Raising the Barriers to Entry

By Richard Menta 10/21/02

Despite their cries of piracy, file trading is not what the record industry fears. What they fear is competition, something the Record Industry Association of America (RIAA) figured out with regard to the Internet long before they ever took Napster to trial.

But piracy makes a good rally cry one that allows them to take a self-righteous position that those who use the Internet to develop new methods of music distribution are thieves. This includes tens-of-millions of their own consumers who either trade music they bought in the store or listen to streams broadcast over the Net. It has so far worked to decent success in the courts. The real truth is something far different.

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The Internet has lowered the barriers of entry for Netizens by serving as a cheap pipeline that the average Joe with nothing but a PC, some software and Web access could leverage to reach an audience the record industry has to spend millions to access. Barriers so low that a company like Napster sprang up out of the mind and garage of a teenager to grab an audience of 70 million. Barriers so low that high school student can create radio stations with a worldwide listenership, something out of reach for terrestrial stations due to the technical limitations of radio waves.

The entertainment can't allow such a thing to continue. That is because cheap and easy distribution of media devalues the obsolete distribution methods they make their fortunes on.

The reaction of the entertainment conglomerates is that his must be stopped!

Let's take radio as an example.

To start your own terrestrial radio station you first need a license from the FCC giving you permission to broadcast over a specific frequency. This in itself is a large barrier because the number of available frequencies are finite and the FCC has already parceled out that part of the spectrum devoted to commercial radio. The only way to get such a license is to purchase it from someone who has one to sell - at whatever the market demands. Hardly something within reach of most Net radio providers.

Next you needs a few inexpensive items like a radio tower, transmitter, a studio etc. as well as the technicians to keep them functioning. Then there is the rest of your staff, management, DJs and extremely important sales personnel to pull in significant amounts of money needed just to pay for the equipment.

To start your own net radio station is much simpler as the technology is extremely cheap. The simplest way we tested took all of 10 minutes for any novice DJ thanks to a now defunct company called MyCaster. MyCaster worked by having you load a special WinAmp-styled MP3 player on your PC. As you listened to music from it, the MyCaster player sent a feed over the Internet to the MyCaster website. From that site the feed was taken and the the tunes you listened to were simultaneously broadcast over the Net, accessible to all.

Cost to the living room DJ to bring music to the world? Nothing, beyond the cost of his broadband connection to his house.

Here we have the old way of doing things, which costs hundreds of thousands of dollars just to operate in a given month, and the new way where the costs can be covered by a thirteen year old's allowance. If that type of scenario doesn't scare an oligopoly based on the old technology. I don't now what will.

So what did the record industry do? First they saw the writing on the wall early and pushed through an act in Congress that would impose fees on net radio stations that terrestrial stations are not required to pay. Known as the Digital Millennium Copyright Act (DMCA), it required Net radio to pay extra for the right to stream. But how much extra? Enter that other and more recent oligopoly, broadcast radio.

The RIAA knew that market rates would dictate to the Library of Congress - who were to set the first Net Radio rates - what these charges should be. The RIAA also knew they could manipulate what "market rates" would be by signing ridiculously high contracts with deep-pocketed companies who themselves stood to profit by high rates, even though they had to pay them, because it would immediately price out much of the competition.

High rates would guarantee that Net radio would become the domain of corporations, not kids with access to Mycaster or Shoutcast. Not even college radio stations looking to rebroadcast their programming or small Internet companies looking to create a legitimate business on the Net.

That ruse worked as the Library of Congress put not only high fees on even non-profit Net radio, but the burden of record keeping on these Net radio stations. So far, the small Net radio stations have balked, successfully introducing a bill that would at least postpone payments to the RIAA until these rates could be re-evaluated.

Unfortunately, the Capital Hill savvy RIAA was able to corrupt that bill only moments before it was passed last week, counting on the fact that none of the members of the house would look it over again prior to voting on it. The House passed the bill, never realizing until it was too late that the one paragraph passage temporarily freeing small Webcasters was rewritten by the RIAA in the dead of night into a 28 page monster that put even more restrictions on Webcasters (we push you to read RIAA-backed webcast bill 'a disaster for the US').

The bill is now in the Senate. Even if the Senate kills the now pro-RIAA bill, that works out fine for the record industry as it still stopped the Goverment from giving Webcaster a reprieve. Without a reprieve from Congress the music industry can now start demanding non-refundable payment from Net radio stations - fees retroactive to 1998.


The same case of lowered costs can be made for trading files on the Net. There is significant cost in printing up a CD and Teamster trucking it across the country to warehouses and distribution nodes before being shipped to stores.

The cost of creating and sending an MP3 file over the Net is negligible.

How did the record industry raise the barriers for entry for P2P services? They sued the hell out of them, making sure that court fees would drain every dime of capital that these startups had. It has succeeded in creating an environment so financially treacherous that no P2P music service will ever start in the US anymore. Of course, they are now popping up overseas, away from the reach of US court decisions.

Now if the record industry could also eliminate the foreign P2P services like KaZaa, their mediocre PressPlay and MusicNet services could enjoy these cost savings without competition to force them to improve their offerings and prices. Better yet, they don't have to share any of the associated cost savings back to the consumer in the form of lower prices, they can keep it all themselves.

Back in 1998 the industry never seriously thought they could sell tunes over the Net when MP3.com and Emusic.com asked to sell them. Now that recent polls show there is a significant market that will buy online tracks, the record industry wants more than ever to steal this segment.

The Internet is a bit harder to beat.

The Internet is the great egalitarian society where a single individual in tune with a specific group or audience can address that group far more successfully from their web site than all corporate Web sites in the world. That is what has proven to be so difficult for the RIAA, the Motion Picture Association of America (MPAA), and all other well fed lobbies and organizations who thought they would conquer it quickly.

Simply put record industry is not in tune with its consumer base, but rather completely out of sync with their demands for lower prices and affordable access to more music. When a medium came by to challenge them with lower costs and improved efficiencies of delivery, it was individual consumers who en masse seized on its power and built it up out of college dorms and dimly lit living rooms.

The bureaucracy and failing vision of the record industry prevented them from taking an active Net music role a few years back. Meanwhile, individuals like Napster's Shawn Fanning stepped in to write tools to make their own lives easier and in the process invented something a huge portion of the record industry's audience embraced.

The record industry sued them all, in the process closing many and buying the few remaining. But the Net has proved inimitable, so far at least.

Napster was shut down, but was immediately replaced by other P2P services like Morpheus, Kazaa, Xolox, eDonkey, LimeWire, BearShare, and iMesh. File trading grew more popular than ever. American Net radio is being crushed in the US, but these laws don't carry to stations streamed out of England and Mexico and India and other countries in the world.

And that is the other problem with the Net for the entertainment industry. Raising the barriers of entry only apply to Net music services in the US. Radio and P2P services are still free to start and thrive from other countries and still reach the same listeners in Sandusky Ohio they would if they were started in Sandusky Ohio.

The P2P services have already expatriated. KaZaa started out in Amsterdam, for example. When sued by the RIAA's Dutch equivalent, KaZaa's founder Niklas Zenstrom sold the company to an Australian concern who moved the service to the pacific island of Vanuatu, a safe haven of International trade. There it has grown into the number one P2P service.

Net radio is the next to expatriate. This is something of more concern as Net radio promised to bring back the US regional perspective and tastes broadcast radio offered as recent as a decade back. That perspective has all but been obliterated by the acquisition of 1600 terrestrial radio stations by broadcast monopoly wannabe Clear Channel Communications.

Actually, promise is too weak of a word as these home spun streams already delivered. Many have sinced closed due to the fees including my personal favorite RadioAmber, a wonderful site that initiated me to the "new music" of Edison Cylinders, 78's and Wire recordings. Some of this music is in the public domain and thus free of the fees, but not all. As this site was broadcast from meager origins - out of a dorm room from a western community college - it is no surprise that retroactive fees have forced this site to close.

The losers? You and me.

The Internet provides a new conduit of expression for those of limited means. MP3newswire.net has a monthly audience bigger than most magazines. That said, this publication was started by individuals who did not have the tools to start a printed version of MP3 Newswire in a world before the Internet. The cost of entry into American magazine racks is too high and we honestly are not up to the task of entering into this older media.

The Net is another matter and has allowed us to speak since 1998.

How about letting home Webcasters speak. File trading is going strong, but American Net radio is dying.

Personal Net radio must be saved. The entertainment conglomerates must be stopped.



The 40GB version of the Nomad 3 is available on Amazon

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