Digital Media

Record label EMI this week announced that it will begin selling on-the-spot recordings of concerts.

The name of the initiative, Abbey Road Live, is a bit misleading--it doesn't have anything to do with the Beatles album or the recording studio after which it was named.

Rather, EMI is using its Abbey Road brand to indicate that these aren't low-quality bootlegs but professional multitrack recordings, mixed and mastered on the spot, and sold on CDs, DVDs, or flash drives to fans at the venue. EMI also said on Wednesday that it plans to make the recordings available as streams or downloads, so fans can access them from home.

Instant concert recording isn't new: EMI sub-label Mute Records has had a similar program in place since 2004--according to the press release, 10 percent of fans at a recent Blur concert downloaded the show afterward--and Willie Nelson has been selling flash drives with on-the-spot concert recordings for several years.

But having a large record label like EMI on board legitimizes the practice. It's a no-brainer way for live acts to earn some extra cash--and great for fans as well. I can think of many concerts I've attended, after which I would gladly have paid another $20 for a recording. This should become standard operating practice in the next couple of years.

Update: 5:42 p.m. PT: To include information about a witness being compensated by EMI.

The copyright lawsuit filed by major recording company EMI against Michael Robertson, founder of MP3tunes.com, took an unexpected turn on Friday.

A U.S. District judge will allow EMI to file suit against Robertson personally--not just his company, MP3tunes, according to a copy of the judge's decision. Besides accusing MP3tunes of violating its copyright in a suit filed in November 2007, EMI also named Robertson as a defendant.

A year ago, a judge in the case threw out the copyright-infringing charges against Robertson, but on Friday, Judge William Pauley, for the U.S. District Court of the Southern District of New York, decided to let EMI once again name Robertson as a defendant.

Michael Robertson, founder of MP3tunes.com

(Credit: James Martin/CNET)

The reason for the switch was the new evidence provided by MP3tunes' former president. In April of 2008, Emily Richards gave a deposition. In July of this year, 10 months after she left the company, she gave another one. In the latter testimony, Richards said Robertson was making a lot of the decisions for the company and that Robertson handled "technical, product decision, and legal matters without her involvement." This, argues EMI, shows that Robertson exercised control over MP3tunes and this should allow it to bring a suit against him personally.

MP3tunes, which allows users to store their songs in a digital locker and access them from any Web-enabled device, argued that this statement was consistent with Richards' earlier testimony. The judge didn't buy it.

"From the court's review of both depositions, it is clear that Richards provided new testimony," Pauley wrote.

Robertson said on Monday afternoon that the difference between Richards first deposition and her last was that EMI paid her $10,000. An EMI spokeswoman could not be reached for comment.

In Pauley's decision, he notes that EMI agreed to compensate Richards for "documented legal fees and costs up to $10,000" as well as pay expenses for her lawyer. The judge apparently saw nothing wrong with the arrangement. Pauley however noted that Richard testified that she left the company at Robertson's request, a fact that "bears on her credibility."

The good news for Robertson, who also founded MP3.com (now owned by CNET publisher CBS Interactive) and Linspire, is that Pauley threw out one of EMI's copyright claims. EMI's other claims, however, will be allowed to proceed.

Robertson, who in the past has called EMI's attempts to sue him personally "despicable," said that EMI's attempts to go after his personal assets is the music label's newest way of discouraging technologists from developing businesses that use their content in ways they don't like.

"We want to argue the merits of the case," Robertson said. "They want to drag it out...people should be able to store their music online."

The case is scheduled to go to trial in March.

Grooveshark, my favorite free music streaming service, made an important announcement earlier today: the company has settled a lawsuit brought against it by EMI, one of the big four record labels, and has licensed EMI's catalog.

The company is still negotiating terms with other copyright holders, but to my knowledge EMI was the only one that had sued Grooveshark. So with this legal uncertainty out of the way, I can more confidently recommend Grooveshark's $3-a-month premium service, which offers early access to new features (the latest update includes better organization of search results and a slider to move you to particular parts of a song). If other licensing deals follow, Apple might finally approve Grooveshark's planned iPhone app, offering on-demand streams from Grooveshark's massive user-sourced music library.

Peter Sunde Kolmisoppi, Fredrik Neij, and Gottfrid Svartholm Warg.

(Credit: The Pirate Bay)

Media companies will struggle to grab any money owed by The Pirate Bay, as Sweden's official debt collector found that three of the four founders have "no attachable assets" in that country.

In April, a group of 13 media companies, including Warner Music Group and EMI, asked the Swedish government agency, commonly known there as the "bailiff," to collect more than 30 million Swedish Kronor, or about $4 million on their behalf.

This was the amount the media firms were awarded by a Swedish judge after finding four men associated with The Pirate Bay--Peter Sunde Kolmisoppi, Fredrik Neij, Gottfried Svartholm Warg, and Carl Lundstrom--guilty of copyright violations. The men were also sentenced to a year in prison.

But on Monday, the Swedish newspaper Di.se, reported that the bailiff can't find anything to collect for Neij, Warg, and Lundstrom. In addition and perhaps most importantly, the bailiff rejected claims made by the media companies that Reservella, the firm listed as the official owner of The Pirate Bay, is a shell company controlled by The Pirate Bay founders.

The decision by the bailiff might have more significance if the acquisition attempt by Global Gaming Factory X, the software maker and operator of Internet cafes, didn't appear doomed.

In June, Global Gaming announced it had agreed to pay about $8 million, half in cash and half in Global Gaming stock, for The Pirate Bay. Global Gaming CEO has said for weeks the deal would be completed by this Thursday. The transaction appears seriously threatened now after Swedish exchange officials halted trading in the company's stock on Friday over concerns about whether Global Gaming has adequate financing to complete the purchase. There is also a criminal investigation into possible insider trading involving the company's stock.

Questions have also been raised about the accuracy of some of the claims made by Global Gaming's CEO Hans Pandeya. One example is that he said he received a $10 million bid from Napster co-founder John Fanning, uncle of Shawn Fanning. The elder Fanning denied Pandeya's claim.

One part of the claims made by the entertainment industry is that the founders were the ones who negotiated with Pandeya and other Global Gaming leaders. Sources close to Global Gaming told CNET this weekend that Pandeya finalized the agreement with the founders.

According to Di.se, Pandeya has told the bailiff that he doesn't know who is behind Reservella. The major music labels have pressured Pandeya to turn over any money he pays for the site to them. The Pirate Bay's founders have denied owning The Pirate Bay since 2006.

The bailiff said it could not connect The Pirate Bay founders to Reservella and just because they oversaw negotiations, doesn't prove that Reservella is a dummy corporation, according to the report in Di.se.

Should Pandeya come up with the money for The Pirate Bay, it's unclear whether the music and film industries could require him to turn it over to them.

On September 9, the Beatles will release their entire catalog, digitally re-mastered for the first time, on CD. The same day, The Beatles: Rock Band will be released, and there is speculation of an Apple music-related event the same day. Could it be an entertainment perfect storm?

(Credit: The Beatles)

What is it with the Beatles and nines?

As my colleague Caroline McCarthy pointed out in March when the launch date (September 9, 2009) for The Beatles: Rock Band was announced, the band's song "Revolution 9" ends with the words, "number nine, number nine, number nine."

So clearly, the date 09/09/09 has at least some symbolic significance for the band. And now, in addition to that date being the launch of the Rock Band title, it was announced Tuesday that on that same day, the Beatles will release a CD box set of their entire catalog, digitally re-mastered for the first time, re-confirming reports from months ago.

At the same time, many people have been talking about the high likelihood of an all-music-related Apple event around some unknown product announcement on September 9. So, with all these facts--and some informed speculation--in hand, one has to think seriously that we may get a star-studded event with Paul McCartney and Ringo Starr (who, you may remember, showed up at Microsoft's E3 press conference to promote The Beatles: Rock Band) and, of course, Steve Jobs, to announce the availability of that same digitally re-mastered catalog on iTunes.

If that were to come to pass, it would seem to me an entertainment perfect storm. Of course, as is always the case with these things, we have to temper our enthusiasm because the most exciting speculation could well turn out not to be true. But if it does happen like this, well, it would easily be worth the price of admission.

As for today's news, EMI Music and Apple Corps--the Beatles' publishers--said that it took engineers at the famed Abbey Road Studios four full years "of utilizing state of the art recording technology, alongside vintage studio equipment, to create these amazing re-masters."

Having talked to the folks behind both The Beatles: Rock Band and the Cirque du Soleil's Beatle-themed "Love" about the re-mastering processes, I know that this is something that those involved with the band have been putting a lot of effort into over the last few years. And assuming that there will be a digital distribution element to this whole 09/09/09 thing, it's nice that after being very strict for years and years about how their music got out into the world, the band may finally have agreed to loosen the reins a little bit.

Of course, it's not altruism. There will no doubt be massive amounts of money flowing into the coffers of everyone financially involved with the band. And that's because even for people like me who already own the entire catalog on old mono CDs or records, there may be a few extra dollars available for legitimate digital copies of songs like "Hey Jude," "Yesterday," and "A day in the life."

But, of course, as of today, we don't know anything for certain about the Beatles and iTunes. What we do know is that The Beatles: Rock Band will have 45 songs, and that the digitally re-mastered CD collection will comprise all 12 Beatles studio albums--in stereo, no less--as well as "Magical Mystery Tour" and a combined "Past Masters Volume I and II," for a total of 14 titles on 16 CDs. The whole thing will be available, along with a DVD set of Beatles documentaries in one--presumably pricey--stereo boxed set.

Three years ago this month, the Financial Times and The New York Times chronicled the emergence of an untried but promising new digital-music service: SpiralFrog.

Some of the hurdles that contributed to SpiralFrog's spiral out of the sector are the same confronting former rivals.

The start-up would offer music free of charge to consumers and attempt to hand the bill to advertisers. Since then, we've seen a dozen companies make names for themselves by offering their own twist on the ad-supported music model, including MySpace Music, Imeem, and Pandora. But regardless of how anyone has tweaked it, not a single service in the still-nascent sector has proven that it knows how to offer consumers a compelling free-music service while providing advertisers an effective way to deliver their messages.

Music fans generally refuse to pay to listen online and resent on-site advertising. The hard truth is that to this point, ad-supported music as a standalone business has failed.

Ruckus and SpiralFrog have closed their doors. Imeem faced a financial crisis earlier this year, until receiving new funding from investors and price concessions from the music labels. A year after Qtrax obtained licenses from all four of the top recording companies, the company appears to be struggling to pay its bills and has yet to launch.

In May, CNET News reported that MySpace Music's performance has underperformed. Several music sites have overhauled their business models (Lala) or are trying to do so (iLike).

Pandora's popular iPhone app, meanwhile, has helped spur user growth, but the company has also opted out of ad-supported music for the site's heaviest users. The company said last month that those tuning in for more than 40 hours a month must pay 99 cents to continue listening.

And if you're waiting for the Swedes, in the form of white-hot music service Spotify, to come charging over the hill to show us how to make the model work, you needn't bother. Three industry sources told CNET News last week that the service--expected to debut in the United States next year--is struggling to convert users into paying customers. Just like others on this side of the Atlantic, Spotify hasn't figured out how to make money.

CNET News has recently completed a two-month examination of SpiralFrog, the now-defunct download service that was among the pioneers of the ad-supported model. The review provides an unprecedented view of the many challenges facing companies in this sector. SpiralFrog's tale sheds light on the kind of rates advertisers are willing to pay and the licensing fees the top music labels charge. None of it is very promising.

There's no doubt now that the much-hyped SpiralFrog was never among the front-runners. The service offered music from only two of the four top recording companies. Users couldn't download SpiralFrog's tunes to their iPods. And documents show that the start-up spent millions of dollars on marketing but never attracted a loyal following of significant size.

There may be a temptation to dismiss SpiralFrog's problems as unique to the company. That would be a mistake. There's no question that some of the same factors that stymied SpiralFrog are bearing down on many of the company's former rivals. "This version of ad-supported model is certainly on life support," said Mike McGuire, an analyst at research firm Gartner. "I think we can say this round didn't quite work."

Migration to downloads
One sign that some players in digital music are losing faith in the ad-supported model is the rise in companies looking to sell downloads, according to one music industry executive. "That's become the fallback position," the source said.

A copy of a $1.8 million bounced check written by Qtrax to Oracle, which filed a breach of contract and copyright lawsuit last month against the yet-to-be-launched music service.

(Credit: Screenshot by Greg Sandoval/CNET)

All four of the major music labels declined to comment for this story.

Imeem, which has mostly focused on streaming ad-supported music to users' PCs, has recently begun testing a download store. Music industry sources told CNET News last month that iLike, which powers Facebook's most popular music service, was in talks with the major record companies over licensing downloads.

For two years, Imeem has posted links to Apple's iTunes and Amazon.com's MP3 service on its site to enable visitors a means to buy songs. MySpace Music, YouTube, Pandora, and Spotify do the same. But Imeem is testing how effectively it can sell a limited number of tracks from Warner Music Group and several independent labels directly to consumers.

Selling downloads directly, rather than linking to another retailer, is more lucrative. A music site that sells downloads can make 30 cents from direct sales rather than the 5 cents that the so-called affiliate partners pay, according to an industry source. The trick for any upstart download store is to convince customers of Apple's iTunes and Amazon's MP3 service--by far the leading download stores--to try a new outlet.

Nonetheless, the behemoth record labels are willing to work to help ad-supported sites survive. Imeem is the poster child for how the labels have changed their approach to these services. Founded in 2004, Imeem came very close to running out of money until it found new funding and also negotiated better licensing deals with the labels earlier this year. Some of Imeem's rivals asked and received similar concessions, industry sources said.

That hasn't stopped the complaining, however. The people who run digital-music stores continue to quietly argue that licensing fees charged by big record companies are still too high for stores to eke out a profit. Music industry insiders say it's not their fault that the start-ups have failed to win over advertisers. What are they supposed to do--give their content away? That won't happen, executives say.

Overpaying for music
CNET News' review of SpiralFrog showed that in 2006, SpiralFrog agreed to pay $3.2 million to Universal Music Group, the largest of the top four recording companies, in up-front fees. Documents indicate that in 2008, SpiralFrog set aside $3.5 million to license music from EMI, the smallest of the major labels. That deal triggered a "most favored nation" clause in Universal's contract, and SpiralFrog ended up paying an additional $1 million to Universal.

From a SpiralFrog June 2008 expenditure list. Note: SpiralFrog had no licenses with Warner or Sony. Figures represent amounts the start-up expected labels to charge.

Although SpiralFrog managers never secured deals with Sony Music Entertainment or Warner Music Group, the music service budgeted $5 million and $3.3 million, respectively, to acquire licenses from those services, records show. Those figures were all minimums. Under the agreements reached with Universal and EMI, had SpiralFrog made revenue above those minimums, the company would have been required to split that revenue 50-50 with the labels.

By the time SpiralFrog compensated the labels and music publishers, the company's managers figured that 66 percent of their revenue went to the music industry, records show. SpiralFrog's deal with the major labels was different from those negotiated by most music-streaming Web services, which pay penny-per-play rates. Their agreements are to pay a cent, or some fraction of a cent, each time a song is played.

It appears that it made little difference whether the record companies got their money before or after a sale. The rates they charged forced ad-supported companies to generate big ad revenue in order to cover costs.

SpiralFrog, for its part, never came close to covering costs, documents show. The start-up lost more than $26 million in 2008.

Advertisers are simply unwilling to pay the music sites a premium rate. In order to charge advertisers $10 for 1,000 impressions, ad-supported sites must operate their own sales teams, which is expensive. In SpiralFrog's case, the company's salespeople were successful at signing a few marquee advertisers, including McDonald's and Microsoft, but much too often, the company found itself selling excess ad inventory through remnant ad networks, which typically pay 50 cents or less for 1,000 impressions.

Advertisers aren't willing to give the ad-supported sites top dollar because they know that people aren't necessarily staring at a computer while listening to songs online. Instead, they tend to check e-mail or Facebook, do homework, eat dinner, or browse the Web in other browser tabs. In contrast with radio, Web listeners have become accustomed to music without audible ads embedded into the streams--and they don't want those ads, according to Gartner's McGuire.

Another gripe that advertisers have is that many ad-supported sites don't reach big enough audiences. Mel Schrieberg, SpiralFrog's former CEO, said SpiralFrog couldn't get in the "tier 1" advertising door with fewer than 5 million users. To generate this kind of traffic, SpiralFrog spent $11 million in 2008 on search engine and affiliate marketing, which gobbled up the little revenue the company was able to generate.

But Susan Kevorkian, a digital-music and mobile-entertainment analyst at IDC, points out that a large audience doesn't mean instant success. Although MySpace Music has access to the social network's shrinking but still large audience, she said the service still "hasn't performed to industry expectations."

Is there any hope?
One bright spot is that some investors are sticking with the sector.

In addition to Imeem, Spotify and Pandora found new funding. Investors including British venture capital firm Wellington Partners were part of a $50 million round of financing for Spotify, according to the Financial Times. And Pandora last month announced that it had raised $35 million of additional funding.

Ali Partovi, iLike's CEO, argues that the ad-supported model works for music, but not when you're giving songs away.

"We've built a self-sustaining ad-supported business--positive cash flow over the past eight-month period," Partovi said. "That's with only one full-time ad salesperson. What's our secret? It's simple: we're not trying to help consumers get unlimited music without paying for it. Instead, we're focused on music discovery. We deliver all the other things that music consumers love without risking a lawsuit or paying high royalties."

That may be true, but iLike is among the companies discussing downloads with the music labels.

Click the image above to read the lead story of our series on SpiralFrog. Stories on SpiralFrog's internal strife and customers' private information will appear Tuesday.

Matt Graves, Imeem's spokesman, said his company is trying to be innovative and not solely rely on traditional online advertising, such as on banners and display ads. The company is trying to mix things up with in-stream audio ads and custom-tailored campaigns. The music service recently promoted a download giveaway from Wal-Mart Stores and offered users a chance to remix songs from artists such as rapper Flo Rida.

"If it's all about displays, then users will get ad-blind," Graves said. "We're enabling advertisers to do a deep integration."

IDC's Kevorkian agrees that until now, ad-supported music has failed, but she sees some possibilities.

"This model has some flaws that need to be addressed before it works as a standalone model," Kevorkian said. "That said, there's a possibility that it could be deployed in conjunction with a hybrid paid model to help generate revenue so that the music provider isn't solely dependent on ads."

Buzzworthy social music service Project Playlist has signed another major-label deal: EMI Music has licensed its catalog to the company, which hired former Facebook executive Owen Van Natta as its CEO in November and says that over 52 million playlists have been created to date by its over 42 million registered users.

The first major-label deal for Project Playlist was with Sony BMG, an agreement announced in December. The company had previously been sued by a number of big players in the music industry, including EMI, because of the amount of unauthorized content uploaded to its servers. The Recording Industry Association of America (RIAA) also threw its hat in the lawsuit ring, and social networks MySpace and Facebook banned Project Playlist's embeddable widgets.

Music industry sources say that the RIAA's suit on behalf of the major labels was not dropped and that the industry group is still overseeing the case even though Sony BMG and EMI are not part of it.

"It is crucial for us to continue connecting our users with more of their favorite music," Van Natta said in a release. "This partnership will provide us with a wide-ranging selection of content to satisfy our users' appetites to share and purchase music. We are excited to now have both EMI and Sony BMG music catalogs available and we hope to continue to expand and enhance our service."

There are plenty of competitors for Project Playlist in the social music space: other big players are MySpace's own MySpace Music, which reportedly had sought Van Natta to spearhead the project; Last.fm (owned by CNET News publisher CBS Interactive); and Imeem, which was rumored to be in talks with Project Playlist for a possible merger. We haven't heard much about that recently.

This post was updated at 10:28 a.m. PT with information about the RIAA's suit against Project Playlist.

Douglas Merrill

(Credit: EMI)

Douglas Merrill, Google's former chief information officer who jumped to EMI Music not quite a year ago, has resigned as chief of the label's digital unit.

Merrill was hired by Guy Hands, the founder of private equity firm, Terra Firma, and parent company of EMI. Merrill's departure comes less than a week after Hands announced he would give up everyday control of Terra Firma. EMI said in a press release little more than Merrill had stepped down. I spoke to Merrill's wife, Sonya, by phone and she said Merrill didn't wish to comment.

An internal memo circulated at EMI was obtained by the blog All Things Digital. In that memo, EMI told employees that operating a standalone digital division was unnecessary.

"With digital now comprising over 20 per cent of our revenues and growing fast," EMI wrote in the e-mail, "we will no longer operate a standalone digital function."

EMI also announced that Cory Ondrejka, one of the founders of Linden Lab's virtual world, Second Life, was named executive vice president of digital marketing. EMI hired Ondrejka last summer. The record label took pains to note that Ondrejka was not replacing Merrill.

Merrill and Ondrejka were hired to help the record company plot a new course in digital music. EMI, the smallest of the four top recording companies, has lost market share in the U.S. and has wrestled with big financial losses. Managers there appeared to be willing to place big bets on the Web.

Merrill's departure raises questions about whether EMI has once again changed directions. EMI's move to ditch the digital unit on the day Merrill stepped down suggests that he was no longer needed because the entire company has gone digital, doesn't exactly sound very plausible.

Under Merrill, EMI's digital unit--in the year he was there--hadn't exactly hit any home runs. There were few awe-inspiring moves, or at least little the company announced publicly. In October, EMI said that Merrill's unit was planning to launch its own music service. The label markets its own stars directly to the public and is supposed to be more of a testing area where the record company can learn more about digital retail. The site is still in beta.

Not a bad idea, but it didn't exactly drop any jaws.

So EMI is doing away with the company's digital unit and a technology star brought on to run it is on his way out. My best guess on what's happening is that EMI, which has been losing lots of money for a long time, is under new leadership and is once again following a different vision.

Regardless of what happened between EMI and Merrill, to say that continuity has not been one of the label's strengths is an understatement.

An example of an artist's page on EMI.com

(Credit: EMI.com)

EMI Music, the music label representing such acts as Coldplay and the Beatles, is expected on Wednesday to launch a test version of its own music store, EMI.com.

While the idea behind the site is still a bit vague, the smallest of the four major music labels plans to eventually sell downloads from the site. For the time being, however, EMI.com is sort of a lab rat, a place where the recording company can "experiment with new digital platforms."

The site is still under construction and is "very beta" said a spokeswoman, which means there won't be any "buy" buttons available initially.

This means that the site is basically an information hub where fans can learn about "music, videos, photos, biographies, and discographies" of their favorite EMI artists. Fans can also listen to music, presumably streamed to their PCs. Eventually, visitors will be allowed to play with widgets and buy music, the company said in a statement.

At a time when the four major labels seem to move only in --at least when it comes to the retail deals they sign--EMI is the only top recording company with its own Web store. At least EMI is trying something new.

"This launch of EMI.com is the first step in a process to better test and learn from the consumer experience," the company said in a statement.