Kazaa owners surprisingly naive about new subscription service

Earlier this week, the former P2P service Kazaa announced it was launching a music subscription service with content supplied by all of the majors. One million tracks are available for US$20 per month. So far the service is available in the US and there are no plans as yet to extend it anywhere else. Surprisingly, the tracks contain DRM and can only be played on nominated PCs. They also cannot be transferred to a portable device.

The shift to legitimacy is a popular theme at the moment. A few weeks ago the BitTorrent tracker service The Pirate Bay was snapped up by the Swedish software company Global Gaming Factory (GGF) X AB for SEK60 million (US$7.8 million). GGF is intending to launch new business models that provide compensation to content providers and copyright owners. It is also to take immediate action against illegal downloading.

Unfortunately for Kazaa’s parent company Altnet and GGF, the attempts by illegal file-sharing services to launch legitimate alternatives have largely proved unsuccessful. Napster is the most high profile brand name to have survived closure through legal action, but the brand name is all that can be associated with the P2P service that operated at the turn of the century. Attempts to utilize the popularity of the brand failed and the company was acquired by the consumer electronics retailer Best Buy for US$121 million last year. P2P service Soribada in South Korea, often described as the “Korean Napster”, has had some success. It operates a legitimate download service following the closure of its unlicensed P2P service by the Seoul High Court. All of the majors supply content.

Traditionally, the closure of the most popular file-sharing operator of the day by legal action has been followed by the emergence of a new illegal service. More legal action then forces the new service to close, and so on. At the same time, the closure of an illegal service by the courts is often followed by a pronouncement that the service will be launching a legitimate store. This was the case for eDonkey, Bearshare and Grokster, all of which were forced to settle copyright-infringement claims made by the major international record companies. All have since either ceased operations or now offer limited subscription services.

The last remaining significant P2P service is LimeWire. It uses the BitTorrent protocol and the Gnutella network and says it has 70 million unique monthly users. It has made the most progress toward legitimacy, having launched an online store early last year selling MP3 downloads from several partners, including the Orchard, IODA, Redeye Distribution, Nettwerk Music Group and IRIS. It does not offer major-label content, however.

The attraction of P2P services for users is simply that they offer access to music at no cost. The launch of a legal alternative takes away the main attraction of a service, while at the same time putting it in competition with the likes of iTunes and other services backed by cash-rich telecoms firms. Even though many of these telecoms-backed offerings have licensing deals with all the majors, most continue to struggle to close the gap with market leader iTunes. Kazaa may have led the way for a year or so, but it is naïve to think that users will return in their millions to a service that has already failed under several other brand names. Bizarrely, when Kazaa was at its most successful, the rest of the music world was backing DRM. There’s a lesson in there somewhere.

Music & Copyright is a fortnightly research service published by Informa Telecoms & Media.

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German collection society GEMA feels the pressure

Although the live music sector in Germany is looking prettyhealthy, one aspect that is concerning the concert industry is the intention of GEMA to increase rates for live music performances. It is likely to take until next month for GEMA and the two live-music trade organizations IDKV and VDKV to reach an agreement on the new rates. The three parties are currently presenting their cases to a German Patent Office arbitral court, after the live music bodies refused to accept GEMA’s demands for significant increases in concert and festival rates. Among other proposals, GEMA wants to introduce a levy on sponsorship fees and ticketing-service charges. The new rates set out a gradually escalating pricing system rising to 10% of ticket prices for festival events by 2014. Representatives of IDKV and VDKD called GEMA’s demands extortion, but GEMA says it is merely acting on the requests of its members. So far, the arbitration court has conducted two hearings and plans to present its findings for fair compensation for performing rights next month. This decision will be considered binding for all concerned parties.

Although the conflict over performance rates gained coverage only in trade papers and music magazines, another case against GEMA reached a much bigger audience. Since September, German citizens have had the right to apply for a so-called e-petition. Monika Bestle, who runs a small venue in Sonthofen, a tiny town in the deep south of Germany, filed such a petition protesting about the policies of GEMA at the German Bundestag. Bestle’s petition gained – by sheer coincidence on June 22, the same day of GEMA’s annual meeting – the 50,000 signatures required to officially place it for consideration on the agenda of the German parliament.

In the petition, Bestle asks the German government to decide whether the policies of GEMA are in line with civil law regarding associations and copyright. She has also requested that the Government force GEMA to undertake a broad reformation of its rate system for small live-music promoters and the royalty-payment plan for artists; a simplification of business conditions; and transparency and amendment of its encashment rules. One year ago, the government’s Culture in Germany committee of enquiry confronted GEMA with a report that included similar observations.

During its general assembly, GEMA distributed a press release regarding the petition to its members, saying that it already offers several special rates for smaller concert promoters and that some postings in online forums contained false information. But this situation was not dismissed easily – when the petition gathered more than 80,000 signatures, several nationwide news sources, such as Spiegel.de and Frankfurter Rundschau picked up the issue, publishing reports critical of GEMA’s practices. Worrying for GEMA is that the petition has thousands more signatures than it has members. Also, earlier this year, it received critical media coverage when, due to a tariff conflict, YouTube Germany removed GEMA-protected repertoire from its servers.

Music & Copyright is a fortnightly research service published by Informa Telecoms & Media.