Business Matters: The Problem With Pete Townshend's 'Digital Vampire' Vision of iTunes
Business Matters: The Problem With Pete Townshend's 'Digital Vampire' Vision of iTunes

The Problem With Pete Townshend's Vision of iTunes
-- Pete Townshend recent remarks about Apple have gotten a great deal of attention; negative comments about such a beloved company tend to make headlines. But they should have made headlines because it seems Townshend would rather the record industry have a benefactor in Apple than let the marketplace adapt to the industry's challenges.

Townshend gave the first annual John Peel Lecture at the Quays Theatre in Salford, England. The lecture is in honor of legendary DJ John Peel, who championed countless previously unknown artists in his more than 30 years with BBC's Radio One.

One main question he asked is why iTunes doesn't provide the services of a record label "to the artists whose work it bleeds like a digital vampire Northern Rock for its enormous commission?"

It's a good question. Why shouldn't Apple hire an A&R staff, give money and resources and provide this select group of artists with a platform to reach a larger audience? Why can't Apple give back to the artistic community from which it has gained so much?

The same reason Apple should stay away from A&R is the same reason it has passed on opportunities to purchase Warner Music Group and EMI: Apple is a technology company, not a media company. It need only license the creative works of others, not acquire a music company either for charitable purposes (because some people think Apple owes it to musicians) or to realize synergies by consolidating points in the supply chain (synergies provide great justification for acquisitions but are far harder to actually achieve). It can best serve artists and record labels by continuing to create products that consumers love.

Apple certainly could afford to dive headfirst into music. With $9.8 billion in cash as of September 30, Apple could buy both Warner and EMI and have plenty left over. But frankly, music's profit margins are of no interest to a company like Apple.

Don't miss Billboard's FutureSound Conference, taking place November 17-18 at Terra in San Francisco. FutureSound will feature keynotes from the top minds in investment, technology and music today; presentations that will offer specific solutions structured around answering the most pressing questions; and workshops.

But here's a better question: Why can't the marketplace provide the tools and platforms for artists? Why can't parties other than a benevolent Apple give artists an opportunity to succeed? (Actually, those were trick questions: The marketplace is already doing all these things.)

Today there is an abundance of paths an artist can take. For the truly independent artists there are do-it-yourself tools for recording, distribution, marketing and sales. For the most adventurous, there is no shortage of venues around the country and managers looking for potential talent. Small-time stars are built through music blogs. Big-time stars are still built by TV and radio.

Townshend's ideal music industry would actually be less efficient than the one we have. He wants Apple to pay artists directly, but that could be counterproductive. Distributors play an important role because Apple cannot manage millions of relationships with independent artists. The same logic applies to the collective licenses of performing rights organizations. Any place of business that tried to negotiate an individual license with every songwriter in the country would be crushed by the workload and drain on resources.

So change copyright law to ensure iTunes pays artists directly, Townshend might say. After all, SoundExchange pays artists and labels separately here in the U.S. But does anyone truly believe labels and publishers wouldn't change the deals they make with artists and songwriters? If a label received less from revenue generated by an artist into which it has invested millions, contracts would be changed accordingly. Advances might get smaller or the label could take a larger share of revenue from licensing, touring or merchandise. The changes would balance out in the end. Well-meaning changes always have predictable yet unintended consequences. Case in point: who could have imagined that some banks would want to charge extra for ATM usage after the Dodd-Frank bill put a cap on ATM transaction fees? (Well, that one was actually pretty easy to call in advance.)

Even though Townshend says what creative people want is to be heard, it seems what concerns him most is that musicians will be paid. And he would rather a huge company like Apple support artists -- simply because they should.

But it's best to let the record industry continue to be a marketplace. Let companies invest in artists. Protect copyright so they have a reasonable assurance their investments, although risky, were not made in vain. If there is money to be made in a functioning marketplace, artists with potential will get a shot.

Give new business models time to evolve. There are countless entrepreneurs seeking new ways to allow artists to support themselves, get discovered and reach the next level of success. There's no need to throw in the towel this early: Let the marketplace continue to work itself out.

Facebook Ditches MP3 Player
-- Facebook has removed its MP3 player, which is "being replaced with better ways to incorporate music on your Page," according to an entry at the social network's Help Center page. That means Facebook is no longer hosting MP3s and is pushing its users to the many streaming services with which it has partnered (on-demand services Spotify, Rhapsody, Mog, Rdio and a handful of webcasters). (Inside Facebook)

Progress Against Piracy Proceeds at Glacial Pace
-- The legislative fight against piracy occurs at a glacial pace. Opponents to government intervention have strong voices -- especially in the U.S. But keep in mind that approaches to piracy differ from country to country. Lawmakers in some countries have taken a tough stance on illegal file-sharing and in doing so they give us a window into their effectiveness (or ineffectiveness, as it may turn out).

New Zealand will offer the rest of the world a case study on the effectiveness of "3 strikes" laws. Less than 3 months after Copyright (Infringing File Sharing) Amendment Act went into effect, ISPs are starting to receive infringement notices from the Recording Industry Association of New Zealand (Rianz). Telecom has received 42 notices related to infringement from different IP address. According to the National Business Journal, 35 of them for songs by Universal Music Group artist Rihanna and six for songs by UMG's Lady Gaga. Another ISP has received 27 notices. A third confirmed receipt of notices but declined to say how many.

In Sweden's largest personal file-sharing case, a defendant avoided jail time for sharing over 45,000 songs but faces probation and a fine of about $2,500. Needless to say, the trial's outcome did not sit well with Rick Falkvinge, founder of the Pirate Party. "I find it staggering that the establishment can be so oblivious to the fact that this entire structure is disappearing, and judge honest people who share culture -- as if that was something bad -- without a second thought," he told TorrentFreak.