The Blanket License Debate
March 13, 2008
Syd Schwartz in Music Business Models

Ahead of the actual discussion led by Jim Griffin at SXSW Friday, Wired has posted and overview of a notion that has been whispered about in the hallowed halls of the major labels for years…a fee imposed on ISPs that provided end users with an “all you can eat” music service.  Read Music Industry Proposes a Piracy Surcharge on ISPs for additional details, but the idea is pretty basic.  All ISPs would put a fixed amount (for example, $5 per month per subscriber) into a pool, and that pool is then divided up between the various rights-holders (performers, songwriters, labels and publishers).  An independent third party would be responsible for dividing the pie according “popularity”.

I’ve been a proponent of figuring out the details on such a model since the early days of Napster, but such a notion was blasphemous back then and is only starting to gain some interest now that its clear the toothpaste can’t easily be put back into the tube.

There are unquestionably a multitude of issues that would need to be worked out…would this require Federal regulation of ISPs in the U.S.?  What is are the global impacts and requirements?  What technology would be agreed upon to determine the exact content of the traded bits & bytes?  What privacy issues would arise from the implementation of such technology?  What about the technology itself?  What are the development and deployment costs?  What about advertising and marketing plans/committments in a world where “street date” ends up being whichever day the music leaks?  And what about the enormous hurdle of getting all of those stake-holders to agree on the raw dollars, the allocations, the methodologies and a manageable audit pathway?

These questions are just a handful that represent the tip of the iceberg.  And while plenty of folks at the labels that I’ve discussed this with have balked, myself and plenty of others believe that resources put into figuring this out will prove to be well allocated, and with the right solution will more than outweigh the current resources being put into anti-piracy (both technology due diligence and legal fees).  In fact, should this become a reality it only makes it easier for many new music business models to gain traction.  But make no mistake about it…the notion sounds interesting but the necessary legwork and underlying platform are enormous tasks to undertake, and likely years before they could be reasonably implemented.

Feasible? Folly?  What do YOU think?

Update on March 13, 2008 by Registered CommenterBruce Warila

Syd,

This is an interesting debate.  It reminds of talking to my mechanic about fixing the transmission in my car, when I know the problem is with my engine.  If the last digital product the music industry ever builds is the MP3, then maybe we should be discussing an ISP tax.  

I believe we should focus on the engine first - to see if we can get the car to run properly.  The engine problem the digital music (MP3) industry has is inadequate gross margin.  There is not enough profit in selling digital music (as MP3s) to adequately compensate everyone in the value chain.  

I absolutely believe that innovation can solve this problem.  The sharing of music can still occur, margins can be restored, consumers can receive more value, exciting new digital products can energize the marketplace, and best of all - governments will not have to be involved.

If innovation is not the solution, then the vertical integration that’s happing in the marketplace will be.  Chopping out redundant links and squashing various segments of the industry into efficient businesses is another way to fix the engine…

An ISP tax is seductive to those that are focused on fixing the transmission.  If you move the debate over to the engine compartment, the problem with the transmission will go away.  

This is a great post and it’s a great time to be discussing this.  Thanks!

Update on March 14, 2008 by Registered CommenterAndrew Dubber

I can see how the apparent simplicity of a blanket licence across ISPs might be an appealing solution to the record industry - and I can see how that simplicity falls apart when it comes to implementation. I think Bruce is right when he says we're focusing on a symptom rather than the problem, but I think there are two fundamental conceptual problems when it comes to the blanket licence debate.

It does address some real issues, and this has been best expressed (at least to me) by Cory Doctorow, who is really pretty convincing on this stuff. But it overlooks the ways in which music consumption works, and it takes the position that when you fix the problems of the record industry, you solve the issues of the music industry - and I don't believe that to be the case.

People don't just buy music (or download it free) and listen to it. They do a whole range of things that can be broadly categorised as consumption. In other words - it's complicated, and the ways in which music creates value extend far beyond 'format' and an exchange of cash for an artefact - whether physical or digital.

In other words, I don't believe for a second that a blanket licence will solve anything more than a cashflow issue for major record labels - and it will certainly reveal more complex problems elsewhere.

And I'm not convinced it's the responsibility of the Internet industry to be the police force and revenue collection agency of the Record industry. In fact, I find it slightly alarming that one industry can make those demands of another industry - and it strikes nobody as untoward or unusual.

Article originally appeared on Music Think Tank (http://www.musicthinktank.com/).
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