BEAMING IN ADVERSITY’S FACE
Online Music Service Provider MP3.com has taken its share of lumps lately. First, a New York District Court judge ruled in the first phase of the RIAA's suit against the envelope-pushing dot-com that its My.MP3.com service had violated copyright with its streamable database (see story, 4/28). Since that decision, indie label TVT has joined the fray, filing a suit of its own (see story, 5/25). But company chieftain michael robertson',390,400);">michael robertson',390,400);">Michael Robertson has soldiered on, unshaken in his belief that selling music online requires radical new business models—ideally, his own. Robertson is one of the few figures from the Net world who've truly acquired a mystique in the music business. Of course, after wasting his breath on hitsdailydouble.com's accidental download Simon "MThead.com" Glickman, the word most on Robertson's mind could be "mistake."
How are ya?
Pretty good. You guys are creating a buzz already with your online presence. I check it out every day.
Tell me what's going on right now with you. I know that negotiations are ongoing.
All I can say is that we're still talking, and it seems like we're making progress.
Some observers of this process are saying that the labels want to deal with payment for the alleged infringements prior to a licensing agreement, and that you want to bundle the two.
I really can't comment on the specifics.
Why don't we go back to the origins of My.MP3.com?
We designed it to lengthen the life of a CD. That's what I find fascinating in all of this. You look at these digital technologies and virtually every single one of them, with the exception of My.MP3.com, is designed to replace the CD. Our system was the only one out there that extends the life of the CD. Why is that important? Because that's where they make the vast majority of the $40 billion in music that's sold. We feel in our hearts and minds that what we're doing is the right thing for consumers and the industry.
It seemed tailor-made for retail, but the retailers weren't your problem.
Well, the retailers told us straight out, "We really like the idea and we think we would sell more CDs, but we're fearful of retaliation from the majors." And that's why none of the major retailers has gotten on board.
And it was your feeling from the outset that My.MP3.com would be welcomed by the labels?
I think so. We designed it in such a way that we thought that it made sense in terms of extending the life of the CD. We had all the safeguards built in to prevent account sharing. It's stream-only, so we don't give people the opportunity to download the music and propagate it. Also, the things that the industry is worried about, my industry dealt with. There's never an opportunity to get the MP3 files and e-mail them to a hundred people.
We now get to the central bone of contention, which is the industry's claim that you didn't ask permission to create your database. I recall you saying a long time ago that you made several attempts, in earnest, to talk to Hilary and to others who represent the industry about this, and that they weren't responsive.
What happened is that we didn't talk to them before we rolled it out. Once we did, literally the day that we announced it, we contacted the RIAA and said, "Hey, we want you guys to come out. You have complete carte blanche access to the technology—we'll show you every piece, because we're excited about it and we think it's a great thing." And they did send out a technologist and a couple of attorneys, and they left saying, "Wow, we're really impressed. Obviously some real thought went into this. And, we're impressed with the engineering." But that didn't stop them from suing us.
So do you think that the problem was simply that they weren't asked prior to the rollout, or do you think it's something larger than that?
I don't really know. I think that one of the things that's been frustrating is that it has been painted in the press that MP3.com has a database of unauthorized songs that they're giving consumers access to. You know, which makes it sound like we're Napster [laughs]—when, in fact, we're the exact opposite of Napster, really. We're making sure that you have to authenticate that you have the CD by putting it in your CD-ROM drive before we let you listen to the music! It's something very new, and there are questions, even to this day, about whether you need a license to do this. We look at this as very much a fair-use issue. We're letting consumers listen to their music collections in a digital form.
Right. But, at least in the first round, that is not what the court found. They didn't look at it as a fair-use issue. They saw it as infringement.
That's true, and to that I would say, if you look at the bigger picture, it's challenging to find a new media device or an outlet that has come along that hasn't faced legal challenges. Not only that, but when you look at blank CDs, cassette decks, VCRs and cable TVs–they have almost all faced legal challenges, and it's not uncommon for them to lose in lower court. And we saw that with the VCR—it had to go all the way to the Supreme Court! We saw that with cable TV, when they wanted the right to rebroadcast network stations. So, it's not unusual to face legal challenges.
Just looking back on your initial contact and dealings, however limited, with the record business, do you regret anything? Do you feel that you were simply misunderstood? Could you have handled some things differently?
I don't have regret for anything we've done at MP3.com. I think what we've tried to do is deliver. We've tried to deliver and say, "Hey, here's a new model, and we're going to show people the way and we're going to make it happen." People have perceived that as arrogant. But you know, we do think we're changing the world—and it's tough to change the world without some people getting a little excited about it. I think that MP3.com is what it is because of what we do, and I think that actions, hopefully, speak louder than words at the end of the day.
At the same time, most of your difficulties have resulted from this disconnect with the record business. Is this just a failure of communication? Is it about intractable personalities?
I think a lot of the animosity materializes in the fact that MP3.com has been saying, "Hey guys, we gotta look at new models on the Internet. We have to." It's not about selling digital singles. It's not about security. It's not about digital rights management. And, to a lot of people, those are blocks in this thing's success.
Those are the sacred cows.
Yes, they are. What I find really ironic is some of the most vocal critics of MP3.com haven't been the record labels, they've been other online companies. I kind of assumed that the online music space would be behind MP3.com and say, "Yes, it's about new models and change." But it turns out that a lot of these online music companies have embraced security and digital rights management, selling digital singles and things like that. During some of the panels I've been in, MP3.com versus Liquid Audio has produced the biggest fireworks. But we really think security is the wrong approach. It's not about security, it's about generating dollars. There's been a perceived friction with the record labels. When the RIAA sued Napster, they named MP3.com in the press release as a wonderful, upstanding Internet citizen. So I think that there's been more attention to friction between the record labels and MP3.com than is warranted.
Well, what's wrong with selling digital singles? What's wrong with the security approach? This is an attempt to preserve copyright and to allow people to get the music they want in a way that won't allow promiscuous copying. What's wrong with that?
The goal should be, how do you make money with some piece of intellectual property, in this case digital music? Again, it's not about protecting copyright. It's not about protecting artists. It's about generating dollars. So, if that's the goal, then the real question is, does security help you or hurt you in that way? I think that there's no doubt that it hurts you, because there are simply no examples of consumers buying things for a dollar at a time on the Internet. Selling digital singles is not new: Liquid Audio has been talking about it for four years, and they have no traction. You don't have to believe me about this; just look at the data. Are consumers doing it? Does it make sense? Is it a realistic way to generate revenues for the industry? I think the answer to all of those questions is no. Above and beyond all of that, you're cannibalizing CD sales. At the end of the day, that's where the industry makes their $40 billion, in selling albums in cassette or CD form—and if you let me buy that one good song for $3 instead of the album for $16, the net loss to the industry is $13. I don't care what your margin is on that digital single, that's a net loss. I'm looking at it purely from an economic standpoint. There are other ways to look at security, and I could mention some ways that digital rights management won't be accepted by consumers. But just giving it a top-level economic analysis, it's not the right thing.
Companies vending digital singles may not be doing terribly well, but there seems to be a perception that this is the way to play, to be a part of the music industry. Did you see yourself as being outside of the music business?
Yes—no question about it. When you look at digital singles, it's really just an extension of this existing business model—selling digital singles, selling digital albums. The music industry takes how they do business now and wants to simply copy/paste that onto the Internet. But you have different laws of economics and physics at work on the Internet. Offline is about finite shelf space and finite radio stations and things like that, so certain business models work there. But on the Internet, there's unlimited disc space, unlimited shelf space—and that's why the traditional model doesn't work. It doesn't translate, and the companies going down that path are finding that out. I don't know if you listen to the EMusic Quarterly Call or to Liquid Audio, but the numbers are horrific—there's simply no traction there. A lot of online music companies like Launch and EMusic are switching to an advertising-based model, which is exactly what MP3.com has been touting. That is a model that makes sense on the Internet.
Either subscription or advertising.
Right. And we think it's a combination of both.
Retreating from the macro argument for a moment, I have to ask you about that San Diego Reader story.
We have this database. When you put in a CD and "Beam-It" [into your My.MP3.com account so its content can be streamed], we're reading the sound waves on the CD itself as the security key, if you will. The challenge of doing that is that it's very, very precise. It's so precise, in fact, that if you have a copy of "Jagged Little Pill" and I have another copy, they may look exactly the same—same UPC code, same graphic, same song—but it won't read as the same because they were pressed at different factories. That's how sensitive our system is—those subtle variations are enough to create a discrepancy. So, in the case of "Jagged Little Pill," we've got 15 master copies off the same CD, all pressed at different plants. We call it the Multiple Pressing Problem. We address it by having a copy pressed at each plant so we have the appropriate matches when our users "beam" them. So we go to the record store to get the CDs and say, "Hey, we've got to test these, and the ones that are unique we'll keep, and if they're not unique we'll bring them back." It's a non-story. They obviously didn't have the facts but still felt free to allege felonious behavior against my company from an anonymous, hearsay third party.
Have you been put off by some of the things being said about the company in the music trades?
Not at all. We're pretty press-resilient. You have to be—especially with you guys. I actually appreciate your writing style because it's irreverent. But there is a lot of criticism about MP3.com, and we accept that. Our response is to step up to the plate and demonstrate by what we're doing that our approach works. When somebody says the model doesn't make sense, we view it as a challenge and a motivator for us to show definitively that it does.
