In 2004, I asked an executive in a major label sales department what the dominant configuration was that fans used to listen to music. His reaction was predictable, which was why I phrased the question the way I did. The dominant configuration was the compact disc. I suggested to him that the dominant configuration that fans used to listen to music was the mp3 file—the dominant configuration that he used to sell music was the compact disc.  Not the same thing at all. My friend looked at me like a dog on a mirror.

Then I asked him if he thought he would be doing a good job if there was a configuration that resulted in hundreds of millions of “listensâ€? a month and he wasn’t selling music in that configuration. Again, dog on a mirror. But I knew the truth: The lawyers won’t let him. He has to sell digitally in either Microsoft’s or Apple’s DRM.Â

Locks Keep Out the Honest People

In case it hasn’t dawned on anyone—DRM, like locks, keeps out the honest people, whether it’s Microsoft’s, Apple’s, or whatever’s DRM. The DRM for sound recordings on digital files will always be relatively weak if for no other reason than the simple fact that you can’t put a $99 security solution on something that sells for $0.99 and the computer manufacturers refuse to cooperate with developing copyright-respecting protections. Plus, copy protections on CDs have not been uniformly successful (to be extraordinarily kind). The fact that DRM is hackable is not a reason not to use it. The day man invented fire the first arsonist was born, but thankfully that did not stop the use of fire.

Some of the debate about DRM sounds moral in nature, and it sounds like only pirates use mp3s and only a pirate would oppose DRM. There is every reason to believe that the extraordinary damage that has been done to the creative community will never be repaired, so it is reasonable to anticipate that there will always be some level of stealing of music and video online. That level is likely to be higher than the historical levels of theft in our business.

mp3s are Good Business

In spite of all this, I believe there is a good business case that can be made for selling in mp3. At the risk of stating the obvious, I would point out that the iPod, and almost every music player in the market, supports mp3. So the reason to sell in mp3 is not because DRM is bad. I completely disagree with Professor Lessig’s radical fringe that opposes DRM in all forms, and unlike many in the fringe, I support a copyright owner’s decision to sell in any format they wish—DRM or non-DRM.

But the business argument over selling in the unprotected mp3 format shouldn’t have anything to do with how you feel about DRM. The reason you sell in mp3, and the reason you sell in Fairplay, Windows Media and any other common format is because—they are common formats. A lot of people use them. It just happens that more people use mp3 than use Windows Media or Fairplay. If a copyright owner sold an mp3 file, it could be suitably watermarked to carry identifiers that would allow accounting if an online service wanted to sell the tracks. The point is that if you sell in mp3 you are not giving a fan anything that they couldn’t make themselves if they bought a CD and ripped it.

One can argue that the font of all file bartering was the mp3 format, computers used as copying machines and the ripping software that permitted these things to happen. One can also argue that it is the parasitic nature of the technology industries that make profiting from the woes of others that some quarters not only find morally acceptable if you believe in Professor Lessig’s apologia, but also the foundation of an entire commercial enterprise.Â

Because there was no effort on the part of CD-ripping software publishers to make their work completely legitimate and copyright respecting, consumer-created mp3 files have no accounting or identifiers in place that can be used for identification and tracking purposes so that artists, writers, producers and labels could get paid for the monetization of their works by others (and Kazaa got off cheaply with its $100 million settlement, if you ask me).

If copyright owners would permit the legitimate sale of mp3 files, it would be possible to watermark these files to permit more accurate accounting. It would be easy to distinguish legitimate mp3s from illegitimate mp3s.Â

And—mp3 files will play on virtually any music player, including the iPod, hands down the market leader. Knowing that (1) there is a billion copy library of illegal mp3s floating around the Internet that will play on any music player; (2) the creative community is not able or willing to stop the distribution of music players that support illegal files (in part because distinguishing an illegal mp3 from a legal mp3 doesn’t scale); (3) the industry has obsessively supported Windows Media DRM well before the iPod, and (4) the industry clearly backed the wrong horse on DRM given the wild success of the iPod—is the correct business decision to continue to back the wrong horse, or to back many horses? Including mp3? Do you want to bet your business on one horse to win, or that several horses may win, place or show?

Thus, while permanent downloads purchased on every major online music service except iTunes and eMusic are only available in the Windows Media format, none of those downloads can be played on the worldwide standard for music players and one of the great consumer products of all time—the iPod. Not surprisingly, Apple will not allow transcoding of its proprietary Fairplay/AAC technology to permit, for example, permanent downloads purchased on Yahoo! Music in the Windows Media format to be playable on the iPod.

The record companies—always fearful of creating another MTV—have certainly benefited Apple’s business by making sure that the only two formats in which a fan can buy legitimate music online are Fairplay/AAC (which will play on the world’s dominant music player) and Windows Media (which will not play on the world’s dominant player). It is hard to understand this fixation. This is like telling Yahoo! they can only deliver search results in Arabic. Sure, a lot of people speak Arabic, and it would be great for those who do, but mass audiences are just not going to care, particularly if Google delivers search results in English and French.

If the labels merely permitted online services that currently sell in Windows Media DRM to also sell in mp3, then those online services would be handed a very significant benefit overnight. They would be able to sell onto the iPod. Even if they bundled a Windows Media file at the regular retail price with an mp3 for free or near free, there would still be a significant boost in competition that must benefit everyone.Â

Another question may be if people will buy mp3s given the billion copy illegal library that floats around the Internet. I think that there probably would be sales because I believe that the reason people buy files is not because the files are in one format or another, it’s because the files will play on their music player, and statistically that player is an iPod.  But I think it’s undeniable that it can’t hurt to try selling mp3s.Â

No one can take away the sheer genius that is the runaway, worldwide success of the iPod, and no one can blame Apple for not agreeing to transcode Fairplay (except the Green Party in France). But if the labels were worried about creating another MTV (meaning a business built on their backs but from which they do not participate, particularly when that business has significant influence over the labels), refusing to sell digital files in the mp3 format pretty much guarantees that Apple will be just exactly that because not selling in mp3 keeps competitors off of the iPod, and limits the distribution of the online services.

Let’s not Have the Same Old Whine

It was fitting that my “dog on a mirror� conversation happened in 2004, as that was ten years after my first effort to get major labels to sell digital records in a non-DRM format.  The first time I tried it I wanted to experiment with selling pre-ripped files on a second compact disc and simply include that disc in a normal single-CD jewel box. My idea was soundly rejected. Not that I’m still whining about it or want to say I told you so.

My thought was to charge an extra dollar or two for the convenience of having the files pre-ripped, since the fans could just rip the tracks anyway. Although ripping a CD was not fun on a 486 machine with a 100 megabyte hard drive (which was, let’s say, the average home computing power of the day), those limitations were clearly going to drop away very soon.

When I spotted binary copies of .wav files of our records being traded on newsgroups started thinking hard about the importance of dealing with digital distribution. This was an extremely cumbersome task in 1994, but it was obvious that there was a very short step between newsgroup trading of binary files by the digerati, and trading of the files themselves by the masses once bandwidth and chip speed caught up—two years later as it turns out, and peer to peer five years later.

I pointed out the newsgroup problem to a certain industry trade association, and was told that I shouldn’t worry about it as they had the “Net covered� because they were interdicting counterfeiters selling pirate CDs from websites.

Right.

Transitioning from that extra compact disc to a direct download of a digital copy would have been relatively simple. Plus, the second disc would have been available for multisession or blue book material which could have permitted some direct communication between artist or label and fan.
Back in 1994—twelve years ago now–that extra disc would have appealed to a relatively small group of fans, but by the time peer to peer surfaced in1999—imagine the benefits that artists and record companies could have enjoyed after five years experience in selling digital files through normal retail channels. (And, oh, yeah, back in 1994 I wanted to start selling CDs with a shrink wrap license like other forms of software, too, but that’s another story. Not that I enjoy saying I told you so.)

Let’s just once try to give fans what they want, and not what somebody else thinks they should have. We can’t afford to make many more mistakes.

Just try it.

Chris Castle is a music attorney in Los Angeles where he represents artists (including KOAR fav 10 Years), producers, music industry executives, songwriters, independent publishers and record companies, and technology companies. Chris is a contributing editor to Entertainment Law & Finance and writes the Music-Tech-Policy blog (http://music-tech-policy.blogspot.com/). He is on the board of directors of the Austin Music Foundation and moderates the digital panel at SXSW. Before law school, he was the drummer for Jesse Winchester, Long John Baldry and Yvonne Elliman