Music Biz: Monetizing File Sharing

by Howie Cockrill

Recently Warner Music appointed Jim Griffin, formerly head of technology at Geffen Records and one of the preeminent minds in the digital music business, to explore and oversee a project to monetize P2P music file sharing online. 

The idea is to add a $5 fee to current monthly ISP user charges.  This fee would then go into a fund used to compensate musicians, songwriters, labels and publishers for the use of their content online. 

The money collected would be distributed amongst rights holders by a collection agency, similar to what ASCAP and BMI do for public performance royalties.

Griffin himself has estimated that this fund could create up to $20 billion in annual revenue, which is approximately double the current annual revenue of the American music industry. 

Warner is not the only major label exploring this possibility.  Jim Griffin is also consulting with Universal and Sony BMG on this topic.

The general concept of creating a fund to offset unauthorized uses of music is nothing new, and the specific idea of tapping ISPs in order to monetize P2P file sharing has been bandied about in U.S. academic circles for some time. 

On a smaller scale, services such as Napster and Rhapsody have been offering “all you can eat” music subscription plans for years, but without 100% commitment by the major labels – issues such as digital rights management, portability and file format / device compatibility have prevented single-service subscription plans from dominating the marketplace.

Recently, Nokia launched its “Comes With Music” service which gives certain products unlimited access to the Universal Music catalog for a fee bundled into the overall product price. 

So perhaps Griffin’s proposal is simply the next evolution of the subscription model for digital music.

The forward-thinking plan is not without controversy however. 

Critics argue that this is yet another attempt by labels and publishers to prop up an industry that has so far failed to find a profitable digital business model.

Others note that the fee would be a general one tacked on to monthly internet access, regardless of whether the user is actually downloading or sharing digital music.

“Slippery slope”-ists fear that such a fee would pave the way for other content owners, such as the film and book industries, to demand similar ISP fees to offset piracy.

Some critics also argue that if this fund is to be viewed as a piracy offset, there is no evidence that the music industry is losing the estimated $20 billion annually to piracy.

In addition to the controversies, there are also practical obstacles.

Convincing ISPs to support the plan and bundle-in an added fees may not be so easy, given the possibility of consumer blowback.

Creating an accounting platform that will ensure fair division of the profits (not to mention getting all the parties involved to agree on such a platform) may also prove an uphill battle.

It is not clear yet whether this plan would be optional for ISPs and content owners, or whether these industries would lobby Congress for a law mandating participation.  If the latter, it could take months or even years for such a law to take effect.

Finally, the major players would no doubt find themselves under government scrutiny with regard to anti-trust law. 

Regardless of the outcome of this debate, it seems clear that by bringing Jim Griffin to the brainstorming table, the record industry is signaling a new, more collaborative and possibly less litigious approach to meeting the challenges presented by file sharing. 

Even if Griffin’s solution is not the ultimate panacea to what ails the music business, at the very least his proposal has sparked an intelligent conversation on the merits of what it means to “own” music, both as a consumer and as a copyright holder. 

Comments

[David R]

For an ISP fee based system to work in the long term there will have to be financial incentives built in to reward those who generate great new, highly sought after, content (music)not just those who have the biggest catalogs (major labels).

I'm a big fan of subscription based business models but trying to equitably split up the monthly ISP music fees among all the rights holders seems like a very tall hurdle.