Silver lining for music fans in Lime Wire case

analysis Lime Wire founder paid only a small percentage of what record companies sought in copyright infringement case. Also, while in court, Warner Music chief seemed to buck other label execs on issue of bundled music.

Fate smiled on Mark Gorton this week.

The coffers of Lime Wire founder Mark Gorton will be $105 million lighter, but he lucked out nonetheless. Greg Sandoval/CNET

The founder of file-sharing company Lime Wire agreed on Thursday to pay $105 million to the Recording Industry Association of America to settle a 5-year-old copyright case. Sure, that's a lot, but consider that the settlement figure is equal to only 7 percent of the $1.4 billion the RIAA sought.

This is likely the final chapter for LimeWire, after 10 years in operation. The two sides agreed to settle a year to the day after U.S. District Judge Kimba Wood ruled that Gorton was liable for willful copyright infringement. Later, Wood ordered that the LimeWire peer-to-peer network be shut down. The financial agreement between Gorton and the labels came amid a jury trial to determine how much Gorton would have to pay in damages.

For fans of cheap, easy-to-obtain music, a few modest reasons for hope sprung up during the two-week-long damages trial.

Edgar Bronfman, CEO of Warner Music Group, one of the four largest record companies, said under oath that he supported the unbundling of music. You might be saying to yourself: "So what?" People have had access to unbundled music for a decade now, thanks to services like iTunes and, yes, LimeWire. All I can tell you is that there are plenty of decision makers at the labels who believe the industry won't recover until consumers are buying albums again.

Bundled music, mostly in the form of the CD, was a boon for the recording industry. Instead of selling individual songs, for say $1 each, they sold CDs for $15 that typically came with 12 or 14 songs. Too often though, music buyers would shell out for a CD only to find that two of the tracks were any good. What did the record companies care? Rather than generating $2 for each of those two hit songs--like they do now--the labels pocketed $15.

In five years covering digital media, I haven't heard a single high-ranking label executive publicly come out against music bundling--just the opposite. But during questioning by Gorton's lawyer, Joseph Baio, Bronfman said the unbundling of songs is a great opportunity for consumers and record companies.

"The truth of the matter is," Bronfman said, "if a consumer goes and spends $25, $30 to buy a couple of albums and that's what they spend each year on music, and from those albums they're getting two, three, four songs that they really like...that may not be a great experience. But if the consumer can spend the same $25 and get 25 songs that they love, that is a fantastic experience."

Spotify's conversion numbers up?
Baio also asked Bronfman about Warner Music's business relationship with Spotify, the European music service that has unsuccessfully attempted to jump to the United States for nearly two years. Before licensing Spotify, the big record labels want to see the company converting about 15 percent of the users of its free-to-consumer, ad-supported service to the paid-subscription service, music industry sources told me last year.

When Baio mentioned that 95 percent of Spotify's users obtain music from the service free of charge, Bronfman corrected him. "It is currently about 85 percent," Bronfman told the court.

Click on photo for complete recap of Lime Wire case. It's thorough, I promise. Screenshot by Greg Sandoval/CNET

In March, Spotify reported 1 million paying subscribers and generated some buzz by claiming the figure represented 15 percent of the users. That didn't sound right because in September, the company reported 10 million users and the 1 million paying users would have equaled 10 percent. But Spotify said it was referring not to total users but to "active" users.

Tweaking the numbers that way didn't fool anybody at the labels, according to my industry sources. However, if Bronfman made an issue in court about the higher percentage of paid users, perhaps Spotify's 15 percent number is solid. If it is, it could mean Spotify is generating the kind of revenue the labels want to see before letting the company enter the U.S. market.

No reliable piracy data
One other note about the RIAA's case against file sharing: the record companies still can't seem to point to any hard numbers about its impacts. For the days I was in court, which included the opening statements, and testimony from several music industry executives, there was no reliable data to pin specific dollar losses to piracy. The best the RIAA could do was point jurors to the decline in annual music sales for most of the past 10 years and studies from NPD Group, which are based on samples, and claim that all the bad news is because of file sharing.

Baio asked Bronfman to compare the damage caused by some of the other factors pressuring the industry besides piracy, such as waning interest in CDs and more competition from video games.

"Well, it's hard, I think, to compare, because there is no specific factual evidence," Bronfman said. "But to me, you know, the economic recession...in 2009 probably had some effect on the industry's growth into part of 2010, but Internet peer-to-peer piracy and all that is derived from, that...seems to me to be the majority of the issues that have hurt the industry so badly."

To prove that piracy is harmful, say music industry critics, more evidence is required than someone's gut feeling.

 

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