"The War is Over"

Edgar Bronfman, CEO of Warner Music, said yesterday in his Aspen Summit keynote that the war between the content industry and consumers is over. And consumers won.

Given this, he said that it’s high time that they content and tech industries “stop pointing guns at each other.” This was much of the theme of digital entertainment policy discussions in Aspen this week.

In his blunt, frequently starkly honest speech, Bronfman said that Warner is highly opposed to the government intervening in efforts to create compulsory license mechanisms, DRM standards, and interoperability. However, just as quickly, Bronfman admitted that when government regulations favor his business, he’s all for them (and these could including P2P filtering legislations, levies on blank CDs., etc) He also said that he wouldn’t be pushing for this and, instead will be focusing on creating new business models that takes advantage of the Internet – including Warner’s eLabel that was announced in Aspen.

After listening to the post-Grokster decision panel and similar working dinner, you get the sense that the content industries not only are beginning to gain better clarity into the opportunities that digital distribution offer, but that they are also battle-fatigued from the P2P “war” that Bronfman referenced. It was said more than once by the content folks here that the Grokster decision gave them an opportunity to breath for the first time in five years – instead of reloading their weapons for the lobbying/legal/rhetorical warfare....

The Hill staffers here also seemed relieved and happily surprised that the Grokster decision isn’t likely to create a need for legislation anytime soon.

So, the big P2P war may indeed be over. (And, for proof, just look at the RIAA’s recent old-school complaint that CD burning piracy is more damaging than online piracy). The big war had easily identifiable targets with business models profiting on illegal distribution of content. The MGM v. Grokster process forced the creation of an axis and allies of supporters on both sides. Now many of those former antagonists are simply sanguine about the courts decision and choosing to put down the stones in favor finding mutually beneficial opportunities. 

Yet, we will now move from nation-state warfare to guerrilla warfare. The battle will be moved to fighting darknets, closed University networks, and the sporadic profiteers who will try to make a quick buck on platforms like BitTorrent. (The content folks in Aspen, btw, indicated that they won’t be going after the BitTorrent creators, themselves. Clearly the recent outreach from Bram Cohen and team to Hollywood is paying off – for now).

And while we may have entered détente, a cold war between the big distributors of content and those who create it is seemingly inevitable. This could play out in simple business posturing, deal making or policy pressure. Already, those in the ringtone market are seeing early signs of this as the publishers and music industry discover how much money can be made. Another stress point is Yahoo!’s price point for its music service. Bronfman says this “devalues music.” Slingbox's place-shifting capabilities was also raised as a friction point.

Not to mention the fact that new technological advances that will make Grokster look like the eight-track tape were barely discussed in Aspen.  What happens when we have the ability to store 40 MB of music on our phone and can swap files with anyone in the same room as you?

Still that’s a war for another day and another Aspen roundtable discussion.

What’s clear is that unless you reflexively distrust everything the RIAA and folks like Bronfman say, it’s time for the tech industry, distributors, music industry and film studios to step up and work to find solutions so consumers can get what they want, create what they want, and all creators large and small can protect their work in ways that they see fit. Sun’s DReaM project announced on Sunday is a great start. This needs to happen while the content industry is weary from Napster/Grokster fights and looking to sign peace treaties. 

If this happens Bronfman’s olive branch (or white flag) that was extended in Aspen can create new trust and revenue opportunities among industries. If a multifaceted effort is not made, the risk of all this happy talk withering away in the heat of new lawsuits and technological pressures is much more likely.

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ROUGH notes from the Bronfman Speech: 

The music industry has been most impacted by the shift to digital.

The eyes of other content industries, tech and policymakers are watching to see if we can survive. 

New tech promotes the growth of new revenues

Now what, after Grokster: 

1^st, the decision will not eradicate online piracy

While we still will need to live with piracy, the decision says that the Internet doesn’t live outside the law. 

ISP, universities, wireless providers now have a new responsibility to work with music industry to protect copyright.

2^nd, new tech should flourish 

They should be designed and supported in a way that protect copyright

Tech shapes music; music shapes tech adoption. Just look at the iPod 

P2P threw this symbiotic relationship off balance. Music and tech failed to adopt fast enough. Music industry was too reflexive. Tech community was happy to watch the sale of PCs as folks downloaded music. To the tech community, the music industry was dinosaurs. To the music industry, tech was arrogant.

To be fair, there was no way to flip a switch, to make all the content available. 

A vacuum was created because it was so difficult to develop licensing schemes fast enough to adapt to the new technologies.

Then, there was a call for compulsory licenses. This is a solution to a problem that doesn’t exist. 

The compulsory license takes away the right of copyright holders to have control of their IP. Government shouldn’t get involved.

Calling for govt. regulation is short-sighted. They shouldn’t get involved in standards setting and interoperability. 

We want the digital music experience to be seamless for consumers over multiple devices.

I like to salute Larry Lessig; while we disagree on a whole host of issues, but we agree that artists and copyright holder to have the right to benefit from their creation. 

3^rd. the Grokster case creates economic incentive to invest in digital music services.

We believe that new economic models that can take new advantage of wireless and Internet revenues. We’ve gone from 0 percent to 6 percent of revenues on digital music in 5 quarters, including ringtones, ringbacks, etc. 

At Warner we want to create a digital only label called eLabel. Artists can exist with only a single; or clusters of songs; artists retain ownership of their masters.

We don’t want to control artists’ voices, we want to amplify them. 

Music and tech need to work together; we benefit from each other and prosper together. We will both grow more profitable.

Q: Where are you on the rent versus own business models?
A: We are experimenting with all business models; we are happy with both rent versus own. Both have advantages for different types of consumers. We are indifferent. The war between the music industry and consumers was fought. We lost.

Q: Jim Berger, tech industry lawyer: The idea that the tech industry didn’t sit down and try to find solutions with the content industry is wrong. You say that you don’t want govt. regulations, but would you support levies on tech systems?
A: There was plenty of blame to go around; some tried to do the right thing, but not to any effect.

We like government levies when they benefit us. For example, we don’t want France to stop giving us a cut of the sale of blank CDs.

Q: Ed Hearst/Sybase: How is the recording industry going to work in China?

A: We need enforcement and engagement. In China, it’s going to take the US govt to say that IP is product and needs fair trade laws. We are the top music label in China, but are not profitable there. We think we can build a good model on wireless networks, because the operators have incentive to create a toll on content delivered.

Q: Randy Barrett, National Journal Are you going to put promotional muscle behind your eLabel artists?
A: No. If you force us to take a return on the artists; it ruins the purpose. They will receive support, but not big marketing dollars. It’s a different business model.

Q: Now that we have a Grokster decision, how will the content industry try to monetize P2P?
A: If the govt. mandated filtering tech, we would be delighted, but we don’t think this will happen. In terms of P2P, we are not happy with the pricing model that a number of companies like Yahoo have adopted. It devalues music.

But, we will be working with all systems that allow means for copyright holders to set their own

We are encouraged by Sun’s approach and look forward to working with Sun to determine if the Open Commons is a way to allow music copyright holders to set their own parameters for compensation.

Q: Ed Black: Question about Grokster/Sony implications.
A: What the Grokster case did not do, it did not readdress the Sony standards. There is no need to go back and address this again. If I was Verizon or AOL, I would have a safe harbor, but I don’t think that shouldn’t prevent them from stopping illegal activities on their networks. We are all content companies now; we are all going derive income from the delivery of content across multiple platforms and devices.