As I mentioned last week in the News Roundup, Universal Music Group is planning on trying out DRM-free music on a limited number of services. This trial is to last 6 months and it has been recently reported that the muisc files will contain unique digital watermarks within the file itself. Ars Technica has a great article breaking down why Universal is doing this but most importatly, why this won’t prove a thing.

Universal’s plan appears to be rather simple: sell watermarked tunes to users, then sit back and scan the P2P networks for music files with Universal watermarks. While the data won’t lead them back to pirates, they will be able to detect the presence of watermarked music online. Doing so would confirm for them which tracks have been purchased and then shared online.

So why would Universal do this? One possible goal, if you take the pessimistic approach to large labels, is to “prove” that DRM-free music doesn’t work. Another is that they are legitimately are interested in seeing how fast digital music leaks on the internet and then at what rate it proliferates. Ars mentions the illogical angle to either of these thoughts but it will be interesting to see what the mothership does with all there newly found data.

I just spent the last 30 minutes trying to find a decent topic to focus on and honestly nothing particular grabbed me enough to rant/dissect, so here are a few interesting tidbits from around the web…

• Vivendi aka parent company of Universal Music Group aka largest label in the world announced their Q2′07 numbers and CD sales are down again (duh) but their digital music sales are up 49%. As predicted the music buying audience is focusing more and more on digital sales.
  Earnings: Vivendi’s Q2 Sales Up; UMG Down; Digital Music Up 49 Percent
• Russian authorities are pursing the head of AllOfMP3.com’s founder. The issue with AllOfMP3.com is based around was the site doing anything technically illegal. Many say no they weren’t according to Russian law and it was the American pressure that caused this issue. My big issue with AllOfMP3 was an ethical point of view about how they were not treating the artists fairly. As this article points out the “‘we’ll hold your money until you give us a call’ attitude” is the same for both AllOfMP3.com and SoundExchange, hmmm….
  AllOfMP3.com: Let The Prosecution And Persecution Begin!
• Music blogs… I am kind of getting obssed with them because they continually introduce me to new music. My current musical flavor of choice is Indie Rock, which we really, really want more of on FS. Right now one of my favorite blogs is Gorilla vs. Bear based out of my old hometown of Dallas. Niki introduced me to them when I was looking for new blogs and I love them because they helped me discover the brilliance that is Annie Clark (aka St. Vincent). I have tix to see here in August and I plan to do a full review of the show. Mmmm… guitar, make sure to watch the video!
  St. Vincent: “These Days” video and Sirius Blog Radio

That is all…

Universal made a public announcement that they will not longer be guaranteeing that Apple will be receiving all new music at time of launch or that Apple may ever get the music. This means that Universal has the ability to work new exclusive deals with different digital distributors that may or may not be available later on iTunes.

This bit of news could shake up the digital music business because Universal, owned by Vivendi, is the world’s largest music conglomerate, representing one of every three albums sold in the United States. And it underscores the longstanding and increasing tension between Apple and the entertainment industry, not to mention the scores of rivals who spend days and nights plotting for ways to chip away at the primacy of the Apple iPod.

The New York Times has a good in-depth article, “All Shook Up, Right Down to the Musical Core“, about the announcement and how this is more of a bit of “saber rattling” then any real threat to iTunes. Right now the digital market is dominated by iTunes and this appears to be more of a strategic move to allow Universal to work deals with other distributors to help spread out their digital distribution channels.

Around the time we were preparing to launch the Fake Science Music Store back in 2005 one of our podcast listeners introduced me to Burnlounge. It was this new “service” that allowed you to set up a music store on your site using the Burnlounge technology and then you could sell music digitally from their large catalog. You paid a yearly fee in incremental packages and this gained you some mystery growth option and linked you into other people.

According to the FTC, BurnLounge recruited consumers through the Internet, telephone calls, and in-person meetings. The sales pitch represented that participants in BurnLounge were likely to make substantial income. BurnLounge recruited participants by selling them so-called “product packages,” ranging from $29.95 to $429.95 per year. More expensive packages purportedly provided participants with an increased ability to earn rewards through the BurnLounge compensation program.

The big push on the site (and the person that recommended it to me) was getting your friends to set up their own Burnlounge and then you get some kind of cut on their sales and then their peoples sales sales… it all seemed a little wonky. It also explained why the listener was so insistant on me joining Burnlounge and “we” would make a lot of money. It appears that the FTC also thought the idea was a little “wonky” and by wonky I mean straight up illegal:

On June 6, 2007, the FTC filed a complaint in the U.S. District Court for the Central District of California against BurnLounge, Inc. The complaint charges that BurnLounge sold opportunities to operate on-line digital music stores that was, in fact, an illegal pyramid scheme. The agency is seeking a permanent halt to the illegal pyramid practices as well as other illegal practices alleged in the complaint.

Want to the full scoop on the case then get it here: FTC Asks Court to Shut Down Illegal Pyramid Operation.

Recently there has been a lot of press about digital Copyrights, focusing on the uproar around SoundExchange and webcasters. The core issue is around interpretation and implementation of the Copyright law in the new digital medium. Who has the rights to do what with the music? How do you get the rights? How does the owner collect when their material is used with there permission or without? What rights do you really have?

These are just a few of the questions that are floating around right now and unfortunately they are not being asked in a logical or calm way due to the fact that a lot of money is riding on the answer. In fact, many companies are not even looking for an answer, they are just using brute force to try and “solve” the problem which in the end just makes things worse. What needs to happen is a serious look at the new trends in digital media and then a serious global effort to restructure how copyright is applied and eventually enforced for media.

Lawrence Lessig has been trying to do this with Creative Commons, but even this process is built on the existing and now becoming archaic copyright laws in the United States. Not only do we need to reconsider how copyright is applied to existing material we need to re-evaluate how copyright is applied for the newest trends in media publications, such as YouTube.

“There are an extraordinary number of people who are creating on their own and doing so for a different reason than money,” Lessig, a lawyer who allies himself with Google in copyright positions, said during an interview. “Somehow we’ve got to find a system that ratifies both kinds of creativity and doesn’t try to destroy one in order to preserve the other.”
– Does digital file sharing render copyright obsolete? by Victoria Shannon

At this time we don’t have an answer, in fact we are still trying to ask all the questions. In the upcoming years we will see many of these issues put to trial to determine who has what right and what are those rights worth. We are also seeing a rise (or a creation) of sharing cultures where people are creating material for the purpose of giving what they create away. Following that trend we are seeing more gift economies and companies being based around it like Bookmooch or LaLa which allow for copyrighted material to be traded. Times are changing and if we don’t make the effort to figure it out the way we want the times to change, it will be defined for us by others without our input.

Today Apple launched iTunes Plus which offers the updated EMI catalog in 256 kbps AAC DRM-free glory. One of the coolest new features they offer is the “upgrade your library” feature which scans your current library and then determines what EMI catalog you already own and then you can re-download the tracks to the new DRM higher quality versions. All you need to do is pay the $0.30 difference for each track.

For a full tutorial and screen shots of the process check out this great post over at Engadget: iTunes Plus and EMI’s DRM-free music hands-on.

The wireless provider, Alltel, announced today their new cellphone music management tool, Jump Music. Jump Music allows users to transfer their own music to their phone as long as the music is supported by the end users phone, in most cases MP3. What is interesting about this new free service is that Altell is helping the customers use their phone as a media player and NOT charging them for it.

Up to this point most carries are providing their own fee based service to get music on the phone. Most of the fee based services cost a premium per track such as Verizon’s VCast which costs $1.99 a song to download via the phone ($0.99 if you use your PC / no OS X support). With Alltel, you can upload and manage your phones music from your existing library or use non-DRM services like say… Fake Science.

Jump Music appears to have a partnership with eMusic looking at the cross branding and I have to give it to Alltel, this is a nice offering to the customers. Who really wants to pay for music twice just to have it on your device?

Over the weekend a recent stir has been created by at least 6 of eMusic’s label partners claiming dissatisfaction with the services pricing structure. What the labels want is more money per transaction:

After factoring in distribution costs and other expenses, some labels receive as little as 12 cents per song in profit, sources say — far less than the 60 cents to 65 cents per track received from iTunes.
– Indie labels plan to pull out of digital service

This is a big issue with the industry: how much money a label makes per transaction. What makes it even tougher is that more and more services are requiring a digital distributor to act as content managers for the services. This means is that even if a label wanted to interact directly with the sales outlet, they cannot and therefore must lose a percentage for the now required handling fee. We are recreating the old market very quickly and now labels are really starting to see the pinch.

Another issue that arises gets down to what will the market handle? Are people willing to continue to pay a high price (and foreseeable growing cost) for digital convenience. Some will without question pay $0.99 a song and think its a steal, others will pay the $1.20 for DRM free version simply for the fact that they don’t have to deal with a “wasteful” CD. There are others, like myself, that feel that digital freedom does not nor should not mean higher prices and that focusing on the business model that allows a balance for all parties is the answer. But is that even possible? Will the higher prices just convince people that getting music for free is the answer?

Elites TV is reporting that Napster and NTT DoCoMo has announced a partnership to allow DoCoMo iMode customers who are also member’s of Napster’s service to access music via their phones. Their new service called Over The Air (OTA) will be rolling out when the 904i phone is available in the market.

Napster’s new OTA subscription functionality will be available to DoCoMo’s customers as an extension of the Napster To Go service at no additional cost and will be available to both new and current Napster To Go customers.

This is an interesting twist to the mobile music market because up to this point only wireless providers have been offering singles sale services. The Cingular or Virgin offerings allow you to buy a song at an extreme premium that is then download and store it on your phone. With the new OTA, the song is streamed down as requested and then more then likely thrown away when done listening. With this functionality and the ability to create playlists on your PC, that you can access via the phone, you have in a sense an on demand XM radio that allows you to have unlimited access to music as you move around. Storage no longer becomes an issue only access to the network.

Of course, only Japan (and probably South Korea) has this kind of high bandwidth and full country network coverage for this technology to make sense. But as other carries get their networks fleshed out in other countries you can bet that this kind of service will become more prevalent.

Arik Hesseldahl of Business Week Online wrote a piece talking about how the EMI/Apple deal is going to up the anty for the current digital audio format war.

“Apple’s recent deal with EMI to sell DRM-free songs from the publisher’s catalog on iTunes may clinch the iPod’s AAC format as the industry standard”
– Apple Stokes a Digital Music Standards War by Arik Hesseldahl

In the author’s opinion the battle over format is between Apple’s choice of AAC and the Microsoft’s preferred WMV. He then states that the choice for Apple to release DRM-free AAC will force all the major players to consider AAC over WMV.

I agree that this will cause some change in the buying patterns of consumers because owners of non-iPod devices that support the AAC format will be able to purchase from iTunes store but a general migration to AAC? I don’t think so…

“Online music stores, like Napster, Yahoo Music, URGE, and all the others that sell WMA songs will be forced to consider jumping into the DRM-free AAC camp, and thus become ‘iPod compatible,’…”

Some of major players that Mr. Hesseldahl refers to such as Rapsodiy, Yahoo! and Napster have a subscription model that requires DRM. Without DRM their business model fails… how can you have unlimited downloads if you can’t turn off the music when the people stop paying.

Right there AAC is out because the only AAC DRM is FairPlay which Apple doesn’t want to share. This is the reason why WMV is the preferred format; Microsoft is the only major player that allows licensing (even if it has “expensive licensing terms”) of a digital format with full DRM services that many personal media players (PMP) support.

Now, if Apple licensed FairPlay at the same time they announced the EMI deal I would fully agree with Mr. Hesseldahl that the”format war” is changing. But, Apple did not do so and this makes the piece way off because he does not cover or delve into the reason why WMV was picked in the first place. Yes its interesting that Apple is releasing DRM-free AAC, yes its going to make a lot of waves but its not going to get these companies to change formats, they would need to change models and that is a WAY more important change and a hell of a lot less likely right now.

ps Mr Hesseldahl: eMuisc is not the only player to sell MP3s without DRM… seriously, you bag on a guy that mis-understands the industry and then you make the same faux pas…