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From Eliot Van Buskirk and Wired:

To hear some tell it, file sharing gutted the music industry by encouraging people to gorge themselves on free, illegal content. Indeed, unless Friday’s landmark verdict against The Pirate Bay is overturned, four Swedes will spend a year in jail and owe millions of dollars to entertainment companies for operating a file sharing network.

Nonetheless, sites like The Pirate Bay taught — and continue to teach — valuable lessons to the content industry. Even as music labels and movie studios try to sue peer-to-peer networks out of existence, these same networks have been preparing music labels and movie studios for the emerging social-media world, in which sales form only a small slice of the revenue pie, and what really matters is who likes what, and who pays attention to them.

Facebook, MySpace, imeem, YouTube and other social media sites — which the labels now recognize as a major part of their revenue streams going forward — incorporate several aspects of Napster and other early, rogue file sharing networks: buddy lists, user uploads, filtering content by user, viral marketing, ad-supported content and the potential of mining valuable data. The complete DNA of social media was right there, from the very start of P2P.

And even in the early days, the labels were intrigued by the vast pools of user data available on networks like Napster and Kazaa, although they were reticent to take advantage of it.

“It was more than just stigmatized,” recalled Eric Garland, CEO of BigChampagne, which measures the popularity of media on file sharing networks. “They feared that to even look at or inquire about what was happening in the file sharing universe would somehow compromise their unflinching stance that this was unauthorized.”

But as the initial furor over P2P died down, labels began monitoring file sharing networks through BigChampagne and other services. The data they find there continues to help them in any number of ways, from choosing which leaked song to use as the single, to where a band should tour based on the IP addresses of its fans, to figuring out which artists should perform on the same bill.

The labels beat down Napster, Kazaa, Scour and other P2P networks, and if today’s Pirate Bay verdict stands, they will have beaten four Swedes too. Meanwhile, new ways to share files continue to surface, including private and encrypted networks. And The Pirate Bay developers say mirrors exist in other countries, so no matter what happens in Sweden their site will continue to operate. Besides, The Pirate Bay is only one bit-torrent tracker site.

For some, the offense committed by an enabler like The Pirate Bay — as opposed to the people who actually do upload and share copyright material — may be difficult to grasp. You can also find torrents on several other sites — even on Google’s search engine. And YouTube hosts pirated copyright material, until and unless it is asked to remove it by the owner, because it is unable to programmatically detect which video clips are pirated.

But the difference is that Google, Yahoo and MSN aspire to catalog everything indiscriminately, while services like The Pirate Bay explicitly cater to practitioners of digital piracy — and are proud of it, to boot.

Even as the content industry celebrates another false victory over file sharing, the world is moving on, to cloud-based, on-demand streaming services — some licensed — where you can hear music and watch videos faster and in a more social way than you can with bit torrent. And as content holders look to monetize those networks, P2P networks provide the only useful template, because they share so many characteristics with today’s social-media networks.

Garland, who was there, says tools designed to measure user behavior on file sharing networks led directly to tools that now mine licensed networks like Facebook, imeem, MySpace and YouTube.

When it comes to “where and how people stream, download, watch, listen to, blog about or otherwise make use of or interact with music,” said Garland, “file sharing ended up being the blueprint.”

And it’s a good thing that blueprint was there, from the labels’ and studios’ perspectives, because today’s social-media networks contain even more user data than P2P networks do, and that translates to a bigger opportunity to monetize them through advertising, recommendations and, yes, the occasional sale.

In addition to teaching them how to mine social networks for user data, file sharing taught the content industry that it’s often more efficient to address networks than users. On one hand, this sort of thinking led to The Pirate Bay lawsuit. On the other, we have Choruss, Warner Music Group adviser and digital music guru Jim Griffin’s plan to license universities, then ISPs, to allow subscribers to download and upload as much music as they want for an overall, royalty-like fee.

“Asserting property rights and attempts at control have cost the sound recording industry over a decade of licensing revenue [and trading] control for compensation,” said Griffin during his Digital Music Forum East keynote. “Monetizing friction-free access to music will require swinging to the next vine, and when we make that transition we’ll uncover a bigger music service business that’s been too-long trapped in the too-small body of an old product-based business of control.”

The Choruss plan and the RIAA’s official shift away from suing individuals are acknowledgments on the part of the music industry that file sharing will always be a factor, so it could be simpler — and even beneficial — to lump licensed and unlicensed services together under one monthly fee tacked onto users’ ISP bills. (ESPN and other video networks already do something similar.) Love Choruss or hate it, Griffin would never have come up with this efficient way of addressing social-media consumption if file sharing networks had never existed.

Finally, P2P accelerated the development of products that people want to purchase when free alternatives exist. Whether music sales are competing with The Pirate Bay or imeem, the answer is the same: Sell ads against free content, and try to sell people something they can’t access through the free alternative, be it bonus materials, instant access, concert tickets or whatever. Witness Radiohead’s infamous deluxe box set, the recently launched iTunes pass (essentially an album subscription), Josh Freese’s crazy album extras, or iPhone apps that deliver an artist’s latest creations in near-real time.

File sharing networks forced an industry notoriously set in its ways to acknowledge the enormous power of the internet to distribute music through social channels — if anything, increasing its odds of thriving during the inevitable social-media era.

Lawsuits like this one against The Pirate Bay make sense on the surface. On another level, they’re a funny way of saying, “Thanks.”

From Eliot Van Buskirk and Wired:

“There’s a set of data that shows that file sharing is actually good for artists. Not bad for artists. So maybe we shouldn’t be stopping it all the time.”

Doug Merrill–Douglas Merrill, EMI’s newly appointed president of digital

As reported earlier this week, EMI has hired Douglas Merrill from Google to head up its overall digital music group.

“I’m passionate about data,” Merrill said during a phone interview Wednesday with CNET News.com. “For example, there’s a set of data that shows that file sharing is actually good for artists. Not bad for artists. So maybe we shouldn’t be stopping it all the time. I don’t know…I am generally speaking (against suing fans). Obviously, there is piracy that is quite destructive but again I think the data shows that in some cases file sharing might be okay. What we need to do is understand when is it good, when it is not good…Suing fans doesn’t feel like a winning strategy.”

The hiring of Merrill, Googles former CIO, who has no background in music sales, represents an acknowledgment of how important digital distribution and technology is to the future of the music industry, and to EMI in particular. Merrill says he’s all about applying what he learned from Google about the Internet, digital distribution, and innovation. Expect to see EMI experimenting with different business and distribution models.

“You must do experiments and follow the data,” Merrill said. “That’s often hard because we all have intuitions. The problem is our intuitions aren’t always right and Google has shown that over and over again. We’ve had internal discussions about ‘Oh I believe the site should work this way.’ We go into the experiment and we’re wrong. And you have to be willing to say ‘I thought it was X, I was wrong. It was really Y. That has to be OK. You have to be OK failing because most of the things we try won’t work. That’s why it’s called an experiment. Those things are very deep in my soul.”

More specifically, Merrill said he would see whether a Google ad model will work for music. But he’s willing to try music subscriptions and even an ISP fee. Certainly, what came across about what strategies Merrill intends to use is that he’s not married to any one idea.

“I think there is going to be a lot of different models,” Merrill said. “Those are two (subscriptions and ISP fees) you can imagine. I’m not sure that either one of those will be the most dominant model. But they are both interesting. We should try them and see what the data says. Other options will be things like you can imagine supporting music through relevant targeted ads, the Google model. There is a dozen of other things…we should try them all. We should see what the data says and whatever it says, we should follow the data, and follow our users and let them help guide us. We should engage in a broad conversation about art.”

“I think it’s important to figure out where can record labels add value,” Merrill said. “I don’t know the answer. I think Nine Inch Nails’ experiments have been really interesting and enlightening. We need to step back and say what is the process of artist creation and helping fans find what artists create.

“Given that as a system we need to understand how record labels fit in there,” Merrill continued, “I think the Nine Inch Nails’ release of Ghosts experiment was fascinating. What a great problem to have: people are trying different things. If everyone tries the same thing you’ll never learn anything new. Instead we’re in a situation where people are trying things. How cool is that? Some are going to work. Some aren’t going to work. But we need to try them.”

It’s not often that you hear the word “data” come from the mouth of a record company executive. One thing for sure is that Merrill will either have a significant impact on the way that EMI proceeds to develop it’s overall music strategy moving forward, or he will be ejected from the Capital Records building in a few months. The clash of culture and thinking between an ex-Google exec and the traditional music industry mavens will surely be entertaining to watch and learn from.

As my friend Gerd Leonhard has said many times, “when the pain becomes great enough, the labels (if they are still in business) will have to change their path.” Apparently the pain at EMI is considerable. Lets wish Mr. Merrill the best of luck!