Amazon's decision to unveil its new Cloud Drive music locker service without establishing licensing deals with record labels continues to reverberate.
The move has elicited an overwhelmingly negative reaction major record labels and publishers. Sony Music said it was "disappointed" and that it is keeping its legal options open. Sony/ATV Music Publishing Chairman Martin Bandier called it "just another land grab" to the Wall Street Journal. And multiple label sources speaking to Billboard.biz on background confirm that their legal and business affairs teams are studying the service to see if it broke any copyright laws or terms of prior deals.
But Amazon music director Craig Pape told Billboard.biz earlier this week, "We don't believe we need licenses to store the customers' files. We look at it the same way as if someone bought an external hard drive and copy files on there for backup." The company essentially insists it's just trying to offer a service that will sell more music by offering a more compelling digital buying experience. So why all the fuss?
Simply put, the labels know very well that cloud-based music services are the future of the industry, and they need to establish now a baseline revenue stream coming from that model. Subscription music services are growing -- but slowly -- and 99-cent downloads have flattened out. If Amazon, Apple and Google all roll out music lockers without any features that the labels can charge licenses for, digital revenues will only continue to suffer.
"Plan B essentially depends on the market consolidating around Apple, Google and Amazon," Forrester Research analyst Mark Mulligan told Billboard.biz. "They cannot afford for all three to go to market with what Amazon did and get no revenue at all. If Amazon does manage to stay in market with what they got, it's because they did a really good job of selling the labels their mid-to-long-term product roadmap about the added value and revenue generating products they're going to use the locker service as a foundation for."
While it's possible that the labels may force a court challenge to protect their digital future, it seems highly unlikely. For starters, it seems improbable that either Google or Apple will launch with a service as simple as the one Amazon unveiled this week.
"It would be a major strategic disappointment if all that Apple or Google comes to market with is a locker service," Mulligan said. "Given all the assets they have and the things they can do and the things that they need to be able to do to enhance the value proposition of their ecosystems, a locker service alone will never be enough."
Even Darren Tsui, CEO of mSpot, which offers a music locker service very similar to the one Amazon launched, told Billboard.biz simply storing and streaming music files from the crowd is "table stakes."
"Talking about storage is not sexy," he said. "Access is more interesting. What people want is the experience."
For instance, Tsui says mSpot is readying a music discover layer atop its existing music locker service, and according to a report in the Wall Street Journal. Amazon is already reaching out to labels for licenses that would let it offer a "scan and match" music locker. Rather than requiring every user to upload individual tracks to the locker, a scan-and-match service would simply scan users' libraries for the songs they own and then let the stream copies of those songs from a central database shared by all other users. Not only would that require establishing licensing deals, such a service would also enable more advanced features, such as song and playlist sharing, music discovery options, and more.
That would go a long way towards alleviating the labels' concerns and stave off any potential legal challenge. But while the labels may rattle their sabers in the meantime, it's not clear they have any legal ground to make a real challenge should they choose to do so in the future.
"I don't know if the labels would win that argument," says Larry Kenswil, a lawyer with Loeb & Loeb and former head of Universal Music Group's eLabs division. "There are ways to do this that are legal."
As long as Amazon is not making copies of any files, which would represent a reproduction of a copyrighted work, then the service likely is in the clear. An August 2008 federal appeals court ruled that a similar movie locker system from Cablevision did not infringe on TV networks or movie studio copyrights.
Labels and/or publishers could try to make a claim that streaming music from the locker somehow constitutes a public performance. But in addition to being far-fetched, that argument has already been tried and failed. In October of 2009, the judge presiding over a lawsuit against Verizon Wireless by ASCAP ruled against ASCAP's claim that the playback of ringtones on mobile phones constitute a public performance.
So far the only legal action taken against a music locker service is EMI's case against MP3Tunes, and that case is more focused on the service's practice of letting users save access to songs that can be streamed elsewhere on the Internet in the locker, not on storing songs users own themselves. And while some labels complained about mSpot's cloud service when it launched, no lawsuit ever resulted
It's hard to see the labels suing the deep-pocketed Amazon -- which also services as a significant retailer for online CD sales -- and giving mSpot a pass
So far the only legal action taken against a music locker service is EMI's case against MP3Tunes, and that case is more focused on the service's practice of letting users save access to songs that can be streamed elsewhere on the Internet in the locker, not on storing songs users own themselves. A more apples-to-apples comparison to the Cloud Drive service is the music locker service offered by mSpot. And while some labels complained about that smaller company's service, no lawsuit resulted.
It's hard to see the labels suing the deep-pocketed Amazon -- which also services as a significant retailer for online CD sales -- and giving mSpot a pass.