The Digital Media Losers of 2003

By Richard Menta 1/02/04

At the end of 2003 one thing is clear, that the trends in digital music are edging closer to stability. Legal issues have rendered a few more precedents on both sides, but the entertainment industries are realizing they can no longer wait for the courts to help them profit from the Internet's ability as an ultra-efficient distribution medium.

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For example, the lawsuits pitting the record and movie industries against individual file traders have had some effect, but failed to do anything more than dent file trading and the services that promote them. Meanwhile, Apple proved that despite the popularity of free file trade services there is a great market to sell digital music. This one fact alone exposed a significant opportunity cost, one the record industry squandered for several years as it chose instead as its primary strategy to chase in court Napster, it's clones, and finally file traders directly.

The first of a two part year in review, we run through the losers of 2003. As with the losers of 2001 and 2002 it has been a year of controversy, but a new milemarker by the name of iTunes has appeared and it is influencing a change in attitude.

Noticeably absent from this year's list is the Record Industry Association of America (RIAA). Not because the organization hasn't been active - it has - but because there were so many wins and losses that this year is a push for them.

On the negative side the RIAA web site was repeatedly hacked all year to great embarrassment. They lost their US case against file trade services KaZaa, Grokster, and Morpheus (now on appeal) and Canada outright declared these same services legal. There are also more file traders at the end of 2003 than there were at the end of 2002, showing RIAA efforts all year have at best just slowed overall growth in tune swapping, not reversed it.

On the positive side the industry is raking in millions of dollars through Apple's iTunes service without having to manufacture and supply a product. All they have to supply is permission, permission for iTunes on its own to copy and sell the tracks the record companies already create for CD consumption. The RIAA still has Internet radio by the balls and has won as many court cases as it has lost. New legislation sponsored by the record industry lobby is also picking up momentum. Finally, the largest label Universal Music dropped CD prices to $12 and saw a surge in Christmas sales, which proved a win for consumer too.

Time will tell where the music industry will be next year and the year following. Now on to the losers.

1. SonicBlue

Before Apple came into the picture, SonicBlue dominated the MP3 portable arena. They achieved this by buying the then two best manufacturers of digital portables, Diamond who made the Rio and Sensory Science whose Rave line of players were the best we reviewed during the early MP3 era. Then came the iPod and the shaky financial underpinnings of the company came apart. The Rio line survived - bought out by stereo manufacturer Denon/Marantz - and is enjoying a modest comeback with its new line of portables. Rio is a survivor, Sonic Blue isn't.

2. File Traders Sued by RIAA

These people had the honor of serving as the "examples" for the record industry as it sued random users of file trade programs like KaZaa to scare off others from doing the same. Most settled out of court for between $2,000 and $5,000 not because they thought they did anything wrong, but because it was cheaper to 'pay the protection money than to fight the mob'. Court rulings went against the RIAA with regards to the tacticts they applied to identify users, but it came too late to help those already subpoenaed. File trading dropped slightly for a time, but ten-of-millions still trade so the overall effect for the industry was marginal anyway. In the end this group may have been forced to break their savings accounts for nothing.

3. WMA Format

Even though its use was way behind that of the MP3 format, Microsoft's WMA was still a clear number 2 - until iTunes came along. Within the first few weeks WMA went from place to show, supplanted as Apple sold millions of tunes in their proprietary version of the competing AAC format.

There is an upside for Microsoft, though, as Apple stimulated the new, but already stagnating, pay-for-music-download industry. As Apple will not allow any digital portable to play songs downloaded from their iTunes service outside of the iPod, this has caused organizations rushing to be iTunes competitors to grab WMA as their default choice. Ironically, if iTunes clones can do enough business it will circulate more WMA files into the marketplace and Microsoft's initial embarrassment will turn into a blessing.

The codec wars have started.


Gone. The site was disassembled, all the music was destroyed, and the URL and logo sold off. CNET bought that URL and will open a different service by the same name this summer.

5. Charles Kok Hau Ng, 20, Peter Tran, 19, and Tommy Le, 21

The first file traders to be convicted in court. Accused under the Australian Copyright Act of running a Napster-like website they were given suspended sentences, fines, and community service.

6. Ogg Vorbis

Before iTunes there was only one major digital music format - MP3. WMA was a very distant second and Ogg Vorbis looked to parlay its open source origins into a wide open market and become a heavily utilized commercial and non-commercial codec. The plan showed great promise, but Apple got there first with the AAC codec. If iTunes competitors at least considered Ogg Vorbis for their new services this would have been a good thing because they would help bring Ogg to the mainstream. Instead theses services are all turning to Microsoft's WMA. Will there be room left for Ogg Vorbis outside of the techie community?

7. Major Electronics Companies

Back in 2001 when SonicBlue was on our Winners list we lauded them for holding onto such a high percentage of the market with the major manufacturers from Toshiba to Panasonic to Aiwa now targeting the MP3 player market. The electronic giants had a considerable advantage to steal market share because of their significant presence in all of the department store and electronic chains, something younger companies like SonicBlue were still developing.

The problem is that the electronic firms never fully utilized this advantage and two years later watched a computer maker come in and take half of the market. some individual companies like Philips and its RCA subsidiary have done OK, but they own the MP3 codec these players are based on. Samsung has done alright too, but as a whole, the industry fumbled its opportunity.

8. Aimster/Madster

The company and its owner are bankrupt, but give them credit for still standing. The case is now being looked at by the Supreme Court, but they may not accept it.


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Other MP3 stories:
The Digital Media Winners of 2003
MP3 Newswire Celebrates Five Years
MP3 Portable Sales Double in 2003

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