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The Ghost in the Business Model

Posted By Barry Ritholtz On February 23, 2006 @ 1:00 pm In Finance,Intellectual Property,Music | Comments Disabled

I’ve been meaning to get to this interesting NYT discussion [1] on CD sharing and copying.

200pxhome_taping_is_killing_music [2]I’m old enough to recall the recording industry’s campaign against home (analog) taping: "Home Taping is Killing Music" [3], and MPAA honcho Jack Valenti’s dire warning that the VCR would ruin the film industry.

Of course, the VCR and then the DVD were huge money makers for film, and music thrived in the 1980s and early 90s. Just imagine if the film industry refused  to move from tape to DVD;  As absurd as that has been, it is roughly the equivalent of the recording industry’s long refusal to embrace digital downloads — both legal and not.

In appeasing their brick and morter retailers, they created another problem: By the time they finally agreed to digital distribution (i.e, Apple iTunes Music Store), they had helped train a generation of music fans to get music for free. Simply a horrific business decision . . .

Here’s the NYT column [1] on CD copying and sharing amongst friends:

Nyt_184336"After years of battling users of free peer-to-peer file-sharing networks (and the software companies that support them), the recording industry now identifies "casual piracy" – the simple copying and sharing of CD’s with friends – as the biggest threat to its bottom line.

And in one company’s haste to limit the ripping and burning of CD’s, a hornet’s nest has been stirred. By the end of last week, that company, Sony BMG, which had embedded aggressive copy-protection software on the Van Zant CD and at least 19 others, suspended the use of that software after security companies classified it as malicious.

At least two Internet-borne worms were discovered attempting to take advantage of the program, which the CD’s transferred to computers that played them. And the company was facing lawsuits accusing it of fraud and computer tampering in its efforts at digital rights management, or D.R.M.

Sony BMG seems to have failed that test when, in seeking to limit consumers to making three copies of its CD’s, it embedded the First 4 Internet software, which penetrates deeply into the PC’s of users with a program that introduced a real, if minor, security risk."

It all began unraveling early last month, after an American customer notified F-Secure, a Finnish antivirus company, of some files attempting to hide themselves on his computer. F-Secure deduced that the Van Zant CD had deposited a program that looked a lot like a "rootkit" – typically a dirty word in computer security circles because it describes software tools used to hack the deepest level of a computer system and hide the footprints of an intruder.

That might have been bad enough, said Mikko H. Hypponen, the chief research officer of F-Secure, but the rootkit also proved capable not just of hiding itself, but any file, folder or process on the computer that used a five-character string as part of its name."

Hometapingiskillingtee [2]Of course, the industry is as wrong about CD sharing [4] as they are about everything else. I make mixed CDs for friends, and if there is an artist I am really hot about, I’ve made copies of discs for friends. More often than not, it leads to additional sales of discs for that musician. It works as advertising and promotion, not theft.

And as Downhillbattle.org [5] reminds us, its fun.

I like having physical CDs, and I have 1,000s of them. But if I could not rip CDs to my Mac & iPod, if I could not easily make back up copies for the car or summer house, if I could not swap ‘em, than I would not buy them.

I suspect lots of other consumers feel the same way . . .


The Ghost in the CD [1]
NYT, November 14, 2005

Forget the spin, taping is not killing music [4]
Peter Martin
The Sydney Morning Herald, December 31, 2003

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/02/the-ghost-in-the-business-model/

URLs in this post:

[1] NYT discussion: http://www.nytimes.com/2005/11/14/business/14rights.html?ex=1289624400&en=b351ea66bc241b31&ei=5090&partner=rssuserland&emc=rss

[2] Image: http://www.boingboing.net/2005/01/07/tshirt_home_taping_i.html

[3] "Home Taping is Killing Music": http://en.wikipedia.org/wiki/Home_taping_is_killing_music

[4] wrong about CD sharing: http://www.smh.com.au/articles/2003/12/30/1072546532286.html

[5] Downhillbattle.org: http://www.downhillbattle.org/

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