Venturing in Internet Music

Caltech/MIT Enterprise Forum September 9, 2000

by Elaine Morris Palmer

At  8:30 last Saturday morning Baxter Hall was packed. Tess Taylor, Moderator and National Association of Record Industry Professionals (NARIP), Founder and President, promised it might be a lively morning and she was right.

The theme song of this Caltech /MIT Enterprise Forum and of the online music industry these days, someone said, could be “I Sued You, Babe” (to the tune of I Got You Babe). As the public demonstrates its insatiable appetite for music, especially free music, the question at hand was and is, “How do we translate music to money?” without losing our liner notes, that is.

To separate fact from fiction, Ms Taylor gathered a panel of expert rivals to test theories

and each others mettle. Left to right, Mr. Jim Griffin, Co-founder Evolab and CEO Cherry Lane Digital. For those who’ve been living under a virtual rock, Mr. Griffin’s chief claims

to fame are starting and running the technology department at Geffen Records for five years and most recently, testifying in July before the Senate Judiciary Committee at the oversight hearing on file sharing and music licensing.

Next, the venerable, Mr. Eric Hellweg, Executive Editor, Business 2.0, who began covering online music and general technology trends more than five years ago and who holds, among his credits, publications like Spin, Wired, PC World and Rolling Stone Online.

Then, Mr. Ted Cohen, VP EMI Recorded Music and former Executive VP of Digital Music Network, Inc. who served in senior management positions for both Warner Bros. Records and Philips Media.  His current incarnation as chief honcho at his sought-after new firm, Consulting Adults, allows him to visit his 25 years experience in the music industry on such clients as Universal Studios New Media., DreamWorks Records, Liquid Audio, Wherehouse Entertainment, Amazon.com, Microsoft and many more.

Next to him, Mr. Philip Corwin, President Virtualaw, LLC, counsels, lobbies and consults to federal legislative and regulatory bodies in our nation’s capital. He is Washington Liaison for the American Bar Association’s Section of Science and Technology and is Legislative Reporter for its Business Law Section’s Committee on Cyberspace Law. He has spoken on the subject of digital entertainment on numerous national television news programs and published extensively on the subjects of encryption, copyright and related subjects. He da law!

Mixing it up further, Mr. William Quigley, Managing Director of Idealab! Capital Partners (who needs no introduction) was there to remind us that VC’s don’t care about lawyers and artists only about making money. Hey, we knew that. Mr. Quigley handily dodged the kick-off question of whether this is or is not a good time to start an Internet company by saying that it’s a great time to start a company (or as good a time as any).

It’s just not a great time to look for money. Especially music company money.

To digress, what really is the right question to be asking right now? Should you start a company — well – some would say you’d have to be nuts. But If you believe in the irreversible tide of technology, like I said, it’s as good a time as any. What could  technology be doing to exploit (confirmed by this group as a “good” word) us music lovers, us fans of easy, fast and cheap entertainment – anytime-all-the-time junkies?  Well your job, Hollywood (and I use the word generically), should you choose to accept it, is to turn the product side of music into the service side of music.

Huh?

Hollywood’s job is to kill art, right? Well, why else would there be a need to make new art if the old art didn’t die? Besides, distribution theory dictates that rewards must exceed costs. And when distribution costs are too high, we must say “no” more than we say “yes”– to movies, to new recording artists, to candidates who apply to Harvard.  So Hollywood’s favorite answer is “no”.  Now.

But, the digital future portends that old art never dies, dead art comes back to life and new art has a life it otherwise would never have had. Oh, joy! But wait, the “tragedy of the commons” is that we can hardly find our way through the new digital marketplace for the art and non-art that clutters the landscape.  Hey, wait a minute. Don’t I need people with “ears” like Ted Cohen? After all, he argues, disintermediation is a myth.  Someone’s gotta tell me what I like…

And so, new services sprout up to service the underserved and overwhelmed consumer.

Thus is born, music and entertainment the service not music and entertainment the product.

As Mr. Griffin artfully points out, we shouldn’t be porting old models to new media in an  attempt to preserve what we have. This isn’t about controlling quantity and destiny.

We live in an entertainment-centric nation. There’s lots of money to be made. The ideal

answer, then, is one common business-to-consumer site for all music in all forms sold on

the all-you-can-eat basis that’s made AOL famous. In Iceland, citizens pay a monthly fee for music and like AOL, what I call the “buffet theory” (don’t’ bundle the product, bundle the price) plays out in Hollywood’s favor. Some people eat all they can eat, but most people don’t.

This’ll never work anyhow according to Mr. Corwin, who believes that public policy is shaping the new media more than copyright.  And anti-trust laws won’t allow one big unhappy family to own the American ear. Monitoring and metering use makes the hair on the back of everybody’s neck stand up. So even if there could be a central gathering point on the Net for music, let’s say, there’d be significant restrictions on who and how information was shared.

Now, things are getting really interesting.

This brings us to Napster, the concept versus Napster, the company.  How do you monetize super distribution? This is truly peer-to-peer technology replacing centralized

content control and pricing. Mr. Griffin hypothesizes that when you lose control, pricing

falls to marginal dollars and product “must” transition to service.  Content can still be monetized but distribution no longer can — in the same ways. This proves that Napster, the concept, wins no matter how much blood there is in the streets. One thing these panelists all agreed: winners or not in online music right now, the evidence is clear: technology buys into music.

Okay, so forewarned is forearmed and If you’re hell-bent on starting an online music venture, the consensus of what’s needed is: a digital “locker” management system to hold your virtual “stuff”, a method for ascertaining subsets (of music listeners for example), information specialists and a method for comparing data and utilizing the what, when, befores and afters to cross-pollinate and present new entertainment options. Good luck!

For other more insights on integrated solutions for the new economy,

contact Elaine Palmer elaine@mavenmediany.com