The Digital Media Winners of 2004

By Richard Menta 1/08/05

2005 will be the key year for digital media. The reason is because the Supreme Court has announced it will take up the Grokster case on appeal from the record and movie industries. The decision from that case will define the parameters of copyright, fair use and the culpability of technology for many years to come.

2004 seemed to be a perfect lead up as more people than ever both trade online for free and purchase digital music files from the likes of iTunes and Napster. More digital music portables were sold last year too, culminating in a 4 million unit Christmas for the iPod.


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The good news for the record industry is that sales have gone up this year despite the fact that more people are file trading today than they were last year (and by a significant margin). For others the year was more of a push. For example, KaZaa lost half of its audience to eDonkey, which surpassed KaZaa as the number one P2P app. Stll, KaZaa has over 2 million people on its network at any given moment so you can't call them a loser either. The jury is also still out on Napster and Real. The same for Ogg Vorbis who were on lasts year's loser list, but have extended their presence in video gaming and may have a new opportunity thanks to recent trouble regarding the WMA format.

Overall, it was an active year all around and with that in mind we offer our list of digital winners for 2004.

1. Apple

It took the top spot last year and has earned it for this year. The iPod increased its dominating market position for 2004 selling 4 million units during the Christmas season alone. As for iTunes, it sells two out of every three digital song files. No surprises here.

2. eDonkey

It's number one, passing KaZaa as the top P2P service.

3. DJ Danger Mouse's Grey Album,

In the latest issue of the industry newsletter Rock and Rap Confidential is a quote from John Lennon. "Music is everybody's possession. It's only the publishers who think people own it".

So I think it's safe to say that John would have approved of DJ Danger Mouse's Grey Album, a limited edition remix of Jay-Z's Black Album and The Beatles' White Album. EMI, who controls much of the Beatle's back catalog, didn't approve of the work, though, as it didn't give them a cut. They called the album a work of theft and demanded all copies of the record be destroyed.

In response to this censorship, the artist with help from the digital protest site DownhillBattle inaugurated Grey Day, a 24 hour protest calling for hundreds of sites to post the Grey Album for free distribution for 24 hours. Within a day 97 sites signed on to host the work for the February 24th protest. By February 23rd almost 200 sites agreed to "Go Grey" including the The EFF (Electronic Frontier Foundation). EMI threatened all of the sites with lawsuits, but those threats went on deaf ears. Collectively these sites said they would not be intimidated and posted the music.

According to Eric Garland, CEO of online media measurement firm Big Champagne, …"at any given moment on file-sharing networks there were 19,000 people hosting the album in its entirety, By the end of the day, more than 1 million songs had been downloaded, setting the album on par with top-selling artists Norah Jones and OutKast".

To put this further in perspective the RIAA recently started the RIAA Digital Download Awards. Download singles are gold if they hit 100K, platinum if 200K. The problem is these awards only represent songs sold by the five major labels and sold through sites like iTunes and Napster. The Grey Album, which delivered enough copies to qualify for platinum in just a few hours, was not on the list.

A protest that worked, both for the artist and for those who listen to and love music.

4. Tivo

Janet Jackson's right breast became a proof of concept not just for Tivo, but for Comcast and Microsoft too. Success comes as a mixed blessing for Tivo as these deep pocketed competitors will now spend a fortune to take the DVR space away from them. Before, Tivo competed head-to-head with Rio and won. Now they are against two companies with much, much more capital. Any missteps and Tivo could be on the losers list next year.

5. Hitachi Microdrive

The Microdrive has always been an impressive piece of technology, but back when its developer IBM was selling it they were priced far too much and in 2002 it made our losers list. As I wrote then:

This tiny and remarkable drive should have taken over an MP3 portable market littered with 32MB and 64MB players, but Big Blue - a strong believer in premium pricing - arrogantly kept the street price high on their Microdrives despite the fact the technology was already several years old. Then came the Apple iPod and the Microdrive became a footnote.

The next year IBM sold the technology to Hitachi who upped it to 4GB capacity and convinced Apple to use it for their iPod mini. The future I had predicted for the Microdrive when I reviewed it in December of 2001 came true as millions of iPod minis sold. Hitachi just announced a 10GB drive, which will further steal market share away from competing drives, including the 1.8-inch hard drive Toshiba puts in the full-sized iPod.

6. Canadian Digital Media Industry

I have always talked about an American digital media industry separate from the traditional media conglomerates, but legal strife caused much of it to flee overseas. Canadian courts, on the other hand, have been more sympathetic to users, ruling that the act of placing music into a computer directory that might be shared remotely by others does not constitute copyright infringement under Canadian law. It doesn't legalize 'unathorized' uploading of music, but it does shield P2P services from how users conduct their activities on them.

With a more clear cut legal definition than in the states, this is where the American digital industry has strong potential to grow, not in the US, but with our cousins up north. Closer in culture to the US than any other country, English speaking Canada will have no problem serving US customers.

If the Supreme Court's ruling on the Grokster appeal goes in favor of the media industry this year. Canada will be the biggest winner, not the record or movie industries.

7. Podcasting

Internet radio made our 2001 and 2002 losers list as the media conglomerates put both financial and legal pressure to squeeze out the home and small time Net radio DJ.

God bless the fluidity of the Internet as podcasting becomes yet another simple idea embraced by the masses. Those looking to express themselves audibly - as well as those looking for alternatives to "Stepford" radio - are making podcasting the next big little media trend.Through podcasting personal net radio lives.

The question now is how long before the media giants starts attacking this?

8. Grokster and Morpheus

In August the US Court of Appeals for the 9th circuit gave a big win to Grokster, Morpheus, and all of the other free P2P services utilized by millions of file traders in the US. The Court found Grokster not liable for contributory infringement, pointing directly to the Supreme Court's 1984 Sony Betamax decision as the guide to the decision.

But the BIG quote from the decision came at the end of the opinion:

"Further, as we have observed, we live in a quicksilver technological environment with courts ill-suited to fix the flow of internet innovation. The introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through well-established distribution mechanisms. Yet, history has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine, or an MP3 player. Thus, it is prudent for courts to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses, despite their apparent present magnitude."

It is not over yet, though. The record industry has appealed the case to the Supreme Court, who have agreed to hear the arguments this summer. The conservative court will have the final say on this matter and they could go the other way. The passage above makes a strong and eloquent argument that should play well for Grokster and Morpheus this spring. Hopefully it is enough and I say that even though Grokster itself is one applications to avoid as it will cripple any PC with spyware.

9. BitTorrent

BitTorrent? What's this doing on the winners list, weren't all those torrent sites driven offline by Big Media?

BitTorrent is on the list because of the fact that a third of all Internet traffic is delivered through it. The recent legal attacks against torrent sites have taken a toll, but the Net and its supporters have always shown an amazing resiliency and flexibility. eXeem is one example of this fluidity. The torrent sites will bounce back, most likely in countries more friendly to P2P. As the Canadian courts have declared P2P legal that country has become a safe haven.

Honorable mention goes to Loki Torrent for fighting back against the copyright cartel.

10. Jens of Sweden

Specialty digital portable manufacturer targets women and succeeds, selling 100,000 units by last summer. No iPod numbers here, just a modest profitable ripple and a win by a small entrepreneur.

 

The U2 iPod is available on Amazon

 

Other MP3 stories:

The Digital Media Losers of 2004

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