By Monika Ermert for Intellectual Property Watch
CANNES – Music industry 1.0 is dead, but 2.0 has not arrived quite yet. New models for making money from music and music rights are being looked for desperately at the world’s largest music fair, Midem, this week in Cannes.

The music industry has to reinvent itself in the digital age, but the steps taken are perhaps too small and slow. At the Midem conference, which started over the weekend, some industry experts have been preaching a change from old habits, major music labels kept a straight face, and new economy stars like YouTube cofounder Chad Hurley and Kazaa/Skype/Joost cofounder Janus Friis described how they managed to make their services successful working around copyright when they started.

“Music Industry 1.0 is dead,” said Ted Cohen, former vice president at EMI and now a partner at consulting agency TAG Strategic. “Any label that thinks it is about business as usual is ridiculous.” Cohen was outspoken about the need for a change at the pre-Midem MidemNet Forum that deals very much with technology.

“It is not about protecting music, it is about monetising it,” he said. “It’s not about suing the customer, but serving him. It is not about filesharing, but about discovering music.” In the future, he said, the industry should look not for per-unit revenues, but rather for a share of the purse.

Working partnerships, with Internet companies among others who have been eyed as enemies for years, are necessary “to help this business through,” said Cohen. The seasoned manager moderated talks at the MidemNet Forum with the young Internet stars Friis and Hurley, who were invited to share their ideas of the opportunity of music on the net as was Stanford law professor Lawrence Lessig. Lessig has been an outspoken critic of what he calls the “copyright wars” of the industry against the Internet users.

From his experience at YouTube, Hurley considered negotiations about rights with the music and entertainment industries “one of the largest stumbling blocks” for new services. Would there have been more flexibility, he was sure that “there would today not only be iTunes,” but a variety of other services.

“I think we are definitely moving in that direction,” he said, but recommended easier licensing systems and especially a pan-European licence. While he would like to make deals, it is often too difficult to understand where payment has to go, as there are some 25 collecting societies in Europe with new ones coming up such as Celas, which manages digital rights for EMI.

Friis said during the time former leading filesharing network Kazaa was growing so rapidly, he also had talks about copyright with a cousin who is an artist and was aware that artists had a problem with the service. But negotiating a deal with the music industry was not possible at that time. As the service seemed exactly what the people wanted, quitting was also not a real option.

He had also been thinking about creating an advertising supported service. “But we couldn’t do it. The timing was just like, so off,” he said. But he said Kazaa, which has settled IP infringement claims in US courts with the industry and paid $115 million dollars, brought “change and disruption in a positive way.”

With his newest venture, video platform Joost, he has already agreements with a long list of partners, including some major music and broadcasting companies.

Deal-making or Die

Everybody who has a digital distribution platform or who has rights to licence seems to be eager to cut deals, at least among the Midem participants. New agreements are announced nearly every day at the event.

On Sunday morning, a new completely ad-financed P2P filesharing portal, QTrax, held a launch party touting that it had negotiated licensing with all major music labels: Universal, Warner Music, Sony BMG and EMI. QTrax promoted the service with slogans like “we will never get sued again,” and pointed to the compensation of industry and artists by measured traffic on searches and download sites where the advertisements are placed. Yet majors announced later that day in fact there were no agreements demanding QTrax to stop their launch.

On Sunday evening, Sony Ericsson announced his plans for an expansion of their PlayNow mobile music service that will be enriched with the catalogue of 10 large record labels and publishers like US IODA, Indish Hungama, The Pocket Group Viazone, X5 Music Group, The Orchard and Bonnie Amigo besides three of the large majors. This allows users to track tunes, recover the title, pre-listen and buy them. The service saw 200 million downloads last year, according to Sony Ericsson. With its much more secure platform and granted revenue stream, mobile music has been the favourite child of the music industry over the last two years.

But also the former urchins YouTube and Yahoo are in negotiations to cut their deals, according to Hurley and Ian Rogers, general manager for music at Yahoo. Rogers only warned on a panel against the high prices demanded from the portals. “Yahoo goes in negotiations and the other parties get dollar signs in their eyes, because it’s Yahoo.” Industry would happily licence for 70 cents a song, but this would make the song much too expensive, he said.

The marketing and monetising of songs in 120 different formats and over all the new channels were the way to go to secure remuneration for the artists, said Alison Wenham, president of Worldwide Independent Networks (WIN), an independent music recording labels association.

Despite all the calls for changes, the major recording studios are moving very slowly, said Gerd Leonhard, who calls himself a “media futurist” and authored a book called “The End of Control.” After 16 years of Midem participation, he said did not see big changes. The big music companies still want to be in control, a futile approach, the futurist said.

Jean-Bernard Lévy, CEO of Vivendi, which owns Universal, said he still believes in the CD, his company would certainly continue to sue people for piracy, and that digital rights management has not been completely abandoned despite announcements by all major music companies that they would back off from DRM measures. DRM allows control over the use of a piece of music and for years had been a sine-qua-non for digital distribution.

“We are testing if there is a big difference for customers if they have DRM or not,” Lévy said at the MidemNet Forum. Perhaps it makes no difference to the customer to have a limited number of copies and a DRM-protected file or to have no DRM at all, he said. Yet DRM critics have seen interoperability and portability problems hampering usability, a major problem for years.

A revival of DRM, on the other hand, is occurring when it comes to tagging music and other content in order to measure and report back to rights owners and their licences. Tagging ideally allows a highly accurate remuneration from digital content usage for the rights owner and/or artist. Technologies like Gracenote that make this tracking possible combined with provider flat-rates that allow for compensation might be a way for small portals to monetize music, too, said Ty Roberts, CTO at Gracenotes and Michael Bornhäuser, CEO of DRM provider SDC. They spoke at a session of the International Association of Entertainment Lawyers (IAEL). IAEL members who regularly gather at the Midem have been told in session on user-generated content to open the gates of “copyright fortress” in order to help their customers, the rights owners, to make money.

“You have to recognise,” Lessig told the MidemNet Forum, “that there is no way we can kill these technologies, we can only criminalise their use.” According to Lessig, it would mean that copyright is seen as unfair and copyright abolutionist radicalism would be nurtured. The music industry had to change, find a new balance of interests, he said.

Which way music industry, rights owners and also legislators will take, still is not clear at this Midem.

Monika Ermert may be reached at info@ip-watch.ch.