total cost for downloading music is calculated as 40% of the monthly rate to the ISP. This of course amounts to a small number of minutes for the transfer - but many more are devoted to searching for content, aborted downloads etc.

11. Record companies profits vary between -3% - 25% according to McKinsey Quarterly “Unchained Melody”29. The profits are calculated, very conservatively, using 25% profit, since record sales are still fairly steady in Sweden. The actual figure is currently nearer 4-8%. The IFPI claims illegal downloading and CD "ripping" is the reason.

12. There are more costs associated with downloading that are very hard to estimate. Ownership of a computer, as noted above, is required, but since computers are used for so many tasks it is impossible to estimate an average share of the computer price used for downloading and listening to downloaded music.

13. The broadband prices (BBB30, Bostream31 and Telia28) have been acquired from their respective websites.

28 www.telia.se 29 MAY, B. and SINGER, M. McKinsey Quarterly, Number 1, 2001. Unchained Melody. 30 www.bredband.com 31 www.bostream.com

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ISP with flat rateMaximum number of simultaneous users on Napster (2001) (1) 1 600 000Number of simultaneous P2P users today (june 2002) (9) 7 194 040Maximum total number of users on Napster (2001) (2) 60 000 000Total number of P2P users (june 2002) (3) 100 000 000

AOL monthly flat rate 2001 (USD) 21,95AOL monthly flat rate 2002 (USD) 23,90

ComparisonTotal sales of recorded music (M USD) (5) 38 680Profit from CD sales (M USD) (6) 3 868

Telco's revenues from P2P (june 2002)Telcos' traffic revenues per month (M USD) (7) 956Telcos' traffic revenues per year (M USD) 11 472

Telcos' revenues percentage of profit on CD sales (june 2002) 297%

Telco's revenues from Napster (2001)Telcos' traffic revenues per month (M USD) (7) 527Telcos' traffic revenues per year (M USD) 6 322

Telcos' revenues percentage of profit on CD sales (2001) 163%(1) (IFPI “the Recording Industry in Numbers 2002”) (2) (Alderman J. “Sonic Boom”) (3) A very approximate number (4) 1 USD ~ 9 SEK (5) Total global retail value of recorded music sales 1999 (IFPI, Recording industry in numbers 2002) (6) Revenues to the record company are approximated to be 10% of the retail price (see note 3 below) (7) Total users * monthly rate * 40% (Music downloads are assumed to constitute 40% of the connected time) (8) A snapshot of all online users on different P2P networks (February 16th, 2003 14:00 EST)

Table 2. Global comparison between telecoms’ revenues and recorded music sales

Assumptions in the Global Comparison (10 – 12 above also apply in the global comparison):

1. The total number of P2P users is estimated to be 100 million people. Napster was estimated to have about 60 million users at its peak and we know that there are many more users today. Kazaa alone has over 190 million downloads and the top 5 downloaded P2P services (Kazaa, Morpheus, iMesh, AudioGalaxy and Bearshare) from www.download.com have together about 400 million downloads. These numbers do not mean that there are 400 million unique users. Many users download applica-tions several times. There are also other services providing downloads from their own websites and they are they not included in these figures.

2. AOL32 is the largest ISP in the US and hence one of the largest in the world. Thereby a generalisation is made saying that all P2P users have AOL as ISP. In reality this is a very broad generalisation but it is impossible to estimate how the total number of users is divided between different countries at the scope of this thesis.

32 www.aol.com

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0

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Q2 199

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Quarte r

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Sold singles

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trendline

Figure 10. Number of sales of singles and albums in UK over the years 1998-2002

3. Using the highest McKinsey estimate of record company profits in the range -3% to 25% of retail value33, is far less reasonable on a global scale. In Sweden CD sales have remained fairly steady around 24 million, despite CD burning and file sharing. In the US sales dropped 9% in 2002. The trade paper Music & Copyrights uses an estimate of 4 - 8% of trade value. We have opted for a 10% figure in the global figures, i.e. biased "in favour" of the record companies. Ironically, had one used the extreme figure of 25%, the conclusion would be that consumers’ telecom/ISP spend for P2P during the run up to Napster’s all time high would have been less than record company profits. The opposite is the case after Napster’s closure and Kazaa’s birth.

8.3.2 Trends for Single Sales versus Album sales Sales figures for CDs and singles on the UK market show a noticeable trend (Figure 10) that single sales have been constantly decreasing since 1998 compared to album sales that has been increasing. This implies that most of the losses in the British record industry origin from a loss of single sales. Album sales have steadily increased since 1998. One possible explanation to this is that the reason for buying a single very often is to preview an artist before buying the CD. This particular purpose of singles has now become obsolete when you can achieve the exact same

result by downloading free songs from a file-sharing client. When it comes to album sales the satisfaction of owning a physical CD is still an attractive factor for consumers when buying an album and it is not substitutable in the same degree by file downloads.

These assumptions are confirmed by IFPI34 who claim that single sales increased 32 % between 1994 and 1997 but have since then fallen by 38% to 318 million units. The reason for a particularly difficult single market is thought to be a combination of growing file sharing and fewer single releases. IFPI also state: “As the Internet becomes a more significant channel for downloading of single tracks, the future of the physical CD is unknown”34.

33 MAY, B. and SINGER, M. McKinsey Quarterly, Number 1, 2001. Unchained Melody. 34 IFPI. The recording industry in numbers 2002, p. 8

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An ironic aspect of this is that many record companies have shown an unwillingness to pay royalties on singles to artists. At the same time the recording industry has regularly and vociferously claimed that Internet downloading is the same as stealing money from the artists.

8.3.3 Other Sales Trends According to figures from the RIAA, CD sales have steadily gone downwards, and it is a known fact. What has not been made clear according to George Ziemann35, is that the number of new releases have decreased as well. Whether the drop in sales corresponds to the decrea-sed number of new album releases remains unclear, since different sources are reporting different results, as can be seen in the figures above.

Another known trend is that record companies venture increasingly more on superstars, and thus diminishing the diversity. The number of one-hit-wonders has increased, and artists now have a shorter lifespan and releasing fewer albums. One can only speculate how many of today’s artists that will still sell albums in 10 or 20 years.

8.4 Study of Important Factors for a Commercial Service After studying the chosen services, a number of factors that are considered important in evaluating digital music distribution services have been identified and listed below. There are certainly many other minor factors to take into consideration, but the ones listed are consid-ered the most important and decisive in a review of service value.

8.4.1 Usability A service with good usability needs to have easy navigation, categorisation of music, and a good search tool. Most services have a mediocre web interface with no standard of what it should look like. For example the interface of OD2 (at MSN) was easily mixed up with the interface of the rest of the site. Most P2P clients have similar interfaces and functions sorting into tabs and conventional windows interfaces, with a few exceptions that are not user friendly at all.

The categorisations have different level of detail on different services. Separation into genres and one level of sub-genres is often sufficient. Listings by artist, song title and album is often standard and a good way of sorting. The large services generally have usable categorisation, and P2P clients often lack this feature.

The search tools vary greatly, and the P2P clients tend to have very good and detailed search options, as opposed to the large services with simple search tools. On the other hand P2P services often do not have any categorisation or sorted listings. Detailed search options often include: encoded bitrate, length of song, size of song, artist, album, year of release and genre to an extent (not all songs have this meta information tag) and so forth.

Overall, the interfaces of the large services are easier to use than P2P clients. It is apparent that any sort of service should be bug free, and most of the tested services worked fine, with very few exceptions.

35 ZIEMANN, G. http://www.azoz.com/music/features/0008.html

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8.4.2 Availability Digitally distributed files often have limitations on where, when and how they can be used, which are summarised in availability.

Generally P2P networks give users the possibility to permanent downloads of music to any computer. The files distributed are mostly unprotected MP3, which can be used on any device and at any time. P2P services do not provide any central storing of music (for streaming), but it is still easily obtainable from anywhere.

The large services Pressplay, MusicNet and Rhapsody have the worst availability, which can be explained by a number of legal limitations enforced by DRM technologies. What is not clear when a consumer signs the subscription agreement is that the music is only usable as long as the subscription lasts. In other words the music is just ‘rented’ and not bought permanently. The music is generally only playable on one machine at a time, and not transferable to portable devices, or any other device of any sort. Burning music to CD is very limited, often needing additional fees36. OD2 had only a very limited part of their selection available for burning at all. Most services have proprietary clients and players. Another problem with the large legal services is that they all still only offer the music to US residents, excluding the rest of the world. The geographical restriction is a legal limitation, and it is not enforced by DRM.

Internet radios, and other streaming services, are limited to a computer receiving the stream. Some services also provide a level of customisation of the playlist.

8.4.3 Music Selection The selection and sheer amount of music available in P2P networks is far superior to the large legal services. P2P networks are generally non-licensed services, and do not have the legal limitations from copyright laws that legal services have. The largest networks offer almost any thinkable popular music work. When searching for more specialised music like works of some renaissance composers the hits are quite few, but still better compared with the legal services that do not have this selection at all.

The selection on Internet radios is often quite limited at any given time, very much as conventional radio. Internet stations tend to be a lot more niched, only focusing on one genre.

The most notable problem with the large services is that they are bound to their respective owners, the record companies. Initially they only offered the music from the labels represented by the owners, for example Pressplay only had music from Sony and Universal and MusicNet only from BMG, EMI and Warner. They do not offer their entire catalogues either, excluding some big artists who might not want to be part of digital services.

Consumers looking for less established artists and genres do not have any good legal alternative, since the large services mostly offer mainstream music. There are very few commercial services providing niche music today.

36 Just recently the large services Pressplay, MusicNet and Rhapsody have announced extended rights for burning downloaded music.

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8.4.4 Copy Protection, Digital Rights Management and Other Limitations Eventually digital files have to be protected in some way but the question is how restricted they should be. The copy protection methods implemented by the industry today are used to achieve a higher level of control over the material and prevent illegal copies to be made. The problem with copy protection is that it in many cases involves inconveniences for the user. Most copy protections work by making the CD unavailable in a CD-ROM to prevent digital copies to be made. The effect is that those users who use the computer for playing CDs cannot play the copy protected CDs and in some cases those CDs are known to cause lockups or computer crashes. Some CDs solve this by including their own player that can play separately provided audio files on the CD.

One other negative effect for the users is that they no longer are able to make personal compilations of songs from their own CDs and copies to MP3 players or other portable device.

These are very evident side effects of copy protection that are highly important for users. There have even been lawsuits where people have sued record companies for not being able to play their CDs.

8.4.5 Customer Groupings G. Klimis originally identified the main customer groups37, and they have been slightly modified to fit in the model used here in Figure 11. The groups are the following:

“The curious seeker” – a user that is willing to actively search for music and has an appetite for a wide range of genres.

“Follow the trends” – a user that is rather lazy and prefers being served the music that is “in”, preferably from MTV.

“Small range of what I like” – a user that is willing to actively search for one particular sort of music that she likes.

Each group also have different levels of IT-literacy, showing how much experience that a user has in using computers. Although a curious seeker is willing to go far in searching for music, the choice of what channel to use is decided by the level of IT-literacy. An experienced user is probably more willing to use a client with a difficult interface in exchange for a superior selection and functionality, and vice versa. The type of user is decisive for what type of service is most suitable (see chapter 9.4). 37 KLIMIS, G.M. March, 1999. Disintermediation and Re-intermediation In the Music Business – the Effect of Multimedia Technologies and E-commerce

Figure 11. Consumer matrix

Curious seeker

Curious seeker

Follow the trends, I want my TV back

Small range of what I like, Sinatra fans

Follow the trends, I want my TV back

Small range of what I like, Sinatra fans

Music Range

Activ

ity

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Note that there are no users that like a wide range of music and at the same time do not actively search for it. For example a user that likes classical, jazz, black metal and popular music at the same time would probably not be able to fill her needs without putting any effort in looking for it and just being served music on TV.

8.4.6 Value vs. Fee When looking at the value for the money paid, non-licensed services apparently have an advantage since they do not pay any royalty, or have any fees for users to get access to the material. For the consumers this type of service gives most value for the money, disregarding that the services in general do not have licensed material.

Commercial services with licensed material are offering files to a price comparable with conventional CDs. Music files are generally more limited than CDs because of the licenses, but there are also some technical advantages with music files. How the pros and cons of files are valued is further discussed in chapter 9.1.5.

8.4.7 Extra Value The music industry still has some advantageous factors compared to the file-sharing clients, since they often have access to previously unreleased material, videos and concert rights. Some big stars like Madonna, and David Bowie have a huge fan base that is very interested in their back catalogue, i.e. their early work. This back catalogue is a very lucrative property for the record label since the marketing costs are close to zero for such famous artists. These advantages for the industry could be a major competitive force to be used in the battle versus P2P. The extra value of being able to watch a live concert, a music video, or listen to previ-ously unreleased songs could certainly be a factor that attracts consumers to a commercial service.

8.4.8 Offered Selection In the early stage of this thesis all the majors were still very restrictive with what music was distributed to the commercial services and there were strategic forces in play that prevented labels from offering their music to services run by another label. In October both Musicnet and Pressplay applied for licenses from all five majors to sell a certain amount of the majors’ songs. Early 2003 the services and the labels agreed on the licensing details and the services were permitted to distribute the labels’ music to a certain extent. The selection currently offered by Musicnet and Pressplay is (according to their own websites) exceeding 200,000 songs for Pressplay and 75,000 songs for Musicnet but they have still not expanded their subscription possibilities outside the US so these figures have not been verified.

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9 Discussion Below follow discussions and reflections on the acquired findings in the previous chapter.

9.1 Discussion of Important Factors For a Commercial Service

9.1.1 Usability Usability is an important factor, but is the least decisive one, of the factors mentioned in this report, as regards the perceived value for money of a service. A consumer could very well sacrifice the interface for a service that has a superior selection. However it is still favourable to have a user-friendly interface and a competent search engine. The majority of users do not bother searching for a song for very long, and the impression of an aesthetically appealing interface retains consumers at the service.

The major services have a more user-friendly interface than P2P services and offer easy ways of finding music in general. P2P networks do not have the possibility to categorise the available music in the same way because of the nature of these networks, instead the extensive search engines should compensate for this. The optimal alternative would be to incorporate the sort of search engine P2P clients have into the rest of a major’s service, then having both a good search engine and a structured categorisation.

9.1.2 Availability As the situation currently (February 2003) looks it is not feasible for a consumer to pay for availability, since unlimited files are distributed freely on P2P networks38. Any sort of restriction would lessen the value of the music. From a consumer’s view there is no reason to restrict a file to when and where it can be used.

An assumption can be made that the consumer has some understanding for the industry to retain a level of file protection, but how much restriction will be accepted? One of the guidelines presented in chapter 7.1.5, the Music Bill of Rights is very interesting in this case: the right to control your own music. Consumers do not readily give up on the fair use they are used to so far, and anything less than that would be forced to have a heavily reduced price for any limitation. Personal copies for use on devices owned by the consumer, whether they are other computers or mobile devices must be possible to do. The principle used in Serial Copy Management System (see chapter 6.2.1) could be an acceptable level of protection. It would for example require that all copies are made from a master file, irrespective of owner. That way there would still be a reasonable level of restriction for the industry, and is comparable to restrictions imposed by the CD.

Have in mind that the above scenario would be possible assuming that users have a conscience and the intention to be honest consumers, and that they accept the set level of limitations. We believe that it is a possible scenario in the long run, although only one of many possible scenarios.

38 We assume that P2P networks will always exist and that there is always a way to copy music.

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It is virtually impossible to compete with P2P networks and unprotected files in availability. A long-term plan might be to develop new protected channels, enhance the availability for protected files and find new ways of competing with unprotected files. One example is something similar to the 3G network. Another way of directly making the music available to the user is offering it directly through the services of an ISP, which the user has a closer connection to. That is already the case for some Swedish ISPs that offer movie renting, and the cost is added to the bill.

9.1.3 Music Selection From a consumer’s point of view the selection and assortment of music is probably the most important factor for a user’s decision whether a service is worth paying for. If the service does not have the entire selection the user is interested in, it may not worth paying for. An exception can of course be made when considering much niched genres and artist, and underground music. Until just recently the majors’ services have not had catalogues from all majors, and that is one reason for their considered failure so far. They are still not offering the same level of access to their entire catalogues, neither within the services nor compared to the selection offered on CD and other physical sound carriers.

A probable scenario is a separation of services offering different kinds of music, where all mainstream genres would be comprised in the major services. All lesser genres are to be considered specific and are likely to survive on their own. For a consumer a larger selection leads to a better service.

Having a conventional music store as comparison should give a fairly clear picture of what consumers might be willing to pay for. That is the smallest selection a service should offer (unless it is niched / underground music). The major services are still competing with P2P networks that have huge selections. But if the selection has exceeded a certain critical level there are other factors that decide the value of a service.

9.1.4 Value vs. Fee and Pay-Models The following discussion applies mainly to pay-services, and not P2P networks without license agreements.

There are many technical advantages of buying digital files compared to a CD, although an unprotected CD can easily be converted to files and vice versa. A protected CD is not as easily interchangeable with a digital file format. The most important advantages with files are distribution and storing. A digital file is easily portable and distributed between computers on different geographical locations, and also easily transferable between different media, such as portable MP3-players, burned to CD and more.

There are also a number of limitations that reduce the value of music files compared to physical CDs. The limitations are seldom technical, but caused by license deals and conven-tional copyright rules, that in turn are enforced by technology. The deals and legal limitations at the large pay-services severely cripple the possibilities that technological advantages bring, thus decreasing the relative value of copy-protected files.

There are a few important arguments for valuing the current copy protected files lower than the physical CD counterpart. Firstly the majority of consumers still value a physical product higher much because of better quality on CDs for now, and a digital music file should have a

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greatly reduced value compared to their physical counterparts. The price on files ought to be lower thanks to reduced distribution and production costs, but right now files only have a marginally reduced price. Secondly, DRM protected music files are much more limited than CDs, and decreases the value even more. The licenses limit the music geographically (where the music can be listened to, not DRM related), what media the music can be transferred to, and when the music can be used (as long as there is a valid subscription). The fact that a lot of services do not include permanent ownership of the downloaded music is one of the most important factor. This condition is not clearly stated for the user in any of the tested services. Many services have recently changed the license agreements, and the conditions are better now, but still not optimal. It is clear that they have changed policy and are going in the direction of being more generous. Read more about the limitations in chapters 6.1.1- 6.1.2 and 6.2.1.

One way to sell music to consumers through the current services is to use a deal similar to blanket licenses. Pressplay’s most recent deals are getting closer to an attractive alternative for consumers. There are a few alternatives ranging from $9.95 a month for unlimited download and streaming to $179.40 a year for an additional 120 “portable downloads”. A “portable download” means a permanent download that can be transferred to compatible portable devices and burned to CD-R, which means other downloads are not permanent. There is also an option to add more “portable download” packages39. A quick calculation reveals that the price is still on the same level as buying a CD: if assuming that an album usually has about twelve songs, it would sum up to $17.94 per album and additional traffic costs. The total sum actually exceeds a traditionally bought CD album. The lack of CD-cover and a printed disk is not accounted for, but it might be compensated by the unlimited stream-ing and download for a year. OD2 via MSN and MusicNet do not have deals nearly as attractive as Pressplay. OD2 offers a very limited amount of credits for £2.99 a month and MusicNet only offers a limited amount of downloads for $9.95 a month. The subscription trend may follow the VHS trend when it first was very expensive, and over time became cheaper and has since been a huge success.

The question is what consumers find most attractive, considering the central pay-services are still competing with P2P networks. Everything offered by the pay-sites can still be attained practically for free on P2P networks. The price for downloading “free” music is traffic rates, which is also present on pay-sites, and lower overall quality on the connection and material. It does not necessarily have to be low quality, but nothing is guaranteed in a P2P service. It is essential to find out to what degree consumers will want to pay for better a quality of service to optimise the pricing.

Extra Value One can readily assume that all public material, e.g. music sold on CD, is easily transferred to a digital format and spread “for free” on P2P networks. One way for the majors’ services (Pressplay, MusicNet etc) to offer extra value is to offer exclusive material not available 39 We have not been able to check whether the “portable download” is applicable to the entire repertoire. That has not been the case for any other service during the evaluation. For example OD2 only offered a very limited amount of music for burning, while all music can be streamed and downloaded. That is another condition never made clear to the consumer when subscribing.

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anywhere else, physically or digitally. Exclusives could consist of unreleased tracks, inter-views, articles, videos or other material created from the value matrix. Another way to achieve exclusiveness is to offer physical exclusives, such as concert tickets and similar, attractive material. Current exclusive material is scarce, and at best of mediocre quality. It is uncertain what consumers really are ready to pay for, and what kind of exclusive material that entices and draws consumers.

Pay-Models The currently most common pay-model is subscription with additional fees for permanent downloads.

Assuming it is impossible to control P2P, which is a likely scenario even with DRM, then indirect appropriation40 might help. That is to have even higher prices on CDs in order to compensate for loss of income to pirated copies (implicit indirect appropriation). Although it seems unlikely consumers would accept a much higher price under these circumstances when people already complain about today’s prices. Also, indirect appropriation is based on an estimation of how much income is lost and how much is copied, which is impossible to do in P2P networks. Explicit indirect41 appropriation, i.e. putting a levy on recordable media, would be very difficult since files do not have any given storage medium and it would probably also be impossible to put a levy on hard disks (the most common storage medium for MP3s) since they are mostly used for other purposes.

In cases where consumers may not be willing to pay for the actual music files, there may be ways to generate revenue from related sources connected to the music and transport of music. The telecoms have for example had huge revenues thanks to traffic generated from the P2P networks. One idea of indirect payment that has come up is for ISPs to transfer shares of the added profit to the music industry42, since a significant part of it is thanks to music downloads. It would require extensive deals between all telecoms and the record industry. But judging from the policy telecoms have had so far, i.e. denying all responsibility for the content on their networks, it is very unlikely they would come to an agreement. This scenario would strike at lawful users that already do pay for their music files, who would then pay again via their ISP. This is currently the situation for users in countries with a levy on recordable audio CDs, i.e. people that buy original CDs and make personal copies on recordable audio CDs pay twice for their music via the levy. But it involves such small sums that it is not a serious problem for users. It would probably require a governmental decision for introducing a levy on CD media in order to compensate for any form of music file copying and transfer the revenues directly to the music industry. Considering that the levy model works in the countries where it has been introduced leads us to conclude that it may be possible to introduce a revenue transfer. One must also consider that many files copied are not music, such as movies and software, and other actors would like to share the revenues too. It

40 LIEBOWITZ, S. Re-thinking the network economy: the true forces that drive the digital marketplace 41 LIEBOWITZ, S. Re-thinking the network economy: the true forces that drive the digital marketplace 42 Recent suggestion by Hilary Rosen, RIAA. 2003.

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is a difficult problem, but this too has been solved with CD media, so it is not an impossible task.

Another idea that involves indirect payment for the consumer comes from the I-mode business model which has been successfully introduced for offering content over mobile phones in Japan. In I-mode the consumer only pays one bill to their ISP (NTT DoCoMo), and the ISP in turn divides the revenues between the content owners based on the usage of their respective contents. This model is very lucrative and works thanks to the restricted nature of I-mode. It is probably much harder to introduce it on the Internet, but not necessarily impossi-ble.

The third idea of indirect payment is already in use by a few P2P clients, and that is through spy-ware and ad-ware. This way the user is paying in form of giving out valuable information about herself or by being exposed to advertisement in one way or another. The current complication is that it is unclear what is defined as spy-ware, ad-ware or other bundled software.

What software is actually intrusive? On a side note, according to Alan Morris (Appendix IV) it is a general misconception that Kazaa Media Desktop installs spy-ware, and says that spy-ware is no longer included. Cydoor is an ad-engine and does not send personal information anywhere. It is stated to the user when installing what software is bundled. One can ask how many users actually read license agreements when installing software?

To transfer a rightful amount of money would also require an estimation of how much traffic there is of copyrighted musical works and which works are involved. Such estimations are difficult to do, but certainly not impossible. There are already ways to estimate royalties from radio playlists for example. It could be related to sales from CDs or other major channels and services. This could also be combined with non-intrusive DRM systems which seek to monitor rather than control usage.

Either way, judging from the findings in chapter 8.3.1 and Table 1, a revenue transfer is clearly justified. The payment for music would be indirect for the consumer then, and music would be viewed in a completely different way, just as radio is considered free music when consumers in reality are paying for it through other channels.

9.1.5 Copy Protection and Copyright on the Internet

Copy Protection DRM is the most central component of copy protection. What DRM is about is enabling control over every individual file. Several issues arise here. Firstly whether it is an attractive payment method for consumers and secondly, it gives total control to the owners of intellectual property and any transfer or copy will have to be paid for, making fair use impossible. Is it attractive for consumers when all files are restricted in both time and space? DRM enables the owners to limit the file in time, i.e. it can cease to work after a month. It can also be limited in the number of copies and what kind of media it is allowed on. The technology can be implemented in all kinds of distribution models since it is based on each song, and licensing is done on each individual device.

Copy protection of this kind works only if all sources of music are protected. If there is any digital source that can be copied, it will be able to spread to all media allowing unprotected

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files. However, the unprotected songs that are out now will probably never be protected. There is always the option of digitising analogue copies, but there will be a significant degradation in quality. In November 2002 both EMI and BMG announced their plans on releasing only protected CDs. It remains to see whether or not these plans are realised, and if the protection is good enough. Today there is still no CD protection algorithm that has resisted cracking. And a few have even caused lawful consumers a lot of complications. The same question arises here if CD protection is successful: what will consumers think of the fair use aspect? Consumers take for granted that it is possible to make a few copies for private use, which is also legally stated. The goal of copy protection may not be to stop illegal copying all together, but to put some limitation to it.

Music creators have very strong opinions about their possibilities of protecting their work, but most of the established artists have let this matter over to the record companies. Will digital distribution make a difference for artists? If it does, how will it affect their income margins? There is a balance between how many copies a creator would want if he had full control and how much the consumers want. There has to be a point in which appropriation is optimal. One way of selling DRM protected work is through micro payments (pay-per-piece, pay-per-listen). If the micro payments were at a perfect price level for consumers and they had the ability to make their own copies, it would probably sell more. So even if each copy of a work costs less, it would generate more revenue to the creator because of higher number of sold units. In the end, it is about making profits and promoting creativity. DRM does not allow copying, but if so called perfect price discrimination can be achieved it might not be needed. Perfect price discrimination means that the price is optimal both for consumers and content owners. Perfect price discrimination is not possible in practice, but the question is how close to it DRM can get.

Some critics of DRM claim that it will reduce production of new work, because it will be impossible to derive new ideas from old work, which is the case for many works. That might seem far-fetched since DRM is just a copy protection, and not a new kind of copyright.

Historically the record companies have contracted and bought out artists’ rights for the recordings of their music. As new media have been developed, the contracts have been updated. For the Internet the record companies clearly do not have that kind of control yet, and it seems like artists might have a medium in which they have some power to control their own music. The Internet is hard to control both legally and technically. It is believed that the artists’ need and desire to have the power over their music depends strongly on whether they are established or not43.

One aspect that has been neglected in the DRM debate is differentiating between actual copy-protection and monitoring. The industry is not only after protecting their content to ensure appropriation, they also seem to implement a monitoring aspect in DRM. For example, besides from tracking a file, a DRM system might be able to monitor exactly what is done on one particular client, what music is played and how many times. It is then a question of a consumer’s integrity. That is a question that will not be discussed further in this report, but an aspect well worth having in mind. If a DRM system is perceived as being unfair or even intrusive by consumers, then it is almost certainly bound to fail.

43 ALDERMAN, J. Sonic boom – Napster, MP3, and the new pioneers of music. Perseus Publishing. USA. ISBN 0 7382 0405 6

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MP3 copyright issues Many have drawn analogies between the audiotape, MP3s, Napster and many other new media. But there are significant differences between MP3 and the others. MP3s are intangi-bles with relatively small quality degradation compared to the reference file. Copying is extensive globally and not just private copying among friends. The likenesses with other media are that it is still fairly unorganised and no one directly profits from it although some one (telecoms) does profit indirectly.

It has been said by many that Napster and MP3 brings positive effects, such as more exposure for the music and sampling of music before buying. Opposite to what critics have claimed each download does definitely not mean a lost physical sale but the question is to what degree sales have been affected by P2P. Statistics on this subject shows completely different results. The core questions here are how to appropriate income from P2P activities, how to protect the content and what pay model that is attractive for consumers and can be used in practice.

There are a few examples related to copying, and all have been successful so far. Photocopying leads to a rapid growth for academic journals. The Betamax case ruled in favour of the cassette, with the argument that the function of the VCR was time shifting programs. The consumer could not watch VCR and TV at the same time, and the VCR could not record and play simultaneously. History has shown that pre-recorded tapes have been most popular to watch, and it has been a highly lucrative business. Audiotaping has shown to be a similarly successful business.

We think the situation with P2P networks and MP3 might devaluate copyright in its current form. As many have agreed on, it was a mistake by the record industry to shut down Napster instead of utilising its centralised network.44 Now the music downloaders have refuged to decentralised networks (such as Gnutella and Fasttrack) that are very difficult to control. Another way is monitoring by the ISPs.

9.2 Consumer Interests In chapter 9.1 some minimum requirements that customers will need to potentially pay for digital music files are mentioned. Customers will have bricks and mortar shops as reference, and they do not care much about what record companies are doing. They care about getting the desired music to a good price.

9.2.1 Important Factors for Consumers Value for money is a very important factor for consumers. For listeners with a genuine interest in music the actual musical work comes first, and it will be hard to offer anything better than the current P2P networks that are virtually free. For the majority of consumers, that are just casual music listeners and have music as part of a lifestyle, pay services that offer extra value and exclusiveness may work. For the mainstream consumer the musical work is just a part of a whole that includes the personal image and lifestyle of an artist and everything related.

44 LIEBOWITZ, S. Re-thinking the network economy: the true forces that drive the digital marketplace

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The selection is just as important as value for money, because if the demanded music is not offered it is not desirable for a consumer to pay for the service. Depending on what kind of consumers a service is aimed at, the selection and size of the assortment may differ. Hit list and mainstream music has the largest commercial potential amongst users.

It is hard for the major services with protected files to compete with P2P networks with unprotected files in availability. There has to be limitations to stimulate generation of income to content owners, but that is of little interest to the consumer. The only way to see to the consumers’ need is to let all files be free, and generate income in other ways strongly connected with the free nature of the unprotected files.

Usability is one of the less important factors in this context, since it is considered a non-decisive factor, and not a very difficult problem to solve. When the above factors are satisfactory it will be of more importance for the user. Interfaces and search engines are currently at acceptable levels.

It is not clear what payment method the consumer prefers. Considering unlimited access to music is in demand, a subscription method would be most attractive to consumers.

9.2.2 Customer Segmentation There seems to be an opinion that one major service could be able to serve all kinds of music tastes. P2P networks are serving a lot of genres, but still not all potential listeners. Like in bricks and mortar music stores with different assortments appeal to different customers. There is room for focusing on individual customer segments, and that is further discussed in chapter 8.4.5. The customer group that a service aims at is decisive for how the service should be designed. Read chapter 9.4.3 for connections between customers and services.

An important factor considering consumers themselves is the level of IT-literacy. The majority of people today are not familiar enough with computers to comfortably use P2P clients. They are probably willing to pay to have the music sorted and presented in a nice interface, as in the major services.

9.3 Creator Interests It has been a surprise that creators are not more involved in what is happening in digital music distribution, and probably even less to say about expansion in this channel. Another surprise is that the new artists going the conventional way through record sales are strongly against digital distribution of music, especially P2P networks. It is understandable that they would want appropriation for their work, but they seem to have a very clear image that all music distributed on the Internet is illegal, which is not a true picture of reality. Artists that have used digital distribution from the beginning, without a publisher, are positive to digital distribution, as expected. Some have even tried going through a publisher to sell CDs, but have had negative experience from it, feeling cheated. It was also a surprise that an established artist would be interested in digital distribution, since it was expected to be the opposite. One probable trend is that creators that are well informed about digital distribution also are more open to the possibility of using it as a new channel.

All interviewed creators are of a unanimous opinion that the majors will have to find a new role and new models for survival in the music industry. They also agree on that publishers have an important role for new artists, but that more artists usually get cheated. Most artists

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would prefer more flexible record companies, which may be achieved through smaller organisations.

The artist interviews confirm that a vertical expansion, creating and backing up superstars that the majors seem to be focusing on now, is not durable. In the current situation superstars have more to lose than gain, and most other artists have new possibilities to expand, reach out and have much more to gain.

To sum it up, what do music creators gain from digital music distribution and restructuring of the publishing of music? Digital distribution is a new tool that shifts more power to the creators45. Indirectly it will mean better conditions for creators in the form of stronger rights and hopefully more justified income (not necessarily more income for superstars). In practice it is disintermediation that enables the better conditions, or at least the option for creators not to be bound and giving up rights to publishers and record companies by contracts.

Much of the functions publishers have today are to provide the contacts in the industry and marketing toward record companies. They also handle a lot of the administrative work that artists want to avoid. Publishers may not be completely eliminated but because creators have more possibilities to be discovered through digital media, and by having more options, they may have a better chance of negotiating better deals. Most other functions of publishers today could likely be eliminated. Publishers are necessary for unestablished creators, but can readily be eliminated once the artist is established.

Creators are not fond of being bound to any entity, and that applies to record companies as well. To a certain degree, creators will no longer need record companies for distribution when using digital distribution, unless record companies attain dominance in that channel too. CDs, that record companies have a tight grip on, will have a diminished value and so record companies lose more power to the creators. For the purpose of marketing and distributing music there are alternative independent intermediaries. Once an artist is established there may be the need of a larger marketing and distribution system that the majors can provide. At this stage the artist already has the power of being known, and so the record companies might act more as partners rather than owners of creators.

The scenario described above is just one of many possibilities. Someone with a better knowledge of the mechanisms of the industry could probably think of other even better scenarios. The reinforced power of creators will enable them to have more freedom in choosing publisher and record company, if any at all. This will in turn strengthen the market for independents, which is what many creators prefer. It may diversify the music industry even more. The biggest problem may be that most creators evidently do not know or care to know the possibilities available to them. There are very few artists that have been successful businessmen in this aspect.

45 SHAPIRO, A. L. The Control Revolution: How the Internet is Putting Individuals in Charge and Changing the World We Know.

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9.3.1 The Disintermediation Process Affecting Music Creators

Disintermediation The most obvious effect of digital distribution is a disintermediation of many steps in the current value chain that are rendered obsolete. In an environment such as Internet where music can be transferred globally within seconds, physical manufacturing and distribution of CDs is made redundant. Presently two thirds of the CD retail price46 consists of activities not directly related to the recording and production of the master copy of the song. Digital distribution has made it theoretically possible to distribute the song directly from this master copy to a consumer even though a method for the creator’s payment still has to be ensured.

Klimis47 mentions three possible patterns of disintermediation:

1. Labels sell content48 directly to the consumer

2. Artists sell content48 directly to the consumer

3. E-commerce between content48 owners and consumers is facilitated by intermediaries

There is only one of these patterns that has reached any level of success and that is the pattern where intermediaries are involved. Every service investigated uses this pattern where either the labels or the artists themselves provide their music to an intermediary that handles the relations with the consumers. Figure 11 illustrates the various creator groupings each with different opportunities for market entry.

There have been some attempts from the labels to provide file downloads from their own web sites but this has only been free samples for marketing purpose. After thorough searches we have not been able to find any commercial service found where labels sell content directly to the consumer. None has been reported anywhere either, and it is likely that there are in fact none. There are no services of this sort from the majors. Consumers are generally not interested in what label an artist belongs to, and the all artists a consumer likes seldom come from the same label.

46 MAY, B. and SINGER, M. McKinsey Quarterly, Number 1, 2001. Unchained Melody. 47 KLIMIS, G.M. Disintermediation and Re-intermediation In the Music Business – the Effect of Multimedia Technologies and E-commerce 48 Content is restricted to intangible content, such as music files.

Britney Spears

Mörk Gryning New comers (signed)

Niche artists

Bowie Ice-T

Real Group

Unsigned artists MP3.com artists

Influ

en

ce

Fame

Figure 12. Creator matrix

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Far from every artist has the possibility to sell content directly to consumers. An artist has to have a huge fan base to be able to ensure a certain number of sales given that the selection of music on the site is restricted to one artist. Hence only people looking for that particular artist are inclined to visit the site. David Bowie is the only found example of an artist that successfully has created an personal website (or rather community) for his fans and is able to profit from it. For the membership fee the members get access to bonus material such as certain tracks only available digitally and concert tickets etc.

Publishers’ future role is uncertain and depends on whether the major record labels will maintain a monopolistic power over the market. In an open market the publisher’s role weakens and may be superfluous.

Easier Market Entry Traditionally there have been a few big incumbents on the music market, mainly due to very high economic entry barriers to the market. Internet has lowered these barriers by lowering the cost of transmitting information and the competition has thus increased. This was also predicted by the Electronic Market Hypothesis (EMH), first introduced by Malone, Yates and Benjamin in 198749 that predict a transfer from hierarchic to market organisation for information based markets like music with a reduction of information coordination costs.

Reintermediation The disintermediation of the music value chain combined with easier market entry creates many opportunities for new business models to enter the value chain. MP3.com is a good example of creative ideas bypassing old value chains in the new environment. It acts as a kind of A&R department together with marketing and optional manufacturing but unlike a record company MP3.com has no interest in the publishing rights of the music and the creators get a larger share of the revenues. David Bowie has also developed a business model unique to the digital environment as explained above.

9.4 Bringing Together the Industry’s, Consumers’ and Creators’ Interests

It is interesting to envision what situations and complications arise when bringing together the interests of consumers, creators and the industry. The below results are derived from the information and discussions from this report and the corresponding report from the industry’s view, written by Joakim Landegren (Usability Factors in Digital Music Distribution Services and Their Relationships with Established and New Value Chains in the Music Industry).

9.4.1 Conflicts The main conflict between consumers and the industry is the concern for how protected and limited music files should be. There is a relation between the level of control and the ensured quality of a service. On one hand the users prefer not to have any restrictions, as it is with the unprotected files they have free access to. On the other hand the content owners want

49 MALONE, T. YATES, J. AND BENJAMIN, R. 1987. Electronic Markets and Electronic Hierarchies, Communications of the ACM

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limitations to generate more money from their content. It is a grave dilemma that is intensely discussed by many experts in the area, and there is still no accepted working solution. Looking at the big picture, the industry either has to offer services that the consumers find attractive enough to pay for or stop all other alternatives that are more attractive, such as P2P networks. In this aspect the latter alternative is probably even harder to achieve than offering an attractive service.

There is also a conflict between music creators and the industry about copyrights and rightful compensation for entering artists. Digital distribution of music facilitates diversity, bringing more possibilities to individual artists and independent intermediates (publishers, record companies). This way, artists should be able to improve their conditions and independence from the majors. A global interest organisation for this cause may be needed for artist to actually make use of the current situation.

9.4.2 Common Interests and Possible Solutions Artists still need intermediates, but different ones than they have today. It is a matter of changing the music business and value chains within the industry, and digital distribution is only a tool and one step on the way. The industry should be able to provide the suitable intermediates in the form of new independent actors for smaller artists, and major companies should be accommodating for larger artists as partners.

Assuming that consumers in general want to be honest, there is also a need for a pay-model that both content owners and consumers can accept. Direct payment in any form is still not attracting any consumers. Although they know it is wrong to download music from P2P networks, they cannot feel motivation enough to directly pay for something that they can get for free. Either the pay services have to provide some very attractive content and offer very good deals, or alternatively find a completely different model of payment. Consumers are likely to be more susceptible to indirect payment, where they do not actively pay for music and are closer to the feeling of getting free music. The implementation of indirect payment remains to be solved (see chapter 9.1.4).

9.4.3 Connecting the classification matrices As said in chapter 9.2.2 the customers are clearly segmented in different groups. There will have to be different kinds of services to accommodate for different customers. The largest customer group, the mainstream customers by definition (“Follow the trends”, Figure 11), are a special case that will require huge services with all available music that could be classified mainstream. This group is best served by the major services (Pressplay etc, Figure 8). Otherwise diversity among services and selection is needed to fit the correct customer group. The “curious seeker” is actively seeking new material and would be interested in most services offering large assortments, no matter what sort of music. Community services like Dmusic.com and MP3.com (Figure 8) would serve this group especially well. The factor that matters here is usability and is dependent on what level of IT-literacy the user has. Customers that has great interested in individual bands and niched genres are best tended to by special-ised services. In this case even a direct contact between the creator and customer is possible (David Bowie, Figure 12).

Newly signed artist and unsigned creators (Figure 12) will find most interest in P2P networks for marketing, and other distribution from services like MP3.com and Dmusic.com (Figure 8).

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Unsigned artists are more inclined toward using P2P even for distribution just to get their name out, while small creators with an established fan base will prefer a mediator such as MP3.com. A rare superstar, like David Bowie, can distribute music on his own by relying on his huge fan base. A more general superstar like Britney Spears with a mainstream fan base would probably do well on the major services, although individual services selling directly to customers might be a possible solution too. The big difference between David Bowie and Britney Spears is that Bowie has very dedicated fans that stay no matter what, while most Spears fans are also mainstream listeners that easily change idols over short periods depending on trends.

There is also a future complication for the services when adapting to customers. One could imagine that the level of IT-literacy is much higher in 5, 10 or 20 years, and the potential for using more advanced services, such as P2P clients, would be higher. Technology advance-ment has historically been a scourge to the music industry many times, and it definitely has to be taken into consideration. The importance of the factors for consumers may very well change over time.

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10 Conclusions The research and discussion of digital music distribution has lead to a few interesting conclusions, partly answering the initial problem definition. It does not provide any concrete solutions, but that was not expected either in the span of this master’s project. The factors below correspond directly to chapter 9.1 where more thorough information about them can be found.

Important Factors for Digital Music Distribution Services Music selection: The service that users choose must serve the desired music. It is a very basic requirement that current major services do not provide. Large assortments do not necessarily mean a relevant selection.

Availability: Consumers will initially not accept files more limited than they are used to with CDs, i.e. virtually unlimited. They must be able to make a certain amount of personal copies and use them on devices of portable nature.

Usability: This is currently not a serious problem for users, but a combination of a logical categorisation combined with a competent search engine has yet to be seen.

Copyright and copy protection: The interpretation and enforcement has to be revised and the rules need to be more internationally coherent. Copy protection technologies do not really work in limiting the spreading of music since only very few sources are protected. Technical and legal limitations must not infringe on the freedom consumers are used to. At the same time it has to limit spreading to some extent, and be able to generate revenue to the content owners. How this can be done in practice is uncertain and more work definitely needs to be done.

Value vs. fee and pay-models: Considering consumers value physical products higher and music files can be attained fairly easy virtually for free, protected music files are deemed to a considerably lower price than their CD counterparts. Finding that not all consumers are willing to directly pay for files, indirect payments might be an alternative like radio that is generally seen as “free” music.

Economic Efficiency Maximisation Digital distribution has made several parts of the traditional value chain obsolete and a restructuring of the value chain could lead to a more efficient use of the remaining value chain steps. The most obvious redundant step is the physical distribution of CDs that instead could be manufactured locally from digitally transported music information.

Disintermediation of steps in the old value chain is also of importance for music creators, getting rid of redundant middlemen. But the situation is very different depending on how established the artist is. New artists will not be as dependent on third parties in a future scenario as they are today, and established artists have even more freedom and independence. All current successful models include intermediaries, so they can probably not be eliminated, but their roles should change.

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11 Recommended Continued Work The conclusions in this report are of a theoretical nature and an extensive mapping of digital music distribution today. There are many possibilities to continue this work, either by digging deeper into individual areas or evaluate more concrete solutions to some of the theories deducted from this work.

All services are being developed continuously, both P2P and commerical services, and a continued evaluation of services would give an even better overview over the available services and trends within this area. This in turn may be a good indication how further development of services should progress. This also affects the underlying strategies in the industry as a whole. Digital distribution services are still in their infancy, and there is a need for more choice and diversity among services. At the same time there is also a need for a more diverse music scene. An evaluation of how to work towards and strengthening diversity, both industrially and musically, is needed.

Concrete solutions are most interesting concerning disintermediation in the value chain, most importantly which steps that really are redundant and what potential new roles the old steps can have. It is also interesting to see what kind of pay-models that actually works50.

Lastly the question of limiting music, copy protection and DRM models is very interesting and need continued extensive research. It is a problem that involves many aspects: copyright legislation, technological possibilities, and the morals and opinions of the consumers.

50 The most accurate way would be an empirical experiment, but that is a costly method.

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12 References

12.1 Literature AHLGREN, B. 2000. Elektronisk handel med musik – övergång från materiell till immateriell vara. Examensarbete Affärsutveckling och medieteknik, KTH.

ALDERMAN, J. 2001. Sonic boom – Napster, MP3, and the New Pioneers of Music. Perseus Publishing. USA. ISBN 0 7382 0405 6

BERNOFF, J. 2002. Downloads Save the Music Business. August, Forrester, Wholeview, TechStrategy Research.

BPI. 1998-2002. Quarterly Reports from 1998 to 2002.

EILERTSEN, R.T. September 25, 2002. Kopiering av opphavsbeskyttet innhold – Innehav av egenbrente CD’er og DVD’er i Norge, Nedlastning og bruk av MP3-filer. MMI for Norwaco. Norway.

GRAHAM, G. et al. 2002. The Impact of the Internet on the Structure and Conduct of the Music Market Supply Chain. Manchester School of Management. UK.

HARDY, P. Music & Copyright. No 221, January 30, 2002.

HUI, K.L. PNG, I.P.L. November 2001 (Revised July 2002). Piracy and the Legitimate Demand for Recorded Music. School of Computing, National University of Singapore.

IPSOS-REID (Contact KLEINSCHMIT, M). 2002. U.S. Music Downloaders Prefer A Pay-Per-Download Transaction Over Current Subscription-based Offerings. www.ipsos-reid.com.

KLIMIS, G.M. March, 1999. Disintermediation and Re-intermediation In the Music Business – the Effect of Multimedia Technologies and E-commerce. A Doctoral Thesis. City University Business School.

LANDEGREN, J. 2003. Usability Factors in Digital Music Distribution Services and Their Relationships with Established and New Value Chains in the Music Industry - A Study on On-line Distribution Model Used by the Music Industry Today and Identifying of Important Factors for a Successful Service. Master Thesis, Royal Institute of Technology, Sweden

LANDEGREN, J. LIU, P. 2002. Studie av digital musikdistribution – vilka värden har skapats. KTH, Stockholm, Sweden.

LESSIG, L. June, 2000. Code and Other Laws of Cyberspace. Basic Books. USA. ISBN 0465039138

LIEBOWITZ, S. 2002. Re-thinking the Network Economy: the True Forces that Drive the Digital Marketplace. AMACOM. New York/USA. ISBN 0 8144 0649 1

MALONE, T. YATES, J. AND BENJAMIN, R. 1987. Communications of the ACM, vol 30, no 6. Electronic Markets and Electronic Hierarchies.

MALONE, T. YATES, J. AND BENJAMIN, R. 1989. Harvard Business Review, Vol. 67, Issue 3. The Logic of Electronic Markets.

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MARATHE, J. 2001. Impacts of Digital Distribution on the Music Industry. Durlacher Research, Ltd.

MAY, B. and SINGER, M. McKinsey Quarterly, Number 1, 2001. Unchained Melody.

MCNEALLY, P-J. GartnerG2 report, October, 2002. Digital Consumers: Are They ‘Fair Users’ or Copyright Pirates? www.gartnerg2.com

PARIKH, M. 1999. The Music Industry in a Digital World: Waves of Changes. Institute for Technology & Enterprise, Polytechnic University. New York.

PERSSON, C. 2001. Strategies for Enhancing Consumer Interaction in Electronic Retailing. Doctoral Dissertion, Royal Institute of Technology, Dept of Numerical Analysis and Computer Science, Media Technology and Graphic Arts. Stockholm, Sweden. ISBN 91 7283 194 4

PORTER, M. June, 1998. Competitive Advantage: Creating and Sustaining Superior Performance. Free Press. USA. ISBN 0684841460

POST- OCH TELESTYRELSEN, KONSUMENTVERKET, KONKURRENSVERKET. Alltid på! Bredbandsmarknaden ur ett konsumentperspektiv. 2002. Sweden.

RAYPORT, J.F. and SVIOKLA, J.J. Harvard Business Review, November - December 1995. Exploiting the Virtual Value Chain.

SHAPIRO, A. L. 1999. The Control Revolution: How the Internet is Putting Individuals in Charge and Changing the World We Know. PublicAffairs. USA. ISBN 1 891620 86 X

The International Journal on Media Management, Vol 4, No III, Autumn 2002. Focus Theme: The Future of Copyright. Media Communications Management Institute – University of St. Gallen, Switzerland.

The Recording Industry in Numbers 2002 – the Definitive Source of Global Music Market Information. October 2002. IFPI. London, UK.

TURTON, J. LAUVAUX, E. MIDEM 2000. Legal and Commercial Effects of Digitisation on the Music Industry. MAKLU Publisers. Apeldoorn/Netherlands – Aantwerp/Belgium. ISBN 90 6715 018 5

VELJANOSVKI, C. et al. March 1989. Freedom in Broadcasting. Institute of Economic Affairs. London, UK. ISBN 0 255 36218 8

WALLIS, R. et al. January 2000. Globalisation, Technology & the Music Industry – Current Trends and Implications for Creativity and (e) Business in the Digital Environment. Multimedia Research Group, City University Business School.

ÅBERG, J. 1999. Online licensiering. STIM.

12.2 Seminars Internet Piracy: Victimless Crime or Outright Theft. Online debate on www.makesparksfly.com. http://www.internetprnews.com/colloquix/1/documents/MSFreview14-02-03.pdf

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WALLIS, R. March 2000. Total Confusion! (But Interesting Opportunities) The Music Industry And the Future. Dept. of Media Technology and Graphic Arts, KTH.

WALLIS, R. WIKSTRÖM, O. 2002. Progress via Creative Destruction – Identifying Value in the Tangible-Intangible complex. PRISM WP 9.2 Music Industry case. KTH.

12.3 Interviews Berndt, Jonas (Mörk Gryning). 25-10-2002 (meeting)

Björling, Pär (unsigned professional). 30-10-2002 (meeting)

Carlborg, Alexander (Trance Control). 13-10-2002 (telephone and e-mail)

Edenroth, Anders (Real Group). 11-11-2002 (meeting)

Eltell, Tobias. Legal advisor SAMI. 26-11-2002 (telephone)

Key, Johnny (Atomic Eyes). 23-01-2003. (e-mail)

Mårtensson, Magnus. Legal advisor IFPI Sverige. 20-09-2002, 26-11-2002 (telephone)

Nordin, Jonas (MP3.com veteran). 20-12-2002 (meeting and e-mail)

Wande, Maria. Legal advisor media, STIM/NCB. 29-11-2002 (meeting)

Zennström, Niklas (Founder of Kazaa and Altnet. Founder and CEO of Joltid). 11-02-2003 (e-mail)

12.4 Web References

MP3 News Articles BRICKLIN, D. September 9, 2002. The Recording Industry is Trying to Kill the Goose That Lays the Golden Eggs. Dan Bricklin’s Website. http://www.bricklin.com/recordsales.htm

BROWN, J. April 9, 1999. Shoutcast and MP3 Let a Thousand Web Radio Stations Bloom. There’s Only One Problem: The law. http://www.salon.com/tech/feature/1999/04/09/shoutcast/

CHESTER, J. October 24, 2002. The Death of Internet – How Industry Intends to Kill the ‘Net as We Know It. TomPaine. http://www.tompaine.com/feature.cfm/ID/6600/view/print

CNET News MP3 Insider - http://electronics.cnet.com/electronics/0-3219397-7-2235385.html?tag=dir

BBC NEWS. Efforts to Stop Music Piracy ‘Pointless’. November 22, 2002. http://news.bbc.co.uk/1/hi/technology/2502399.stm

FORESIGHT. Foresight of the Consumer to Consumer Effect on E-commerce. February, 2001. www.foresight.co.uk

FOX, B. November, 2002. Copy Protection on CDs is ‘Worthless’. NewScientist.com. http://www.newscientist.com/news/news.jsp?id=ns99993020

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GIBSON, O. October 7, 2002. Let the Music Download. The Guardian. http://media.guardian.co.uk/mediaguardian/story/0,7558,805750,00.html

HAAS, J. May, 2002. Siva Vaidhyanathan On Copyrights and Wrongs. Slashdot.org. http://interviews.slashdot.org/article.pl?sid=02/05/15/166220&mode=nested&tid=103

HARMON, A. August, 2002. Marketers Try to Turn Web Pirates Into Customers. New York Times. www.nytimes.com

HARMON, A. October 7, 2002. Music Industry In Global Fight On Web Copies. New York Times. http://www.nytimes.com/

HU, J. July 18, 2002. Why We’re Better Than Napster. Cnet News.com. http://news.com.com/2008-1082-944914.html

Janis Ian on Life in the Music Business. Chat transcript with Janis Ian . September 23, 2002. Slashdot.org http://interviews.slashdot.org/article.pl?sid=02/09/23/133228&mode=thread&tid=141

KING, B. October 18, 2002. Digital Radio: Small Guys’ Ruin? Wired News. http://www.wired.com/news/mp3/0,1285,55757,00.html

KING, B. September 12, 2002. Digital Rights Outlook: Squishy. Wired News. http://www.wired.com/news/mp3/0,1285,55006,00.html

LETTICE, J. October 4, 2002. Music Biz Strikes Back With Free, DRM ‘Padlocked’ Downloads. The Register. http://www.theregister.co.uk/content/6/27440.html

Mp3 File-Sharing Programs Showdown. Read September 18, 2002. MP3-2000. http://www.mp3-2000.com/exclusive/fileshare.php3

NEWTON, J. October 14, 2002. Can I Borrow Your Computer While You’re Asleep, Please? – Altnet. MP3Newswire.net. http://www.mp3newswire.net/stories/2002/altnet.html

O’REILLY, T. 2002. Piracy is Progressive Taxation, and Other Thoughts on the Evolution of Online Distribution. O’Reilly OpenP2P. http://www.openp2p.com/pub/a/p2p/2002/12/11/piracy.html

Raising Barriers to Entry Into Music Business. October, 20, 2002. Slashdot.org. http://slashdot.org/article.pl?sid=02/10/20/156247&mode=thread&tid=141

Rosen Responds to Janies Ian: Misinformation and Mischaracterizations. October 23, 2002. RIAA. http://www.riaa.com/PR_story.cfm?id=579

SCHWARTZ, J. TEDESCHI, B. September 27, 2002. New Software Quietly Diverts Sales Commissions. New York Times. http://www.nytimes.com/

Shareaza Interview. December 20, 2002. Slyck.com. http://www.slyck.com/news/200212Dec/122002a.html

Streamcast Interview. September 12, 2002. Slyck.com. http://www.slyck.com/news/200209sep/091202b.html

VAN BUSKIRK, E. October 31, 2002. DVD To the Rescue. Cnet. http://electronics.cnet.com/electronics/0-3219397-8-20603898-1.html?tag=txt

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ZIEMANN, G. December 11, 2002. RIAA’s Statistics Don’t Add Up to Piracy. Mac Wizard’s Music. http://www.azoz.com/music/features/0008.html

Services and Internet Radio AudioGalaxy – www.audiogalaxy.com

BearShare – www.bearshare.com

BurnItFirst (LiquidAudio Outlet) - http://www.burnitfirst.com

DirectConnect – www.neo-modus.com

Dmusic – www.dmusic.com

Emusic – www.emusic.com

IceCast – www.icecast.org

Imesh – www.imesh.com

Kazaa and SharmanNetworks - www.kazaa.com

LimeWire – www.limewire.com

LiquidAudio - www.liquidaudio.com

Live365 – www.live365.com

Morpheus - www.morpheus.com

MP3.com – www.mp3.com

MSN Music Club (OD2 Outlet) - http://sib1.od2.com/common/home/index.asp

MusicNet - www.musicnet.com

OD2 - http://www.ondemanddistribution.com

PhillySoulClassics – www.phillysoulclassics.com

PressPlay - www.pressplay.com

QtraxMax – www.qtraxmax.com

Rhapsody - www.listen.com

RioPort – www.rioport.com

Shareaza – www.shareaza.com

ShoutCast – www.shoutcast.com

TomsRadio - www.tomsradio.com

Vitaminic – www.vitaminic.com

WinMX – www.winmx.com

Other Web References

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Antipiratbyrån – www.antipiratbyran.com

British Phonographic Institute – www.bpi.co.uk

Electronic Frontier Foundation – www.eff.org

MusicUnited – www.musicunited.org

Recording Industry Association of America - www.RIAA.com

Slashdot Music Topics - http://slashdot.org/search.pl?topic=141

Slyck – www.slyck.com

ZDNet TechNews - http://news.zdnet.co.uk/0,,t287,00.html

ZeroPaid – www.zeropaid.com

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13 Appendices

13.1 Appendix I – Summary of Creator Interviews

Jonas Nordin 20-12-2002 - MP3.com was a site for unknown musicians to get exposure.

- It was free for the members, and they could earn money from downloads of their music.

- (MP3.com in turn generated revenue from sponsors and advertisements.

- MP3.com enabled the artists to “be their own record company”.

MP3.com seemed like a good site for unknown musicians to reach out. Even though it might have been somewhat difficult to reach above the “noise”, it was still an alternative. It seems like now it is a less attractive site since it costs more to be a full member, and the artists earn less for each download. Whether the harder conditions are tied to the transfer of ownership to VivendiUniversal is uncertain.

Jonas has no confidence in the role record companies have today, although he thinks the copyright will be upheld through STIM. Jonas is a hobby musician who has experience from MP3.com from the early days.

Today sites such as www.dmusic.com plays the role MP3.com had. MP3.com is less of artist community, and offers more mainstream major artists. At the same time it has developed a lot and offers more functionality and options for the artists.

Alexander Carlborg, Trance Control 13-10-2002 - an idea to have a global organisation for independent artists

- MP3.com is good for “fresh” music, since it is available instantaneously.

- Confirm’s that the payment is less (1/20 of former payment) and cost has increased since Vivendi bought MP3.com.

Trance Control is a success story derived from MP3.com, having well over 5,000,000 downloads, getting a record deal and selling over 18000 CDs. They’ve been offered to remix Madonna and international performances. They have many performances in Sweden.

TC still have their main marketing on the Internet, mainly on their website and MP3.com. In addition to selling CDs via MP3.com they also cut a record deal. As they say it has not to be a lucrative affair. TC is true to their roots, and is still making music and at the same time having a part-time job.

Jonas Berndt, Mörk Gryning 25-10-2002 Mörk Gryning is a niche group (heavy metal), fairly known within their genre, and has a record deal with an independent company. MG have their roots in the traditional record market, but the main marketing channel is through the website. Samples are handed out, but not entire albums. They have not used MP3.com. The record company mainly handles production and distribution of CDs. Marketing and gigs are handled by the band.

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MG likes to have it this way, although it does not bring much income. They are not interested in the administration, and gladly hands over a bit of their income to the record company and label. They do like to stay with an independent, since they think majors are too slow and not very flexible when coming to adjust to the market. They also the dip in the record industry may be because the record companies are venturing on the wrong music, on bad music, one hit wonders that are not good economically.

MG believe spreading the music on the Internet might help them in marketing, but definitely for established mainstream artists. They are against P2P services, and do not see any benefit with that model.

MG do not like EMA Telstar and their monopoly on concerts in Sweden.

Pär Björling, Independent Musician 30-10-2002 Pär is a professional freelance musician, and has much experience from performance, writing music and playing in band generally.

Pär is in a band that has recently been signed to an independent. They’re planning tours and have an album that has just been released. He has not have any nice experience with many labels, but says they’re OK if you know which ones are good. He would not want to handle all administration himself, which he lets over to the label. He would prefer to be signed to an independent, although he would not reject an offer from a major51.

Pär loves LPs and CDs, and he does not have interest in the digital format, whether it is from a major service or P2P network. He thinks the quality is not good enough. As an artist he would prefer not to market himself in the Internet since there is no good protection from pirating, but he would consider trying it.

Anders Edenroth, Real Group 11-11-2002 The Real Group is a well-known and established group. Being a niche group (a capella), but still addressing a lot of mainstream audience, they are in a unique situation. They are not wide-spread on the pirating scene, and still sell a lot of records.

- RGs main marketing channel is TV amongst other conventional ways

- Only ads aimed at selling CDs have effect. Performances on TV only strengthen the value of the name.

- The website is not considered a marketing channel for selling records. It is a website that is updated frequently, there are samples of songs and arrangements of their songs are downloadable. Payment for the arrangements is voluntary. The guestbook is also the main contact with fans.

- Independent labels handles RG in countries other the Nordic. It is necessary to market this way.

- EMI handles all distribution.

51 Pär has rejected an offer to play in Joakim Hilsson’s band…

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- RG is very interested in new digital ways to distribute, but has so far not taken the step yet.

- Anders believes it is very hard to disintermediate the value chain. The record companies are needed to sort out the music for the customers. He does believe in an altnerative way to distribute, such as a form of “interactive Internet radio”.

- He thinks added value is very important, especially such that strengthens the fan community. The next generation will no doubt value CDs less than fans of today.

- Anders thinks changes should be made so copy protection will not be needed. For examples lowering prices.

- Music files are good in the sense of working like a library. Borrowing music for other purposes, such as him needing references and inspiration when writing music. He would never be able to afford buying all records he has needed in his work. Otherwise he would just borrow it from someone else, doing a lot more work finding the music.

- The record company wanted to have copy protection on their latest CD, and they agreed for experimental purposes.

- Anders also thinks there should be wireless devices that works like radio, but also enables the user to download a song, or an album, at the press of a button. He emphasizes on a device, and not using the personal computer.

- Record companies could not have reacted any other way to Napster under the circumstances. They had to protect every step in the value chain, and it is impossible to change that over night.

- RGs main income source is from concerts.

- RG owns all rights and recordings of their music. Initially there are a few songs that their former label owns.

- Labels are good for establishing contacts withing the business. Once an artist is established the label is no longer needed. The record company handles the administrative work. Or just a simple manager.

- Anders does not like the work labels are doing today, they are cheating the artists. Anders thinks their label had no help in getting RG to their current position.

Johnny Key, Atomic Eyes 23-01-2003 Atomic Eyes got their name out thanks to Napster. They are not signed now, but does work a lot for the band. They are now having gigs, and sell CDs through the gigs, their website and cdstreet.com. They the Internet is good for getting known, but clearly aims to sell CDs to make a living.

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13.2 Appendix II – Summary of Interest Organisation Interviews

Interview 01 – 20-09-2002 (Magnus Mårtensson IFPI) - Copyright issues keep Internet services from selling outside of the USA.

- Plans to offer added value to compete with “free” services.

- Digfi.com offeres pay-per-piece paying model.

- France has a law that requires a quota of domestic music – how does that work with Internet services?

- Vitaminic has gone bankrupt.

Comments: None

IFPI Sverige Magnus Mårtensson 26-11-2002 - IFPI has rules for webcasting (streaming).

- The record companies have not delegated any rights to IFPI, only specific assignments.

Future plans are secret. There are new plans going on, but nothing is going to happen for at least six months.

SAMI Artists and Creators Tobias Eltell 26-11-2002 - Two rules are applied to Internet broadcasting of music:

o Transfer from CD to digital format: mechanical transfer. Needs rights from SAMI (§45, the artist), producers of the recording (§46, often record companies), STIM/NCB (§2, creator).

o Performance on the Internet. Needs rights from artist (§47, performance rights), STIM and the record company.

- Rights are often given from the artist and creator, not from record company.

- New tariffs are under testing.

Comments: It seems like the record companies are working out new solutions, but it will still take a while, and they are very secretive about everything.

STIM/NCB Internetgruppen Maria Wande 29-11-2002

General - STIM have had licenses since 1996.

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- There are two music listening categories:

o Digital Phonogram Delivery (downloads of entire works + ring tones)

o Replayable, streaming. Interaktivitet is split in three steps. The more interactivity, the more it costs:

Customised playlists

Paus function

Internet radio, WebbTV

Policing - Policing is done in each region by the local interest organisation. This method works.

Examples of different organisations are STIM (Sweden) and PRS (UK).

- Mutual agreements internationally.

- Santiago Treaty: the responsible owner of the service is also responsible for payments. It is not dependent on where the server resides.

Copyrights - STIM are positive to the idea of music on the Internet

- STIM represents only creators and and rights of other involved parties. The creators give STIM the right to handle their works.

- The record companies does not have veto against music on the Internet, but the can charge high fees.

- ALL parts (record company, creator and artist) have to give their right for a work to be distributed on the Internet.

- The copyright laws are under revision. It might be done to next summer.

Tariffs - Current tariffs are temporary. Still under revision.

- Streaming have the following tariff criteria:

o Potential listener

o Amount of music made available

o Actual number of listeners

o STIMs costs for licensing

- The criteria are not easy to define.

- Pricing on downloads are based on prices:

o Entire works: 12 % of consumer price, minimum of 1.5 SEK per work

o Ring tones: 10 % of consumer price, minimum of 1 SEK per work

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- Tariff differ internationally

- Royalty fairs stand for most of the income

P2P - P2P does not work. Several P2P-services have tried to get licenses, but no agreements

have been reached, since there is no control over the networks whatsoever.

DRM - STIM is positive to DRM technology. Copyright laws weigh more than fair-use.

Miscellaneous - Tomsradio.com does not have an agreement!

- IFPI still closes down private Napster servers

- Lars Henriksson handled the Kazaa case with Niklas Zennström.

Comments: Once again it is confirmed that new rules are under revision. There are actually rules and tariffs now, although under development. It seems not many are aware of that. P2P networks are still a problem, and there is no apparent effort to use them commercially.

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13.3 Appendix III – Interview with Niklas Zennström Niklas Zennström is the founder of Kazaa, Altnet and Joltid

Vi är intresserade av att höra hur det gick till när du var på STIM för samtal om detta, och framför allt vad din idé gick ut på. Som bekant gick det väl inte så bra. Vad var det som gick fel?

Historien med STIM var att efter att ha pratat med STIM, och och nagra syste organisationer blev det klart att vi i enlighet med Santiago avtalet skulle kontaka Buma/Stemra i Holland vilket vi gjorde. Vi var tvugna att pressa dem via intervjuer där jag sa att de inte var samarbetsvilliga för att få till ett möte. Vi hade en bra kontakt med Peter Koopmans och vi skrev ett LoI, darefter gick det valdigt långsamt från deras sida och i Oktober 2001 lämnade de amerikansa skivbolagen och filmbolagen in en stämningsansökan och två dagar senare fick vi ett brev från Buma Stemra där de avbröt förhandlingarna och hotade med rättsliga åtgärder om vi inte slutade med vårtan verksamhet. Detta resulterade i att vi stämde dem för missbruk av domineande ställning (de hade ju monopol på dessa licenser, eftersom vi inte fick skriva avtal med syster organisatiner i andra länder). De motstämde oss, och i November 2001 bestämde en Holländsk domare att vi skulle vidtaga sådana åtgärder så att Buma Stemras repetoar inte längre kunde laddas ner, han sa även att Buma Stemra skulle fortsätta förhandlingen med oss. Vi var därmed tvugna att upphöra med att ha Kazaa programmet på våran hemsida, det var det enda vi kunde göra, samtidigt överklagade vi. I Mars 2002 bestämde appelationsdomstolen i Amsterdam att det är lagligt att distribuera Kazaa programmet eftersom det bara är en teknologi som kan användas för transferering av upphovsrättsskyddat material såväls som ej upphovsrättsskyddat material, samma argument som USAs högsta domsteol sa om Sony Betamax. Tyvärr kom detta för sent eftersom vi redan hade sålt Kazaa.

Efter Kazaa startade jag Joltid som utvecklar peer-to+peer teknologi för bland annat fil distribution, inte fil delning.

Vi håller på med ett examensarbete om just distribution av digital musik på Internet, främst ekonomiskt och legalt hållbara tjänster. Just nu dominerar helt klart användning av olagliga P2P-tjänster. Skivbolagen är ju igång med sina egna tjänster, men de går trögt, och de är föga framgångsrika. De nuvarande nätverken går ju knappast att ta bort, så dina idéer hur de kan utnyttjas på något vettigt sätt som är lagligt vore intressant att ta del av.

Du skriver att olagliga tjänster dominerar, det ar inkorrekt, mej veteligen finns det ingen olaglig tjnast som operrerar nu I storre utstrackning. Det finns en grundlaggande ratts princip som sagew att inget ar olagligt forren en dom har skett. Betraffande Kazaa som dominerar finns det bara ett domstolsutslag som sager att Kazaa ar lagligt.

Bra forslag pa distribution av musik via natet som ar sanktionerat av upphovsrattsinehavaren ar Altnet (www.altnet.com) som anvander P2P teknologi licensierad av (www.joltid.com) for att 1) marknadsfora inehall via respons pa sokord via bl a Kazaa 2) kostnadsfri distribution av filer genom anvandande av saker P2P fil distributions teknologi fran Joltid samt DRM teknologi fran Microsoft (varldens storsta anvandare av Microsoft DRM teknologi) samt mikrobetalningslosningar for att kunna ta betalt for inehallet.

Det vore också kul att få lite information om tillkomsten av Kazaa. Utgick ni från Napster eller Gnutella eller skapade ni ett eget P2P-nätverk från scratch.

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Napster ar inte P2P, de anvande P2P for filtransfer men natverket var client-server baserat. Gnutella kom ut medans vi utvecklade Kazaa. Det var fran grunden ett nytt koncept med sk SuprNodes, som senare har kopierats av manga andra.

Hade du något att göra med införandet av Altnet på Fasttrack, eller har det kommit efter att Sharman tog över? Tror du att Joltid skulle kunna fungera som en musikdistributionskanal?

Jag var en av grundarna av Altnet. Joltid dar jag ar VD ager 49% av Altnet. Joltid har ingen ambition att bli en kanal, det ar en transport teknologi som kan anvandas av vilket bolag som helst som vill distribuera filer till en mycket lag kostnad. Musik bolag kan mycket val anvanda teknologin.

Vi undersöker ju hur en framtida digital muskidistributionstjänst skulle kunna se ut och kan kanske lära oss något av er modell...

En sadan tjanst maste kunna konkurera med gratis, lar er av vatten industrin, (Evian saljer packeterat vatten for flera kronor litern fast jag kan dricka gratis kranvatten).

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13.4 Appendix IV – Questions to Alan Morris (Sharman Networks)

We have some concerns about Kazaa and spyware. When you install Kazaa there are several spyware [Alan Morris] why do you call them spyware? programs installed at the same time even though there's very little information about this to the users.

[Alan Morris] See above - there is full disclosure and links to the sites

You said that Sharman Networks don't sell information to others, but I can't imagine all those spyware components are only for ads...(I think there were at least 50 components)

[Alan Morris] why not ?

Most components could be uninstalled without problem, but cydoor, which I suspect is the ad engine, couldn't...

[Alan Morris] precisely - Cydoor is the third party ad-server that works thro the app - it's a matter of widespread record that it's mandatory - it's the way the bills are paid. BTW it was erroneously labelled as spyware in the original 1998 article - Cydoor sent them the application and a week later they unreservedly declared it adware - but mud sticks :-(. Cydoor simply serves ads (pops frequency capped for instance to a lower daily level than the other major global sites) It's a client rather than server application and so doesn't send back any personal data - it doesn't need to. The only other bundle is WhenU - they are so protective of their privacy and disclosure - they are nearly more anal about this than we are!

It might be the case that Sharman do not sell information, [Alan Morris] totally we do not but still allows third party software to be installed together with Kazaa (that in turn might sell information)

[Alan Morris] see bundle acceptance and disclosures (Appendix V), without the users' knowledge or consent.

No matter if the software installed is spyware or not, the user does not know about it.

[Alan Morris] not so see disclosures`

I don't know if there are any differences in Kazaa v2 but here is an interesting link of v1.31:

http://www.gibboncore.demon.co.uk/kazaaspyware/

[Alan Morris] it wasn't true then and certainly isn't now - totally uninformed

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13.5 Appendix V – Kazaa Bundle Acceptance

INFORMATION FOR BUNDLE PARTNERS This document provides information for vendors wishing to bundle applications with the KaZaA Media Desktop. It explains the KaZaA Acceptance Testing process and what we will require from you in order to effectively package and ship your product.

KAZAA BUNDLING POLICY All applications must pass KaZaA Acceptance Testing. This means that they abide by certain privacy criteria and technical specifications. We test a finalized installation package prior to release and once per month for the lifetime of the relationship.

Sharman Networks will strictly limit the number of applications that can be bundled with KaZaA Media Desktop to protect user experience and KaZaA brand value.

PRIVACY Sharman Networks requires bundle partners to address the following questions that will allow us to inform KMD users of any privacy issues with the bundled application and to allow us to effectively promote your application to our users.

This information will be used to present simple descriptions of how all bundles effect the KMD users’ privacy.

If your application collects information of any kind from the user (aggregated or otherwise) please describe this to us including:

Exact data that is collected (e.g. email address, nickname, gender)?

Frequency of reporting from the client to the server?

How the user opts in/out of your data collection? Is it clear what the user is opting in to? When are they asked?

Whether you sell the data and who to?

Can the user see and update or delete the information you hold on them?

Is data transmitted securely?

Is the data cross-referenced with any other database to create fuller profiles?

For acceptance testing we will also require a copy of the application’s Terms of Use and Privacy Statement. Please ensure that these only describe the applications that are to be bundled with KaZaA and not generic statements that include your other products or website.

Your application will be tested against these policies and your answers to the questions above.

TECHNICAL Your application must have an effective uninstall process that completely removes it upon user selection. It must be listed in the Windows uninstall applet.

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It must also have an entry in the Windows Start menu. This must at least include shortcuts to a website or text file describing the application in clear terms and to the uninstall program.

WHAT A BUNDLE CAN’T DO It must not install any applications, services or processes without the users consent. This includes features that may be only ambiguously declared at opt-in.

It must not track any user behavior outside the users interaction with your application.

When the user says No (opts out) it must not ask them again…

It must not install undeclared (or ambiguously declared) apps that perform tasks other than the main app. For example click path tracking services.

It cannot prevent a user from doing something they are explicitly doing. E.g. they are browsing to Amazon.com and your application redirects them to Barnes and Noble.

It cannot effect any other installations that may be on the user’s PC.

Must not attempt to connect to the Internet when the user is not connected.

Must not automatically update itself. Any system updates must prompt for user’s permission and explain the nature of the update.

ADVERTISING If a bundle includes popup advertising, you will propose a frequency cap to be agreed by KaZaA. Ads cannot promote competitive products for KaZaA, existing KaZaA bundle partners, pornography or offensive material.

SOURCE CODE A copy of your application source code must be lodged with Sharman to audit that it fits with these acceptance criteria.

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13.6 Appendix VI – Interview with IFPI 11-09-2002, Magnus Mårtensson, legal advisor, IFPI Sweden

Varför finns de stora tjänsterna MusicNet och Pressplay inte i Sverige?

Deras upphovsrättsavtal gäller bara i USA.

Finns det några alternativ till dessa i Sverige?

Nej

Går det att få tillgång till Pressplay eller Musicnet från Sverige?

Det får man i så fall försöka genom att kontakta dem på egen hand.

Vad är planerna för Internettjänster i framtiden?

Man planerar att erbjuda ett mervärde i form av musikvideor och dylikt som man kan komma åt genom musiktjänsten. Som det ser ut nu så kan man inte konkurrera med tjänster som erbjuder samma utbud men gratis. Man måste helt enkelt erbjuda något extra.

Mårtensson nämnde också en tjänst som tillämpar Pay-per-piece som betalningsmetod – DIGFI.com. Dessutom påpekade han att Frankrike har en lagstiftning som säger att kommersiella kanaler för distribution av media måste sända en viss andel inhemsk musik. Frågan är då hur detta fungerar med en eventuell mp3-tjänst?

En intressant sak som Mårtensson sade var att Vitaminic har gått i konkurs, men det är ingenting som märks på deras sajter. Än så länge i alla fall…

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13.7 Appendix VII – Second Interview with IFPI Sweden Magnus Mårtensson 02-11-26 [email protected]

Regler nu?

Streamad, webcasting.

Skivbolagens rätt. Ger specifika uppdrag, inte rättigheter.

Regler sen?

Hemligt. Finns inte några detaljer… Mycket är på gång förstås, men inget kommer att hända inom närmaste halvåret i Sverige.

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13.8 Appendix VIII – Interview with SAMI Tobias Eltell

Regler nu?

2 steg:

1. Ren överföring från CD => data. Mekanisk överföring.

Rätt från SAMI (45). från skivproducenterna (46), kompositör STIM/NCB (2:a)

2. Räknas som framförande (diskutabelt). Artister (47:e och framförande). STIM och skivbolaget.

Händer ofta att man får rätt artister och kompositörer, men nej från skivbolaget.

Regler sen?

Tariffsättning för smakprov är på gång. Resten är hemligt.

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13.9 Appendix IX – Interview with STIM/NCB Internet group Maria Wande, 021129

The interview has been transcribed by topic since no recording equipment was available for the interview.

General

- STIM have had licenses since 1996.

- There are two music listening categories:

o Digital Phonogram Delivery (downloads of entire works + ring tones)

o Replayable, streaming. Interaktivitet is split in three steps. The more interactivity, the more it costs:

Customised playlists

Pause function

Internet radio, WebbTV

Policing

- Policing is done in each region by the local interest organisation. This method works. Examples of different organisations are STIM (Sweden) and PRS (UK).

- Mutual agreements internationally.

- Santiago Treaty: the responsible owner of the service is also responsible for payments. It is not dependent on where the server resides.

Copyright

- STIM are positive to the idea of music on the Internet

- STIM represents only creators and and rights of other involved parties. The creators gives STIM the right to handle their works.

- The record companies does not have veto against music on the Internet, but the can charge high fees.

- ALL parts (record company, creator, artist) have to give their right for a work to be distributed on the Internet.

- The copyright laws are under revision. It might be done to next summer.

Tariffs

- Current tariffs are temporary. Still under revision.

- Streaming have the following tariff criteria:

o Potential listener

o Amount of music made available

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o Actual number of listeners

o STIMs costs for licensing

- The criteria are not easy to define.

- Pricing on downloads are based on prices:

o Entire works: 12 % of consumer price, minimum of 1.5 SEK per work

o Ring tones: 10 % of consumer price, minimum of 1 SEK per work

- Tariff differ internationally

- Royalty fairs stand for most of the income

P2P

- P2P does not work. Several P2P-services have tried to get licenses, but no agreements have been reached, since there is no control over the networks whatsoever.

DRM

- STIM is positive to DRM technology. Copyright laws weighs more than fair-use.

Miscellaneous

- Tomsradio.com does not have an agreement!

- IFPI still closes down private Napster servers

- Lars Henriksson handled the Kazaa case with Niklas Zennström.

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13.10 Appendix X – Interview with Jonas Nordin 021220

Vad heter du?

Jag heter Jonas Nordin.

När började du använda MP3.com?

Det måste ha varit sent 1999, möjligen tidigt 2000.

Vad var det som lockade?

Att man på ett förträffligt sätt kunde sprida sin musik och samtidigt få en ersättning när många lyssnade på din musik. Jag tyckte de erbjöd en väldig massa saker som var intressanta för mig. Dessutom kunde jag hitta likasinnade i andra delar av världen och utbyta erfarenheter med dem. Dessutom var det gratis. Jag uppfattade det som att det var främst jag själv som avgjorde vad när och hur min musik skulle saluföras och i vilken form. Det var nästan som om jag skulle haft ett eget skivbolag. Så bra kontroll hade man över sitt material.

Berätta kort hur det fungerade då, vad var villkoren för att få ha musik där?

Man fick skriva på ett avtal och sedan gavs man i princip fria händer att lägga ut vilken egenkomponerad musik man ville. Man gavs också möjlighet att sätta ihop sina egna skivor och webradiokanaler. MP3.com fungerade som en sorts marknadsplats där man kunde sätta priser på sina skivor själv mot att MP3.com tog hälften av summan man sålde för. En ganska bra deal tyckte jag. Vidare betalade de ersättning när musiken laddades ner eller streamades, inga stora summor men blev man mycket spelad så kunde det bli en slant. När man sedan kom upp i 50 dollar skulle de betala ut pengarna.

Hur fungerade marknadsföringen? Hur fick man exponering? Kom man fram ur bruset lätt?

Ja, det funkade bra men man var ju tvungen att vara ganska aktiv och lägga upp nya låtar eller ändra sina spellistor ganska ofta. Jag lyckades faktiskt få till en topplacering på en av deras listor för svensk pop och rock under ett par dagar, det var inte särskilt svårt. Det funkade bra.

Vilka alternativ fanns det för att få ut musiken på MP3.com?

Inga som jag kände till som var realistiska för mig.

Hur fick man betalt? Vilka var villkoren?

Ju mer din musik spelades och laddades ned desto mer pengar tickade in. De hade en sorts taxameter som nollades varje månad har jag för mig. Jag tror att ersättningen låg någonstans på 0,4 cent per nedladdning eller något sådant. Du var tvungen att ha minst ett visst antal nedladdningar för att taxametern skulle gå igång, jag kommer inte ihåg hur många det var, 10-12st. tror jag. Nedladdningarna skulle också ha utförts från minst ett visst antal olika datorer vill jag minnas? Jag kommer inte ihåg detaljerna.

Vem ägde rättigheterna över uppladdad musik?

Så vitt jag förstod var väl rättigheterna mina men att de fick sprida och använda min musik i reklam för sajten om de så önskade, jag minns inte alla detaljer idag tyvärr?

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Vilka förändringar fick du uppleva på MP3.com under åren? Var det till det bättre eller sämre? (ange gärna ungefärliga tidpunkter)

Jag tror att det var i september 2000 som de gjorde om hela systemet (för att de blev uppköpta eller något.) Då skulle man plötsligt betala in 20 dollar i månaden om man ville forsätta att åtnjuta den service man tidigare haft. I och med att jag vid den tidpunkten ännu inte fått ut några pengar var det aldrig aktuellt för mig. Sedan tappade jag sakta intresset. Idag finns mina låtar fortfarande kvar men jag fattar inte hur jag skall göra för att komma åt att ändra dem.

Om du ville få ut din musik idag, skulle du använda MP3.com då? Om inte, vilken annan modell kan du tänka dig?

Om MP3.com såg ut som det gjorde först, självklart. Efter ändringarna är det ingen höjdare att ha sina låtar där.

Hur ser du på mp3 och digital distribution i P2P-tjänster som marknadsföringsmodell och/eller distributionsmodell?

Det är väl jättebra för mig? men dåligt för skivbolagen? Jag kan tänka mig att artister och kompositörer i framtiden kommer att ha sina egna sajter typ MP3.com där fansen kan mötas? Skivbolagen har nog spelat ut sin roll, de måste nog satsa på andra marknader om de skall klara sig. De lyckas ju snart inte sälja sina produkter längre? Jag tror att den här sortens tjänster har kommit för att stanna. Jag kan tänka mig att betala 100 kr i månaden för en tjänst som Kazaa eller DirectConnect och jag kan också tänka mig att upphovsrättsorganisationerna (T.ex. Stim) inte heller har något emot detta förutsatt att de får en del av kakan i form av licenser. Det blir värre för skivbolagen eftersom de blir överflödiga?

Hur ser du på de befintliga lagliga tjänster som finns som distributionsmodell (pressplay, musicnet mfl)?

Jag vet väldigt lite om dem.

Tror du att man förlorat/tjänat pengar på att musiken sprids olagligt?

Jag vet inte? Ju dyrare skivor är att köpa i affären desto mer förlorar ju artisterna? Om en ny CD skulle kosta 50 kr skulle nedladdningarna minska väldigt drastiskt. Självklart vill man ha en pressad skiva med omslag men så länge jag kan ladda ner samma platta gratis i princip hur lätt som helst kan skivbolagen inte ta 200 kr för samma produkt. Det säger sig självt, eller hur?

Tror du på kopieringsskydd för att förhindra olaglig spridning av musik?

Absolut inte! Skivbolagen kommer att lägga ner en massa pengar på någonting som alla intresserade kan kringgå inom fem minuter med hjälp av en programsnutt man kan hitta på internet. I slutänden innebär detta dyra utvecklingskostnader för skivbolagen. De kommer med stor sannolikhet att förlora stora summor pengar på sikt. Det som skivbolagen håller på med är lika korkat som om biltillverkarna skulle tvinga dig att köra din bil på gengas bara för att det var bekvämt för dem och att de ska tjäna mer pengar på dig.

Tror du på en tjänst som erbjuder mervärde i form av exempelvis musikvideo, recensioner osv. för att konkurrera med P2P?

För ungdomar, möjligen. För 35 åringar, knappast.

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13.11 Appendix XI - Interview with Trance Control 021013

Vad heter du?

Alexander Carlborg

Vi intervjuar dig därför att du har framgångsrikt sålt musik genom MP3.com. Berätta lite kort hur det gick till, och varför du valde MP3.com vid den tidpunkten.

Ja du, vi hittade MP3.com av en ren slump – Internet höll på att bli en rejält ’hypad’ grej rent generellt och vi som nyligen fått reda på ett super bra ljudformat som kallades mp3 ville veta mer.

Snabbt lät vi modemet sjunga sin sång – knappade in ’www.MP3.com’ och gissade på att detta skulle ge svar på våra frågor. Men istället uppenbarade sig en sajt där musiker fick lägga ut sin musik helt gratis. Idén lät som en kul grej och dessutom lät de mesta på sajten ganska dåligt – inte för att vi var några super producenter, men vi tyckte oss kunna lite bättre än vad som då var befintligt på MP3.com.

Vilken marknadsföringsmodell använder du idag (MP3.com, annan reklam)?

MP3.com är och har alltid varit vårt huvudmedel för att nå ut till våra lyssnare. Tack vare MP3.com har vi också fått en resident lyssnarskara som vi enkelt tar kontakt med via e-post så fort vi gjort någon ny låt. Vi använder även vår egna hemsida samt ett eget forum för att binda upp besökare som vi sedan lätt kan informera om uppdateringar och nya låtar.

Hur fungerar den?

Vi loggar in på vår artist profil under MP3.com -> Knappar in information om låten vi gjort, laddar upp grafik och själva låten -> Sedan är det i stort sett klart. Efter ca 24 timmar kommer låten upp på vår egna MP3.com sajt. Som tillägg till detta utannonserar vi även att en ny låt är på gång i vårt forum, en liten notis på vår hemsida att de e nya prylar på G, en annan liten notis på vår MP3.com sida som säger att en ny låt är på G samt ett nyhets utskick via e-post till kontakter i vår adressbok.

Finns det något sätt att förändra/förbättra modellen?

Förbättringar går alltid att göra i alla lägen, själv tror jag inte det finns något som är bäst eller sämst då vi via vår modell tar kontakt med ett stort antal personer för att distribuera vårt budskap.

Sätter man modellen i ett tänkande att man skall nå ut till en viss grupp eller kategori människor blir det troligtvis mycket enklare att leta förbättringar, men om vi vänder på kakan och ser att vi faktiskt kontaktar enskilda individer blir det genast svårt att greppa situationen.

En summering skulle vara att: Ja, det finns massvis att förbättra, men är det värt mödan och gör det någon egentlig nytta?

Vilken distributionsmodell använder du idag (MP3.com, skivförsäljning)?

MP3.com, Skivförsäljning

Hur fungerar den?

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Artisten kan genom MP3.com skapa sina helt egna skivor och sälja dem via sin MP3.com sajt. MP3.com svarar för duplicering, omslags tryck & distribution medan artisten bara väljer ut de mp3 filer han/hon vill ha för skivan, sätter namn och skapar omslags grafik. Priset sätts av artisten och en viss del tillfaller MP3.com som en kostnad för tillverkning. Dessa skivor kan sedan beställas av privatpersoner var som helst i världen. Beställningar går att göra med enstaka ex eller större partier. Skivförsäljningen är än så länge av konventionell typ via skivbolag.


En förbättring för vår del skulle vara att slopa skivbolaget som behåller ca 80% av intäkterna, och istället ta vår produkt direkt till distributör. Men då reklam är en kostsam process lär detta dröja innan vi på fullt allvar gör slag i saken.

Hur fungerar intäktskedjan (vilka är inkomstkällorna, tex skivor, spelningar mm)?

MP3.com betalar med hjälp av annons pengar och liknande ut $0,005 eller ca 5 öre per godkänd lyssning/nerladdning (komplett nerladdning eller lyssning som varar i 30 sekunder eller längre).

Skivbolagen vi varit involverade med har än så länge bara betalat futtiga förskott och sedan hävdat att de spenderat mer pengar på reklam än vad de fått in på försäljning – I ett sådant fall ska vi alltså inte få betalt pga vårt tidigare utbetalade förskott som först måste täckas upp av reklam och försäljning.

Enligt kontrakten står det specificerat 18% PPD (Percent Per Deal) Som skulle motsvara ca 16 Kr men sedan måste man dra av advokat arvoden, inkomst tak och lite annat kul – Slutsumman för vad skivförsäljning ger tillbaka blir ca 5-7 Kr per skiva.

Ger den en skälig lön?

MP3.com -> Då vi har väldigt många nerladdningar så ger detta en mer än skälig lön för mödan.

Skivbolag -> Bolagen själva vet inte ens vad detta betyder så ett stort NEJ i detta avseende. Vi har sålt 18 000 ex av vår första skiva och inte sett en enda krona förutom vårt förskott på 40 000 SEK.


Det skulle behövas en global övergripande organisation som hjälper och kontrollerar enskilda små artisters rätt i förhandlingar med skivbolag. En organisation som inte kostar något att använda sig av. En organisation som konstant gör stickprov hos skivbolag runt om i världen osv.

Vem äger rättigheterna över din musik?

Vi själva äger rättigheterna till de låtar vi släpper på t ex MP3.com - > Låtar som släpps via skivbolag är restrikterade under kontrakts tiden. Dvs att vi själva återfår rättigheterna till låtarna när och om kontrakt med skivbolag går ut.

Hur ser du på mp3 och digital distribution i P2P-tjänster som marknadsföringsmodell?

Kalas bra! Till att börja med når man en publik man troligen inte alls skulle nå. Man får och skapar en direkt kontakt med sina lyssnare. MP3 formatet är dessutom perfekt för färsk-musik

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distribution då det generellt tar ca 6 månader från beslut till produkt på hyllan med hjälp av skivbolag.

Hur ser du på de befintliga lagliga tjänster som finns som distributionsmodell (tex pressplay, musicnet)?

Jag har än inte varken sett eller hört något om dessa…

Tror du att du förlorat/tjänat pengar på att musiken sprids olagligt?

Vi som band hade inte varit kända över huvud taget utan MP3 och Internet. Jag hade t ex aldrig gjort denhär intervjun, vi hade aldrig blivit kontaktade av TV, vi hade aldrig blivit erbjudna diverse skivkontrakt, vi hade aldrig fått chans att remixa Madonna, Vi som band hade aldrig fått erbjudanden om utlands spelningar….. Listan på vad som inte varit utan ’olaglig spridning’ är för oss anledningen att vi idag finns.

Tror du på kopieringsskydd (av CD och filer) för att förhindra olaglig spridning av musik?

Nej, detta är en rent teknisk fråga och då teknik idag inte är ett problem för en hacker så är det totalt bortkastade pengar. Även de bästa skydd blir ’knäckta’ redan innan själva produkten är lanserad. Ett mycket bra skydd blir en utmaning som gör att diverse grupper går samman för att knäcka koden och det hela blir mer en morot än ett besvär.

Tror du på en tjänst som erbjuder mervärde i form av exempelvis musikvideo för att konkurrera med P2P?

P2P är svårt att konkurrera med i allmänhet. De som utnyttjar dessa tjänster är inte intresserade av merförsäljning, de är fullt medvetna om vad dom vill ha samt vad de inte vill betala. Kort sagt den grupp som mest utnyttjar P2P är personer födda från 1970 och framåt och strategiskt vore det bra för skivbolagen att tänka om sin prioritet innan dessa personer bli den styrande marknaden,

Vilka var villkoren på MP3.com förr? Hur är villkoren idag? Vilka förändringar har märkts sedan Vivendi tog över? Har stämningen av MP3.com påverkat sajten?

Jag har själv inte lusläst villkoren för artister på MP3.com men jag tror inte den avtals mässiga biten ändrats nämnvärt. Artister som väljer att ansluta sig äger fulla rätten till sin egen musik och grafik i alla lägen.

Den stora förändringen som skett med Vivendi’s intåg och den stora stämningen är tarifferna för vad MP3.com artisterna får betalt per nerladdning.

Med den modell som rådde innan detta fick vi i genomsnitt 20x mer betalt per nerladdning än vad vi får idag. Kan jämföras med att vi idag tjänar ca 400 Kr per dag och med föregående modell skulle vi idag tjänat ca 8 000 Kr per dag (Baserat på ca 8 000 nerladdningar).

Ett tillägg som har införts är också att man måste betala en månads avgift om ca 200 kr för att få ta del av betalning per nerladdning. Väljer man att avstå från detta kan man däremot fortfarande sälja sina egna skivor via MP3.com.

När började ni på MP3.com?

Har för mig att det var i början av 1997

När slog ni igenom?

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Stora genombrottet blev med ’Atomic Dance Explosion’ i Januari 1998 -> Sedan dess har det bara i stort sett ökat konstant. Vi fick bla utmärkelsen ’Band of the Year 1999’ och ’Song of the Year 1999’ med låten Atomic Dance Explosion

När bestämde ni er för att sälja skivor, och när kom detta igång?

MP3.com började erbjuda tjänsten i FEB 1998 – Detta började vi utnyttja direkt. Därefter gjorde vi första Vinyl släppet med skivbolag. April 2000, följt av första CD släpp 22 Augusti 2000.

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13.12 Appendix XII – Interview with Jonas Berndt (Mörk Gryning)

021025

The interview is reconstructed from written notes beacuse of a lost recording.

Vilken marknadsföringsmodell använder du idag?

Främst Internet på webbsajten, kontakt med fans, mail, musiktidningar. Bolaget promotar ingenting. Vi fixar gigs själva.


Vi tänker satsa hårdare på sajten.

Vilken distributionsmodell har du idag?

Bolaget distribuerar skivor, vi spelas lite på radio.

Hur fungerar den?

Det är jobbigt att få ut skivor utomlands.


Nej. Vi vill sälja skivor.

Hur fungerar intäktskedjan?

För sålda skivor från STIM/NCB. Konserter kostar snarare pengar, fungerar egentligen mer som promo. Vi får också in pengar från sålda t-shirts och så på konserterna.

Ger den en skälig lön?

OK


Höjd royalty tex. Vi vill ha kvar mellanhänderna som kan göra det administriva åt oss.

Vem äger rättigheterna över din musik?

Skivbolaget

Skulle du vilja äga din musik?

Nja, orkar inte ta hand om företagsbiten.

Hur ser du på mp3 och digital distribution i P2P-tjänster som marknadsföringsmodell?

Mest skadligt, dom ska bort! Fungerar kanske med några enstaka låtar, men inte hela plattor.

Hur ser du på de befintliga lagliga tjänsterna som finns som distributionsmodell?

Har inte så bra koll på dom.

Tror du att du förlorat/tjänat pengar på att musiken sprids olagligt?

Det går nog jämt ut för mig, men stora artister förlorar nog på det.

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Tror du på kopieringsskydd för att förhindra olaglig spridning av musik?

Till viss del om det fungerar. Det är en bra tanke i alla fall.

Tror du på en tjänst som erbjuder mervärde i form av exempelvis musikvideos för att konkurrera med P2P?

Nej.

Har bolaget förändrat villkoren något sedan mp3/Napster fenomenet?

Inte direkt, men de försöker. Generellt är bolagen för stora, dom är tröga och är inte flexibla.

Är situationen annorlunda för dig som nischartist och mainstreamartister tror du?

Jag tjänar nog mer på mp3:or, men inte mainstreamartister.

- Jag tycker inte om EMA Telstar, dom har i princip monopol på konserter. Det är svårt att få spelningar med de mindre bolagen.

- Det är bra att motverka mp3 i längden, måste få stopp på det. Det går inte att tjäna pengar på, men man måste hitta på något nytt.

- Tror inte att man kan leva på bara musiken i fortsättningen.

- Storbolagen satsar på fel musik, popen är inte bra.

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13.13 Appendix XIII – Interview with Pär Björling 021030

Vad heter du?

Pär Björling

Du jobbar som ljudtekniker normalt. Vad har du för koppling till musik?

Jag är frilansande musiker, mer eller mindre hobby.

DU har mycket erfarenhet av det?

Ja.

Du är inte signad?

Nej inte personligen, men jag är med i ett band som precis har fått skivkontrakt. Har varit med i andra band som har haft skivkontrakt.

Var är det för förlag nu i det aktuella bandet?

Det är inte förlagt alls faktiskt. Just är det väl bara STIM. Det är ett skivkontrakt, master deal. Från inspelning till det kommer ut på marknaden.

Vad gäller kontraktet?

Distribution, lite marknadsföring, turnéstöd. Se till att skivorna kommer ut.

Vad är det för bolag?

Zip Records.

Har ni någon annan form av marknadsföring för bandet?

Det är så litet, och en liten satsning. Någon vill släppa oss i USA, England och Australien. Och en kompis som ser till att det kommer ut i Sverige.

Bolaget har hand om distributionen helt?

Ja.

Marknadsför du dig själv som musiker?

Nej

Hur får du in pengar från musiken?

Huvudsakligen från spelningar. Nu har jag inte något utgivet som jag kan håva in pengar från. Egentligen borde jag ha några kronor från STIM och SAMI. Jag har varit med några skivor som medarrangör och skrivit låtar på plattor. Framför allt spelat in, som producent och musiker. Dom har jag inte sett röken av.

Har du varit i kontakt med dom?

Nej, inte jag personligen. Så fort man gör det ska man egentligen göra det.

Blir det ett bättre deal nu?

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Nej, det är ingen inkomstbringande. Vi marknadsför oss själva mest. Vi bokar spelningar själva, främst bandet och inte plattan.

Ni ordnar alla spelningar själva?

Ja. Vi har inte kunskapen och möjlighet att fixa en USA turné, det får kontakterna i USA göra.

Får du en skälig lön som musiker?

Ja det tycker jag absolut. Med den situation jag har med deltidsjobb har jag lyxen att välja bort tråkiga spelningar, och glidit in i kretsar där jag får BRA betalt, och slipper dåliga spelningar. Samtidigt vill jag utveckla mitt spelande, och spela så mycket som jag vill.

Siktar du på att släppa plattor?

Jag känner mig som en bakgrundsmusiker, som basist eller vad som helst. Slippa tänka på plattor och det administrativa. Jag är ju hobbyförfattare (kompositör) och har några demos, men får aldrig iväg skiten. Skulle jag bli erbjuden ett skivkontrakt skulle jag inte tacka nej. Men jag lägger inte ner hela min skäl i det just nu. Lättare om någon sköter det åt mig.

OM du blir signad, finns det någon preferens för typ av bolag?

Litet. Gärna litet och välrenommerat. Nischat bolag. Inte intresserad av ett majorkontrakt med det jag gör. Det finns så många mardrömshistorier där man blivit lovad guld och gröna skogar och sedan har det inte hänt någonting på flera år, och ändå är de uppbundna av ett kontrakt och förlaget tar (33 % av intäkterna i Sverige i alla fall). I USA är det bättre för förlagen har mer definierad arbetsuppgift. I Sverige gör de ingenting! I Sverige gör skivbolagen det mesta. Det känns fel, många små bolag startar bara för att få STIM-intäkter. Jag var med om det i ett band. Sångerskan blev lurad och förlaget tog 33 % av intäkterna, utan att ha gjort ett skit för det. I och med att det var samma bolag som förlag så ville de ha alla royalties, men gjorde inget mer för marknadsföringen. För få vet om fällan med förlagen.

Om du blir signad till ett skivbolag nu, vad vinner du på det egentligen?

Det jag vinner är att vi har ett etablerat bolag som bara gör det här (administration). OM jag ska försöka ansvara för att är det inte så kul.

Över till digital distribution, just P2P. Idag är dom ju olagliga. Tror du det går att använda kommersiellt? Kan man vinna på det som musiker i din ställning?

Ja och nej. Ljudkvaliten på filerna är inte bra nog. Jag vill inte betala för en mp3 som jag gör för en skiva. Nu med bredband på gång kan man ladda en platta på rimlig tidsrymd. Hittar man ett format som är mycket bättre kan jag tänka mig att betala. Men jag tycker att vinyl är bättre än CD, jag vill ha någonting fysiskt.

Om du skulle ge ut låtar digitalt, tror du det hjälper?

Jo då, typ på MP3.com och så. Det finns ju folk som upptäcks där. T.e.x. tävlingar och så där man kan vinna skivkontrakt. Vi har lite grejer med bandet på MP3.com

Blev ni upptäckta där?

Nä, vi var på en mässa i Amsterdam.

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Som det ser ut idag, måste man betala för att få pengar för nerladdningar på MP3.com. Väldigt få band tjänar på det, snarare förlorar men får exponering.

Ja det fungerar väl som marknadsföring.

Det var gratis tills Vivendi köpte upp dom.

OK! Ja det förklarar saken. Dom är och tafsar överallt dom där fem jättarna.

Tror du man kan utnyttja P2P som distribution?

Njaä, JAG skulle aldrig göra det. Man vet inte om man kan få pengar för det men förr eller senare hamnar det där. Men jag skulle inte vilja ha det som min primära. Det är mindre risk att folk bränner plattor.

De 5 stora har lanserat lagliga tjänster blabla. Tror du att det fungerar, konkurrerar med P2P?

JAG vill inte betala för det i alla fall. Man tänker inte så i och för sig. Svensson är ute efter låten och inte soundet, så de kanske vill betala för det.

Skulle du lanserade dig själv på en sådan tjänst?

Ja, absolut. Det är klart ett alternativ.

Skulle du betala för det om du fick lite extra för det utöver musiken? Något materiellt? (musikvideor, prylar, biljetter)

Nja, om man får ett eget fodral och konvolut, och sen bränner ut skivan själv kanske, så man har något i hyllan.

Finns det något dom kan göra för att få dig att betala?

Vet inte.

Du vill alltså ha en skiva i handen?

Ja i och för sig är det rätt attraktivt med konsertbiljetter…

Tror du kopieringsskydd på skivor/filer hjälper?

Nej. Det finns alltid någon som hackar dom här, alltid något sätt man kan cracka dom här skydden. Om de inte anställer dom här duktigaste nää..

Men OM det funkar?

Ja, då måste allt skyddas i så fall. OM man har ett fungerande skydd på både filer och skivan då blir båda attraktiva på ett annat sätt, när man inte kan kopiera dom. Men man kan alltid kopiera analogt. Det är det som är kruxet. Det går inte att förbjuda mp3 som format.

Man kan alltid streama musik, tanka fil, bränna musik.. bla bla. Men man HYR faktiskt musiken. Vad tycker du om det?

Det är ju ett bra alternativ.

Skulle du använda det?

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Jag tänker på båda sidor. Folk kommer alltid att köpa skivor. Men ser man på artisten förlorar han intäkter på kopieringen.

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13.14 Appendix XIV – Interview with Anders Edenroth (Real Group)

021111

Vad heter du?

Anders Edenroth

Du är en signad artist.

Ja.

Vilken marknadsföringsmodell har ni idag?

Om vi pratar om våra skivor har det på senaste åren varit fokus på TV, TV lansering. I Sverige och utomlands.

Gör ni reklam eller framträdanden?

Nä, reklam. Sedan gör vi framträdanden också, men det är inte reklam för skivan på samma sätt. Det som har effekt för försäljningssiffrorna är just reklam, riktad reklam. Där man säger KÖP SKIVAN DU MÅSTE HA DEN. Däremot att vara i TV säljer inte nödvändigtvis. Däremot etablerar det gruppens namn och folk är medvetna, man blir mer känd. TV reklam och radiospelningar (exponeringar) på listor och så, det säljer skivor. Men inte att synas i TV.

Indirekt?

Nja. Inte heller av att synas i skvallerpress och så, det säljer inga plattor. Å så blir man känd på det. Då är det lättare när TV reklamen kommer.

Marknadsför ni på olika sätt dels för skivorna, dels för själva musiken?

Nja, svårt att säga. Det är inga vattentäta skott. Konserter gör vi aldrig TV-reklam för. Fungerar om man gör Les Miserables, stora produktioner.

Hur är det med er webbsajt?

Svår att använda i marknadsföringssyfte. Vi informerar vad som har hänt, konsertprogram och så. Men folk kan lika gärna gå in dagen efter en konsert som dagen innan. Där pushar man inte folk. Våra fans besöker sajten ofta, andra någon gång om året. Vi vet inte hur ofta. Vi planerar att ha en mailinglista där man kan signa upp sig och få utskick om utskick om aktuell verksamhet. Den ska vara riktad mot våra olika territorier, så våra koreanska fans inte ska få svenska konsertutskick och vice versa. Men det är under construction.

Hur pass mycket kontakt har ni med era fans?

Ja via hemsidan har vi en del. Svarar på en del av gästboksinläggen om de har frågar. Om de har komplimanger säger vi inte så mycket. Ibland kan de svara varandra också.

Är det någon skillnad på utomlands och i Sverige, det är väl Sverige som är störst?

Ja, Sverige är vår största spel plats, vi har etablerat oss väldigt länge, på andra plats är Norge. Sen har jag ingen koll på proportionerna. Sen har vi haft kontinuerlig verksamhet i tyskland, och Asien, främst Korea.

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Vad gör ni om ska marknadsföra utomlands?

Det gör inte vi. Det gör det bolag som har hand om oss i respektive land. Det är inte Virgin (EMI) som har oss i alla länder. I Norge är det det. I Korea har vi ett helt annat upplägg, ett fristående independentbolag, likaså i Taiwan.

Vilken distributionsmodell har ni?

Vi distribuerar skivor genom EMIs kanaler.

Bara skivor, inte betaltjänst digital distribution?

Nej, det har vi inte. Förut hade vi länkar till Boxman och så, som säljer fysiska skivor. Men den branschen har ju inte riktigt återhämtat sig. Ligger ganska lågt. Men du kan köpa vår skiva på nätet så skivförsäljningssajter. Men vi länkar inte längre, de sköter sig själva rätt bra. Det är så lätt att hitta sajterna. De har väl en leverantor som gör det.

Finns det nåt sätt att förbättra modellen?

Ja, jag tycker det är ganska gammalmodigt med CD-skivor och plastförpackningar, och köra ut i lastbilar runtom i landet. När man kan på 30 sekunder kan få hem en hel låt. Det är lite mossigt. Betalningen är ett problem med mp3. Mp3 håller nog inte i sig. Det förändras nog när alla får snabbare uppkoppling, då finns ingen anledning att ladda ner mp3. Då kommer man ladda hem full bandbredd givetvis. Sen är det en filosofisk / moralisk fråga. I normala fall en artist (nykomling) signas hos ett bolag (gäller inte oss) får han ca 6-8 % på grossistpriset d.v.s. 6-8 kr per platta. För att då ha sin medverkan på skivan. Den kostar ca 180 kr i affären, det ger ytterligare 6-8 kr till artisten. Om han skrivit ALLA låtar så går ytterligare 10 kr till honom. SÅ i bästa fall kommer man upp i 10 % av bruttopriset. Resten försvinner i andra led.

Det är just detta vi tittar på. Om vissa delar av kedjan kan försvinna.

Frågan är hur många delar man kan plocka bort. Jo CD-pressning, du kan plocka bort alla transporter, lagerhållning, skivaffärer hyra, löner osv. Däremot någon stans… om man tar bort alla affärer och bara har på nätet, hur ska man då veta vilken platta man vill ha? Det måste ske någon form av gallring. Jo radio då, skivbolag marknadsför inte längre musik. Det kommer att bli jättesvårt att hitta. Det behövs folk med know-how som vet vad som finns, och kan rekommendera och styra kunden. Det kommer säkert nischade sajter, och man kan abonnera och få hemskickat varje dag. Så betalar man för det. Eller så går man och söker själv, men det är bara entusiaster. Då är vi nu snubblande nära ”Netcasting”, då man får ett utbud skickat till sig, ungefär som en bokklubb. Du får inte exakt det du vill ha, men om du får en bok så läser du den ändå. Det blir nästan som radio. Någon gör ett urval åt dig. Radio betalar du inte för på pappret, men du lyssnar på en massa reklam. Detta betalar du för, eller så får du reklam. Så gränserna mellan radio och skivdistribution kommer nog att suddas ut.

Känner du till några av tjänsterna Musicnet, Pressplay, Rhapsody och så? Där de stora skivbolagen har gjort sina satsningar. Har sökt kontrakt med alla 5 skivbolagen och gör en abonnemangstjänst.

Nej, har inte provat.

De finns i och för sig bara i USA just nu. Vad tror du om en sådan tjänst där man kan samverka med kunder på ett annat sätt. Där man kan få mer material, t.e.x. musikvideos, recensioner o.s.v. Tror du det är en bra idé?

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Absolut. Det låter otroligt attraktivt. Det kommer en ny generation nu. Jag tillhör den som växt upp utan datorer. Min mamma och pappa hade ju inte TV. Så då frågade jag mig vad gjorde man då? Men mina barn kommer inte förstå hur man inte kan klara sig utan en dator hemma. De är mellan 4-6 år. Dom har en naturlighet till detta och är helt orädda, och kommer gå ut på nätet på ett helt annat sätt än oss (60-talister) de som nu är småbarnsföräldrar. När de kommer upp i 20 kommer det inte finnas något skäl att gå ut att köpa en skiva för tvåhundra spänn. Det är inte skivan man vill ha, det är musiken, det är artisten, man vill ha kontakt. Man vill gärna se en video, en dokumentär, man vill chatta med artisten, eller andra fans. Man vill enas med andra som gillar/hatar artisten. Jag tror inte vår generation kommer att byta så där, det kommer att hänga kvar. CD är ett så pass bra format. Men den kommer att sjunka i pris.

Ungdomarna är de som mest laddar över nätet, de har ändå inte råd.

Njaä. Man märker ju att försäljningssiffrorna sjunker idag för ungdomsmusik. Så att det är klart att dom laddar hem och har mp3-spelare och så, det är bättre ekonomi och så för dom.

Vi har intressanta siffror här, t.e.x. Kent har ökat sin försäljning. Sveriges inhemska skivförsäljning (svensk musik) har ökat i Sverige. Kents skiva är kopieringsskyddad, så det kanske har något samband också.

Ja, klart kopiering är en annan grej, då har någon ändå köpt skivan och kopierar upp den för att ge bort eller sälja på skolgården. Det är nog utbrett. Vår senaste skiva är också kopieringsskyddad skiva. Jag vet inte hur jag ställer mig till det. Vi är tillbaka till kassettbandsdebatten. Fantastiskt, men det kommer förstöra branschen.

Du säger att du inte tycker om kopieringskydd.

Jag vet inte vad jag tycker. Rent principiellt tycker jag att musiken ska bli så pass billig och lättillgänglig, så pass stora kvantiteter säljs så det inte lönar sig att fuska. Idag lönar det sig.

Men man missar ju värdet när du har en hembränd skiva. Om man är ett riktigt fan så tror jag det är coolare med den riktiga plattan. Jag har laddat hem musik från nätet, i studiesyfte på jobbet och lyssna på en halv gång för att jag behöver ha referens material, som ett jättestort bibliotek. Jag skulle aldrig ha råd att köpa de här plattorna. Annars skulle jag gå till en kompis och banda, jag skulle inte gå och köpa varenda platta jag behöver. Och då jobbar jag ändå med musik, men det blir för kostsamt. För bara en låt. Och så visar det sig vara nåt man inte vill ha. Ja, det har hänt flera gånger. Trippel LP med världens nationallåtar, gräslig skiva, svindyr.

Kopieringsskydd…

Nej jag tror inte det. Över huvud taget tror jag det är ett handelshinder, bygga murar mellan artisten och konsumenten. Det är symboliskt, felaktigt. Nu gjorde vi det på den sista. Vi bestämde att inte göra på den innan, men på denna för att testa. Vi blir ändå inte så kopierade och mp3:are.

Tog ni själva det beslutet?

Nej, det gjorde skivbolaget, men vi hade kunnat säga nej. Men i det läget så tycker vi ändå att det var ett sätt att experimentera och försöka (försöksverksamhet). När du hör en låt på radio, så betalar du ingenting, men artister får ändå ersättning. Hur går det ihop? Jo, licenspengar, STIM. Problemet att du hör den bara en gång. Vill du höra en gång till går inte det. Kan man uppnå samma grej med en radio som man kan lyssna på, och hör man en cool låt så kan man

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trycka på en knapp, betala 3,50 eller 1,50 eller vad som helst, så kan man ladda hem den. Alternativt att det kostar varje gång man lyssnar. Och så valet att man kan ladda hem plattan av samma artist om man vill.

Det finns liknande alternativ just nu, men ingen har fått genomslag.

Det är kul att se den förlängningen, att ha en apparat för detta. Typ mobiltelefon med hörlurar. Kombinerade radio/mp3, allt i ett, alltid uppkopplad trådlöst. När man kommer till den punkten kommer man oundvikligen att priset sjunker för konsumenten. Då kommer kopieringsskydd på CD skivor kännas otroligt omoderna.

Det känns lite som att det är skivbolagens sätt att få kontroll, monopol. Skivbolagen gjorde det stora misstaget att fördöma när mp3:orna började komma, och Napster. Och inledde omfattande juridiska processer. Vad dom inte har insett är att Internet har alltid varit något forum av ”cyberanarki”, ett fritt medium som inte är toppstyrt. Det styrs av dom som är ute på nätet. Det är en stor mötesplats där alla får vara. Jättejobbig situation. Man kan dra paralleller med kassettbandet, men det är tokmycket större. Så det är en förenkling att säga var inte så rädd för mp3. För bevisligen har det hänt en massa grejer med intäkterna. Men de har aldrig kunnat utnyttja och hänga på det och gjort det till en service. Det hade varit riskfyllt, och konkurrera med sig själva initialt. Sälja billigt nätet, och dyrare skivor, så det inte är värt att kopiera. Hela disitributionsapparaten, lagerhållning, många äger pressningsfabriken, distributionskanalerna, skivbutiker, alla måste göra vinst och få intäkter, och de är beroende av dessa. Därför konfronterade man Napster som kom inom loppet av några månader. Det tar år att göra om. Det blev en panikhandling, men troligen den enda möjligen.

Den huvudsakliga intäktskällan är från skivor, eller?

Nä, det är det nog inte. Det är fortfarande konserter. Kanske inte senaste året, då vi släppt 2 plattor, sålt 120 000 plattor, då har det kommit in pengar. Då ska man komma ihåg att det här är musik som tog 2 år (ena plattan), den andra 18 år (”best of”-platta). De intäkterna måste slås ut över en period. Då är lajvverksamheten den som betalar hyran.

Ni har också företagsverksamhet?

Ja det var mycket sånt på 80-talet, då var det högkonjunktur osv. Och sen försvann det ganska mycket, nu är det väl bara en marginell del av vår verksamhet. Vi har också valt en annan inriktning, vi har valt att ha konserter. På 80-talet var vi en utpräglad grupp mot företag, satsade hälften av våra jobb på företag.

Vem äger rättigheterna för musiken?

Musiken äger den som skrivit stycket och texten. En del av vårt äldre material är förlagt på olika förlag. Idag är inget av vårt material förlagt. Inspelningarna har vi själva betalt för, så vi äger i princip alla inspelningar. Det är väldigt ovanligt.

Vi har en lite luddig bild vad förlagen gör. De äger rättigheter och tar kontakt med skivbolaget? Ett slags kontaktperson?

Nä, förlag har många olika funktioner. Från början skulle de ge ut noter, men nu gör nästan ingen det. För en ny artist tar förlagen in låtar och ger förskott, och hjälper att ragga ett skivkontrakt. Lyckas dom kommer musiken att sälja och ge intäkter, ofta 1/3 av allt. I vårt fall (etablerad) har vi inget behov av förlag. Däremot i Japan har vi det, där ett förlag vill sälja in oss.

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Så det är kontakterna man är ute efter i ett förlag?

Ja, kontakterna. Dessutom när man är etablerad kan man ha nytta ändå. Förlaget kan gå in med pengar för extra marknadsföring om de tror på artisten. Så förlaget kan bistå om artisten vill gå på turné, turnéstöd. Mer reklam. Men i det stora hela är förlagsbranschen en maktfaktor i musikvärlden.

I den nya digitala världen, tror du de får eller förlorar makt?

STIM kan nog svara på detta, vad som kan hända med upphovsrätten. Vad kan de klara av att bevaka i alla dessa nya medier? Eller om förlagsbranschen får rollen som poliser, har sökmotorer som söker av, skickar fakturor osv.

Vi tittar just på detta…

Problemet är att nätet inte är nationellt bundet. Vem ska betala för en nätsändning? Hur många har lyssnat? De måste hitta en fungerande lösning, inte rättvis. Den måste vara lättbegriplig för konsument och leverantörer. Då kan det nog fungera. Man håller på med lösningar som fungerar idag, men när man är klar har hela situationen förändrats igen på nätet. Man måste tänka ett steg före, nästan omöjligt!

Vi har pratat med mindre artister. De offrar gärna lite av sina rättigheter för distribution och marknadsföring. Är det värt det? Får man tillbaka tillräckligt?

För mig har det aldrig varit värt det, det har inte betalat tillbaka sig. De har skott sig på oss. Vi har slagit igenom själva, vi har jobbat själva till den position vi har idag. Vad gäller skivbolagen är det svårt. Det säger sig självt att det finns en balans. Alla vill ha 100% av intäkterna. Men vad gör då skivbolaget? De sköter det administrativa, JAG vill inte göra det. Jag vill skriva. Det ska räcka till löner, och andra artister som går dåligt. Vi, Roxette och The Ark som det gick bra för förra året betalar för några misslyckade satsningar. Det måste finnas ett risktagande, annars skulle det inte signas nya artister. Det tycker jag är fair. Sen att hur fördelningen ser ut i detalj vet jag inte. Vi har haft det bra.

P2P och Napster, som marknadsföring för mindre band, tror du det är bra?

Vet inte. MP3.com då? Det var någon svensk...

Ja, vi har pratat med TC. Fem miljoner nerladdningar, massor av pengar. [Berättar allt om hur MP3.com fungerar.]

Det låter ashäftigt. För att få ett skivkontrakt idag räcker inte en bra låt på ett demo. Man måste ha ett förlag i ryggen, en massa kontakter osv. Det är mycket nätverkande. På de här sajterna har ingen sett dig, ingen vet vem du är. Det är svårt att bli artist idag. Men där är det musiken som gäller, det är häftigt. Även om det är budgetinspelningar. Jag känner själv inte att jag har tid att sålla och kolla.

Nä, det är svårt att komma fram ur bruset. Otroligt många band.

Ja, man måste ha någon som sållar.

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13.15 Appendix XV - Interview with Atomic Eyes 23-01-2003

What is your name?

Johnny Key

What kind of record deal do you have now (unsigned, signed to major, signed to independent etc)?

Unsigned

How do you market yourself today (Internet, TV etc)?

Through the internet, newspaper articles when possible.

Does anyone do the marketing for you (publisher, record company)?

We don't have a solid marketing plan right now.

Does your current marketing model work well?

No.

Can it be improved?

Yes.

How do you distribute your music today?

Through the internet and at shows.

Does anyone do the distribution for you (publisher, record company)?

We use CDstreet and sell through our website.

Does your current distribution model work well?

Not very well, but we don't have a full length CD to sell, just a 4 song demo.

Can it be improved?

Yes.

What sources of income do you have (downloads, selling CD, concerts etc)?

Basically concerts and some merchandising(t-shirts/CDs).

Do you think you have reasonable earnings for the work you put on music?

Right now our earnings are next to nothing and we are putting a ton of time in.

Since there are a few people that needs a bit of the cake on the way to get your music out, do you think you can increase your income by disintermediating any part?

Most definitely. I would prefer to put out our own CD without a record label, which is what we are working toward, if we could somehow get a good distribution channel and find a way to get the music heard, but getting on the radio is very difficult without a label.

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Who owns your music? Who owns the recordings?

Currently the band owns everything.

If there is anything you don't own yourself, would you like to get the rights?

See above.

What do you think of digital music distribution for marketing (for example P2P networks)?

I am not very familiar with this, but it sounds interesting.

What do you think of digital music distribution for distribution (for example P2P networks)?

Same as above.

Do you think you have in/directly earned or lost income/value because of copying of your music without paying you?

I know our music has been passed around some on the internet, which we aren't seeing any money for, but when you are starting out, sometimes it can be a good thing if people are trading your music, even if they aren't paying for it.

Do you think copy protection of CDs and files has any impact?

Are you referring to technology to prevent the copying of CDs? If so, I think it would have a huge impact and am all for it. It wouldn't prevent people who wanted to give some of their music away from being heard, but for artists who are trying to make a living with music, it would be a huge help!

In legal services such as Pressplay, MusicNet and Rhapsody, do you think it helps with added value such as music videos and reviews etc? What kind of added value do you think might be attractive your fans?

I am not familiar with these services??

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13.16 Appendix XVI – Evaluation of Musicnet

General information Name of service:

RealOne Pass Gold

Type of service (client, web interface etc):

Custom FTP client52 integrated into a Web-oriented version of the latest-generation Real music player.

Owner:

Real.com, musicnet.com

Type of network (if applicable, for example Gnutella, FastTrack): FTP client52

How old is the service?

Fairly new, unknown

Copyright Prices / how much do you get to keep when cancelling the subscription etc:

I have been billed $19.95 a month. I was told that I would be charged $9.95/mo for the first three months when I signed up. The terms aren’t clear. It appears that I get to keep all downloads, but they stop working 30 days after I cancel, I learned this from a CNET.com article about the service based on a press release. It is signifigant to note that NONE of the details about the nature of the content is mentioned in the anywhere when signing-up! I went though the process twice to make sure I didn’t miss anything.

By what means does the site get income (ads, subscription fees, selling CDs etc)?:

I assume service receives income from subscriptions fees, no banner ads. They have links to buy CDs from a third party.

How do the artists featured on the site get paid (royalty, selling CDs etc)?

Downloads from this site appear to be equivalent music purchase. Therefore I assume that the artists receive royalties from some aggregate download statistics. This, like many aspects of this service, is unclear or it is unclear how to obtain this information.

Quality Type of music offered and amount of music (how many bands, number of songs, independent, major labels, how many genres, what kind of genres etc):

The selection is mixed. I tried to search for music from the most popular and influential independent (or formerly independent, yet still possessing indie credibility) artists of the last five years: stereolab, yo la tengo, magnetic fields, sunny day real estate, belle and sebastian, 52 Author’s note: It is actually not a FTP-client, but a client integrated into the realOne player.

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clinic, even bjork, radiohead, nick cave, smashing pumpkins, and the strokes (who have been topping the sales charts in the UK and US most of 2002). This site had none of these extremely profitable artists. For Internet downloading, I am interested in artists that are hard to find. I want to listen to their music before spend time searching for a store or pop $25+ for an import. I tried a few other artists, but gave up since they don’t even distribute the established artists listed above. For the artists they do have, it appears that they carry more of a back-catalog. For example, I thought I might try to download the new Tom Waits album “Alice,” that had all of his releases from the 70s - early 80s only. I tried Thelonious Monk, to test their Jazz selection. They had much of his early catalog on Blue Note, nothing from his seminal years on Prestige or Riveside records, or his veteran years 1967- on Columbia. Some genuinely good music was available, but a pretty limited selection, skipping his most important recordings. They had My Bloody Valentine’s two essential albums. And they had a surprisingly complete selection of Cocteau Twins, including rare, expensive singles and eps. They had an awful selection of Electronic/Dance music -- one of the most-downloaded genres on the net. I won’t even go into detail. The bottom-line is that the software doesn’t make it easy to simply search through bands of related genre, which is bad when there’s a limited selection. The software should make better suggestions based on bands I’ve searched. It should have Playlists programmed by some experts to give you a feel for what is offered. If these features ARE INDEED offered, I couldn’t find them.

Their radio station selection is no better/worse than what is available for free through any search engine.

I didn’t sample the Videos that I also have access to.

Speed (fast, slow service):

Service is fast, downloads are smooth.

Number of users / visitors:

N/A

Usability (client/web interfaces, accessibility from different computers etc):

Client is very nicely integrated and easy to use. My complaint is that it’s functionality is limited (see above).

Sound quality (bitrate, file format, streaming, download etc):

Sound quality is fair. The tracks I tested don’t sound as rich as the actual album tracks. Bitrate is unknown since a proprietary file format is used (.mnd), which I assume is a variant of RealAudio. It sounds much better than RealAudio. The music can only be played on the provided player, this player does not provide bitrate stats. Quite annoying. I am happy with my chosen music player, winamp. I don’t want another player on my computer that I have to use for special cases. Frustrating.

Categories (how is the music categorised):

Music is categorized by genre. But I was only able to locate the genre listing once. The search utililty needs some work.

Search engine (how does the search engine work, is it good etc):

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It permits search of their limited library only. It doesn’t even work that well. I searched one artist and a link to music by Yoko Ono appeared. I found some of her music. I clicked “where do we go from here” and it downloaded “when your eyes say it” by Britney Spears. I was charged for that mistake! Furthermore, when you search for Yoko Ono directly only one remix and a Barenaked Ladies sound with her name in the title come up. To summarize their search engine is full of bugs! You can’t even find music if they have it.

Extra value (bonuses, what else do you get besides just digital music):

The extra bonuses were games and demos. I could have found similar stuff for free. Furthermore, they charged me $19.95 for my pass when it said explicitly that the gold pass is $9.95 as a special offer. The gold pass gave me additional downloads, but I can’t even find enough music on this service to use-up this download credit! Furthermore, that charged a $6 “shipping” fee (what did they ship?). This fee was not stated explicitly when I signed up. I’ve tried to call to complain about the $19.95, but I can’t get through to an operator on any of the phone numbers provided, and they haven’t responded to my email.

Extra value?

This service is of no value. I feel robbed.

Other comments:

I would never have spent $26 on this “service” if I weren’t taking part in this survey. I got a few nice downloads, but it was not worth the cost, since they stop working when I cancel my subscription. For $26, I could have 150 channels of basic satellite TV, I could have supported a band directly by seeing them live, or I could have bought two CDs that I could keep forever. At these prices, this service fits into lives of people who have lots of money to spend on entertainment and like to get most of their entertainment through their computer. This is not me, nor did it describe anyone I know.

They need better selection and a better search engine desperately if this service expects to survive. Furthermore, they MUST offer a free trial period, especially because they don’t make it clear how the service works ahead of time (if they do they need to make this information easier to find). Real.com needs to license-out their format like Microsoft did with Secure .wma. Although the player is nice-looking and works satisfactorily, I would prefer if I could choose my player. Copyright-secured .wma files can play on most major players like Winamp, Siren, and of course Windows Media player.

Evaluation On a scale from 1-5, where 1 is expensive and 5 is cheap, how much is it worth paying for this service (take into account how much a CD costs, and that you can get mp3s for free illegally)?

1; Note, my ISP blocks illegal music downloads to reduce net traffic. Still I think this service is overpriced.

On a scale from 1-5, where 1 is dying and 5 is growing fast, how much is this site growing?

2

On a scale from 1-5, where 1 is narrow and 5 is broad, how many different genres is featured?

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2

On a scale from 1-5, where 1 is only independent and 5 is only major label, what kind of bands and labels are featured?

5

On a scale from 1-5, where 1 is small and 5 is very large, what is the sheer amount of music featured?

2

On a scale from 1-5, where 1 is very bad and 5 is very good, how good is the usability?

3

On a scale from 1-5, where 1 is very bad and 5 is very good, how good is the search engine?

2, full of bugs

On a scale from 1-5, where 1 is very bad and 5 is very good, how good is the categorising?

2, e.g. they appear desperate to fill their “electronica/dance” category with names. A lot of tracks in that category should be elsewhere.

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13.17 Appendix XVII – Evaluation of Pressplay

General information Name of service:

Pressplay.com

Type of service (client, web interface etc):

Download client integrated into Windows Media Player

Owner:

www.pressplay.com

Type of network (if applicable, for example Gnutella, FastTrack):

FTP client?53

How old is the service?

Fairly new, unknown

Copyright Prices / how much do you get to keep when cancelling the subscription etc:

Downloads are only functional as long as I am active member. Limited number of streams and “burns” to CD are allowed. Service is $9.95/mo for first three months, $14.95/mo thereafter.

By what means does the site get income (ads, subscription fees, selling CDs etc)?:

I assume service receives income from subscriptions fees, no banner ads.

How does the artists featured on the site get paid (royalty, selling CDs etc)?

Downloads from this site appear to be equivalent music purchase. Therefore I assume that the artists receive royalties from some aggregate download statistics. This, like many aspects of this service, is unclear or it is unclear how to obtain this information.

Quality Type of music offered and amount of music (how many bands, number of songs, independent, major labels, how many genres, what kind of genres etc):

Like other services of this type (I have evaluated RealOne from musicnet.com and have tried Rhapsody from listen.com) the selection is mixed. They have a few good things and a lot that doesn’t appeal to me. This service has a lot of music that the other services don’t have. The only way a service of this nature can work, is all labels (major and independent) to operate

53 Author’s note: It is actually not a FTP client but a client integrated with windows media player.

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through one service. Who is going to pay $60+ per month by subscribing to multiple services to have a decent selection?

Speed (fast, slow service):

Service is fast, downloads are smooth when they work. 1 out of 3 downloads crashed with an error. They worked the second time.

Number of users / visitors:

N/A

Usability (client/web interfaces, accessibility from different computers etc):

Client interface is excellent, easy to use, well designed.

Sound quality (bitrate, file format, streaming, download etc):

Sound quality is fair. The bitrate is 128k/s. This sound is okay for electronic music but some subtle aspects of tone are lost in guitar-driven music. They should use higher bitrate.

Categories (how is the music categorised):

Music is categorized into 14 genres. More importantly, a frame on the right-hand side of the screen recommends music that other users who have searched this artist liked. This is helpful for ideas when the pickings are so slim.

Search engine (how does the search engine work, is it good etc):

It permits search of their limited library only. It works quite well. Uses an interface based on the successful Napster interface, very easy to use.

Extra value (bonuses, what else do you get besides just digital music):

Nothing I could see.

Other comments:

Why would anyone subscribe to several services at $15/mo and still have ridiculous limitations like “you may only burn 2 tracks from one artist per month” and “you do cannot use the music if you cancel your subscription.” What are you paying so much money for if you can’t keep anything? It’s a waste of money. In the end, it makes better sense to buy albums than subscribe to a collection of services that let you listen to music a few times on a limited number of computers! Perhaps this is what the record labels want in the end. This kind of service encourages people to collect “hit songs” instead of supporting individual artists. It feeds the big-label hit-making mentality. Why does Brintey Spears get the privlage of being marketed on all of the kinds of services, but Massive Attack appears just on pressplay? The programming decisions are too arbitrary. What makes “illegal” file-sharing networks so successful is that no one chooses the music for you. If this is the future of music marketing, how will independent artists get into these networks? As an independent musician, I believe that sales of my music have been helped by illegal file sharing. Small labels don’t have much marketing muscle. The internet allows for a whole new approach to marketing. There is great potential out there, but these types of services are not what is needed.

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Evaluation On a scale from 1-5, where 1 is expensive and 5 is cheap, how much is it worth paying for this service (take into account how much a CD costs, and that you can get mp3s for free illegally)?

1; Note, my ISP blocks illegal music downloads to reduce net traffic. Still I think this service is overpriced.

On a scale from 1-5, where 1 is dying and 5 is growing fast, how much is this site growing?

2

On a scale from 1-5, where 1 is narrow and 5 is broad, how many different genres is featured?

3

On a scale from 1-5, where 1 is only independent and 5 is only major label, what kind of bands and labels are featured?

5

On a scale from 1-5, where 1 is small and 5 is very large, what is the sheer amount of music featured?

3

On a scale from 1-5, where 1 is very bad and 5 is very good, how good is the usability?

5

On a scale from 1-5, where 1 is very bad and 5 is very good, how good is the search engine?

5

On a scale from 1-5, where 1 is very bad and 5 is very good, how good is the categorising?

3

usability factors in digital distribution services for music

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