Following on from the Qtrax debacle, we now have more hilarity from the MIDEM conference. This time it comes from Paul McGuinness, who has managed U2 very successfully for 30 years. His speech titled “The Online Bonanza: Who is making all the money and why aren’t they sharing it?” has been covered elsewhere, but I thought it was worth dissecting somewhat.

In a scathing attack on technology companies and ISPs at the MIDEM conference in Cannes, he begins with an insight into the root causes of the record industry’s woes:

It’s interesting to look at the character of the individuals who built the industries that resulted from the arrival of the microprocessor. Most of them came out of the so-called counterculture on the west coast of America. Their values were hippy values…. And embedded deep down in the brilliance of those entrepreneurial, hippy values seems to be a disregard for the true value of music.

Um. OK. He carries on.

So what has gone wrong with the recorded music business? More people are listening to music than ever before through many more media than ever before. Part of the problem is that the record companies, through lack of foresight and poor planning, allowed an entire collection of digital industries to arise that enabled the consumer to steal with impunity the very recorded music that had previously been paid for.

The industry missed the boat on the possibilities of digital reproduction and distribution of their content, though it’s not immediately clear which industries he means. Napster?
However he continues

Today, there’s a bigger issue and it’s about the whole relationship between the music and the technology business. Network operators, in particular, have for too long had a free ride on music – on our clients’ content. It’s time for a new approach - time for ISPs to start taking responsibility for the content they’ve profited from for years.

…I’ve met a lot of today’s heroes of Silicon Valley. Most of them don’t really think of themselves as makers of burglary kits. They say “You can use this stuff to email your friends and store and share your photos”. But we all know that there’s more to it than that, don’t we? Kids don’t pay $25 a month for broadband just to share their photos, do their homework and email their pals.

“…ISPs, Telcos and tech companies have enjoyed a bonanza in the last few years off the back of recorded music content. It is time for them to share that with artists and content owners.”

The stupidity of these statements is simply mind-boggling. The first of his fundamental misunderstandings is that ISPs’ main reason for success is that people have signed up for dial-up and broadband packages mainly to download music. Cause like, there’s nothing else to do with an Internet connection right? There’s no online gaming industry, no home shopping, no Internet banking, no MyFaceFriendsterbooks, no email, no fascinating blogs to read, no instant messaging…

Most of the rest of his speech revolves around this frankly daft premise.
He continues with more lack of understanding,

The legal precedent that device-makers and pipe and network owners should not be held accountable for any criminal activity enabled by their devices and services has been enormously damaging to content owners and developing artists. If you were publishing a magazine that was advertising stolen cars, processing payments for them and arranging delivery of them you’d expect to get a visit from the police wouldn’t you?

ISPs don’t publish the magazine – the better analogy is that they are the post office distributing it. But by the same logic, should the post office be held accountable for and have to pay a percentage of their revenues due to people posting copied CDs to their friends? Should the post office open all of your mail in transit and read it to ensure you aren’t doing anything illegal? This can go further for “criminal activity enabled by devices” – should Ford or BMW be held accountable for people using their cars as getaway vehicles in bank robberies? Should they pay a percentage of their profits to the banks to offset their losses as their devices were used in ‘criminal activity’?

He also clearly misses the analogy with the early sales of VHS and Betamax video recorders - once heralded as the death of the Film industry. Following his logic, makers of those machines should have paid up to compensate the Film industry for piracy. However they turned into huge multi-billion dollar revenue streams for the Film industry, in many cases making more money for films than the original cinematic release.

“Sadly, the recent innovative Radiohead release of a download priced on the honesty box principle seems to have backfired to some extent. It seems that the majority of downloads were through illegal P2P download services like BitTorrent and LimeWire even though the album was available for nothing through the official band site. Notwithstanding the promotional noise, even Radiohead’s honesty box principle showed that if not constrained, the customer will steal music.”

Guess he missed the Radiohead album going to number one then, despite it being given away for free, or it’s a rather strange definition of ‘backfired’ indeed.

Next he suggests ISPs should shut down P2P traffic.

“When the volume of illegal movie and music P2P activity was slowing down their network for legitimate users recently in California, Comcast were able to isolate and close down BitTorrent temporarily without difficulty.”

Though this might not work out that well for them.

Peer to Peer technologies are used for perfectly legal purposes in many ways. World of Warcraft, offering just one example, provides patches to the ongoing game content that can be over 200MB in size. With each of 10 million players requiring patching, should each player download 200MB direct from Blizzard’s servers, they’d have to serve over 1.8 petabytes of data.

They don’t do this. The game client contains a peer to peer client, which works in exactly the same way as P2P clients used to download music. The 200Mb file is initially seeded by Blizzard, then the games players essentially take over distribution. Will ISPs block activity like this? (Those 10 Million WoW players will be finding a new ISP pretty fast would be my guess). How will they determine which P2P traffic is legitimate and which isn’t?

Even with blanket blocking of P2P traffic, what happens when the writers of these applications adapt? When they start to encrypt all of the traffic on their networks? Use HTTP port 80 for their traffic instead of standard P2P ports? This is a battle which cannot be won technologically. The cat is as they say, out of the bag, and there are way more 18 year old smart coders kicking about trying to fight this than ‘the industry’ can ever possibly hire to combat them.

His speech has been driven by recent news of CD sales declining, though Vivendi’s Jean-Bernard Levy says industry troubles are exaggerated .

The thing all of these tales of “CD sales declining by X %” miss is this: When I was 17, there wasn’t too much for me to spend my disposable cash on really. There were only 4 channels of TV to watch. There was no ‘Internet’ as such. Music was really important.

Nowadays, your average teenager spends money on their mobile phone bill, they spend time on MySpace and Facebook, there’s a zillion TV channels to watch, home computer gaming is hugely successful and they can stream Radio 1 shows that they missed on demand. The decline in CD sales is possibly a lot more to do with the huge range of other places for people to spend their cash and the sheer diversity of other forms of entertainment available. Of course peer to peer file sharing is an effect, but how much more so than when people made tape to tape copies? Even if there was no such thing as ‘MP3’s, I think it’s quite likely people would still be spending less on music.

Speeches like McGuinness’ are hugely damaging; firstly for the misconceptions they promote, and secondly for the antipathy toward the record industry they generate.

There was however, one quote in his speech with some sense:

Nonetheless there is one effective thing the majors could do together. I quote from Josh Tyrangiel in Time Magazine: -“The smartest thing would be for the majors to collaborate on the creation of the ultimate digital-distribution hub, a place where every band can sell its wares at the price point of its choosing.” . Apple’s iTunes, despite its current dominance is vulnerable. Consumers dislike its incompatibility with other music services, and the labels are rebelling against its insistence on controlling prices. Universal, the largest label in the world, has declined to sign a long term deal with iTunes. “There’s a real urgency for the labels to get together and figure this out,” says Rick Rubin of Columbia Records.”

This is spot on. Now why aren’t the labels co-operating to build something like this?

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