Record Company Idiocy

by Kabir Sehgal | 11/14/03 6:00am

I'm sick of the whining. The record companies are acting like how Fat Albert would if someone took away his plump, oozing Twinkie. These companies are crying about their "lost profits," because too many people are downloading mp3s for free. Did it ever occur to these "monster companies" that while their arguments are ideologically sound (e.g., protect the artist's rights, intellectual property), they are pragmatically stupid. Most people will download an mp3, for it's just a click a way, and besides, the monster companies don't need any more money. The monsters just can't stand it -- instead of screwing consumers, the consumers are screwing them. It's bigger and better than any class action lawsuit. Instead of hiring legions of lawyers and suing the consumers to inferno and beyond, these monsters should realize lawsuits aren't the solution. You have to make people want to buy mp3s. These companies were out-innovated by consumers, so instead of whining, dear monsters, innovate and provide the users a more compelling service.

Let's trace the brief history of mp3 swapping. It started with a brain-dropping of Shawn Fanning, the creator of Napster. His idea was to create a peer-to-peer file transfer system for mp3s. Napster, at its zenith, served 70 million customers. The teenage Fanning's idea (or "David") challenged the Goliath-monsters. It was the case of a consumer who invented and innovated and, in turn, he sent an industry spinning.

A number of books about Napster have popped up. Some example titles: "All The Rave," "The Rise and Fall of Sean Fanning's Napster" (Crown Publishing) and "Irresistible Forces: The Business Legacy of Napster and the Growth of the Underground Internet (Capstone Publishing)." Sounds like this guy created something important? Yeah, it's a cultural phenomenon, millions of people swapping mp3s -- even here at Dartmouth, students used to use KaZaA, Gnutella and other Napster-derivatives until they were limited and banned.

The problem now is that the Recording Industry Association of America (RIAA) is flexing its legal muscle. RIAA wants to sue people distributing mp3s for free. P2P.net reports that RIAA will "serve a subpoena on the ISP requesting the name and address of the individual whose account was being used to distribute copyrighted music ISPs must provide copyright holders with such information when there is reason to believe copyrights are being infringed." In other words, Internet Service Providers like AOL or Earthlink will have to turnover the names of its users participating in "illicit" file swaps.

"Sue All," is the RIAA mantra. This will be a laborious task, mainly because RIAA is fighting a cultural phenomenon. People are used to listening to and downloading music for free. We expect free music. RIAA is fighting expectations.

Instead of whining and crying -- enhance expectations. Consumers will love you for that, RIAA. The mystical question is "how?" Sony is toying with an answer. Sony is releasing a new CD technology in Germany that will prevent consumers from copying songs to websites, but they can make copies for their personal consumption. Sony is enhancing their technology and enhancing their service: Sony will release an R&B CD in Germany with a "second session." Reuters reports, "'The disc can be played on almost any device conventionally,' said Sony Music Chief Technology Officer Phil Wiser It also contains a compressed digital copy of the music that can be quickly copied onto any computer. From the computer, users can copy that music onto Sony portable digital music players." Sony's CDs will allow consumers to connect to Websites with "exclusive features such as bonus songs and concert tickets." The kicker: you can only access these features if you have the original CD. The people at Sony get it. Wiser says, "All copy-protections can be hacked But if give people what they are asking for in terms of value, they won't go out and steal it. It's called trusting the consumer."

Other solutions include Apple's iTunes and the upcoming MTV service that plans to compete with Apple. iTunes is a digital music store where people can pay for music (99 cents per song). Sure, consumers have to pay a little, but Apple is enhancing their service by seamlessly integrating the downloaded music into Apple iPods. On the surface, Apple isn't making much money -- 65 cents of each 99 cent song goes to the record company. If Apple sells $500 million in songs, it only gets a paltry $50 million. Ask Steve Jobs, CEO of Apple, why he's doing this? "We're selling iPods," he says with a smile. And with a profit margin of near $200 (and 2 million iPods expected to be sold), Apple and the consumer wins. Basically you pay for the mp3 but you get the benefits of the Apple experience.

Call it the evolution of capitalism. A new technology has flashed the market, and the old way of doing business is old. So companies can do one of three things: (1) sue everyone (and make the consumers angry and vitriolic), (2) re-invent the business model by enhancing services and inventing new technologies, or (3) perish. We'll undoubtedly hear about lawsuits this and "legal crackdowns" that -- the bustling and bellowing emanating from the RIAA will continue until they realize they are fighting a losing battle.