April 10, 2005

Scocap and Music Distribution

Nice article on Shawn Fanning (Napster founder) and Scocap and how they are trying to change the way music is distributed, and priced.

Newsday.com: Web tunes: The next step

Shawn Fanning is out to save the music industry. Again.

Sure, record company officials will say the 24-year-old Napster founder sent their business into a tailspin, one they haven't fully pulled out of yet. But they really should thank Napster and the other music download services that created a whole new revenue stream for them, one that requires minimum investment, while also shaking them out of a complacency that would have led to their eventual ruin.

With his new company, Snocap Inc., Fanning hopes to catalog every piece of music, giving each song an acoustic fingerprint, so that record companies and other copyright holders will be able to track and sell its songs more easily. Companies that sign up with Snocap (Sony BMG and Universal Music Group already are onboard, as are several major indie labels, including TVT, Artemis and Nettwerk) can set prices and usage rules for their music centrally, instead of negotiating individual deals with each online retailer.

Under the Snocap business model, if Sony BMG wants to make a new Dave Matthews Band single available for free for a week to drum up interest in the band's new album, it can do it easily. If it wants to lower the price of the entire Dave Matthews catalog for a few weeks to help entice some new purchases, it can do that, too. That means loads of new sales without pressing and shipping any new products. Unfortunately, all those new sales won't be enough for the music industry to drop its ever growing number of lawsuits, including the MGM v. Grokster case being heard by the U.S. Supreme Court.

"There is a digital marketplace now," Fanning said, speaking at the South by Southwest Music Conference last month. "Innovation has been stifled by the litigation."

In its latest example of behind-the-curve bumbling, the music industry continues to duke it out with peer-to-peer Internet download services such as Grokster and Kazaa in the Supreme Court over whether those companies are responsible for the actions of their customers. However, the court's decision, expected later in the spring, already may be technologically obsolete.

According to a recent survey by the Pew Internet & American Life Project, about 18 million Americans, or 13 percent of Internet users, say they download either music or video files without using traditional peer-to-peer networks or paid online services. They swap music files via e-mail or instant message and download songs from blogs and other Web sites.

Despite its multibillion-dollar revenues, the music industry continues to be too slow to understand the shift toward Internet distribution of music and too arrogant to try to meet its customers' needs. Instead of trying to broker some sort of workable solution that would take advantage of this new method of distribution, the industry continues to adopt one ridiculous strategy after another - from releasing computer viruses and fake files on peer-to-peer services to trying to scare consumers away to taking music fans to court for copyright infringement.

Only after another technology company - Apple Computer, with its iPod player and iTunes download service - showed the music industry how to make money online did the industry start to understand the possibilities. Music companies still aren't prepared to act, though. So once again, they will rely on a new bunch of technology companies - from new peer-to-peer services to ringtone makers to copyright negotiators - to help them remake their business again.

That's where Fanning comes in. This time he has early cooperation from some major labels, a sign that they may have learned from their mistakes. At least for now - Snocap hasn't launched yet.

"It still feels like the first step on a very long road," Fanning said, adding that there is still lots of money in converting peer-to-peer users into paying customers.

"It took 14 months for iTunes to sell 100 million songs," he said. "We were doing 100 million downloads a day on Napster."

Contact Glenn Gamboa at 631-843-3434 or [email protected]

Posted by keefner at April 10, 2005 10:55 PM