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Incentivizing Your Customers to Steal Your Product

Posted By Barry Ritholtz On September 20, 2005 @ 8:43 am In Finance,Music | Comments Disabled

Bob Lefsetz [1] explains to the major labels why they are either incompetant business people, or just plain ol’ dumb:

It’s this kind of stuff that got the labels in trouble in the FIRST PLACE!

Why do these companies feel that their actions have no consequences?
It’s not only record labels, it’s the radio industry too.  They cut the
playlists, added a ton of commercials and what happened??  PEOPLE
STOPPED LISTENING!  Yup, they keep making new people every day, the
population is increasing, but radio listenership is down.

In the nineties the labels released shittier and shittier acts with
only one good track on their CDs that kept going up in price.  The
companies believed they had all the power, that they could DICTATE to
the marketplace.

Wrong.  The customer ALWAYS has the power.  To see P2P services purely
in the context of free is to miss the point.  From the very BEGINNING
of Napster, when fewer people were trading files than today, however
much publicity the practice was receiving, college students were
TESTIFYING!  Albums sucked and were overpriced to boot!  And that they
wanted to acquire music in a new way.

The battle is over.  Apple’s already sold 22 million iPods.  Don’t
expect a fall-off for Christmas.  The iPod Nano will be hotter than any
album released by the Big Four.  iPod users want the file, the CD is
irrelevant, unless it’s used as a ripping device.  WHICH IT CAN NO

Instead of looking towards the future, getting AHEAD of the marketplace
and corralling the public in a profit-making venture, the labels want
to keep everybody in the past.  They want to focus on CD sales.  Oh,
Edgar Bronfman, Jr. and the other powers say they BELIEVE in the
digital sphere.  But the iTunes Music Store and Rhapsody and Yahoo
Music are INHERENTLY crippled services that the public is not
interested in.  Only a tiny FRACTION of the public utilizes these
services.  Because they don’t deliver what people want, which is much
more USABLE music at a LOW PRICE!  But, these services do one thing the
labels LOVE!  They make the CD look like a good alternative.  This is
like selling
Hyundais with three wheels and saying horse and buggies look good in comparison! 

Or, as the Firesign Theatre once said, "How can you be in two places at once when you’re not anywhere at all?"

TODAY the CD is the main revenue generator.  I have no problem with labels selling CDs.  To switch to files only would decimate their bottom lines.  But, by not preparing for the future adequately, they’re INSURING their marginality in the era to come.  They somehow believe their big budget productions sold solely in the way they want will rule in the future.  I don’t think so.  I think independent acts are going to eat their lunch.  After EMI gets burned by giving all that money to Korn they won’t be ponying up that kind of dough in the future.  Which will INSURE that the artists of the future, or at least SOME OF THEM, those who treasure artistry over greed, will do it all themselves. 
Invest little in dollars but a lot in sweat and get a lot back.  NOTHING is being done by the majors to combat this paradigm.  This paradigm is what they fear.  Then again, maybe I can’t berate them for defending a dying business model.  But do they have to do it via a disinformation campaign and the suit of music LOVERS?  I mean they can live in the past, but must we ALL?

But what’s bad about copy protected CDs is they’re insulting the people who are PLAYING ALONG with the majors’ game.  The people willing to plunk down ten to fifteen bucks for a disc.  They can’t duplicate the CD for use in their car, and they CAN’T RIP THE FILES FOR USE ON AN iPOD!

What I hate about fat cats is they’re so technologically stupid.  You insert one of these CDs into your computer and it adds all this software, just to PLAY the disc!  Windows XP is rickety enough.  You’re going to add an untested program which might interfere with not only other programs but your whole SYSTEM just to hear a fucking CD??  Talk to computer users.  They see that warning that they’re about to install software on their PC and they FREAK OUT!  In an era where viruses and spyware make your machine almost unusable you DO NOT want to add anything unnecessary to the mix.

But, you can rip copy protected WMAs.

I’ve got to ask you, when you think of digital music do you think of MICROSOFT??  Is that the big name in digital music?  No, you think of APPLE!  And, Apple’s iPods won’t play copy protected WMAs.  Why should they?  Apple should give Microsoft an in after the company monopolized the market for desktop
software?  (Yup, Microsoft was ADJUDGED a monopolist by the government.)  It would be one thing if the Microsoft solution was better.  But it’s not.  There ain’t a player on the market as good as the iPod.  There’s not JUKEBOX software as good as iTunes made by Microsoft or any other third party.  Microsoft’s tethered download software Janus???  It’s so defective that Yahoo won’t even charge for its use.  And APPLE is supposed to capitulate?

But, you say, Apple has DRM, known as FairPlay.

But I’m gonna let you in on a little secret.  Just about every file on the iPods in this world have no copy protection.  Because they were ripped from CD or acquired P2P.  As far as this copy protection battle goes, the public thinks it’s a joke.

So, what we need are unprotected files that everybody can acquire and pay for.  We’ve got every element except the last.  We’ve had P2P for five plus years.  But the labels refuse to charge for it.  We have the SOLUTION, but they’d rather spend money suing than collecting.

The labels are clueless here.  They think the fact that copy protected CDs are selling today means nobody cares.  The backlash is BREWING!  There are entries on Weblogs.  People are PISSED!  The majors are just further breaking the trust with their customers.  Insuring division.  PROMPTING file-trading.

Really, you label heads, the people making this inane decision to copy protect CDs.  I’m telling you now.  You’re wreaking havoc on your bottom line that you can’t foresee.

Then again, maybe you don’t foresee further employment.  Maybe you don’t plan on sticking around that long.

If you believe CD burning is the culprit, the reason sales are down, then you probably believe landlines are hurting the cell phone business.  You probably believe that cheap typewriters at flea markets are hurting the computer business.  You probably believe copy machines are challenging e-mail.  You probably believe the floppy is hurting hard disk sales.  You probably believe the cassette Walkman is challenging the iPod.  You probably believe radio is hurting album sales.  You probably believed home taping killed the music business.

But it did not.

It’s not free to burn a CD.  You’ve got to BUY the CD.  You’ve got to take the time to burn it.  You’ve got to give it to a friend.  It’s absent artwork.  And it’s not what you want ANYWAY, you just want the FILES!

Why can’t the labels just cut to the chase.  Why can’t they make files available cheaply and easily.  We’re living in the future.  No, we’re living in the PRESENT!  This is the system that exists TODAY!  Can’t anybody acknowledge it?  Do we have to wait until EVERYBODY trades P2P and sales are dismal?  This is not unlike what happened in New Orleans.  Everybody knew the levees were weak, that there was an accident waiting to happen.  They just figured if they ignored it, maybe it wouldn’t happen on their watch.  Then, disaster hit and the public saw how incompetent those in charge were.

The public already knows how incompetent the record labels are.  The only people who DON’T know are the labels themselves.

But every fucking week sales get worse.  You’d think they’d address the underlying problems.  Lousy overhyped acts selling overpriced CDs.  But rather than deal with the CORE they’d rather deal with the penumbra.  It’s not THEIR fault but the customers’.  If we just make it a little harder to steal, everything will be all right.

But it’s not.

And you can still steal anyway.  By burning the files to disk and then re-ripping them.

But why do that?  When from the moment you purchase the CD the unprotected MP3s of the music contained therein ARE ALREADY AVAILABLE ON THE INTERNET FOR FREE!  Only the record labels would INCENTIVIZE their customers to steal.

You can subscribe to the Lefsetz letter here [1].

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URL to article: http://www.ritholtz.com/blog/2005/09/incentivizing-your-customers-to-steal-your-product/

URLs in this post:

[1] Bob Lefsetz: http://www.lefsetz.com/

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