Our ‘digital economy’ is still a circular firing squad

The British ISP industry has spent a small fortune of its customers’ money fighting the people who would, in a saner world, be its business partners – only to suffer a crushing defeat. On Tuesday Lord Justice Richards threw out BT and TalkTalk’s judicial review against the 2010 Digital Economy Act.

Yet as trench warfare goes, they may consider it worth every penny.

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Why power follows platforms

This is a story with huge implications for the future of the web. Even if you don’t use Facebook or Spotify – I don’t – and couldn’t care less, you can nevertheless start to see how business relationships will develop.

Last week’s alliance between Facebook and Spotify turns out to be a much better deal for Facebook than Spotify. While Facebook declined to anoint any one music company as its exclusive provider, and a dozen are signed up, it has extracted exclusivity from the music companies. Or at least one of them. New sign-ups to Spotify must be Facebook members – the non-Facebook world will have to go somewhere else.

Such is the power of distribution platforms. Facebook has got one, and if you want to be on it, you play by Zuckerberg’s rules. It has always been thus. There isn’t an industry in the world where this ancient rule doesn’t apply. And while people may get misty-eyed about the “open web”, or the “neutral net”, this kind of utopianism was always naive in the extreme.

Deals are made. It’s business, folks.
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Web requires Brunel-scale thinking

Three years ago I caught a glimpse of a new social network built around music. You could follow people, chat with them, and enjoy the same music stream in real time.

There were many other clever things about it, such as a very slick integration of music news. But the killer feature, one that made it unique, was that you could also drop songs you liked into a little box, and keep permanently. This was genuine P2P file sharing. There were no strings attached – no DRM, no expiry, no locker (your stash was your hard drive) and no additional fees for this feature.

And it was all legal.
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Facebook, Tesco and music platforms

We all know why Facebook has such astronomical valuations. It is already as ubiquitous as Tesco. It is a place a billion people go to: whereas they only ever leave Google search, to go somewhere else. But people hanging around, poking, throwing cows, ignoring the adverts and goofing around doesn’t pay the rent. To increase revenue, Facebook needs to sell more stuff: products and services.

A Facebook music “dashboard” has long been rumoured: it would be a way of tying together disparate offerings such as eavesdropping on what friends are playing, streaming music yourself, or buying songs, ticketing or merchandise. A music dashboard is a subtle and relatively unobtrusive way of turning Facebook into a grown-up retail and services platform; an approach which borrows from the classic (Porter) Tesco philosophy of taking a tiny margin from a large volume of transactions.
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Button it, Bob

More hysterical shrieking reaches us about Apple’s new music feature, I’m afraid.

Earlier this week a lone lawyer said that iTunes Match, which populates an online store with songs you already have, encourages infringement. Well, this one is even nuttier.

It’s actually so spectacularly muddle-headed, I thought it might be is a good time to examine what did and didn’t happen this week, briefly – so we can see through the hype to the reality.

Bob Lefsetz, the shouty publisher of the eponymous industry newsletter, is normally very critical of record labels – often for the right reasons.

“His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to EVERYBODY who’s in the music business,” he says modestly, on his own site.

This week finds Bob barking furiously up the wrong tree. He thinks the labels have sold out the future record industry, in return for a one-off payment of a few dollars from Apple.
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How NOT to do a music levy

The European Court has upheld the right of copyright businesses in the EU to ask for a ‘private copying levy’, but slapped down Spain for applying it indiscriminately. The Court was hearing a case brought by the Spanish music collecting society SGAE against a storage vendor called Padewan.

Spain provides a case study in how to balls up a levy.

Under EU law, member states may provide an exemption for a person making a copy of a work for private non-commercial use, “on condition that the rightsholders receive fair compensation”.

The Sociedad General de Autores y Editores de España (SGAE) asked for and got a levy imposed on blank media and consumer electronics goods, which has swelled its coffers by over €20m – a 72.9 per cent increase. But it had been applied indiscriminately and set too high.

For example, businesses were charged for making CD backups. Naturally this led to an enormous consumer backlash. Punters felt they’d paid for the work twice – and freetardery became rampant.

The case covers royalties from 2002 to 2004. The Court ruled that only devices or media that can be shown to potentially harm authors may qualify.

The Court agreed that “the person who has caused harm to the holder of the exclusive reproduction right is the person who, for his own private use, reproduces a protected work without seeking prior authorisation from the rightholder. Therefore, in principle, it is for that person to make good the harm related to that copying by financing the compensation which will be paid to the rightholder.”

However: “The indiscriminate application of the private copying levy to all types of digital reproduction equipment, devices and media, including in the case expressly mentioned by the national court in which they are acquired by persons other than natural persons for purposes clearly unrelated to private copying, does not comply with Article 5(2)(b) of Directive 2001/29.”

It bounced a further question, whether the Spanish law was consistent, back to the national courts.

Unlike most EU members, the UK has no private copying exemption. Home taping has never been legal here.

In 2008 composers and songwriters asked for consistency with Europe in 2008, stating that consumers should allowed by law “to transfer music they have purchased on to a portable device, while ensuring that a fraction of the value is enjoyed by those who create music and invest in in its creation”.

You can find the ruling (dated 21 October) here.

French taxpayer to subsidise music buyers

The European Commission has approved a French scheme to subsidise music downloads for 15-25 year olds. The taxpayer will contribute €25 per user per year to every “Carte Musique” cardholder, which entitles the user to €50 worth of downloads. The cardholder will stump up the other half of the cost of the card.

The proposal had been pending EC approval, which has now been granted in the name of “preserving pluralism and cultural diversity”.
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Breaking Google’s last taboo

Google has traditionally charged into other business areas with all the subtlety of a bull in a china shop. This isn’t always a bad thing: there are plenty of cosy industries that are ripe for a shake-up, and advertising is one of the cosiest. But there’s one area that’s been strictly taboo.

Google has always linked to other people’s stuff, and stayed out of retailing bits itself. Over time it’s blurred that line, without ever really crossing it. This was a line that Microsoft never really crossed either, although Windows Marketplaces were announced, then came and went phut, as regularly as Service Packs.

Now we can confirm that Google is gearing up for a Music Store – CNet’s Greg Sandoval hears this could be upon us as soon as the autumn, it may decide this high-minded distinction is no longer one worth preserving. The rumours strongly suggest Google will be integrating music into search – no surprise, there – but there’s plenty of speculation that it will go the final step, and retail the music directly.
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A Martin Mills interview

The Beggars Group office in a suburban street in Wandsworth doesn’t look much like a media corporation. There’s no chocolate ice sculpture in reception, and no giant video screens or inspirational slogans. It does look a lot like you’d expect a real independent record company to look, though: behind the receptionist’s desk is the kitchen sink. Boxes of records are strewn everywhere. Chairman and founder Martin Mills sits in the cramped, buzzing open-plan office, along with everyone else.

And there’s something else unusual. Here’s a group of record companies that are doing well, both critically and commercially, which think the internet has helped them to this success, and can’t wait for the future to get here.

Beggars’ four labels XL, Rough Trade, 4AD and US stalwart Matador Records scooped up a fifth of the Times Top 100 records of the decade. The company recently scored the first indie number one for twenty years (Vampire Weekend), looks to have the critics choice for 2010 sewn up (Gil Scott Heron), and with The Xx has a band whose music suddenly seems ubiquitous, sprouting from every trailer and advert, as well as the BBC’s Election coverage.

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