The Evolution of P2P & Music: From Enemy to Business Partner

Posted by radiogetswild on 2008-06-10 11:55:36 (2211 views)

Presented by DCIA at the Digital Music and Media Summit, Canadian Music Week 2008
by Marty Lafferty Moderator: Marty Lafferty, CO, DCIA
Panelists included Eric Garland, CEO, BigChampagne; Benjamin Masse, President & Founder, DoubleV3; Chris Gillis, Manager, Business Development, MediaDefender; Eric de Fontenay, Founder, MusicDish Network; David Hughes, Senior Vice President, Technology, RIAA; and Gary Greenstein, Attorney, Wilson Sonsini Goodrich & Rosati.

The core question we addressed was whether P2P software programs, and in particular file-sharing applications, considered by some to have been "yesterday's enemy," can now be viewed as "today's out-of-the-box opportunity - and tomorrow's music industry savior."

Do P2P file-sharing technologies hold exponentially more potential for business traffic than other digital networks? At the end of the proverbial rainbow, will there be a robust new P2P marketplace for licensed music distribution?

Is now the time for songwriters, artists, and other rights-holders to step up and embrace a community of users who are actively looking for new music?

Eric Garland outlined the advancements of BigChampagne as an industry data resource and summarized current P2P usage statistics in the US market as having steadily grown to approximately 55 million regular file sharers distributing 1.1 billion files monthly, which is an exponentially higher number of tracks being distributed on P2P than via iTunes. On a per capita basis, Canada is among the top three territories in the world for P2P music file sharing.

While industry observers tend to view P2P in terms of its technical characteristics as a protocol, users don't care - they just want music; and ISPs need to be able to satisfy users' demand. People are not going to stop finding music with or without authorization; and it should be clear that a litigation strategy will not stop them from doing it. Even when discussing the matter privately, however, music industry leaders say they would not have done anything differently to this point.

Benjamin Masse described DoubleV3's dual thrust as a discovery-and-recommendation engine and monitoring / leveraging service actively working with some P2P companies. Advantages of P2P networks include viral marketing, ease-of-creation, and ability to generate real-time data on consumption of music. Canada has relatively fewer licensed outlets for online music than in the US, and licensing is extremely complicated.

Chris Gillis noted that MediaDefender has evolved from a strictly P2P anti-piracy services firm, which represented a cost center for its record label clients, in part, into an advertising revenue-generating company. P2P has never been an evil technology; abuses of it for infringement have been the problem.

Chris does not believe that ad-supported MP3s (or the like) delivered via P2P alone will make up for revenue lost from CD sales declines.

Nor does he agree that P2P is inherently superior to other distribution technologies for music. Listeners just want free, un-traceable music, without pop-ups; how it is delivered is of little concern.

MediaDefender sees the demographics of P2P users expanding, as well as overall usage. Users are now younger (pre-teen) and also older (baby boomers), expanding significantly beyond the entrenched core (18-24) and fringe (13-35) base.

Eric de Fontenay opined from his perspective as an online music publishing and artist management company that P2P has long served a useful purpose to help up-and-coming artists find their audience and develop their fan base. There are models that can be borrowed from other networked entertainment systems that can be applied to P2P to provide consumers with transparency while also generating revenue for music rights-holders.

Suing consumers is not a viable long-term strategy, according to Eric, and artists do not want to be put in a position that is negative towards their listeners. The industry must recognize that sharing music is unstoppable and get past the current phase and come up with a new business model or models. The Songwriters Association of Canada proposal of a modest monthly charge to be billed and collected by ISPs for P2P music consumers deserves serious exploration.

David Hughes quipped that the RIAA has been known for two things, granting platinum records and suing file sharers (from kids to grandmothers), but would have continued to be more closely associated with the former had it not been for the advent of P2P. He said that there is no question that P2P has proven itself to be very effective for distribution, especially for large files, but not for monetization. And in the case of relatively small files like music tracks, the verdict is out on whether the bandwidth savings is sufficient to offset the challenges of securely managing micro-payments.

It is clear that audiences just want free music and in greater quantities than in pre-digital times. People like to walk around with 4,000 songs on their iPods, of which 30 may have been purchased from iTunes, 600 transferred from their CD collections, and the remainder from unlicensed sources.

David projects that over the next twenty-four months, ISPs and universities will dramatically step up enforcement. This will be driven by their self interests, but also will provide an environment for legitimate digital distribution models to flourish. Canada used to represent 1/10th the amount of CD sales as the US; but now, due to rampant file-sharing infringement in Canada, has precipitously dropped to 1/45th. It is imperative that the "hassle factor" be raised to discourage this behavior.

Gary Greenstein cited his extensive legal background representing content rights holders initially and now digital distribution interests, and said that the music industry really should find a P2P business model that works. He doesn't believe it will be primarily subscription, citing low US take rates to date (3 million).

He sees that P2P offers great merchandising potential, however, because of the active screen-time users invest in searching for specific P2P downloads versus setting up Internet radio to play in the background, for example. P2P volume is enormous; micro-transactions can indeed be tracked.

It should be clear now that, by any standard of measurement, litigation has not been an effective strategy; with the usage of P2P increasing in numbers and expanding in demographic reach, Gary's view is that the music industry should try to do things differently.

During the Q&A, panelists further discussed bandwidth consumption, driven by increasing consumer appetites for greater quantities of richer and higher-definition (HD) media, and alternative business models which the industry could adopt for P2P music distribution. Share wisely, and take care.

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