By Richard Menta- 10/19/01
The lawsuits from the traditional music industry against Net music have certainly had their effect the last two years. Not necessarily in the direct effect of winning millions of dollars in settlement money, but in direct effect of scaring away venture capitall.
In these times of the dot.com crash, even companies with sound business models don't stand much of a chance of raising cash with a continual threat of litigation added as a factor. Without money it is only a matter of time before they wither and die. This week another site has succumbed.
NetRadio.com has has shut down its site. One of the leading Internet radio stations, the site has entered dot.com Valhalla as another casualty in the war for online music distribution. On the company site users will now find this note from the NetRadio staff that says it all:
In the words of Kenny Rogers, you've got to know when to hold 'em, and know when to fold 'em. Sadly, the time has come for folding at NetRadio. After more than six years of streaming diverse and quality music over the Internet, we've ceased our music service.
It's not for a lack of hard work, passion, talent, or dedication to our ideas. And it's certainly not for lack of support from our listeners - who month after month have made us one of the highest-trafficked sites on the Web.
Launched in 1995, NetRadio.com was one of the pioneers in radio streaming, eventually offering over 100 channels of music online. Looking at one point to the traditional radio industry model as their way of profiting online via the selling of online audio ad space, a viable revenue-generating model never came to fruition. This was made more difficult by the sharp decrease in investors willing to finance a Net music operation. Not only has investment in dot coms dried up in the last year, but online music sites have the extra burden of an over litigious environment.
Unfortunately for Internet radio, the owners of the copyrights want to run the show and are claiming that the Net has to negotiate new rules dictated by them and their legal arm the Recording Industry Association of America (RIAA). The rules they want favor the holders of those copyrights far more than the ones they made in the traditional radio and music spheres. Taking advantage of the new medium's formative vulnerabilities, they are playing hardball.
With the Digital Millennium Copyright Act (DMCA) to back them up, music publishers and record companies have been very aggressive with what they want. The negotiations are acrimonious at best, with the old industry making financial demands that far exceed those applied to terrestrial radio.
Add to this another issue, a recent agreement between the actors union and the same terrestrial stations that radio ad actors would be paid extra if the ads are streamed over the Net. It seems these stations only made such an agreement to forestall a strike that could shut down their broadcast operations. They have since chosen to avoid the extra payment by temporarily shutting down the Net radio feeds of their live broadcasts, greatly diminishing the variety of stations Internet radio sites offered.
Getting hit on muliple fronts, the huge and expensive fight for control of Internet radio and online music has taken a lot of casualties among the Net music startups. More will also succumb as it takes quite a while for legal and legislative action to come to some closure. The Napster trial had made headlines for over a year now, yet the actual trial to determine if the company indeed committed copyright infringement has not yet started. Only the trial before the trial - should Napster be allowed to continue to operate online while waiting to plead its case - has been deliberated.
Mind you, the powerful big five music labels have not been immune from the negative effects of this feeding frenzy. The US Justice Department widened its antitrust investigation of the major record labels and what it has done to the online music business. The European Union is also doing an investigation, threatening to block the launch of the two upcoming record industry services, Pressplay and MusicNet, as anti-competitive and unfairly trying to dominate the market. All this is little solace to the Net music companies that couldn't hold on like NetRadio.com.
Yes, there were quite a few dot coms who had no idea how they were going to earn a profit, but there are those who would have eventually developed a sustainable business model. Most will never be give that opportunity now that RIAA has sent letters to every VC, letting them know the true cost of investing in Net music companies not sanctioned by them.
To be fair, these sites were hardly saints themselves, choosing to launch without first trying to see what rights needed to be negotiated. We do know that had they waited to negotiate such rights they would never have launched. Once the record industry woke up to online music, they wanted it either under their full control or destroyed altogether and part of their strategy was to hold back on licensing.
As John Borland, Jim Hu, and Rachel Konrad wrote in their article for CNET Music industry's plans spark concern :
Even before Napster's rise, the record labels were besieged with requests from start-up companies looking for rights to legally distribute music online. MP3.com, EMusic, Listen.com and a host of smaller start-ups believed they could revolutionize the music business.
Some, including Napster and MP3.com, launched services before getting the industry's support. The labels took them to court, arguing that they were violating copyright law--and for the most part, the labels have won. But even those companies attempting to play strictly by the rules found it next to impossible to get licenses, convincing many entrepreneurs that the labels were colluding against them.
Under such pressures, the market and the innovations that looked so promising a short while ago were destined to come to a standstill. This is especially true now because the major labels still haven't figured out what to do with Internet music.
The biggest loser? Me and you. Everytime a company like NetRadio.com dies, the chances for a viable online music industry to emerge and innovate dies. It's the innovations that offer so much promise and, for now, what seems most beyond the grasp of Big Music.
While the site is down and most of the staff has been released, NetRadio.com still exists as a company, clinging to some hopes of a resurrection.
Cary Deacon, NetRadio's CEO and president, said in the company statement "A small management group and the board of directors will continue to pursue strategic alternatives".
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