“The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.”
Hunter S. Thompson
As the battle between online music companies and copyright owners has raged in the courts during the last decade many of us have wondered what was going on behind the scenes. How did the record companies and publishers assess the threat of digital music to their industry? Why did they react as they did? What effect did their decisions have on innovation and investment in online music companies?
Professor Michael Carrier, Professor of Law at Rutgers School of Law in Camden, has tried to answer some of these questions by conducting interviews with a range of influential people in the music industry — people who witnessed these events and decisions as they unfolded. He presents his results in a cutting edge law review article published on SSRN in early July: Copyright and Innovation: The Untold Story. This paper, which is forthcoming in the Wisconsin Law Review, is an inside look at these issues, through the eyes of 31 “CEOs, company founders, and vice-presidents from technology companies, the recording industry, and venture capital firms.” Of course, we can’t know the extent to which the opinions expressed by these individuals reflect reality. The battle between the labels and digital music companies is far from concluded, and it’s possible that these individuals were grinding their own particular axes, even in the semi-anonymous context user by Professor Carrier.* However, it has the ring of truth, and I discount it very little, if at all. Hunter Thompson must be nodding agreement from the grave.
*The interviewees are identified in the study, but specific quotes are not attributed to specific individuals.
After providing some background information on the seminal 2000/2001 Napster case, and more recent legal issues associated with online copyright law, Professor Carrier presents the results of his interviews with record labels executives, artists and venture capitalists. At the heart of his paper is the question of how the record industry confronted their own version of the “Innovators Dilemma” – the “dilemma” that an industry faces when it is confronted by an alternative technology (the so-called “disruptive technology”) that is less expensive and threatens to replace the status quo. Resist, adapt or some of each? These are the choices the record industry — no stranger to change throughout the late 20th century — was faced with by peer-to-peer technologies. However, this time the change went far deeper than it had in the past. How did they react?
Perhaps not too surprisingly, the answer does not do the labels proud. According to Professor Carrier the labels were completely blind-sided by digital music downloads, and they reacted defensively. Prof. Carrier quotes record label officials who described Napster as “terrifying,” and “devastating.” A “sudden shock to the system” that the labels “were not prepared for.” Although the record industry waged a massive, all-out legal war against Napster and services such a Kazaa, LimeWire, Morpheus and BitTorrent, as well as suing thousands of individuals, they have been unable to put the genie back in the bottle. By failing to strike a licensing deal with Napster in 1999/2000 the record industry forced file sharing to go underground, where it grew tremendously and eventually overwhelmed the labels.
Not surprisingly, the decision-makers within the record labe are portrayed unfavorably. These record company “tech gurus” turned out to be “old-school marketing people that had just come up through the ranks as enforcers.” They behaved as “irrational actors.”
Prof. Carrier paints a graphic picture of the extent to which the record labels were caught flat-footed. The labels didn’t view consumers as their customers, but rather viewed retailers, such as Walmart and Tower Records, as their customers. According to Prof. Carrier, one label spent $1 billion on trucks to distribute their CDs. The major labels were different because “they had trucks.” “No one else could put a CD in every record store in the country on the day of release.”
The labels were also confounded by the maze of copyright rights they were forced to deal with. The layers of copyright ownership are notoriously complex, and the labels had difficulties getting “all the stars to line up.” In many cases the labels themselves didn’t know “who owns what,” since older contracts were “vague or unclear.” In other instances, where the labels could identify the rights holders, they couldn’t find them.
Corporate inertia and self-interest played a major role in the labels’ reaction to digital downloads. Record labels often are part of large conglomerates, and the sheer size of the companies made it hard to adapt. Record company officials were always “discovering the Internet anew,” and “having to start from scratch.” Some in the recording industry viewed digital downloads as a “passing fancy” that they could survive by burying their heads in the sand. “Bonus inertia” discouraged the adoption of new business models: “incumbent senior executives whose bonuses are at risk and who have bosses to report to” are not “willing to take the career risk of being wrong.” In what appears to be the ubiquitous “I’ll be retired before the sh*t hits the fan” attitude, the industry suffered from “ignorant people just hanging on” who concluded they would be retired before the technology threatened their market positions and jobs.
Of course, the lawyers that work for the lables come in for scathing criticism. “Most labels are run by lawyers,” quotes Prof. Carrier. These lawyers focused on worst-case scenarios instead of business decisions that might exploit opportunities. The following is a quote from the paper:
Lawyers at the labels historically drove the digital agenda. There was no one there with a truly entrepreneurial spirit. Zero, zilch, zingo, nada. No one there whose entire initiative was not to hang on to the past.
Prof. Carrier’s interviews include venture capital investors, many of whom took a pass on digital downloads after Napster. He notes the critical role that venture capital has had in funding countless technology companies, listing examples such as Amazon, Apple, Facebook, Google and Microsoft. However the labels’ litigation strategy created “a wasteland with no music deals getting done.” “The graveyard of music companies was just overflowing.” The Napster decision led to a “lost decade.” To the extent the record labels were attempting to destroy the necessary “fertilizer” for the new online music industry — VC investment — it largely succeeded.
The ultimate beneficiary of this strategy was Apple’s iTunes service. Napster cleared the way for iTunes to establish a dominant position, locking the music industry into “the Apple ecosystem.” Apple launched the iTunes Music store in April 2003, and within seven years there had been 10 billion downloads. Illegal downloads from Napster seeded the success of Apple’s iPod, and the iPod prepared the market for Apple’s legal iTunes store.
There is much more in Professor Carrier’s law review article than I have been able to discuss in this brief summary. It tells a familiar and sad story. Examples of the “innovator’s dilemma” surround us today. It is obvious in computing (where it seems to be a constant), life sciences, the automotive industry and environmental sciences. Perhaps it is not an overstatement to say that, in this era of rapid technological and scientific advances, it is present in every industry. Human nature being what it is, the “status quo” often will fight a new paradigm, rather than adapt to it. The future is cloudy, and often that strategy will pay off. For the record industry, at least so far, it hasn’t.
If you’re a lawyer with a case involving the complex interaction of physical objects (say a plane crash), nothing can compare to a video animation that faithfully recreates the event. Your expert can show it to the judge or jury, and vouch for its accuracy. Of course, it’s expensive to create one of these videos, but with Moore’s Law and better graphics software, it’s getting easier and easier.
And if you’re one of the many firms that creates these videos for lawyers, what better way to strut your stuff than to recreate the landing of US Air Flight 1549 in the Hudson River, with the actual pilot-controller audio overlaid? This is what Scene Systems, a forensic animation company, has done to show its skill. The two minute animation is here, with the recording of Sully and the controller synchronized to the action:
The Intellectual Property Colloquium is a very well produced podcast with “A List” judges and academics. The one hour shows are audio (which is the definition of a podcast), and can be subscribed to in iTunes. The current topic is A Conversation with Chief Judge Paul R. Michel. Judge Michel is the Chief Judge of the Court of Appeals for the Federal Circuit.
Other topics include discussions on copyright, privacy and other IP issues.
If you’re a lawyer and you haven’t mastered accessing podcasts, podcasts like this are a message that it’s time you do so. And, it’s much better to listen to this than “Imus in the Morning” while you’re commuting.
The New Economy – it takes full advantage of the Digital Revolution. It’s open to innovation, not just in IT but in robotics, clean energy, biotechnology, and nanotechnology. It supports a low-cost, low-carbon energy system. It takes advantage of opportunities offered by globalization. It accommodates regional growth in a balanced manner.
And yes, as was true in 1999, 2002 and 2007, in 2008, once again, Massachusetts ranks first, by a significant margin. The full report — The 2008 State New Economy Index, from the non-profit The Information Technology and Innovation Foundation — leaves no question about this. The states at the top of this index are “leading the United States’ transformation into a global, entrepreneurial and knowledge- and innovation-based New Economy.” And yes, let me repeat lest your attention has wandered, we are first, first, first. (n.b.: Washington is second, and Mississippi last).
The U.S. CTO – at least this FIRST U.S. CTO – will be the buyer-of-cool-stuff-in-chief for the entire nation.
I would make a better buyer-in-chief than almost anyone else because of two important characteristics in my warped personality: 1) I would be immune to special interest groups so this wouldn’t turn into another National Information Infrastructure boondoggle, and; 2) yet as a true enthusiast I would buy with such reckless abandon that I’d easily fulfill the economic stimulus needs while spewing money widely enough to guarantee at least a few good technical investments for the nation. . . .
We need someone with just enough savvy to know good technology, enough independence to make the right decisions, and crazy enough to do it all 24/7 right out in public so that vaunted “transparency” we keep talking about yet never see can be proved to be more than just a modern myth.
I’m the man for that job.
AND I can use the work.
That’s because December 15th will mark my last column for PBS,
After 11 years and more than 600 columns I’ll be moving-on, perhaps into that big CTO job in Washington, but then maybe not. This is my decision, not that of PBS, which has been nothing but good to me these many years. . . .
OK, I know that George Gilder is a very controversial guy, and that he lost a lot of money for his investors (and himself) in the late ’90s and early 2000s. So, he’s a lousy investor. But, that doesn’t detract from the fact that he can speak and write about the future of technology in ways that can make your head spin and leave you gasping for breath (and, if you’re not very careful, calling your stockbroker to increase your margin account).
His article in the November 10, 2008 issue of Forbes is typical Gilder – thought provoking, inspirational, optimistic and (I hope) right:
The real source of all growth is human ingenuity and entrepreneurship, which often thrive in the worst of times–and are always surprising.
Knowledge is about the past; entrepreneurship is about the future. In a crisis the world of expertise pulls the global economy ever deeper into the past, where accountant-economists ruminate on the labyrinthine statistics of leviathan trade gaps, tides of debt and deficits, political bailouts and rebates, regulatory clamps and controls, all propping up the past in the name of progress.
The crucial conflict in every economy, however, goes on. It is not between rich and poor, Main Street and Wall Street, or even government and the private sector. It is between the established system and the new forms of wealth rising up to displace it–all the entrenched knowledge of the past and the insurrections of futuristic enterprise and invention.
A Typical Gilder Graph
Gilder goes on to identify four critical areas of development: cloud computing, graphics processing, nanotech engineering and energy-saving construction materials.
Wade Roush (technology journalist and chief correspondent at Xconomy) wrote an extraordinary article in the MIT Technology Review in 2007 which I’ve had in my “must re-read” pile for a while. Recently I picked it up and noticed that the article is accessible in full on the Technology Review web site (free registration required).
Here is a brief excerpt from the article, modestly entitled Second Earth:
[w]ithin 10 to 20 years–roughly the same time it took for the Web to become what it is now–something much bigger than either of these alternatives [Second Earth or Google Earth] may emerge: a true Metaverse. In Neal Stephenson’s 1992 novel Snow Crash, a classic of the dystopian “cyberpunk” genre, the Metaverse was a planet-size virtual city that could hold up to 120 million avatars, each representing someone in search of entertainment, trade, or social contact. The Metaverse that’s really on the way, some experts believe, will resemble Stephenson’s vision, but with many alterations. It will look like the real earth, and it will support even more users than the Snow Crash cyberworld, functioning as the agora, laboratory, and gateway for almost every type of information-based pursuit. It will be accessible both in its immersive, virtual-reality form and through peepholes like the screen of your cell phone as you make your way through the real world. And like the Web today, it will become “the standard way in which we think of life online,” to quote from the Metaverse Roadmap, a forecast published this spring by an informal group of entrepreneurs, media producers, academics, and analysts.
This is extraordinary, futuristic stuff, but it reads like a valid prediction of the future. Click here to read the uncut article (which is over 7,000 words). If you have trouble accessing this page (perhaps because you need to register), start here to register and navigate to it.
The release of the Google Chrome web browser on September 2nd attracted a huge amount of publicity. The release of the browser was accompanied by a 38 page comic book, featuring cartoon figures of real-life Google employees, and explaining some of the features and technology associated with the browser. The comic book was illustrated by “cartoon theorist” Scott McLoud.
This is pretty cool stuff – hiring a top cartoonist to help you explain a new software product. Much better than a traditional technical manual!
Nvidia has filed a Sherman Act complaint against Rambus in federal district court in North Carolina. The allegations appear to echo (copy?) the allegations in the FTC case I reported on recently, where the D.C. Circuit reversed the FTC’s finding of illegal monopolization by Rambus. Can Rambus file a successful motion to dismiss in this new case based on the D.C. Circuit’s decision? Very likely.
Why did Nvidia file this suit? My first thought is that Nvidia was concerned about a statute of limitations problem, and this filing (even if dismissed by the District Court) will allow them to appeal and keep their claims alive during the FTC’s motion for en banc review that is pending before the D.C. Circuit, and during a possible Supreme Court appeal by the FTC. Alternatively, they may be hoping that a district court in the Fourth Circuit (or even the Fourth Circuit itself), will see things differently from the D.C. Circuit, and allow their case to proceed.