How Monopolies Strangle Innovation: Record Label Demands Making Investors Nervous About Spotify
from the copyright-cartels dept
According to rumors reported by Business Insider, music streaming service Spotify is currently working on raising another round of funding at a valuation of about $3.5 billion—a figure that is making some major investment firms skeptical, despite the service's considerable success at growing its customer base. Over at TechCrunch, Josh Constine points out the most likely reason investors are reluctant: they know that the recording industry uses its copyright monopoly to exact a "tax on success" from innovative music startups.
Unfortunately, this is why investing in Spotify may not be wise and why firms like Andreessen-Horowitz may have passed. It’s a great service with a big lead on other music streamers. But as it scales and gains traction, the record labels will increase their tax. There’s no way Spotify will pay the same fees if it hits 15 million subscribers as it does now. That will make it harder for Spotify to return the multiple most investors want any time soon.
In most industries, if a partner charges you too high a licensing fee you can go to one of their competitors. That’s not how it works in music. You can’t get a cheaper equivalent to Michael Jackson or Lady Gaga like you could for enterprise software. If you want “Thriller” you have to pay whatever the labels ask. And even if it does, Spotify isn’t getting exclusive access to that content.
Though the specifics of the deals between record labels and music streaming services are secret, many details have been leaked over time, and it's long been known that they are onerous and one-sided. Last year, Michael Robertson of MP3tunes explained how the general structure of the deals make growth and innovation extremely difficult, while collusion among the labels eliminates any last shred of competition and ensures that a service like Spotify can never negotiate better terms. Investors know that music startups essentially live or die at the behest of the legacy industry, and investors are smart—they aren't about to bet millions on record labels making good decisions.
Economically speaking, none of this is surprising, because copyright is a monopoly and this is what monopolies do. They distort the free market and allow the monopolists to control the competition. Adding insult to injury, recording industry defenders like to tout streaming services as examples of how the industry embraces innovation, and RIAA CEO Cary Sherman recently said he was surprised that Spotify wasn't generating more revenue for the labels. To anyone who understands how difficult the labels have made life for these startups, claims like these don't pass the laugh test—and Spotify's difficulty securing funding is just more evidence of this fact. Its numbers would make it a hot investment property if it operated in any space other than music, but because it is shackled to a dying industry with a long history of technophobia, investors take their money elsewhere. Who can blame them?
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Filed Under: control, copyright, economics, funding, innovation, monopolies
Companies: spotify
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Crafty Devious Plan
Money. Tons and tons of money.
Wrap it in heat-dispersant material and then we'll drop it from orbit onto the RIAA headquarters. The kinetic energy alone should be enough to leave nothing but a smoking crater--and we can innocently claim we were just trying to pay them off.
If some other RIAA building continues their stupid escapades, well, rinse & repeat.
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;-P
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Re: Crafty Devious Plan
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Or retorts with..."Mike advocates piracy!1!1!"
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It's simple
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And a good line needs repeating....
Hey, this golden egg is awesome. But I bet if we cut the goose open, we could get a second golden egg, and we wouldn't have to wait for tomorrow. Frankly, I can't see any downsides to this plan, and I suggest we implement it immediately. Gentlemen, sharpen your axes.
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Part of the reason Hollywood holds so much power is people are only interested in watching the latest thing, even though very little of it is actually worth watching.
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Ancient Treasures
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Considering they do that anyway, I don't see how people sticking to watching older stuff would really change that behavior.
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That's completely ignoring the regional licensing restrictions that prevent customers from seeing material in whatever country they may be. Which only adds to customers being dissatisfied with what should by all means be a great service. But which is only being hurt by the greed of the studios.
[shrugs] SSDD.
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Sun and air is still free, enjoy it while it last.
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Monopoly? Nah
We hear again and again that the "gatekeepers" are lazy, "rent-seekers". So now's your chance, Spotify. Show the unhip, uncool oldschool record producers how it's done. Create some great music and send that out to your users. There's no patent on putting notes together into song.
As Tom Petty says, just pick up that guitar and learn how to play. Oh wait, he's suggesting it's not so easy. If you want to be a rock and roll star, you've got to pay your dues. If that's the case, maybe Spotify should just share their revenues with the hard working artists who've actually put in the time it takes to be a rock and roll star.
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Re: Monopoly? Nah
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Re: Re: Monopoly? Nah
I think creating art is much harder than Spotify believes. They think they should get the lion's share and the artists should be happy with pennies. I think they're wrong.
But Spotify shouldn't take my word. They should prove to the artists how easy it is to make acceptable music. Replace the good music with the low rent newbies and see how long you stay in business.
This is pretty much the game that Netflix is playing. They don't want to pay more for the newest content and so they're keeping prices low while stocking their streaming service with crusty old movies and almost forgotten tv shows. Already I hear people complaining that they can't get anything good on Netflix.
That's negotiation. If Spotify doesn't want to pay the price, they should get their own artists and see whether they're right. That's how the system works.
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Re: Re: Re: Re: Re: Monopoly? Nah
But go ahead. Prove me wrong. Start up your own record company and offer people contracts that are in what you think are their "best interests." The artists will flock to you because they know that the normal companies aren't that nice. You'll have the best artists and you'll change the world.
Ah, but if it were that easy, someone would have done it already. The markets have been negotiating these rates for a long time. They've settled on something that may not seem fair to you, but may just be an accurate reflection of reality.
But again, prove me wrong. Start your own record company that's fair. I would like to see it done.
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Voted funny for this.
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You have to work with the options you are given. Spotify doesn't want to do that. That's their problem. This isn't dreamland it is reality and Spotify needs to wake up. The labels do too, don't get me wrong. But this is between Spotify and the labels.
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That's what so bogus about this monopoly idea. If you hate the monopoly that the major labels have, start your own label. Get your own artists. No one is stopping you. Let me repeat that. No one is stopping you from making music. THey're just stopping you from making money off of someone else's hard work.
The fishermen don't have a monopoly on all fish and the labels do NOT have a monopoly on making music.
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Re: Re: Re: Re: Re: Re: Re: Monopoly? Nah
Stop being willfully obtuse. None of us are fooled by your obfuscation.
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Re: Re: Re: Monopoly? Nah
Note that anything achieving a five star rating on Netflix disappears unless it was independently produced. These are movies initially offered at reasonable prices that then have the fee bumped up when they actually do well. That is an incredibly crippling arrangement, do well and they shoot you in the back into you can't do anything at all.
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Re: Monopoly? Nah
Hello Troll. You make it seem simple but it isn't. Lady Gaga isn't [insert other artist here] so even if I have a similar I don't have Lady Gaga. And ppl won't be paying for multiple streaming services from each label just because one has Lady Gaga and the other doesn't. They'll file share.
Create some great music and send that out to your users.
Spotify is a medium so ppl can listen to music. And they probably have indie labels and artists content too. A SERVICE. Just like The Pirate Bay. Except that Spotify generates revenue to the industry directly while TPB couldn't care less with the MAFIAA but does generate revenue to smart artists, indirectly.
As Tom Petty says, just pick up that guitar and learn how to play.
That's what indie artists are doing and what will be the demise of the legacy players if they don't adapt.
If that's the case, maybe Spotify should just share their revenues with the hard working artists who've actually put in the time it takes to be a rock and roll star.
Spotify is paying the labels. The issue is that the labels want more and more in a never ending greed, which is putting the future of Spotify at stake. And you seem to forget to mention the MAFIAA often fails to give the money to their artists using quite shady schemes.
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Re: Re: Monopoly? Nah
There's only so much revenue. If the artists want it, you say it's "greed." But why isn't it "greed" when Spotify doesn't want to share more?
This is a battle between two partners over splitting the pie. Both are driven by greed. Don't be a fool. Don't be an astroturfer for Silicon Valley billionaires.
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From the linked article on the labels demands:
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bob, no one is saying there isn't so much revenue. And nowhere did I mention "artists". I said the LABELS. The people who don't pay the artists, who creatively avoid doing so, etc. THEY ARE THE ONES WHO WANT MORE MONEY. Yet they take none of the risk. If Spotify fails, that is one less venue/source for them to make money off of. The artists gets a pittance no matter what.
Nor did I say anything about Spotify. Beyond Spotify is going to end up like Netflix. A victim of it's own success. As a nobody, they can negotiate on better terms and lower price. Because they have nothing to negotiate with. The minute they become successful they have more money which means the LABELS want a bigger cut of the pie for doing none of the work.
bob, you're the last person who should be telling anyone "Don't be a fool". By no leaps of the imagination (minus in your head) is anything I said even remotely considered astroturfing for Silicon Valley billionaires. Or should I say "big piracy"? Will that make you feel better? I bet you're just sitting there twitching trying to keep from saying that.
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Re: Monopoly? Nah
Which is fine so long as the industry doesn't think you aren't stealing from them. With effectively perpetual copyright, that's a real problem.
That's the nasty part about "intellectual property". It doesn't just "protect" Tom Petty. It also allows them to steal my work as well.
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Re: Monopoly? Nah
Because that's not the concept of the company. They are a RETAILER not a PRODUCER. The concept of their service is to provide access to as many different producers as possible. Creating their own publishing branch no doubt would create a conflict of interest with hindering the ability to negotiate deals with other producers. It's a completely different part of the chain.
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Re: Re: Re: Monopoly? Nah
labels != artists
labels <> artists
labels =/= artists
labels.equals(artists) != 0
labels are not artists
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Re: Re: Re: Re: Monopoly? Nah
la·bel ley-buhl] noun, verb, -beled, -bel·ing or ( especially British ) -belled, -bel·ling.
noun
5. a brand or trademark, especially of a manufacturer of phonograph records, tape cassettes, etc.: She records under a new label.
Now bob, compare that to this...
art·ist [ahr-tist] noun
1. a person who produces works in any of the arts that are primarily subject to aesthetic criteria.
See, Not the same are they? Also notice how I included links to the source of my information when I make a claim? It kind of helps support the fact that I know what I'm talking about now doesn't it?
Here endeth the lesson.
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1 download = 1 lost $.99 sale = $150,000
< 400,000 officially employed = 2,200,000 actually employed
label = artist
See the pattern?
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"because they're funded by the right Silicon Valley billionaires"?
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Why shouldn't THE LABELS share more with the artists?
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But this response foolishly assumes that the labels must be right because they're funded by the right big paywalls.
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Ah, yet another blatant lie from the troll contingent. Nice.
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Re: Monopoly? Nah
And yet, that doesn't vibe with the utilitarian concept of copyright.
Create some great music and send that out to your users.
Don't have to. The artists do it without the labels, hence why the labels are going after Spotify.
If you want to be a rock and roll star, you've got to pay your dues.
This is not the 1960s, there are no more hair bands, and the artists pay their dues by building an audience.
If that's the case, maybe Spotify should just share their revenues with the hard working artists who've actually put in the time it takes to be a rock and roll star.
Which they've been doing if you paid attention.
Honestly bob, what are we going to do with you? You seem intent on being ignorant and we're trying our damndest to educate you on matters of course.
Just read the article before everyone just calls you Wrongway Bob from now on.
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Re: Monopoly? Nah
Why should Spotify share their revenues with the artists? The RIAA and the Major Labels don't.
Reference: Kenny Rogers, Eminem, Chuck D., and the thousands of other artists that have be ruthlessly stripped of their copyrights and earnings.
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Re: Re: Monopoly? Nah
Horse manure. The labels give plenty of money to the artists. That's how Elvis ended up with Graceland and Michael Jackson ended up with his ranch. Artists up and down the food chain have made money on their deals.
Should they have made more? Perhaps. I know the industry is full of sharks who aren't interested in being fair. But I also know that the artists have no clue how hard it is to market music. It's quite expensive and this is why so many perfectly good indie bands don't get very far. They don't have the financial backing.
So take a second look at those artists. Kenny Rogers wasn't "stripped of his earnings", he was-- perhaps-- the victim of a bunch of biased accountants. He's still made millions, he just hasn't made as many millions as he thinks he deserves. That's a business dispute and it has nothing to do with copyright. He's still got em and he's just arguing with the publishers over how to split the pie. It goes on in every business.
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Besides, the chances are that Elvis and Michael made most of their touring and were able to get decent deals once they had an advantage over the labels.
Jackson pretty much performed his whole life and has an album that still may hold the all-time sales record.
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Re: Monopoly? Yup.
Sure, if not for that pesky "monopoly" thing you mentioned.
You're speaking as if any single piece of culture can be easily replaced by any other piece of culture, and it's simply not true.
It's disingenuous to talk about free markets while you're talking about a monopoly.
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Re: Monopoly? Nah
Actually, that was the Byrds many moons ago who first released that song and did a much better job at it than Tom Petty did. (I do like Petty a lot just that Roger McGuinn was/is a much better guitarst and The Byrds did great harmony!)
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Re: Monopoly? Nah
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Re: Monopoly? Nah
Spotify and Netflix and the like don't have a problem paying a fair price for the rights to stream content. Fair is the key here. The problems is that the content producers want to squeeze the life out of these services by making unreasonable/unsustainable licensing demands once the service gets going. That is a very short sighted move for the content industry.
Content producers provide the content
Netflix/Spotify handle billing, distribution, and provide a built in customer base
Consumers get their needs met thus reducing piracy
All parties involved get paid
How is that not a win for everybody? Pricing can be adjusted but I think it is pretty close to right for maximizing income. Forcing streaming companies to raise prices or crippling their catalogs will only force people into finding other, cheaper alternatives. They sure as hell aren't going to rush out and buy more CDs and DVDs...
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Re: Monopoly? Nah
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They will either develop the guts or they will be replaced by a competitor who does have the guts.
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They also fail to take into consideration that even if they have to charge a lower amount of money for these new digital alternatives, they could still make it up in volume if they made it available EVERYWHERE. This is what the advantages of the digital media are and of the Internet. You could make a lot more money by making it more easily available in more places. But instead they are still treating them like DVD's.
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The problem is that the legacy folks want to break into one market without accepting that the old one will shrink.
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On a sorta related note
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Re: On a sorta related note
Because of the books, we went to see the movie this weekend, which grossed $155,000,000. We will be watching the other 2 movies as well. Most likely we will rent the first movie(s) just before going to see the next movie as a refresher. Am I still a dirty, filthy pirate?
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And that's the type of ppl we are letting interfere in our laws.
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As far as the ebooks, a simple bit of hollywood accounting would tell you that that one DRM-broken book was the equivalent of at least five books that would have been bought(somehow... in some fashion...don't question me!), and going by those numbers, that means you caused at least $750,000 worth of damage to the economy! Not to mention the countless jobs you caused to be lost with your horrific action!
I'm not even going to go into the damage you caused by loaning the first two books, instead of buying them again, both in digital and physical format, but rest assured due to your actions you alone have cost the economy millions, and who knows how many jobs!
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You, sir, are not Hitler as you've been compared to above, you're far, far, far worse. You're BLACKBEARD!!!! ;-)
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1/ "You will pay exactly what we demand when we demand it, get (if you are lucky) exactly what we decide we want to give you for your (OUR!) money and then use whatever it is we have generously condecended to let you pay a premium for exactly how we say when we say and using only the equipment we say"
2/ "You are a dirty pirate and very likely a kiddie fiddler and baby seal clubber and definitely worse than any murderer or raporist and should be sandpapered, salted, flayed, flensed, hung, drawn and quartered for even thinking there might be an alternative to option 1. Oh and you now need to give us all your money including all the money you might earn in your life and any subsequent lives you may have also that of your parents, grandparents, children, pets, other relatives and anyone you've ever met that you might be able to tap up for cash."
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Re: On a sorta related note
Just because a gun allows you to shoot people doesn't mean you should.
If you both wanted to read the same thing at the same time then you are morally obliged to purchase two copies, the fact that doing so would be nonsensical is hardly the issue.
Because once it is a moral issue, sense does not enter into the picture, morals is morals.
PS. You meant the Hunger Games right?
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But is it really a moral issue? As a Christian, I certainly don't want to steal. But is this stealing? If I was forced to buy 2 copies to read them at the same time, it wouldn't happen, we would read one after the other. Since I would not spend the money on 2 copies for any reason, the publisher/author/etc are not out any money. The physical world was by nature, limited to 1 copy unless you bought 2. But the digital world now allows simultaneous sharing, it is an artificial limitation placed on the technology that prevents this. So who is being immoral, the publisher placing the artificial limitation or me circumventing it?
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I don't think it's either. Otherwise we'd be accusing the writers of the synoptic Gospels of the same thing!
The limitation is what's immoral as it prevents you using technology to do what it does best which is copy and share. Particularly as you have no intention of ever purchasing a second copy, physical or otherwise. Nor do you ever say that you're going to put the copy on the Internet anywhere for sharing so the "piracy" angle won't work because you're not causing the author or publisher to lose a real or imagined penny.
For the life of me I can't imagine a moral issue in what you've done. All you've done is to make a copy so that you and your wife and read the book together and talk about it as you do increasing your enjoyment and insight into the book. To me this increases the chances of your hanging in for the full trilogy of films as well as purchasing further works by the same author.
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[dubious faux-spanish accent] You keep using that word. I do not think it means what you think it means. [/dubious faux-spanish accent]
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Re: On a sorta related note
Why don't you just put your Kindles on the same account so you can share books?
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why does the story of the fox and the scorpion come to mind?
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As long as the startups keep starting up, there is no reason for the RIAA to change their strategy.
It also doesn't say much for the startups. I once watched 4 pizza places go into the same location, one after the other. When the 4th failed I had to wonder why after the first 1 or 2 failures, the 3rd and 4th pizza place even bothered???
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At least we have a cycle. Pizza, then chinese, back to pizza, now it's chinese again. Should be about 2 more months before I get pizza again.
Since it's nearly impossible to get to from the busy street out front, I'm just assuming it's a money laundering front for the mob...
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https://en.wikipedia.org/wiki/Daniel_Ek
https://en.wikipedia.org/wiki/Sean_Parker
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ok maybe this is just too stupid and simplistic
The only reason that comes to mind is that they know that if they have control then they will jack up the prices so high that it will fold in a matter of days. Which should work for them since they can then say that pirating music killed their effort to embrace technology.
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surely....
I don't think you can blame Spotify for getting into bed with the majors and I don't think you can blame the majors for negotiating the best terms they could get. It is what it is.
Also, unrelated, I think it's misleading to say that because copyright is an exclusive right, that it creates a monopoly. The majors don't have a monopoly on releasing music. They have the exclusive right to license their music but that's a completely different thing to an economic monopoly.
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Re: surely....
This is an unwarranted assumption. If they can, they'll strangle Spotify for every cent until it goes under. Then they'll post here as anonymous shills, decrying the death of the record companies at the hands of "piracy".
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It's easy to give the majors some kind of crazed persona based on their past actions but really they're in the business of making money.
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It's a mistake in my opinion to think that big companies "hate" with "passion" - there's only one driving force - $$$$$$.
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That is possible, but if so the record labels are run by pretty stupid people, because they could make more money by pursuing different strategies. What they've been doing for the past 15 years is either designed to maximize control rather than money, or it's just been really dumb. It's actually hard to know for sure which it is.
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such as?
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You must be new here. :-) Embrace fans. Give customers what they want at prices they're willing to pay. Partner with new services rather than attacking them. Figure out how to convert pirates to customers rather than vilifying or dismissing them.
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Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: surely....
I agree that all the things you mention are good and decent ways to do business for a record label. I don't know if there's any evidence to suggest that the majors would generate more revenue by going those routes though.
Charging millions to license their catalogs, filling mass lawsuits against downloaders, negotiating shares in companies like spotify (now being valued in the billions), huge efforts in exploiting their catalogs, creative accounting and 360 deals with artists, skewed deals with collection agencies - etc etc
These guys are in the business of making money and they aren't stupid. If they thought that being nicer to pirates and lowering their prices to what people are willing to pay was a viable alternative, they would be all over it.
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Personally, I'd argue that many of these things are the cause of the problems they complain about right now. The lawsuits are causing a significant backlash against them, while they offer little to discourage downloading (e.g. they still insist on windowing, regional restrictions, etc.) and often leave people with no legal choices. Creative accounting is damaging their reputations with artists and consumers alike, while high licencing fees are strangling many new services and retailers at birth and making life difficult for existing ones (Pandora have recently highlighted how the industry is making it impossible for them to offer their service in the UK again). Hell, the most notable thing about Spotify is that it actually managed to service other markets before it focussed on the US, while most such services are US-only, and it's still not allowed to service the entire market as it truly exists.
"These guys are in the business of making money and they aren't stupid. If they thought that being nicer to pirates and lowering their prices to what people are willing to pay was a viable alternative, they would be all over it."
I disagree. They're not "stupid" per se, but these are definitely short-term tactics. In 5 or 10 years, the problems facing them will still be the same, and they will be in an even worse position to handle them than they are already (itself caused by their refusal to deal with market realities for the last decade). The guys currently in charge will definitely not lose any of their bounty, but the major label structure is doomed in the long term if they don't start competing. No number of lawsuits, restrictive laws or buying out distributors will change that.
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From similar past situations it seems more likely that as the payments get bigger (i.e. as the service succeeds) the "majors" will demand a yet bigger slice of the pie or start withholding content or changing the deal to the detriment of the service until it is no longer viable.
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If you take a historical position, it's actually likely the majors will jump on board fully with Spotify as soon as they start to make real money (see radio, vinyl records, tapes, cds)
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Soooo, I see that double digit I.Q. and elementary education are working really well for you.
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The main reason Spotify is losing so much money is because of their free service. Rhapsody does not have a free service and as a result is much closer to being and may even be profitable. They even pay more per song than Spotify. If you offer a free service, the expense is a risk you have to take. That is part of their business strategy and isn't the labels problem.
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[Citation needed}
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If you're facing rising costs, you raise your prices. Are the labels facing extra costs from Spotify? No, in fact the better Spotify does the more money the labels make. So explain why they need to raise prices again...
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Yep, I'll have to ask for a citation there...
"Rhapsody does not have a free service and as a result is much closer to being and may even be profitable."
Rhapsody has been around for 5 years longer and only services one country. Yeah, longer established companies with no international expansion do tend to be more profitable in the short term, what of it?
"They even pay more per song than Spotify."
Citation?
"If you offer a free service, the expense is a risk you have to take."
OK then, and a non-US resident I would like to pay Rhapsody the subscription fee I currently pay to Spotify.
Oh...
"That is part of their business strategy and isn't the labels problem."
So, the labels' constant reluctance to offer international licencing and traditionally high licencing pricing demands aren't their problem? Hmmm...
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This while they sit there repreatedly refusing to provide any such service themselves then whining that everyone's "stealing" their content instead of buying it.
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All Mike's pointing out is that if you have a monopoly there's no incentive to bargain sale prices. In fact, there may frequently be the opposite.
The *AA's don't care if Spotify continues to exist. They assume that if it dies something and someone they can deal with will come along to replace it.
And they don't have to deal with Steve Jobs anymore so they don't have to deal with someone out of their league.
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Now, to address your point:
Given the large number of investors that spoke out against SOPA/PIPA, I doubt they see piracy as a great evil threat, the way the labels do. Rather, they are likely to see those people as simply outside the target market. At most, piracy is competition, which, given the success of spotify in a world saturated with piracy, is already well accounted for.
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Hell, did you know that earthquakes in California are caused by piracy? Yup. Mudslides too. It's all because of piracy. Just ask them. They will tell you.
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For me the labels' greed is a far simpler explanation with a huge amount of history behind it.
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Huh?
Maybe investors are shying away from radio because of the pirates
Still doesn't make any sense, sorry? You're saying that due to piracy the labels have to try and stop people from having legal, often paid-for, access to music?
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Thievin' attention whores...
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