Warning: session_start() expects parameter 1 to be array, string given in /home/yourband/public_html/MusicTank/wp-includes/class-wp-hook.php on line 287
The F Word: Monetising Filesharing – MusicTank

Warning: sizeof(): Parameter must be an array or an object that implements Countable in /home/yourband/public_html/MusicTank/wp-content/themes/musictank/woocommerce/content-single-product.php on line 26

The F Word: Monetising Filesharing

Warning: A non-numeric value encountered in /home/yourband/public_html/MusicTank/wp-content/plugins/woocommerce/includes/abstracts/abstract-wc-product.php on line 923

This event brings together the leading proponents of the remuneration-for-access model – rightsholders and ISPs – to debate the issues and opportunities of licensing filesharing.



Introductory Statistical Presentation – Richard Gooch

Given the continuing erosion of CD sales, the ‘Holy Grail’ is digital sales reaching a stage whereby they compensate (or over-compensate) for the decline in physical.  As we all know, the decline is not currently being offset by the increase in digital sales.  Digital does however now account for ~20% US sales.

Litigation against pirates and filesharers: Germany has seen a vigorous campaign and reduced filesharing.  In the UK there was a push in 2005 coupled with reduced levels of sharing but after 2006 the cases were reduced and the sharing increased again.  Those markets where there hasn’t been a concerted push against filesharing (e.g. Spain) have the greatest number of active illegal filesharers.  Litigation has been shown to decrease the use of P2P, but no correlation can be shown between this and take-up of legal digital downloads.

1. Keynote (Summary) – Fred Bolza

Thanks for the damning statistics, as if everyone wasn’t depressed enough already.  There can be no doubt that the ‘value gap’ still exists, but the discussion at large still centres on the idea of ‘legality vs. illegality’.  A more appropriate and constructive discussion now would focus on business models that harness (and monetise) the power of filesharing. Given the downturn in retail, alternative revenue streams must be tapped.

More and more people are using music (or sharing it) in different ways – this provides a number of opportunities for making money.

It’s also important to remember that it’s not only the record labels losing money – ISPs are also facing a big struggle.  Broadband subscription prices are falling, while they face an ever increasing demand for more bandwidth as people wish to access more and more multimedia online.  This makes it very difficult to maintain quality of service.

I’ve identified three areas where money can be made in the digital music ‘ecosystem’:

  • Content
  • Access
  • Device

This should be the starting point for addressing untapped alternatives.  Licensing content in new and innovative ways is a natural first step, already being attempted in some areas. Licensing whole networks on which content is being shared is also possible, ie. Licensing the movement rather than individual tracks.  The final possibility is that of licensing to the devices which carry the shared content – and the solution could be any permutation of these options.

The industry as a whole needs to get its act together – at the moment more time is being spent fighting than doing business.  We need to get out of the ‘enforcer’ mentality, this should be secondary to the development of new business ideas / strategies.  How will the collaboration work?  That’s what we’re here to discuss…

Gil Scott-Heron: “…the revolution will not be televised” – this one will, as well being streamed, downloaded and shared.


Malcolm Hutty: Firstly, an explanation of the role carried out by the London Internet Exchange (LINX).  LINX provides UK networks with the ability to interconnect.  Our clients are the ISPs.  Given that LINX deals with all UK ISPs, we have also become a trade body to represent the interests of UK ISPs.  Thus the main focus for LINX is the provision of networks and the management of traffic (i.e. NOT hosting).

For the ISPs, we allow the traffic – thus we’re not an internet ‘service’ as such, just an enabling infrastructure, simply a means by which the end is achieved.  We thus do not seek to interpose.  It is important that content providers understand this when attempting to consult upon, and develop, new business models.

Solutions to this problem must be enabling and NOT restrictive – must enable consumer to do something they haven’t previously been able to do.

Jon Salmon:  Responsible for broadband content of the site, 1.5m UK customers, 22 channels – one of which is music.  At Tiscali we were involved in one of the first legal download services, has always been a focus.  Worth noting that it’s not only the labels that are coming under pressure to optimise online as a revenue stream.  ISPs must also adapt to ensure they’re not exploited by the record industry by providing free bandwidth while the labels and download sites make their sale over ISP networks.  And going down the legal route is time-consuming and doesn’t ultimately get much achieved.

Paul Hitchman:  The very fundamental of the filesharing problem – who can control it?  Being able to control is the first step on the way to monetisation.  From a technical standpoint, the only parties capable of doing this are the ISPs.  ISPs are thus the obvious partners in the music industry’s endeavours to get monetised filesharing off the ground.

Interesting news coming out of Belgium today in that an ISP has successfully been sued by a collecting society (has been adjudged to be responsible for the illegal sharing of copyrighted mp3s on its network).  Could be a landmark case in terms of bringing ISPs to account.

THIS MAY NOT BE A GOOD THING, for the recording industry or for anyone else.  A few of the reasons for this are as follows:

  • Inevitably leads to a long, drawn out legal battle wherein both sides become entrenched, stifling debate, innovation and the possibility of change;
  • Government may well intervene to impose a compulsory licence, shutting both ISPs and music industry out of talks and providing a ‘mutually unsatisfactory solution’;
  • Filesharing will just be taken underground (encrypted networks etc);
  • …and most importantly: preventing illegal filesharing does not monetise it.  Would be missing out on a huge opportunity.

The industry’s strategy here should be about enabling and adding value – will be much better received by consumers and ISPs alike.  This isn’t to say that legal action doesn’t have its place, but will not really serve the needs of the industry long-term as a default strategy.

Richard Gooch:  People within the industry have put in a massive effort cracking down against online infringement.  Many P2Ps and infringing services online thought they could have our content without asking, and they thought that [rights holders] weren’t even a part of the equation.  In that situation we’d have been scrabbling for pennies from their table.  So without winning cases in different parts of the world we wouldn’t have even been asked to the table, would not have been party to the discussions.  This was absolutely essential for us – litigation was necessary.

It’s now time for a bit more carrot, though.  iTunes is brilliant, it has put $2 billion back on the table but this alone isn’t enough to fix things completely.  I think we need to do more on the legitimate side – we need to come up with more compelling offers.

Fred Bolza:  It’s nice to see a panel like this where the music industry proper is actually in the minority for a change.  All of us here are facing the same problem, just coming at it from very different angles.

A good analogy is the mobile sector.  SMS was originally a tool for service engineers which consumers got hold of and used for rapid communication.  It is now responsible for about 20% of mobile revenue.  This supports the assertion that revenue growth can come from unexpected and unintended sources.

It’s a shame – a great opportunity was missed with Napster.  Rather than licensing it, the industry chose to try and litigate it out of existence.  In so doing it actually created a fertile ground for more and more unlicensed services to emerge rather than immediately embracing this mode of distribution as a licensing opportunity.

The music industry has become somewhat business-to-business, dealing with retailers etc – needs to urgently reconnect with the consumer. Unfortunately, they don’t seem to see the value in the industry’s proposition at the moment.

Malcolm Hutty:  The Belgian decision in certainly regrettable – not just for myself as a representative of the ISPs, but for the music industry at large.  We must remember what is being asked here…that the ISPs police/control their networks, thus moving the consumers further from the content providers with additional restrictions etc.  All highly successful web 2.0 services – google, flickr etc – allow consumers unprecedented control over what they do.

Success in this field will NOT come from ISPs acting as policemen.  We should be enabling, supporting – providing a ‘light touch’.

Keith Harris:  Is it however, technically possible for you to stop illegal filesharing outright?

Malcolm Hutty:  We can revert to the Internet as Compuserve circa 1994 if you wish, but is that really what people want…for the Internet to be that restrictive and controlled?

Jon Salmon:  Would you really want to hold the postman responsible for delivering pirated CDs to someone’s house?

Paul Hitchman:  This is remarkable – the ISPs are actually offering to help us monetise filesharing – this would have been inconceivable even a couple of years ago.  Maybe RG is right in the sense that the pressure brought collectively by the industry against the ISPs got us to this point.  What isn’t in doubt is that we should EMBRACE this.

Richard Gooch:  Paul is right to point this out, BUT it clearly IS technically possible for ISPs to filter out copyrighted content – such monitoring occurs with spam email and virus filters all the time.  In any proposed monetised model though, can we bring all ISPs on board?  Different players will have business strategies – some will be happy to add value and offer paid, premium content services, while others will be keen to just offer wires and commodity bandwidth.

Fred Bolza:  With my work for the Value Recognition Group, the question that emerges is “what is the proposition to the ISPs?”  The worst form of this proposition is “we won’t sue you”, while the best would outline a set of propositions that allow us to compete with free.

With regard to RG’s point about getting all types of ISP onboard – premium and budget versions of the same product exist in all markets, don’t see why it should be a problem for ISPs.

Paul Hitchman:  They should be able to coexist relatively easily.

MH:  Personally I’m delighted the right questions are now being asked.  What is the proposition being offered to ISPs?  If it’s a strong business proposal then WE ARE ALL EARS.  Further threats of litigation however are unlikely to be well received.  Plus restrictive orders on ISPs won’t rid the world of filesharing anyway.  You just have to be able to prove to the ISPs that they can make money from these value added services.

Jon Salmon:  Tiscali has been working with the music industry for some time.  Before MySpace we were doing online showcases for unsigned artists, now webcasting wireless festival etc.  Have also been enabling downloads.  Not made much money from it yet, mind…

Keith Harris:  Litigation reduces P2P, but the problem is that this doesn’t translate into new digital uptake.


An introductory description of the Playlouder model by Paul Hitchman was presented ahead of Q&A

Paul Hitchman:  The Playlouder model is as follows:  1st ISP in world to partner with an industry and give rights holders a share of revenues. REMEMBER: P2P is not free, people are already paying for their broadband.

So what will the service actually look like?

  • Should be unlimited access as with P2P;
  • Should be able to freely share music with all other subscribers;
  • Should provide added value – recommendation, discovery etc;

Playlouder carried out market research on this:

  • 75% participants thought this was “a great idea”;
  • 50% participants said the service had the potential to be “addictive”;
  • 32% participants said they had been waiting for “precisely this service”.

The research also revealed that participants would be willing to pay £10 a month for this service – much more than the industry could otherwise have expected.


  • The Record Industry doesn’t want to embrace added value, so why should we?

Richard Gooch:
  Added value can be provided on top of content: look at Pandora, for example.  There is very little effort required from the user, and the Pandora music database back-end can organise the vast library of streams to deliver relevant and interesting selections.  The problem is revenues and licensing.

Pandora were 3rd highest paying customer to Sound Exchange, and have been committed to paying royalties from inception.

Fred Bolza:  Licensing is very complex.  For most startups now, the wholesale price of music is HIGHER than retail, which is obviously unsustainable.  We must look at this: it’s not about devaluing music, it’s about coming up with a sustainable licensing structure.

  • Both delivery and content guys need to lose their religion a bit.  Record companies are treating digital licensing as if it is the same as it’s physical/real-world analogue.

Malcolm Hutty:  I’m starting to be convinced – Playlouder seem to have the right idea for a start.  If people can offer the ISPs something worthwhile then we can move further in the right direction.

Paul Hitchman:  Industry is obsessed with A) price of unit and B) control of distribution – out-dated concepts. NEED TO FOCUS ON MAXIMISING RETURN PER USER, rather than per unit, and move to REMUNERATION IN TERMS OF SHARING/MOVEMENT, rather than distributive control.

Fred Bolza:  As with the mobile industry, they think in terms of INDIVIDUAL CUSTOMER ECONOMICS – building monetised relationships over time.

  • Talk of value-added vs. nearly free – different services.  Can nearly free be a possibility? Maybe ad-subsidised?

Jon Salmon:  People refuse to pay on the internet compared to mobile – they just won’t do it.  Maybe advertising can fill the gap (sponsorship etc).  Even if they’re not paying online, hopefully generating revenue elsewhere.

Richard Gooch:  Different strategies, doesn’t have to be just one.  Ad-funded services look to be an important model, but not the only model.  Free or nearly free isn’t the only option, people will pay, but the offer has to be right and different people want different things.

Malcolm Hutty:  P2P is traffic on a network.  Music files aren’t that large, thus don’t cause that much of a problem.  High-def video on the other hand, WILL be problematic.  Big changes, network redesign will be necessary for this.  Maybe the changes necessary for music sharing monetisiation can piggy back on the changes already being made.  There is a possibility that the music industry has missed the boat on this one however.

  • What about the artists?  What is their artistic and creative future?  The business is built on artists.

Paul Hitchman:  All artists I’ve ever spoken to are keen to have their music distributed as widely as possible.  If they get to pick up revenues on the way then that’s great, but P2P etc can only help to spread their musical message further.

  • Question regarding the Prince / Mail on Sunday covermount

Fred Bolza:  Digital music revolution: main effect is disintermediation.  Individuals: fans, artists etc will certainly benefit in the long run.  Intermediaries (e.g. retailers) will have to adapt or lose out.

  • If downloading can be made fun – e.g. with a high street destination selling coffees, showing music videos etc, would people go for it?

Richard Gooch:  There’s probably a market for it, but the retail sector has so little money at the moment that it’s difficult to regenerate stores as glitzy lifestyle destinations.

  • Artists give content, want it as widely distributed as possible.  Some are using free services to get their music out there, innovative models.  Are we seeing a transition? Are labels holding on to unrealistic prices?  Do they need to just give it up?  PRS agreements etc?

Paul Hitchman:  Publishers don’t deserve much blame.  Along with the indies, have tried to be progressive.  Majors are just trying to protect their business but will be forced to change.

Fred Bolza:  Artists and fans can now circumnavigate the system if they really want to, but in reality fans don’t want to be presented with ‘infinite choice’.  Thus there is always a need for intermediaries.  Prices are currently a problem but we do need to be realistic about the pace of change.

  • Prevailing attitude from start-up intermediaries – licensing is a kind of compulsory choir practice that they don’t want to attend.

Paul Hitchman:  Too right, the ones who play by the rules get left behind and (obviously) end up paying out more money, even getting shut down in certain territories (e.g. Pandora).  This is in comparison to Last.fm who waited for the industry to come to them.

  • Direct artist / fan relationships are becoming increasingly important.  Monetise relationships, forget even about single-track sales.  Prince’s model is fantastic, will earn substantially more this way than through a typical recording contract.  Bundling makes financial sense to him.  Via Mail on Sunday he gets circulation of 2million + for his album, and drums up sufficient interest that he is able to sell plenty of tickets for his tour.  From the artist’s perspective, this is great model.

Jon Salmon:  Highlights the fact that labels are becoming increasingly  irrelevant.  Touring is set to become a huge revenue stream, reverse position.

  • The only people who want to shell out on music at the moment are those who really care.  Games and film industries need to pull their fingers out too as they’re next in the firing line.  Prince’s giveaway – albums with concert tickets – represents great value for customers, highlights increasingly important role live music will play.

Richard Gooch:  Live music is really important, but if one sector of the industry is in trouble, then problems will eventually trickle down to other sectors including live music…