Ep. 67: The Internet vs the music industryToday we're talking about the music industry and how the Internet has affected it. Our first guest, Michael Robertson, has made a career out of attacking the music industry, first by starting the digital music company MP3.com, and more recently with the...
-- I don't know. -- you're welcome to reporters' roundtable -- needle in San Francisco this is our weekly show we talk about a single solitary tech topic each time. And to -- we're talking about the digital music industry mostly we're doing the show because I landed Michael Robertson to be our guest here on the show one of our guests. I've been trying to get Michael on the show for awhile and am delighted he's on with us today. Michael just launched guard dot FM digital audio recorder dot at them at the demo conference this week which is like Tivo for radio. Michael thanks for joining us. My -- now Michael previously launched the digital music company MP3 dot com which CNET acquired back in 2003 I think. Michael also started -- those in OS distribution company. And a VoIP voice over IP company called gizmo -- he has made a history out of attacking established titans of industry and I'm delighted to have them on. Also joining us is Greg Sandoval who's -- CNET reporter and our media maverick blocker. -- has been covering digital media destruction for years. Great -- to make the time to join us as well. -- -- -- -- When I told great that I had Michael on the show he was very exciting he was like you realize you've spew your landed the grandfather of MP3 dot com. -- you -- a sailor and a little word about that before we get going with the interview here. -- A lot of -- there's lot of people -- talking about. The music industry what iTunes and Napster do it. When you talk about. Digital music and what -- -- Napster would enable people start sharing music. It was the MP3 and -- MP3 format might did not create that one. But -- definitely brought the attention of mainstream. Of public and to consumers of music. And he showed you know that wrapping music in DR was never gonna be accepted. So Apple -- just reverted -- the got father. File sharing them or modern music load distribution. Someday he left -- favor -- Michael thanks again. Let's get started here with current history. Michael I I want you to tell us about dart -- FM it was just launched at demo I wrote a review of it which was is skeptical but I wanna hear your kitchen and pellets. What you're trying to do here with this product. Well DA art that is. A TER. If you will for radio so I -- you guys are done this but I happen the aren't so do 40%. Of American households and we're so trained now that when you get your car when someone's talking you wanna hit that 72 rewind button when they just say yes and what we've been condition that everything should be on demand interactive podcasts or -- line. And for the most part TVA's. And and -- is what it thinks the Internet and things like read it later and instant paper but radio -- -- It really -- been stuck in 1873. Hasn't changed much and it needs to change if it's gonna type. Key mind share of of media by users in in the future so what we did it. DAR -- that that is launch. A DDR type of service for radio so just like your GDR allowed you to record. Anything that broadcast to you and play back when you want. We do the same although GE. Because the cloudless -- -- that all you need to use it is your web browser there's no equipment -- -- -- install or rent. From your cable company is go to DER to -- them. Click what you wanna record whether it's -- music. All that is recorded and stored in the cloud and then you complain everywhere so unlike your TR which traps the music on on -- -- typically your house. Up dark stores music in the cloud means you can take your iPhone or Android phone here Internet radio course your PC and listen to it when you want to -- how you want. So there's a morning talk show that I really like on the radio like them play it I can time shifted easily so that's the -- exactly okay exactly. So Greg if you ever seen anything like this and and what do you think of this little music initiative. Audio and I think this is how things like the console that you. Without seeing everything on -- Did you would involve digital media. Distribution -- -- -- so now I've never seen anything like this but I I have -- people in the music industry are scratching their heads wondering. -- By -- rap music and record and music. This is going to be another copyright issues that this is going to be. Michael -- never fought copyright battles the the father -- net debt to be clear for people who are listening to the show when I say Michael takes on established industries what I generally mean it's in court now Michael you have fought. The music industry more than once in court. Why is this service you think in the clear when it comes to copyright. And -- copyright issues. Well there was a great case cult Cartoon Network vs Cablevision. That that -- battle this exact. Issued Cablevision is -- New York cable company and what they wanted to do was make a network DVR so CeBIT put in a box -- one's house they said why don't we just. Give everyone a remote. And put all the equipment -- our central office and whenever you click record. -- -- record in the central office and when you click apply that user it will play it back. From that central office the media companies and music company sued Cablevision they -- hate. You're ripping us off that the copyright infringement and what that courts found. -- was it was all of Cablevision paper what they said is that Cablevision was not liable for property infringement. Because Cablevision was not making any copies. Now that means that even though the equipment was -- -- -- office and they built it they designed the interface and they control how work. The user seeing record out for me is the key. Up participant in that process and the user that's making. That recordings at the same with with DR it's the user that's actually making those recordings. I interest -- so that to talk about the service just a little bit this is. This is is a cloud based service only gets its audio over the -- you're you're picking up Internet streams right of of audio. Yes absolutely so -- Well what people are able to record. Our stations that we built up a guy with thousands of shows and stations so what were able to offer in that guide -- anything that's being transmitted over the Internet for free so it's not satellite radio. It's not -- goal. Stations that happen to be in San -- where where operas are rather these are stations that are. On the Internet that anyone could listen to. Now an interesting question here just came in from our chat room somebody asked -- automatic -- can you ask how artists are compensated on the replays of -- on FM. Well they're not just like when you play music off your DVR. You know CBS doesn't get more money every time you click play however. Thanks to the royalty rates that were negotiated by the record labels. Every time -- recordings made on the Internet. Artists to get paid. And so that's -- that's a new thing on on traditional radio doesn't work that way -- on the Internet it does so that first time the music is transmitted. That's when the artist is paid. When it's stored and played back later -- there's no royalties associated with. So just -- clear I wrote a little review of the service. The center with skeptical I think it's a fascinating service and -- -- obviously tracking even on that and and that since 1999. I did that -- point out that the audio quality that you get here is non pristine and you may have people talking over so even if you have a playlist associated with the recording this one or two are blocked he may make. Off of the art -- FM it's not gonna be you know super high quality audio. I also said that most. Of -- you know that episodic radio shows are many episodic radiation as of people want to watch they can already get on podcasts. So I'm curious. Where. In the narrowing canyon of the available opportunity for a service like this -- seed dart at FM fitting in and -- Yeah I thought here your headline was complete nonsense to -- -- fair enough and I'll tell you why didn't any time you could make all content available on demand each rapidly on any device I mean -- no brainer that people want that. So when it comes to audio fidelity. That's audio fidelity going to be as good as the Internet radio station is transmitting. So it's is -- as good as pandora we don't use pandora but at pandora is broadcast at a similar bit rates than most the radio stations. So people like pandora which they did open it up you know they're not gonna complain about the audio -- fidelity. It's not gonna be as high fidelity as what you get from iTunes store purchase or Amazon. Us or -- so I'll grant you that. But I don't hear anybody saying you know boy that quality of pandora's tire outlets and so it -- in fact they say the opposite people always. In the music industry is it's gotta be -- 24 bit you know 256 K or no it wasn't so but that isn't true. Users want accessibility they want when they want and how they want it and don't gladly trade audio fidelity to get out. I'll let you mentioned podcast and it is interesting that podcast has been a giant failure -- the reality is podcast not taking off. And the reason why is because the complicated scrambled. -- inefficient Macs right if you want the Rush Limbaugh show if you want. Dave Ramsey if you want Phil Hendrie well some these guys they don't make pod -- some -- ten dollars a month. It's scrambled all over the planet you know it's very difficult to get. Where -- are you we have every show you click on that one on that one click you have it. On every single episode that is up brilliant -- to deliver. Talk shows and are -- people 53 million people a week in the US listen to talk. So it may not be -- top of mind Internet users or maybe news.com. Readers but it's a huge. Outlet or for media in the United States. Before we move off of the darted -- launch I want it to ask you about one more thing with I think is really -- -- about the product which is that you're trying to get it or you are actually getting a baked in. To. Cheap little Internet radio felt just a little -- more about that. Right so because all the content is stored in the cloud well what we have is there's an API. That allows different devices to connect and play so you don't just play and find here you're in your PC -- -- you can. Could you can also stream to Smartphones or Internet radio's. So. My favorite today is one from Logitech -- to squeeze -- get for -- that it -- from best buy. If anything your court on dark you can immediately play on actually. We we've actually talked recently to a couple Internet radio providers and manufacturers. And an expert in -- but haven't -- button right on the device. What does that mean that means if you -- -- -- on nine to twelve sports guy. You can click record on -- And when -- home cooking your dinner you can just put that darn button on your Internet radio it we'll show you everything that's been recorded for you and you click play and and listen to it. So I think that's a brilliant experience when it gets that integrated into the devices. I think we will be achieved are all star. Let's. He had to say that about podcasting harmful because when I -- about its story and his product and in my headline. Fair enough let's move on thanks to -- for the info on -- at them it's really very very actually product -- are ready to check it out. A great Michael either of you guys let's talk here about what's happening in the music industry overall. Are the radio guys finally getting with -- are -- getting Napster or are pretty clear channel just acquired some Internet music copyright Greg. -- look to what's going on there. Well and unclear is it's alone on these players that came in the music's. -- music service they can (%expletive) me. I listen to it and it sounds just like everything else hurt no disrespect it just didn't have anything different about they're trying to jumble -- and -- this. And you make a name in generating buzz. Little of the patent. You know it's hard for me to understand -- clear -- hit you where I'm. I think -- be -- company that today. Has got suit and I'm sure -- -- some -- think it's. And trust them Michael let -- think that acquisition. -- when you talk to the satellite guys when you talk to -- The terrestrial radio guys. They all agree the future is the -- they must get to the Internet where they will lose guarantee in the digital migration. And so when you take a company like clear channel. I think the complaint raised 41 million the rumor is -- -- for a lot less than that. But clear channel -- engineers out of the deal they get some technology and they must get that or they will lose. I'm in this digital migration so I think the radio guys are gonna happen it's written traditionally you guys have to get that talent. They're not gonna grow internally right they're they're -- it. Their business and is selling -- that there -- an ad sales force they're not a technology. Outfit so they must make -- smart acquisitions and they're gonna play a role in into the future audio. -- out when we talk about radio. I I am. Not most the people here in this building are not standard middle America consumers because -- tacked up I mean I don't -- I hardly ever listen to radio even in the car mostly listen to podcasts. It but there are some interest -- replacements for radios for tech for people in particular thing about. The music streaming custom radio services like pandora. Which I think as an upcoming IPO we've got laughed -- them to modify and services like that is this the future of radio great Michael. My I don't yet there is strong opinions about and there are so let's go first. Ha ha. Listen I love pandora -- a service that they've done a phenomenal job getting there. There API their interface in so many devices so from a technical standpoint. From a user standpoint they've done a phenomenal job so much alike there there's one huge glaring problem with pandora and that's the royalties they -- Every time you place on all pandora point one cent. It's have to be paid per user to the record labels. That is not a lot but when you -- billions of songs being played it turns out to be a giant number it's going up every single year. And and pandora will never make a profit given given -- royalty structure so that's the big problem. With a -- or business is the -- huge royalties to give you some perspective a traditional radio station right that that's plain and -- Signal. -- pay about 3% of their revenue in royalties from pandora -- the last nine months has paid. 50%. There's simply no way you can run a business are right well and it's our problem. Good question here while they're there and cars. Manufacturers. And there. Could mean is there are a possibility her chances -- you on this platform to charge. Higher rates. To you know how -- Popularity they have. -- generate some. Products. But. They'll be limited to to charge you know they're the increase sleep better at targeting ads. But that's still want to get him home right I mean there's plenty of inventory there's -- limit to how much you can charge -- And royalties go up every single year and others -- but -- about subscription right and or subscription. Well unfortunately zero point 8% of pandora users sign up for that subscription. And it's actually bad for pandora. This -- if it's three dollars a month 36 dollars a year for the subscription. But they have to pay 8% higher royalties. To support subscription users that you looked for user so pandora she makes its money. -- people agree give them three dollars a month -- isn't crazy backwards world. That is that represents -- digital music is so screwed up what pandora is never gonna be -- big profit machine right I. I get your critique on the business side here but as a consumer I will say this. I prefer listening to a custom radio station on -- -- -- they played mark muffler and everything that's kind of in the same genre and I absolutely love it. Compared to the streaming -- there at the standard AM and FM radio stations that I get pandora is. Better quality how do you reconcile the fact that it is just a better experience than your standard you know radio experience how do we make this work -- -- But the consumers have a thing and that's. Now -- don't not -- -- destruction royalty structures codified in law. Write the laws that. By the rope race that by the copyright royalty board to CRB. And they don't you don't give a hoot what consumers -- so that's the that's the problem. And the kids and -- it was a big part of the -- of reduced rates and it was a huge -- -- and to get what they have. Almost inconceivable that they can reduce the mountain. I guess Apple need pandora and in depth story which they work. Years ago and just before those -- changed. -- let's talk then about the other model here great talk to us about the subscription model rhapsody Napster RDO is is this a model for the future of of music. You look at the past few look at the history of subscription music and it's got nowhere hanging. Rap city the -- were -- not -- -- jockey music. They've never been accepted -- general public. It never made -- -- But now that's all -- sure everybody's talking about subscriptions. -- opera people. The ability to store their music. On third party servers are -- Google or maybe. I might choose. Are -- and easy to use dot com. They're going and to say -- won't get your music wherever you can connect to the Internet. You have to worry about clogging your hard drive anymore we'll take care you. But it'll be part of -- yeah pay us for months -- And it's. I can only talk about what I've read didn't from you've heard from people reckon CNET news.com readers. -- absolutely say no wait a -- rent my music. No -- blind trust my music to some company. I wanna hang on music music ownership as part of our culture we've been doing right collecting albums for a long time. I think it's not a battle but actually that's all anybody not just music it's solid and -- and I mean your -- solar -- about subscription services and up Michael. Well the spot fine isn't very similar boat to endure consumers -- button there's universal praise -- interface. And you know its music service but at the end the day they have huge royalty structure -- -- -- had to give away you know. Fifteen percentage points in their company just to get going and even now they're getting crushed by record label royalties they'll never make any money they're there. There on a little bit different situation and pandora pandora there's a government. There's a law. And the rates are set by a government body. With -- -- -- have to go back to the record labels and renegotiate ever twelve to eighteen months can't and and that's you know. To record labels follow leverage. You know spot I really doesn't help -- -- gonna keep jacking the rates up and spot I would never make any money either -- speaking. Of com. -- -- transponder one I think they did wanna talk about it is the idea of the music locker which Michael obviously done a lot of work in with. MP3 -- now in the news today we see that Apple is trying to negotiate with the labels to allow. Apple to kind of -- -- the music that you buy on iTunes. So that. Blending. You know you lose your music you go back to Apple and you can -- download -- again this is that this seems to me like a fairly big deal to to go to. To help us to collect music as you guys were just talking about it is this an important move for Apple what's been taking the long run -- Well there's been lots of speculation about both Google and Apple and even Amazon working on -- a music lockers or system. Com. I think there that they're all gonna do it. And what they're trying to do is take a baby step what that baby step is is. Make it's that anything you purchased at iTunes you can read -- download multiple times you can you don't download on your iPad here -- Phone your laptop after your desktop even something as simple as that by the way right what where they have your credit card how well they know you paid for it. Yet they can't let you download multiple times because royalties associated with that they'd have to pay. An additional ten cents every time you download it. That it and and that's what they want to get around so but I don't see how that's gonna be possible because there's thousands of publishers they've got to negotiate -- Two to get this right so I don't think Apple's gonna be successful -- Not too bad now the other issue of course for a lot of people is that if I know if there's a track that there's a music. There's there's a piece of music I wanna watch right now and any genre from any time period almost in the entire universe. I go to YouTube and find it how much of an impact is this global library of tunes available on YouTube. Legal or not having on the music industry. It's -- yeah. And kids people start a bigger. -- -- -- For -- while she was trying. And ripped up some kind to -- methods that you can listen to create your -- care. You -- lists and music and he started seeing all. And there is no reason or something like that -- to go buy music in the kind of put the kibosh on. What they are seeing now I just got an error prone conviction in about that people are -- and are buying but they're being a lot war. Choosy about what they're buying. And they don't know -- remember when he -- we don't we listen to a song on the radio. How we might have heard friends talk about it and he had to go up by the CD and Matt who's going to YouTube listener song and listen to it over and over and figure out what you want -- Sometimes it -- -- it. And you won't buy it and sometimes you might -- it but it's definitely giving people the option. And and here's all a lot of time before they happen by the music industry went directly -- -- -- impulse buying. So I think people start looking YouTube and free services. And music industry start to look at this -- say is this really gets worse. Michael. Well I think there -- quite frankly -- the record labels are stuck in and a past era. Where they got. Huge. Money from CD's because people -- it once on but they -- the whole CD -- they can get past that and and what's gonna be required. Is. A continually decline in the music industry until there's a true change of ownership and management that affects their whole approach. Up right now they fight every new technology it's it's it's outrageous what they need do is to understand that the way you get. More revenue on the Internet is put your content in more places not less in more places. And and that's just something that's antithetical to how they think. So right now Warner Music is for sale EMI's owned by C Citigroup and it's for sale. May -- the sale of these will put that in more progress and hands and you'll see the record labels become more progressive. But it but until then it's a -- us -- you situation. And if it goes out -- how exposed. It of the -- on how -- -- Jerry. Revenue if it's out there -- free. It's out there for anybody -- was free -- The same way anybody generates and -- -- wasting -- your employer generates revenue. Right which is. Advertising. E-commerce. Some subscription components. Syndication models all of those things those are going to be key there's no reason that the music industry can have huge revenue around all those things. It's not gonna look like days gone by where people are buying plastic circles -- -- are gone. Best buy music area shrinking Wal-Mart shrinking -- -- excited about a much smaller -- We talked about unaware how. Our -- is that is part of it I think it will continue to shrink and and from its past glory days. Com but but people are innovative and if they. Allow the Internet to be innovative around music they will find new revenue sources that are available that I -- he must mean. Also apply -- question -- go ahead -- The same thing is gonna have -- -- industry. Right on the same kind and and channel. On the same things out and well being -- -- The days of the hundred million dollar film. Know what you're saying -- exactly. Although. Not just Hollywood -- but every -- look at the game industry it's all going for it. It's all going very on the game industry it is actually they're realizing I gotta sell virtual goods items subscriptions and I gotta figure out new ways do it's it's not just the music industry. That is -- this force of move to free and -- new models every media outlet out there. They Michael -- I agree with you the content all content industries are being turned upside down. The developer of -- craft which is a very popular new and emerging still -- alpha test I believe game -- a very brief talk and a I think -- -- -- them a game developer conference. It's saying basically that. You think piracy is not theft and the more people see this game. The better I do because then I can sell subscriptions and you can't pirated subscription at least not at the moment. So what -- yeah I think so and -- get to before Michael I wanna ask you about what it's like to start all these very aggressive companies. One I just I recently heard somebody described the recording industry as. A minor blip in history of music making it very distinct. Difference calling a very distinct difference between music industry and the recording kind of carved out of the music industry. Performing used to be how musicians -- -- their -- not selling their rights to recordings or something like that was that it was. -- -- -- -- -- -- -- -- Are we moving back -- are we moving back to the world where musicians make their money. Not by selling right but by actually doing that live job of music and that is where they make their of the majority of the revenue. But you're right that people talk about the music industry. When really they're -- -- you're referring to the recorded music -- music sales if you well yes but when you look at music licensing that's exploded over the last five years. -- concerts are still -- reasonably well also there are up lots of other components. To the music industry it's not just about recorded music. And then -- and they need diversified I mean that I should be clear to everybody now CD sales are going to zero -- right they're dropping 28 point 5% a year they're going to zero. That is the huge chunk of that of the of the industry right now that is unstoppable decline. And so they need to be. Think more broadly about the music business. Michael tell -- about what you learned from doing MP3 dot com and your other startups and how that informed the launch of the -- dot FM and advice -- of people who are trying to look at it inefficient industry and say. I could do better how do you take a month. Well you have to be in -- our fight in realize that. These big industries -- -- not compete against Microsoft and -- close and that the music companies. You have to understand. They're big for reason and that reason is they're tough. They're not gonna invite you into their industry -- say sure come on here take some market share takes a -- and -- They're gonna do exactly the opposite which is battle you and every -- This is you know -- -- bad press out there they -- city. -- -- -- -- weapons that they can use this -- the music industry is copyright lawsuits. That the first thing that your viewers should know is that copyright is not about right and wrong it's simply about business leverage. It's not about all of this person is making copies that's that's there they're morally rock or something like that. -- simply about business leopard so when you hear that there's a lawsuit don't necessarily think that. I'm the person who is the recipient about lawsuit. Is is wrong you should think the person who filed the lawsuit. Thinks there's a business leverage they have an advantage over that person in court and they're gonna use it at that edge could be. A lot on their -- but it could also be on an outspend them. You know -- I'm gonna dragged into court and when you -- somebody nobody wants to be your partner things like that it's I can hurt them what without even you know. Addressing the merits of of the case so the -- -- update at all they're not gonna go willingly I think is is the moral of story you're gonna. Compete against big entrenched. But industry players Michael why do you take on big entrenched players instead of looking for Greenfield. Well I think. With big and that would the big -- industries that's where the ravenous for. Now Ireland and answer in yeah you can say hey I'm gonna go create new revenue and that that's definitely and it just seen -- business strategy. Or you can say I wanna do something. More efficiently. -- a more streamlined more cost effectively than the existing guys and take some of their market share. We know the sort of two different approaches and both have merits -- -- any final words questions for my color of observations what you think we can now -- -- is that how it happens planned capital and music industry and don't initiative what's it about -- plant that its its not wrong to. File share and getting opposition share contact. They would say in our society. This is free enterprise capitalism people who make products have the right. To sell. And up for the -- -- they want. And copyright form of protection for people who have -- mixed you know. Music and films. And contents and the basic. It is absolutely. Absolutely. The law. So Michael when you talk about. That it not -- wrong how -- It in this I don't think anybody questions what you -- a piece of song. And share it -- file sharing service. It is against the law does not. It depends in the context grad let's say take 12 song is that against the -- About five seconds not enough but what about let's talk about it I hate them are a -- are actually -- well. It does matter the implementation so you can't just universally say. You know all sharing of music is wrong right. I'll I'll correct you on one thing copyright law is not there to protect the copper industry is not there to protect artist is not there to protect media companies right. Copyright was designed to encourage. The creation of content. Those are two very different things. The challenge is not. Hey you know I'm not saying I can take any music and I can manufacturers eases some of -- chunk of my car that's not what I'm saying. What I'm saying is there are lots of different ways to -- media like DAR got that which we watched. That's personal recording. I defy anyone to say that that. It's not good for the industry. Right when it VCR first came out there tax incentives destroy -- industry. It turns out they made more money now from these -- that could possibly imagine the movie industry exploded. Yet its revenue from the very thing they attack and said was -- copyright infringements. So I would -- -- around I think hey you think personal recording is a cooperative project because you are making a copy. Oh that broadcasts when you -- that -- record button. Or that record button on that remote control and and and so my point there is it's a lot greater then I think you are you're pretty neat. Sure there's some things that are outright. Over the line that the courts is that no you can't do that. But a lot of this is news new ground it's grey area it's -- area that has never been addressed by by -- -- -- -- have you heard our commanding. General copyright holder about it and -- -- What was talked to a couple -- station companies large radio station companies and they've been surprisingly. Open minded. And said well this is this -- really change our business but we have to -- that right they know. They are losing young listeners if you're the radio industry right now you're still doing really well on the older demographics. You know huge policy on top and things like that but what's different. Is that young people are -- the radio the same time that you and I did. And why is that important that's important because young people become all people. That spend money. And if they're not trained to be. You know radio fans when they're young they're not gonna pick that up later if you're the music industry actually very concerning the young people are not listings -- the radio at the same levels that. You and I did because young people listen to radio is how you grow music fans that will buy it and care about music. In -- they're not -- -- radio. There are playing video game. Or or social network networking they're not -- be that the music -- that you're -- -- -- -- -- make money from. Like in years gone bot. Guys we're gonna have to wrap up here Greg Owen thank you for joining us great -- about our our reporter here at CNET covering media industry can find his medium never blog and read all about this type stuff great thanks again. Michael is the CEO of most recently DAR dart out FM which are strongly encourage you to check out. And that's speaking of a young audience Michael himself still has a few years left in him so I'm sure that dart out at them is not the last. Company he's going to start to stick a pin in the -- of established industries Michael good luck with -- and your future endeavors and thank you again for making the time for -- roundtable. Thanks ray thanks -- thanks everyone for joining us thanks -- for producing and if you wanna know more about report roundtable C of the blog -- of -- -- report roundtable. Sent an email to roundtable at cnet.com -- -- ideas for topics for future shows and we'll see again next week on Friday at noon Pacific time thanks everyone. And --