The 463: Inside Tech Policy

Why the "iTunes Tax" is Bad for you Pocketbook, the Environment and Independent Musicians

New York Governor David Paterson's proposed state budget "hits New Yorkers in their iPods - and nickels-and-dimes them in lots of other places, too" says the New York Daily News.

Trying to close a $15.4 billion budget gap, Paterson called for 88 new fees and a host of other taxes, including an "iPod tax" that taxes the sale of downloaded music and other "digitally delivered entertainment services."

While we sympathize with the tough road ahead that the governor faces in trying to balance a budget in the teeth of a generation's worst recession, there are so many things wrong with the download tax.

First, as Mike Masnick points out, there is no functional reason for this...

...other than the fact that the state desperately needs money, and so it's trying to add taxes to just about anything it can find. Of course, back in the old days, the point of a sales tax like that was to contribute to gov't-funded infrastructure (roads and such) that allowed folks to go and buy something. There's no such rationale for taxing internet downloads. It's a blatant money grab and Paterson seems to have no problem admitting that.

Internet issue advocacy group NetChoice weighs in on how, in an era where tax policy should be encouraging energy efficiency and carbon impact, this tax does the opposite:

...why in the world would NY impose a new tax on something we all want to encourage right now? Digital downloads of music, movies, and books have no carbon footprint and use none of the oil consumed with a round-trip to the store. Moreover, there’s no plastic and paper packaging to create and crate off to a landfill. We've blogged on the environmental benefits of downloading here.

NetChoice also raises an issue that most other coverage has ignored to date: Namely, "the budget proposes expanding and asserting the concept of "nexus" to cover out-of-state sellers that use an online network of affiliates."

This will:

"also extend the long hand of government to the long tail of online commerce. Who'll be hurt? Small, independent artists that have websites to sell their own creative works. If a NY-based author or musician adds a link to her webpage saying ‘buy my book/music now on Amazon.com’, she’d be creating a new tax collection burden for Amazon--on everything Amazon sells to anyone in NY State. Amazon’s not going to sit still for that, and they might just stop their affiliate program for NY-based suppliers, authors, and musicians. "

So, let's say that your emerging band isn't AC/DC and you can't get an exclusive deal with Wal-Mart to sell your music. You go directly to your fans on the Web and hope that they choose to pay for your music instead of pirating it. This tax would both create an additional cost that will never get into the hands of the struggling artist, and it might minimize the breadth of online channels that NY artists have to sell their work on the Internet.

Arts+Labs on Google Book Settlement

One of the more interesting coalitions to recently pop up on the tech policy scene is the cleverly named Arts+Labs. Launching a month ago, the group includes AT&T, Viacom, NBC Universal, Cisco, Microsoft and the Songwriters Guild of America as members. Support them or not, all involved are currently among the savvier players in DC. And, the folks running Arts+Labs aren't too shabby themselves.

Most of the focus around the launch of the coalition was centered on its stated intent to clean up "net pollution" -- a scorn that includes illegal file sharing.

No doubt that this priority will remain, but I am mostly interested in watching how their policy positions will evolve and what this will mean for who else comes on board. I do find the old yarn about the simplified Silicon Valley vs. Hollywood battle tired and usually false and will be curious what Arts+Labs can do to replace the "vs." with the "+" and demonstrate that most of us have moved on from the black and white days of the original Napster battle.

This is why I took interest in Arts+Labs statement on the Google book search settlement with publishers today. Normally, something like this would bore me to tears (and not just because I write these types of thing all of the time). But, it was interesting to see how Arts+Labs used the statement to represent itself in a way that softens how the content players usually speak in stark, tough lawyerly statements. An excerpt:

This settlement shows that creators' rights and consumer benefit can go hand-in-hand in the Internet age. It is a victory for consumers and creators alike...

...The framework established by this agreement, if approved by the Court, should open the door to additional innovation and may potentially provide a model for legal access to other types of artistic content. This type of collaborative problem-solving is part of Arts+Labs' vision and is far preferable to years of litigation that would delay a future for the Internet that is safer, faster, more reliable and more beneficial for every consumer.

Ironically (or not), Arts+Labs member Viacom, who is, of course, involved in a little suit regarding YouTube was a little more harsh in a separate statement:

"Copyright laws provide creators with the incentive to create the works consumers crave. It is unfortunate that the publishers had to spend years, and millions of dollars, for Google to honor that principle. We hope that Google avoids the wasted effort and comes more quickly to respect movies and television programming."

I'm all for the "collaborative problem-solving" that the Arts+Labs quote references. It will be interesting to watch how this manifests itself in the next year or so.

Stop Me, Oh, Stop Me, Stop Me if You Think That You've Heard This One Before.....

Nothing's changed...

I'm Morrissey sad. Muxtape looks like this today...

What's Muxtape? I wrote about the music service that mimics creating a mix tape back in April when it launched. At the time, I noted: "just as soon as I got excited about it, I thought that anything as fun/cool as this must be illegal."

Alas.

The folks at Muxtape are saying that they will be back and that no artists or labels have complained. But, for a music industry that is speaking out of one side of its mouth about how they "get it" now and have learned their lesson (over and over), it doesn't look great.*

Neither does the slow train wreck that is Pandora and the rest of the Web radio licensing mess that stopped making sense a long time ago. Yesterday, The Post wrote about how one of the most popular music discovery services (that happens to stream tracks) is on the road to ruin).

Mike Masnick writes about it with the type of cynicism that makes me question my tones of optimism when Muxtape first came out...

This is exactly what the RIAA wants, by the way. Even if services like Pandora introduce people to tons of music (personally, I've bought a ton of music I found on Pandora), much of that music is not from an RIAA-member label. The RIAA knew exactly what it was doing in pushing these higher rates: it was killing off alternative routes to promoting non-RIAA music. The RIAA labels have always thrived off a very limited distribution and promotion channel. After all, distribution and promotion are where record labels really make their money. Competing methods of distribution and promotion are threats to be killed off -- and the RIAA may have succeeded here (with Congress' and the courts' help, of course).

*If this is a publicity ploy by Muxtape after the initial shiny wore off on them, they are geniuses.

Update: Use your whack-a-mole analogy here: 8Tracks does the same thing as Muxtape as is living and breathing at the moment.

The I-5 Gap

The Bay Area and LA are a mere five hours away if you average 80 MPH on I-5, but I've long been struck by how the division between the Valley and Hollywood is even greater than the one between Techland and DC.

The New York Times takes (another) look at this dynamic in an anecdote-laden piece today.  My biggest surprise in reading it was that the issue of bad/confused feelings around different perspectives on piracy was never raised once.  That's progress alone.

Instead, the piece delves into the differing psychologies around dealmaking and compensation.  Excerpt:

Mark D. Kvamme, a venture capitalist at Sequoia Capital, financed the comedian Will Ferrell’s funnyordie.com last year, which has had only one runaway hit, “The Landlord” video.

When Mr. Kvamme approached Mr. Ferrell and his agents at Creative Artists Agency about creating the site, he said he was struck by what he perceived as the short-term view then taken by his new Hollywood partners.

“They talked about the transaction — ‘What am I getting paid today?’ ” he said of Mr. Ferrell and his agents. “The big thing with Funny or Die was, we said, ‘Let’s build a company. We are not just going to write you a check.’ ”

Those perceptions can largely be attributed to the nature of their conflicting interests. Adam McKay, who started the Web site with Mr. Ferrell, said they had to get used to the notion that they were owners, not just talent for hire....

My simple and fairly obvious suggestion for Hollywood-types who want to "get" the Internet.  Get in your car (or on a plane) and make the trip north.  And, stay awhile.  Warner, EMI,  Universal and the other biggies should take a page from Microsoft, MySpace, the New York Times, NASDAQ, etc. and open an office in San Francisco or Palo Alto (none have this today).  Don't just have meetings at conferences.  Have dinner parties with techies on the weekend.  The new perspectives may be just as circular and with as many jerks, but at least it will be new.

Muxtape and the Future of Music

Clicking the above will tell you more than you ever wanted to know about my tastes

In the movie Groundhog Day Bill Murray's character is faced with the same daily fate no matter what he does.  After a while, he figures that driving himself off a cliff with the Punxsutawney Phil in tow is the only way out of his nightmare.  It's not.  Murray then slowly makes strides forward to get out of the continues loop.

I'm a music person first and a policy person second.  But, I have barely been able to muster the energy to write about online music issues here because I don't like analyzing a truck as it heads off a cliff on a regular, repeated basis.  It's remarkable how little has really changed since I worked for a Internet music start-up and we caught wind of Napster's launch.  (For the historians, their public event was sponsoring a rave in Oakland.  For the curious, I was much younger then, but still too old for the crowd.)

But, recently, I wonder if the music industry has collectively come to the conclusion that the only way to get out of their digital nightmare is to embrace it.  Not, of course, in a way that would cede the value of their digital goods, but, in a way that enables them to create new revenue opportunities built on digital platforms that mitigate the losses felt by declining CD sales, piracy and crappy music.  This is easier said than done.  But, at least, it's beginning to seem that the labels aren't completely ceding all innovation to tech companies and bedroom coders.

Example #1:  Earlier this week, EMI hires Google's CIO as a president who will have a “leadership responsibility for all of the company’s digital strategy, innovation, business development, supply chain and global technology" activities.”  Certainly, EMI is on the ropes.  But, with this move, the label, at the very least, is signaling that it intends to go down fighting.  The smallest of the big labels could have a big impact in creating innovative strategies that get bubbled up into the Big Three (perhaps after an acquisition).  Or, optimistically, the strategies could save the firm.

Example #2:  Last week, Warner hired industry veteran/critic Jim Griffin to manage a significant tweak in the company's business model that would support Griffin's hobby-horse of getting consumers to pay a mandatory fee for an all-access pass to the oft-dreamed-about celestial jukebox.  From Portfolio:

Edgar Bronfman Jr.'s Warner Music Group has tapped industry veteran Jim Griffin to spearhead a controversial plan to bundle a monthly fee into consumers' internet-service bills for unlimited access to music.

The plan—the boldest move yet to keep the wounded entertainment industry giants afloat—is simple: Consumers will pay a monthly fee, bundled into an internet-service bill in exchange for unfettered access to a database of all known music.

We covered this when Griffin discussed the plan (but not Warner) at SXSW.  The concept had its critics then and does now.  Many simply don't like the idea of a "tax" that is applied on all for the benefit of some.  But, the bigger point, is that Warner is willing to put some dollars and credibility on the table to create a NEW way of distributing music to fans and compensating rights holders.  They've decided that running the truck off the cliff for the 197th time isn't going to cut it.  New ways of doing things create new ways of thinking.  Controversy creates discussion.  Eventually it may even create compromise.  But, this time, empowered consumers will have leverage when deals are made.

What does any of this have to do with my kick-ass mixtape above?  It's that there continues to be an unlimited number of ways for the Internet to enable a couple of guys in a dorm room to create a killer new music service and with new ways to code, cheaper ways to store content, and a generation who understands social networking, trying to stop them will be like whack-a-mole. 

In this case, the host of my mix is Muxtape. It's a site where you can upload 12 MP3s to create your own personal mix that you stream to friends when they click on your new Muxtape URL.

I have no idea who made it and launched it a couple weeks ago.  There is no identifiable contact information and no apparent means of making money off the service (yet).  But, it's pretty cool.  And, simple.  And, it made me care about music, what tracks where on my computer and what albums/tracks that I wanted to buy.   But, just as soon as I got excited about it, I thought that anything as fun/cool as this must be illegal.  CNET's Daniel Terdiman wondered the same thing:

As my colleagues Rafe Needleman and Josh Lowensohn have noted, Muxtape appears to be a legal time bomb, merely awaiting the wrath of the Recording Industry Association of America... Despite the obvious problem of letting users upload music of sometimes dubious legal origins to its servers, Muxtape won't automatically be receiving any cease-and-desist letters from the RIAA, said Eric Goldman, a professor at the University of Santa Clara Law School.

"They just don't sue every single home-brewed...Web site," said Goldman. "There are plenty of people who have launched endeavors that the RIAA hasn't sued, because they're so small."

Bill Murray will live to see a new day when the Muxtape's of the world aren't immediately squashed when they get big enough because the complex tendrils of the music world are too busy creating their own new distribution channels and they don't want to kill something that they may want to use soon enough.

Update (4/4):  VC Fred Wilson and fellow music nut has an interesting tangential take...

Here’s what we need. We need someone to create an easy to search streamable library of all the recorded music in the world. We need to be able to grab a track and embed it on our blog. We need to be able to see how many people played it. We need others to be able to crawl these user pages with the embedded music and create algorithms based on who posted it, how often it was played, and how often it was reblogged and linked to. The services that do all of that need to be able to play the music that flows out of these social algorithms in the same way. This all has to be licensed and legal and it has to result in money flowing to the artists. If you put the music on your blog, you should have two choices. Allow the ads to be served into your music or your page or both by the service you got the music from. Or deal with the monetization yourself and pay the royalties you owe. Most people will do the former but some will do that latter.

That Darn Internet Music "Tax"... Sorry, I Mean "Network Licensing Model"... at SXSW

REM at this year's SXSW festival (photo by kk+)

Brendan P. Lewis – Through the miracles of life, I was lucky enough to attend SxSW this year for 463. More thoughts on the week, including SXSW Interactive, to come.

However, an interesting discussion took place today at the Mobility, Ubiquity and Monetizing Music panel, centering on what the future holds for compensating artists as technology advances and provides avenues for people to get music for free (read: illegally.)

Providing a backdrop for the conversation was an article in Wired today that outlined a suggestion of panelist Jim Griffin to “collect a fee from internet service providers -- something like $5 per user per month -- and put it into a pool that would be used to compensate songwriters, performers, publishers and music labels.”

The Pho list, the Dave Farber IP list and a niche of the blogosphere went mental.

Griffin has been accused in said venues of suggesting a “tax” or “surcharge” on broadband to compensate those various parties, and he was quick to dispel that notion. He said he didn’t favor a tax or government involvement, but rather a network licensing model to combat a growing sentiment that paying for music had become voluntary, rendering the music industry’s economic model one that “operates on a tip-jar.” He also went on to say that the Internet, specifically bandwidth, is not the only cause of the illegal distribution of music. Another culprit, if you will, is storage. Said Griffin, “You can carry a 500GB hard drive and carry more music than an entire record store that just went out of business.”

That sentiment was quickly echoed by Sandy Pearlman of McGill University who outlined his vision of the “Paradise of Infinite Storage,” which he feels will enable anyone to be able to store every piece of recorded music – ever. While that might seem a bit far-fetched to some, there’s no questioning that storage capacity is increasing and prices dropping to the point where that scenario is more and more plausible. The real blame for a “loss of control” of music, according to Pearlman, is the record industry executives themselves. “The people who control the assets have failed to be good stewards of those assets,” said Pearlman. “Artists should have filed class actions lawsuits against their record labels for failing to be good stewards. (Because of their failure to act in good faith) control of music has slipped away.”

Lost in the blame-game is the artists themselves – who are creating music and not getting properly compensated for their wares. The answer, according to lawyer Dina LaPolt is for record labels to build brands around bands and seeking new venues to merchandise.

While that may work for the Hannah Montana’s and other “musicians” of the world – I find that last point pretty ironic as hundreds of young, start up bands have descended upon Austin to showcase their music. One would hope that the majority of them are in it for the craft, not to build a brand. And while solutions to compensate them range from suing college students, to technological filters, to a service-based subscription model – it seems pretty clear that while record industry themselves are twiddling their thumbs trying to come up with a model to “monetize” new forms of music distribution, the sentiment of “paying for music is voluntary” is taking greater root among a younger generation that will think it the norm.

UK Government to Push ISP Filtering Plan

This will make some noise... (from the Times)...

People who illegally download films and music will be cut off from the internet under new legislative proposals to be unveiled next week.

Internet service providers (ISPs) will be legally required to take action against users who access pirated material, The Times has learnt....

...Ministers will make an explicit commitment to legislate with the launch next week of a Green Paper on the creative industries. A draft copy, obtained by The Times, states: “We will move to legislate to require internet service providers to take action on illegal file-sharing.” A consultation paper setting out the options is promised within months.

It will be interesting to see how long it takes for those who want ISPs to filter "indecent" material to get in on the act as this process plays out.

Game On

Ever since Michael Gallagher left the Commerce Department, he's been shaking up the Entertainment Software Association -- or, more plainly, the video game lobby. More from today's Times:

Michael D. Gallagher, chief executive of the Entertainment Software Association, the industry’s lobbying arm in Washington, said last week that the group’s board approved the PAC’s creation last fall and that the committee would be up and running by the end of March. The association represents major game publishers including the Walt Disney Company, Electronic Arts, Microsoft, Nintendo and Sony.

“We will be writing checks to campaigns by the end of this quarter,” Mr. Gallagher said. “This is an important step in the political maturation process of the industry that we are ready to take now. This is about identifying and supporting champions for the game industry on Capitol Hill so that they support us.”

if you care about video game policy, be sure to read The Political Game weekly column at Joystiq. The author had high praise for Gallagher after he had been in the gig for a couple months...

...we should create some kind of JFK award for the guy just for having the guts to stand up and proclaim, "ich bin ein gamer." In interviews, the new ESA boss immediately outed himself as the setup man for the office multiplayer Doom network when he worked as a congressional staffer. Of course, I had a great deal of respect for Gallagher's ESA predecessor, but Doug Lowenstein wouldn't know a space marine from the man in the moon. He was no gamer. To his credit, he didn't pretend to be. But it feels better to have someone who is in gut-level touch with the medium at the industry's helm.

(**Tecmo Bowl: The source of many poor showings on midterms in college)

They Fax Paper, Don't They?

In writing a white paper for a client, I came across a couple paragraphs that perfectly explain why no one should have ever expected the music industry (writ large) to turn on a dime and immediately deal effectively with the sudden shift of digital distribution....

...it would be nice if the music publishing industry would invest in some database software, web interfaces, email and Adobe Acrobat. Most deals are done with fax machines and, to tell you the truth, it's like working with stone axes and bear skins. I just obtained the rights to a very popular song for a client from the largest publisher in the world. The deal was done with paper faxes and the form was annotated in magic marker so you could read it after it had be sent back and forth six times. This would actually be funny if it weren't true.

It would also be nice if the metadata associated with files on the major download sites had rights-holder information, as opposed to useless phrases like, "Copyright 1997 Warner Bros. Music." Go ahead, call the Warner Bros. switchboard and ask for the person in charge of public performance rights for that particular song. If you're lucky, you will get someone on the phone who will tell you that you have to call the publisher to make a public performance deal, who is ... umm ... errr ... who? But I'm giving credit where it's not due. There's no way that you get that far with a call to the main switchboard of any major recorded music company.

The author of the above August piece is Shelly Palmer. He is the President of the National Academy of Television Arts & Sciences. He's not exactly a babe in the woods trying to blindly navigate entertainment industries. (The subject of his post was a mini-tutorial on the rights needed for music in videos.)

The truth is that as much as we don't like it or think it's an antiquated notion, complete and total generational shifts may still take a generation. And, a generation is commonly considered lasting 30 years.

After all, if you time stamp today's environment where self-defeating rules are enacted that could limit the promotion of music online; there are fights over whether an artist can send out a disc for free with a newspaper; music creates impediments for TV shows to rebroadcast online; and, industry marketers craving the attention from the same people who industry lawyers want to sue is common, it seems to me that one-third in to a complete overhaul is completely reasonable.

Once we get rid of those fax machines and actually have a database of every track made with associated rights holders attached in the meta-data, we'll be halfway there. Only five years to go...

3Qs: Will Rodger, CCIA -- Starting a Fair Fight

Will Rodger is tech policy old school. I remember way back in '97 or so when I would fly out to DC and sit down with Will, the tech policy journalist, to spin yarns about TechNet -- then, the new kid on the block. Will was one of the few DC reporters at the time who actually understood technology and could work his way around a Netscape browser with ease.

After covering many industry fights at a reporter, Will has been directly involved in his fair share of skirmishes since joining the The Computer & Communications Industry Association (CCIA). And, as director of public policy for the group, he has an interesting new battle on his hands that goes directly at some big players.

This week, the CCIA launched its Defend Fair Use initiative with a shot across the bow. The organization that represents Google, Sun Microsystems, Microsoft, Oracle, Yahoo! and others announced:

that it has filed a Federal Trade Commission complaint on behalf of consumers against Major League Baseball, the National Football League, NBC/Universal and several other corporations. CCIA alleges that the named corporations have misled consumers for years, often misrepresenting their rights through deceptive and threatening statements.

Y'know, statements like this:

Here's how the New York Times covered the CCIA's move.

We thought it as good of time as any to drop 3Qs on Will about the Defend Fair Use campaign... (the Qs and responses after the jump...)