Manage for Success:
Follow-up Exchanges to "Digital Music Licensing," Newsletter #15, (July 2002)

As an aftermath to my piece (see Newsletter 15, above) emailed on July 23rd, and a response by Ken Droz of Mack Avenue Records emailed to subscribers early in the morning of August 1st, a fascinating dialog has ensued between Ken and Benjamin Dowling of Visionsound, which I've posted below.


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This first item is the piece from Ken Droz at (kdroz@mackaverecords.com) which was emailed to the list on 8/1/02 at 1:41 AM

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I had a chance to read your newsletter about Digital Music Licensing
and just wanted to share a bit of knowledge about music
piracy/stealing.

The main application people are using now is "KaZaA". I talked to
some of my friends who are avid users and got some more info about
such services, which your readers may already be aware of.

First of all, in the interest of piracy, there can be only one truly
effective pocket of theft on the Internet at a time. That is to say,
the more users on a given file-sharing service, the more effective it
will be, since the number of users is directly proportionate to the
amount of material provided. As was the case with Napster, everyone
wants to use the service with the most users, to maximize the wealth
of material available to them.

The best thing that could happen in the interest of labels and artists
is that this community gets flooded with music sharing providers, each
taking an even share of users, so that the volume of material
available would be limited by having fewer users, rendering the
service much less efficient. Unfortunately, this has never been the
case. There is always one major source with an overwhelming majority
of users, which people flock to because of its vast selection of
files. For now this service is KaZaA, which also provides movies and
software.

I am amazed that this services continues to be effective, as in its
present form, this is a simple operation for the music industry to
protect itself against.

I'll explain...

Search results on KaZaA are arranged in order of connection speed, a
ranking system also used by Napster and Gnutella allowing users to
download as quickly as possible. This means that if you are logged on
with a lightning-fast connection you will be the first option people
have to download material from. With KaZaA, you get up to the top 100
results matched to your search in order of connection speed.

This means that if a party is connected directly to a backbone
computer (available at many universities for a fee), they would have
the fastest conceivable connection to the Internet, a cost few people
desiring free music are likely to invest in, and as such, the files
shared by this computer would be the first option on KaZaA's list of
search results. After the first 100 options are returned the user's
search is concluded.

A record company could hook several computers to the backbone and
design a simple program that would regularly set up accounts that
route users to whatever files the company wants to come up on a given
search.

Say you represented a hot new group, The Drozes, and didn't want their
songs stolen on the Internet. A very simple computer program could
sign-up several (say...100?) accounts, changing them every hour so
people would not be able to identify these accounts. Each account
would refer to the files in a given computer folder with files
provided by the label/artist or other company. These files could be
blank or they could be short sound clips (less than one minute, for
bandwidth purposes), embedded with a voiceover that states "Pirating
music is illegal" or "purchase The Drozes' latest album, 'Dancing With
Mustard' at fine record stores everywhere". Having 100 accounts on
this lightning-fast connection would mean that a search you would like
protected would yield ONLY the files that you provide, so that the
only samples available would be controlled by the contents of folder
you refer them to.

Once this system is set up, all that is needed to protect a given
track is to add a single file to this folder identifying it as the
track you want protected. Some individuals have used a Trojan horse
method to spread viruses this way, attacking the users who steal their
music, but I do not recommend this tactic as it is illegal and
unnecessary.

Many people already provide dead links, or empty files, which is makes
it increasingly difficult to get the music a user might want to
pirate. If a user identifies such a source, they can block it, but if
these accounts change regularly, users will have no defense, unless
individuals maintaining KaZaA were to aggressively seek to directly
identify the IP address of this source and choose to block it. Empty
files can be identified by being less than 10kb, and will never be
downloaded, but if these files make up the top 100 hits on a user's
search, they have no real files to download anyway. The other option
would be providing bigger files with messages embedded in them as
mentioned above, which would make such files indistinguishable from
the actual pirated files.

Even if only 75 percent of the files are supplied by such a company,
it will make getting free music FAR more difficult as several copies
of each track must be downloaded and verified.

It is worth noting that file-sharing services are ever-changing, and
in order to protect your music, it will be important to keep up with
this community and the trends that keep music pirating alive. But this
system, as it currently exists, is extremely vulnerable to entities
interested in protecting their music, and as it changes, so must the
music industry. While such tactics, if implemented and wildly
successful, may be eventually countered by services like KaZaA,
persistent, vigilant responses from the parties affected could shake
the service enough to inconvenience and frustrate users enough to
drive them away and lessen the impact file sharing has had on the
entertainment and software industries.

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In reply to the above, the dialogue begins….

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From Benjamin Dowling (rbd@visionsound.com)
8/1/02, 8:34 AM

Keith and Ken,

Thanks for the note regarding the bait and switch article for protecting
music on the internet.

Unfortunately, IP address blocking is extremely easy, and therefore would
get used pretty quickly. Even using dynamic IP addresses, as many services
do, won't slow things up too much. Remember, the only thing an illegal MP3
distribution company needs to do is blanket range IP block to their hearts
content, no one's going to come after them since they can't be gotten to -
thanks to Napster's demise. They are certainly not going to respond to any
"equal access" considerations.

More importantly, there are other options that may make better sense:

1. Become the biggest provider of low bandwidth versions to promote your
music at or below FM quality.

2. Invest in surround mixes and DVD releases which include music and visual
content which can't currently be downloaded into playback systems that can
play them back.

3. Investigate other options within the realm of cooperation - signing up
many accounts and becoming the biggest provider of material that works for
everyone. Maybe there is a means to satisfy everyone a little, that is
better than the current situation.

We're never going to prevent this from happening. It's an international
network that creates workarounds faster than any company or consortium we
can come up with. We can, however, have an effect if we participate in what
is real on the ground. The more angry we are - no matter how well justified
- the less effect we will have.

There's an old spiritual principle - "what you resist, persists." We're
seeing it with super germs in hospitals. Could this be yet another example?

Thanks for the conversation, looking forward to more. We all have a vested
interest in finding the right balance, whatever that may look like.

Best regards,

Benjamin Dowling, Visionsound

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From Ken Droz at (kdroz@mackaverecords.com)
8/1/02 9:26 AM

Thanks Ben,

To my knowledge, KaZaA does not actively seek out sources which provide
faulty links as this is a major complaint I have heard from the users I
have spoken with. Low quality files are a great idea, and would be an
excellent alternative to shorter soundclips or empty files. This method
would reduce the quality of files available and camouflage these protective
efforts even more effectively than providing the files mentioned in my
response. I still feel that a voiceover track--or even small gaps in
material provided--would further discourage users from settling for
downloaded music in lieu of purchasing material.

The idea of using DVD recordings doesn't seem to me like an effective
deterrent as it limits users to playing back music on DVD players, if I am
understanding you correctly. This would compromise your own product as
honest consumers would not be able to listen on most car stereos and many
home stereo systems. When this technology is widely accepted, I believe
that the demand for pirated DVD encoded music will spawn an effective file
sharing community for the population that uses this DVD players for their
music. This method seems to generate a problem nested in the very product
we are trying to sell.

If IP blocking is in fact the only threat to these methods, then in
preparing a defense against file sharing, a system may need to be worked
out to obtain new IP addresses the moment one is effectively shut down.

Suppose there was a company devoted solely to protecting music from file
sharing. Record labels could pay for this service and fund the maintenance
of IP addresses valid in the eyes of file sharing companies. Yes, there
may be small lapses between each IP change if file sharing services counter
with equal vigilance, but persistent mobility would keep this service alive
and severely compromise access to designated files, frustrating users and
shaking their faith in the file-sharing system they use.

True, if such efforts are effective, workarounds will be created, and file
sharing will be strengthened by sealing its own loopholes. But by not
exploiting these opportunities, we submit to the system as though it is
already indomitable, effectively rendering it as such.

I thank you sincerely for your feedback and look forward to your response.

-Ken

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From Benjamin Dowling (rbd@visionsound.com)
8/1/02, 10:37 AM

Hi Ken,

Thanks for your response.

As to how things are done this week, if KaZaA isn't checking for IP
addresses and for bad links, they soon will. Beyond this, it is not hard
for a search tool to search for discontinuities in sound files, and if it
became a problem for KaZaA, they'll do that too.

We can't forget that the $50,000,000 security encryption for DVD was broken
in a week by a 14 year old Norwegian, and the following week was distributed
worldwide for free.

Perhaps you have more faith in technological solutions than I do.

The main reason we are suffering from the current situation (which appears
to be getting worse by the moment) is that record labels collectively have
been unable to create an online resource, with everything on it at
reasonable quality; that is based on a subscription so cheap few would
question paying for it. Will there be illegal copying? Count on it. But
there are hundreds of millions of dollars to be made this way that are not
being made today.

In the meantime, we can play games or we can look down the road at new ways
of delivering music content. My suggestion regarding DVD is based on:

1. Deferring the download problem until better solutions are discovered -
because as you say viable, downloadable movies are not so far away,

2. Making low-bandwidth stereo download a part of our strategy, and

3. Looking down the road and seeing where the market might end up years from
now. If we re-examine what it is that makes music special, perhaps we can
find ways of combining visual and audio in an interactive way that requires
a high-density, hard-media product. The Internet Protocol and fast
interactivity are not friends.

Or perhaps we need to create good reasons for fans to want to pay for our
service. I don't know a fan alive that doesn't have an interest in the
artist, and would love nothing more than to be on the "inside" of their
community. Could this be part of the answer?

I'm quite serious about embracing the change. We can do it that way, or we
can be pulled kicking and screaming. The real question is, how do music and
music lovers best get served? Which approach will result in better music,
more creativity and better business, long term?

I don't have the answers to this. I'm just a musician and producer, but how
is it that the best and brightest haven't come up with better ideas than
defensive ones? Isn't it up to us to create an environment worth creating
into? Because if all we are doing is protecting, we are no longer bringing
our full creativity to the party.

I really think that we need to be comprehensive about solutions. There may
well be defensive measures which are appropriate. But my concern is that
there are opportunities for changes in music and media that may sidestep at
least part of the problem - and these are not getting discussed!

Right now, we are collectively being challenged to grow. I'm not at all
convinced that a defensive posture is how we best meet that challenge. We
are creative people. That's our most promising resource. Let's use it.

Best regards,

Benjamin Dowling, Visionsound
Innovations in Music and Media
13547 Ventura Blvd. #110
Sherman Oaks, CA 91423
(818) 786-4800
www.visionsound.com

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From Ken Droz at (kdroz@mackaverecords.com)
8/1/02 4:45 PM

Ben,

You are suggesting that all defensive measures are defeatable. And in fact
they may be. Where I differ from your opinion is that if in three weeks a
file-sharing company can put an end to a given defensive tactic, that would
mean that the tactic is effective enough to affect some considerable change
in the service they are providing. Because that change may not be
everlasting does not render it worthless. The service will lose users in
that time who view the service spotty, or else they would not seek to
counter it. It is my hope that such actions would require KaZaA to
respond, because if they didn't, it would mean the action was not having a
measurable affect on that community. It would be my hope that sustained
efforts like this will continue to drive users away from downloading such
protected material.

Your long-term vision is commendable and clearly would provide a win-win
situation, provided you do not believe that the persistence of file sharing
is a threat to the music industry. You are thinking outside the box, and
in the interest of the music industry failure to do sure would be a losing
proposition. But while we must plan for the day when technologies such as
DVD are proliferated, we cannot wait for it.

Adding value above that which can be provided on a P2P network is a major
challenge for the industry, especially without driving up production costs
and affecting retail prices, which have been shown recently to be a major
factor contributing to the purchase behavior of consumers. Perhaps
certificates redeemable for first shot at premium concert tickets, artist
autographs, or other creative, non-production related perks would create
incentive to purchase music above that which can be transmitted digitally.

Relying on a subscription service to provide music legitimately seems to
swap our respective positions regarding the security of providing music
online, as I feel that this would be abused more readily than we can
prepare ourselves for. Well-intended searches and private e-mail addresses
have returned to me links to more password sites than I can count in a day,
and I fear that counting on a subscription service to distribute music
would turn up similar problems should we choose to move in that direction.
Unless we can safeguard these sites as vigilantly as credit card companies
protect their cardholders' accounts to enable online transactions, I am
afraid we will not be able broker online dealings without losing a
significant amount of sales from loopholes in our own accounting methods
and technical shortcomings.

-Ken

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From Benjamin Dowling (rbd@visionsound.com)
8/1/02, 8:31 PM

Hi Ken,

Your point about being a continual pain to online free distribution services
(pirates), is well taken. From a technical angle, however, I think our bag
of tricks is limited, and there are better options.

Essentially, I see two defensive approaches:

1. Poison the well - create false or defaced material we try and stuff down
their pipeline and hope people get fed up with it and go to Tower records.

2. Confuse the service - create multiple identities that misrepresent
themselves to the services and confuse their software - temporarily.

I'm sure there are other strategies, but my sense is that we are fairly
limited, here. Whatever strategy we come up with, it's just too easy to
code something to discover our strategy. Once again, they don't require
100% accessibility, only 40% and they can stay in operation. They are not
an equal opportunity employer.

It's quite true that we can't wait for DVD to take over the world. But we
can begin at the concept stages now to provide the kind of material that can
rolled easily to that format - with a now viable consumer base. No, the
record business will never look the way it once did. Change is coming our
way, and we need to adapt or die.

It is not as though we don't have viable models either. Though they are not
exactly my cup of tea, the Grateful Dead created quite a business in
actually PROMOTING the recording of their performances. To this day, these
home recordings are some the fans' most prized possessions.

Regarding the costs of doing business - yes, we will have to spend more on
production. There I said it. There is no question that we have to cross
that bridge. When talkies came into being, the studios had to spend more
money for sound. It was that or die.

But it's important to note that production costs can be mitigated with a
different compensation model. As far as doing it all on our own, that's no
longer possible. Since producing DVD, I can unequivocally testify about
that. But partnerships with people that generate visual stuff are
definitely possible and need to be explored. Recently, I've partnered with
photographers and graphics people, actors and filmmakers. It's really
possible. And the desktop capabilities now are better than most movie
studios dreamed of just 10 years ago - and less expensive by orders of
magnitude.

The cost basis of the current record business is over. It is unsustainable
in the current environment, and nothing is going to change that. I don't
like to be the bearer of bad news, but we need to get over it. Whatever
needs to be done to service the music consumer community is going to happen,
expensive or not. It that means we need to look at the way production
expenses and distribution and everything else is done, because the consumer
is driving this bus.

Finally, subscription service. When I turn on ESPN on my cable, I'm paying
for it. I could copy it. I could take up one of the hundreds of cable box
bypasses that arrive in my email and get by without paying for it. But I
don't because it isn't worth the time or energy to do so. Even though it
isn't free, it "feels" free.

Likewise, I could go to the Video store get a stack of DVD's and start
ripping tomorrow. But I won't. Why? Because it isn't worth my time and
energy to do so. Not for 3 bucks a pop.

What I'm trying to say - and probably not very well - is that we need to
create an environment for music and movies and anything else that applies,
where it just doesn't make sense to steal it. It's a giant waste of time.
It's ESPN. Or CNN. Or whatever. It would just be stupid to do it.

I really think that this is possible, but it does mean figuring out what the
market will bear, and working backwards from their. That's how I do my
business models, and I'm a small fry.

I hope that I've clarified my views. I know this isn't fun, but we are at a
point where something new needs to happen. It isn't going to be easy, but
it sure promises to be interesting.

Looking forward to your thoughts.

Best regards,

Benjamin Dowling, Visionsound
www.visionsound.com

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From Ken Droz at (kdroz@mackaverecords.com)
8/2/02 3:52 PM

Ben,

I have opened dialogue with the president of MediaDefender.com, and it
sounds like they provide an excellent service that I hope many labels would
be interested in. It costs approximately $1,000-$2,500 per month, and they
employ the exact tactics we have discussed and have been doing so for
almost two years. If the music industry were to embrace these protective
measures, the system would likely be perceived considerably less effective
than is currently known to be and we could drive our consumers away from
services that give music away. A more positive service they provide allows
a client's' music to appear in searches for artists with a similar or
desired fan base, so that if you think you sound like Eric Clapton, you can
be returned in searches for Eric Clapton.

The good news about this is that moving this service to an external source
such as this would allow labels to focus on the kind of positive,
pro-active solutions you are encouraging, and leave the dirty stuff to the
tech-minded folks.

I wince at the idea of increasing costs, not because of the capital it
takes to create a better product, but at the consumers' willingness to pay
for them. While true artists are excited about making a better product,
your point about the importance of making our services affordable would be
jeopardized by passing along increased production expenses to consumers.

Your comparison to cable services and video rental are noted, but consider
how many times you have watched even your favorite movie, or how many times
you want to see a given episode of Sports Center. I think this is the
difference we find in music. Music evokes something in us that we want to
be able to revisit and share anytime, anywhere, which makes owning it is
much more appealing. Consider how many CDs you own, compared to how many
videos you own. If you are like me, you may have hundreds of CDs, but only
a couple dozen movies, at best. This may be because of the slight
difference in cost, but I doubt it. I have no desire to watch Sports
Center more than once, and no problem viewing a movie and returning it for
3 bucks instead of watching it to my heart's content for 20. Music is far
more appealing to steal than cable TV or movies because its role in our
lives make it far more appealing to own.

Also, it is more convenient to steal music than to purchase it. Theft of
video and cable TV are far more difficult to undertake, rendering the
decision to do so strictly an issue of cost. While it is true that these
days it is easier for many to steal movies than to pay to see them, the
delivery of content is far inferior, as you will likely need to view it on
your computer monitor. What would a digital subscription service offer
that P2P networking does not? P2P sound quality is the same, cost is free,
and breadth of material is greater than even the largest retail store. How
do we beat that with our own, legitimate service? We've got to start by
besting at least one of those components: quality that cannot be
reproduced, cheaper than free, or more material than has been legitimately
(and illegitimately) produced, oh, and we need to be portable.

Can we achieve that without addressing the file sharing systems at hand?

-Ken


Parenthetically, Ken's comments about consumers and cost are based on:
http://www.narm.com/research/briefs/02junResBrfs.pdf