Digital Media

Michael Robertson on iTunes: "Mark my words they will go down and the rest of the world will catch them and surpass them. We've seen this before."

(Credit: James Martin/CNET)

Over the years, Michael Robertson, the man who founded pioneering digital music service MP3.com, has never hesitated to make a prediction about the sector's future.

"It's not a business," Robertson has told me often in the past about ad-supported music sites. Frankly, in the past, I didn't pay much attention. I do now.

The man who has fought more high-profile battles with the record industry than anybody in technology, and whose experience in digital music is nearly unmatched, has never appeared more prescient. He told me two years ago that ad-supported music sites would perish. The licensing fees required them to pay a penny, or some fraction of that, each time a service streamed a song to a user's computer, and that was too high to sustain a business. And now just look at the sector. It's a mess.

Ruckus closed in January. SpiralFrog imploded spectacularly in March. (Read CNET's series on SpiralFrog here and here). Imeem nearly ran out of money, and MySpace Music has performed below expectations. Nobody in the sector has reported profits. Not even Spotify, the European music service that users, including Facebook CEO Mark Zuckerberg, have gone gaga over.

The latest breathless report came this week, claiming that, in Sweden, Spotify makes more money than iTunes for Universal Music Group, the largest of the four top music labels. Sure, Sweden is a small country but the locale is insignificant. Generating revenue for the labels doesn't mean the service is profitable, which it is not, according to my music industry sources.

As for Robertson, he is certainly a lightning rod for controversy. He likely has as many enemies as friends in tech and music circles. His second major go at operating a digital music site, MP3tunes.com, has less than 500,000 users, which he acknowledges is "nothing." EMI has filed a copyright suit against him and MP3tunes.com. Still, his experience and track record at sizing up the sector make him impossible to ignore.

Question: Are you sorry you sold MP3.com (to Vivendi which later sold it to CNET, parent company of CNET News)?
Robertson: I probably go back and forth. We sold for $372 million, but it really was more than that because we got a $15 million bonus for all the employees, which is not included in that number. And there were still outstanding lawsuits, which they agreed to take over entirely. It was more than the reported price was. Listen, I grew up really poor and I owned a third of the company so that was a lot of money. That was a huge victory. At the same time, after I sold it, MP3.com just got crashed into the wall as fast as you can drive it.

That's why MySpace took off. One of the reasons was because bands didn't have anywhere to go to promote their music to their fans, so MySpace stepped in to fill the void. It's almost impossible to not look back and say, "What if, what if"...because MP3.com was really ahead of its time in terms of user-generated content, user-submitted content, and crowdsourcing. We had all of the users making their own fan pages with their own radio stations with their own playlists. All that stuff was something we were doing in 1998. So if I hadn't sold it, who knows where it might be. Maybe it would be the Facebook equivalent today of MySpace. Maybe not, it's hard to say. So I go back and forth.

Q: Do you love music?
No, I like music. But I'm really a technologist at heart. And that's one of the fundamental differences. That's why I did MP3.com so differently than everybody else. I wasn't a musician. I wasn't a record label guy.

I took a second mortgage out on my house to start MP3.com. Everything we did was controversial. People said the name was dumb at the time. People said, "You're going to be like Betamax.com." Naming a company after a format was so stupid. They don't say that anymore today. The domain name is part of it, but it is what you make of it. We were doing other things--allowing every artist to sign up and do free Web hosting, unlimited bandwidth and unlimited storage and online stats, using crowdsourcing to rank all the music. They said, "If you let everyone sign up, all you'll have is a pile of crap." I said, "No no, we're going to let the crowd source it, and whatever music they're clicking on the most will bubble up to the top."

Everyone at the time said, "That's never going to work." That was the day before Wikipedia when people didn't trust consumers. So, we did all these things that were so different at the time. Today, it's almost remedial. People wanted to charge the artist and host free songs. They had one complete song that they had to give away free. Remember, this was 1997 where people had 56K modem hookups if you were lucky. People said no one is going to download a whole song at 120Kbps.

Back then, RealNetworks was the king. It had had 85 percent of the market. Everything was RealAudio. They not only had the player, they had the server. Microsoft came into the mix and said, "All right, we're here with Windows Media and it has 10 times better fidelity, so everybody out of the pool. We're here to take over." I'm like, "You're both wrong. MP3 is where it's going to be." And they were like, "You don't have any media support, no record labels want you. You're going in the wrong direction." I said, "Hey, consumers are going to get what they want. And they are going to want MP3."

Q: How did Real blow it?
Where Real missed out is this counterintuitive notion where you have to give up control to get control. What I mean by that is, with MP3 anybody could write any software program you wanted to. You could go design hardware and create Web sites. You didn't have to drive up to Seattle and ask for Real's permission. So the notion of having open technology free to everybody that wasn't tightly and centrally controlled by a corporation is counterintuitive. Real was building servers and a player and standing on proprietary technology and what happened was that the rest of the world out-developed and out-innovated Real. This is what I saw with MP3. Hey, this open format allows anyone to build to it. The other guys said, "All roads have to lead back to me."

Q: That's the Sony way.
Yeah the Sony way, and you see what happens. If you're lucky and you get the mojo going, you get the Walkman, but if you're not then you fade into irrelevancy. Apple is the one big exception with their iTunes empire, but mark my words they will go down and the rest of the world will catch them and surpass them. We've seen this before. We've seen this with the original Mac, which was a superior personal computing platform. Nobody can dispute that, but it didn't win. Microsoft Windows won because Bill Gates is a genius? No, because they had all the developers.

Q: Talk to me about Microsoft. They haven't been very successful in digital music. What's their problem?
Microsoft decided we aren't going to partner with the users. We're going to partner with the studios and labels. That's where they made their bet and people who made those bets are going to lose because consumers are going to get what they want.

Q: Do you hate the music labels and film studios?
I think it was pretty despicable for EMI to sue me personally, but outside of that it's just business. They are trying to maximize the revenue and profits they get and I'm trying to do the same for my business.

Q: Did this all start with MP3?
Yes. When I was doing the road show for MP3.com, when you go around talk to investors and try to get them to buy your shares. Literally a day or two ahead of me there was another person doing a road show for Liquid Audio, a proprietary, DRM sort of strategy, and they were telling people that MP3 stood for "music piracy cubed," which was nonsense. To me MP3s are inevitable. Maybe I accelerated it a little by what I did, but it is inevitable that people will get DRM-free content. People looked at me as an advocate for MP3 or worse, that I advocated for piracy. The reality is there is a certain recognition that--thanks to the Internet--the power has shifted to the consumer and away from media companies. That's just the way it is.

The reason MP3tunes.com threatens the record labels is we do have that open strategy. We have an open API that anyone in the world can build an interface for on any device, and the record labels see that as a loss of control. If you get the crowd developing you up, you're going to win. it's just a matter of time. You can out-engineer any company out there.

Q: What's the endgame for you? When people talk about the music sites, forgive me, but they aren't talking about MP3tunes. What's going to happen to your company?
It's not there yet because the value of the crowd is proportional to the number of devices that connect to it. We've built a nice interface, and it will sync with iTunes and that's great, but if this is the only place you can listen to your collection it's not of value you to. You say that I already have iTunes, but when I start adding devices, now the cloud becomes valuable, we only have 250,000 users. That's nothing. But when you're building an API-driven business, it takes awhile to get all those developers building your apps. It's not a mystery that cloud music is still a new concept, primarily because of the record labels' resistance to technology. There's some huge blockades and those blockades are the record labels. Right now when you start a digital music company, you come to a big fork in the road and you have to decide if you are going to partner with record labels and take on all that legacy and restrictions and onerous royalty payments, or are you going to partner with the consumers.

There's no middle ground. If you choose the consumer path, the record labels have shown they will use the courts against you. It's not just us. There is Project Playlist, SeeqPod, Imeem, and MySpace, they were all sued by the record labels. But the challenge is that if you do what Lala did, which is sign with the labels, you have all of these restrictions and rules and regional restrictions. Our locker system is available to anybody in the world, but Lala is only available to U.S. and Canada. How can you build a scalable business when you're restricted to two countries?

Q: You are down on penny-per-stream rates and ad-supported music?
It doesn't work. People say look at Pandora. They said they have 25 million registered users. They used to be a pay site, $3 a month and nobody used them and they removed the monthly requirement and they got the huge numbers. So people have shown a real reluctance to pay a monthly fee for radio and the only companies that have gained any traction are the ones who do it for free. If you don't charge a fee then what is left is advertising as a revenue source. And it's just simple math that you can't make enough with ad banners and click-through keywords to pay a penny per song. Simple math, ask anybody who knows Internet advertising. Somebody sits there, listens to 20 songs, the royalties pile up with each tick of the clock. Those songs may or may not have ads at any given time and even if they do you can't charge enough for those ads to cover the royalty payments, much less all the other engineering fees and bandwidth, sales and all of the other costs. There's no question that today Webcasting is not a business.

What about Pandora?
Not a business. There's only two possibilities here. They go bankrupt or the royalties are changed. And I don't see the royalties being changed. Even if Pandora pays less the fees are still unsustainable. So, the rules have to change or Pandora goes out of business.

Q: Won't all these challenges push the legitimate services out and leave only the pirate sites? Why would the music industry want to do this? It doesn't make sense.
The last 10 years shows that there are always more dummies who get out their checkbooks and sign insane deals and do large prepays for the privilege and public recognition of partnering with the labels.

Over the last decade, name a company that has made money with digital music online. Apple is one, but they did it primarily with hardware. You mean to tell me that every company that tried it was inept? Come on now. There had to be some good CEOs out there.

Q: Why do you pick fights with Imeem and Lala and other digital music companies?
So much of the record business is done in secrecy. It usually means someone is getting screwed. That's usually why it's done in secrecy. Hey, if everybody is making money it should be out in the open. I have nothing against Imeem or Lala. I wish them success. They are digital music companies just like me. But I think the only way things change is if people realize that the current way does not work. You asked me isn't there a risk that the record labels could push out the legitimate guys and then only the black market guys are left.

Well, look at the last 10 years; Liquid Audio went away and here comes the new guy. There's constantly new companies coming up. And listen, it's sexy to work with music. It's sexy to partner with the labels and get invited to clubs and release parties. That's sexy and fun and high-profile. So over the last decade there's always more suckers that line up, so even if the current ones go out of business it's no big deal because there's a future generation to tap into and the industry doesn't have a lot to show for it over the last decade.

Correction at 11:10 a.m. PDT: Lala's patent filing is an application. And Lala says it has made no promises to music labels regarding piracy in order to offer 10-cent "Web Songs."

Michael Robertson, the gadfly of digital music, is once again pestering rivals about their business practices.

Robertson--the controversial founder of MP3.com, Linspire, and MP3tunes.com--has accused Lala of attempting to transfer control of its users' music to the recording labels.

Robertson claimed last month on his personal blog that Lala had developed an "insidious new plot" to entice its users to upload music to the company's servers and then trap the music there by embedding digital rights management into the servers. This would enable Lala and the big music labels to exercise greater control over the tunes. He compared Lala's plan with a "roach motel," where songs check in but they can't check out.

Robertson's accusations generated little attention, possibly because he operates a competing site, MP3tunes.com. Both companies enable customers to access music from the cloud, and one competitor badmouthing another won't stop the presses. But in regards to Robertson's accusations about Lala and DRM, the best support for the claims comes from Lala itself.

Robertson directed CNET News to a Lala patent application filed last year and titled "Network Based Digital Rights Management System." In the filing, Lala describes what it is hoping to patent.

"A network-based DRM system manages digital media assets stored in the network," Lala, which has been praised by music labels and has financial backing from Warner Music Group, states in the document. "The system provides consumers with access to the digital media from any device connected to an electronic network such as the Internet, while enforcing the intended uses by the copyright owners."

"The Web restricted nature of the offering," Lala writes elsewhere in the filing, "means that the digital assets are at all times controlled by the system and thus result in minimal piracy."

The patent application proves Lala is trying to develop a new type of DRM, according to Robertson. Instead of wrapping individual songs in DRM, Lala's plan calls for a network to act as a fortress that surrounds an entire music ecosystem.

Lala CEO Geoff Ralston confirmed that Lala filed for the patent but denied the company is trying to wrest control away from users.

"It's a patent around Web Songs," Ralston said.

Web Songs are one of the cornerstones of the company's latest business model. Lala, which has switched focus from two prior models, now offers three main features. In the first, MP3s unprotected by DRM can be purchased and download for rates comparable to iTunes'. A second option offers users unlimited, ad-free streaming access to music they already own. The way this works is that users allow Lala to scan their hard drives and preserve a list of the songs the person owns. Lala's system will then stream its own copies of the songs to the user. This way users don't have to worry about losing their music to hard-drive meltdowns or misplaced music players.

Lala's last feature allows people to listen to streaming music--that they don't already own--for 10 cents per song. Lala calls these "Web Songs." One of the ways Web Songs are different from MP3s is that they can't be downloaded to a portable device.

"A Web Song by definition has a limited set of rights associated with it," Ralston said. "One right you don't have is the right to take it with you. It's not a portable song. Another right you don't have is to copy it. Everything has limited rights, even an MP3. You're not allowed to take an MP3, copy it, and sell it."

Lala said Web Songs offer people a chance to obtain streaming access to a song for the price of a grocery store gum drop. If customers later want to upgrade and buy an MP3 version of the tune, the dime is counted against the price of the download.

Michael Robertson found Lala's DRM patent filing and says it proves the company is taking orders from record labels.

(Credit: Michael Robertson)

While Ralston said the filing only deals with Web Songs, the patent document itself, under a section titled "Overview of Present Invention," lists the many applications of its invention.

The patent filing indicates that Lala's DRM invention is designed to lock down music that its users already own. Lala's system doesn't allow people to listen to their own music via anything but a Web browser and the songs cannot be downloaded. Ralston argues that people can do all these things with the original music files they own.

But if Lala's users own the music the company stores, why does Lala restrict it this way? Are these restrictions rooted in some technology limitation or do the major labels require them?

"We're trying to provide a way so that users can have more access to their music than they had in the past," Ralston said. "Look at the iPhone. I can't easily throw brand-new graphic cards into it. It's all closed up. But it's a much better consumer proposition. We're not acting as an agent of the record companies in any way except that we resell their goods. There's nothing nefarious there at all. We repackaged some stuff that we think provides a better consumer proposition."

Music sales have been falling for years, and piracy is at least one of the main causes. Nonetheless, the four top record labels over the past year have appeared to give up on DRM as a piracy-busting strategy. This trend culminated in January when Apple announced it would strip DRM from the entire iTunes library. So, why then is Lala attempting to come up with a new DRM strategy?

In the patent application, the company offers some clues.

Lala notes that DRM produced by Microsoft and Apple "suffered from lack of interoperability caused by competitive and licensing issues." Most DRM, Lala points out, can also be cracked or broken. Lala says in the patent filing that its DRM approach avoids these issues.

"A network-based approach protects against rampant piracy," Lala writes. "By delivering the product directly from the network, only authorized users and devices can access the media. Access by users and devices is controlled on the Web and can be constantly adapted to changing technologies and market pressures."

Robertson claims that network DRM is simply the latest attempt by the recording industry to jerk control of music away from consumers. He said what may be most alarming about Lala's system is its potential to snatch away someone's songs.

"The system also allows for the 'revoking' of ownership of digital media," Lala writes in the patent filing. "For example, if a user is known to have illegally shared a file, the copyright owner may choose to revoke their ownership of the digital media in the system, limiting the rights of such user to the media."

When asked about this, Lala's CEO was unapologetic.

"Is it controversial that a store has the right to terminate someone that steals from them?" Ralston asked.

A copy of Lala's patent, titled Networks Based Digital Rights Management System.

(Credit: Faqs.org)

A fitting anthem for Michael Robertson these days would be The Rolling Stones' hit, Get Off of My Cloud.

For nearly a decade, Robertson, the often controversial cofounder of MP3.com and Linspire, has toiled to store music in the cloud, the term used to describe the seemingly limitless amount of data and services accessible with a Web browser. But in the past, Robertson's efforts have led him into epic legal battles with the music industry. That's where he finds himself once again. In November, EMI filed a copyright suit against him and his music service, MP3tunes.com.

Michael Robertson says corporations can't dictate what music buyers do with their legally purchased songs.

(Credit: Michael Robertson)

More recently, Robertson has had to watch competitors generate headlines with an idea he helped pioneer. On Monday, Lala.com launched a service that enables customers to upload songs into digital music lockers (or the cloud) and then stream the tracks to Web-connected devices. Before launching, Lala obtained licenses from each of the top four recording companies. The differences between MP3tunes and Lala are many but chief among them is this: Robertson doesn't believe services such as his are obligated to obtain licenses to help consumers store legally owned music.

There's potentially a lot at stake here--that is if you believe all our gadgets will one day connect to the Web, and that people will access music from celestial jukeboxes via whatever device is handiest. How Robertson's legal case is decided could help determine who owns the keys to digital lockers.

EMI says issue is piracy
Little in EMI's complaint indicates that the label objects to the storing of music in lockers, digital or otherwise. As a matter of fact, the document reads like a run-of-the-mill piracy complaint.

EMI, the smallest of the top labels, alleges that Robertson has set up his two operations, MP3tunes.com and Sideload.com, to deliver a one-two punch against copyright. According to EMI's complaint, Sideload finds and organizes links to pilfered music files on the Web. MP3tunes then enables those pirated files to be stored, copied, and downloaded to devices without paying a dime to the music creators.

"Next to each Sideload song is a small "SL" icon," EMI wrote in its complaint filed in U.S. District Court in New York. "When users click that SL icon, MP3tunes makes a full permanent copy of the desired work and stores it in a locker assigned to that user at MP3tunes.com."

The record label accuses MP3tunes of then handing users the ability to share access to their music lockers with anybody. According to EMI, MP3tunes only requires customers to submit an e-mail and password to access their music. EMI lawyers argued that such lax security enables a locker to become a "virtual drop box for this illegal distribution."

Robertson dismisses EMI's claims and said Sideload is nothing but a search engine just like Google and Yahoo. The Digital Millennium Copyright Act protects service providers from responsibility for any crimes committed by users, Robertson said. He claims EMI's lawsuit is designed to camouflage the record industry's true goal, which is to prevent him and anyone else from storing music in digital lockers without first paying licensing fees.

"This is about what users are allowed to do with their music," Robertson said. "Are they allowed to put it on their phone and their game devices or on multiple PCs without paying the labels each time? I say they are. Consumers don't want a corporation deciding for them what they can do with their property."

To help prove that MP3tunes violates copyright law, EMI is focusing its legal attack on the way MP3tunes stores music, Robertson said. Before I get to that, there are some things about Robertson readers should know.

Is MP3tunes different than MP3.com?
First, this is certainly not his first court fight. He was one of the cofounders of MP3.com, which attracted a huge following in the late 1990s partly by doing what MP3tunes.com does now. MP3.com's Beam-It program enabled users to load CDs into online lockers and access the songs from Web-enabled devices. The problem was 10 years ago many people were still limited by 56k connections.

It just wasn't feasible to upload music this way, Robertson said. In order to speed up the process, MP3.com purchased $1 million worth of CDs and created software to scan a user's hard drive. The software detected whether a user owned copies of songs found in MP3.com's library. If they did, the service gave the user access to its copies.

The labels zeroed in on this. Universal Music Group alleged in a copyright suit that MP3.com was unauthorized to use its songs as a data base. In a landmark decision, the judge agreed and MP3.com eventually paid UMG more than $53 million. Then the company, which had raised $370 million in a 1999 public offering, merged with Vivendi. Later, its domain name was sold to CNET, publisher of News.com.

"The court found that MP3.com had engaged in willful acts of copyright infringement," EMI wrote in its latest lawsuit, adding that Robertson ultimately started MP3tunes.com as a "vehicle to achieve a comparable infringing purpose."

Again, Robertson shrugs off EMI's charges. He said his company is clean. Technology has improved and he doesn't have to create a central music library. Users can create one for him by uploading their own songs. But wait. Is it legal to manage a central music library without permission from the copyright owners regardless of who stocked the library with songs?

Unauthorized performances
Let's step back for a second. It's incorrect to think of digital music lockers in the same way one thinks of a high school locker, says Robertson. Music uploaded into the site isn't tucked neatly into some walled-off area. Songs from every customer are loaded onto the same hard drive, he said. But it's important to note much of of the music is never actually stored, Robertson acknowledged. It would be inefficient and expensive to store numerous copies of, say, The Beatles' classic "Yesterday" or AC/DC's "Back in Black."

MP3tunes keeps a copy of a particular song and distributes that one to customers over and over again. This means, however, that the files users load onto the site are unlikely to be the same ones they hear when accessing their music. Every company handling digital information operates the exact same way, Robertson argues. Nonetheless, EMI claims that MP3tunes is not authorized to distribute music this way and is violating copyright law.

"If EMI is right, their argument indicts every single online storage service and ISP in the world," Robertson said. "We didn't invent this technology. That's a default feature in every single storage system."

Robertson has a point. How much sense does it make to store 10,000 copies of the 10,000 most popular songs? If the copies are exact, what's the difference whether I'm listening to my bits or someone else's as long as I legally purchased the music? Don't I own the right to hear the song?

EMI's attorneys will almost certainly argue that a user purchases a set of bits and they only own the right to those bits.

The label is also likely to compare MP3tunes to MP3.com and claim that in both cases Robertson operates a music data base without permission from the copyright owners. The only difference is that MP3tunes didn't actually make any of the copies on the site.

It will be interesting to see whether that's enough of a distinction to satisfy the courts, especially when Robertson has acknowledged customers of MP3tunes, like those of MP3.com, aren't listening to their own music files.

Michael Robertson, MP3tunes founder, got some good news from a judge. His company wasn't as lucky.

(Credit: Michael Robertson)

A federal judge has dismissed a copyright-infringement lawsuit filed by EMI Group against Michael Robertson, founder of MP3tunes.

The bad news for Robertson, who also founded MP3.com and Linspire is that the judge allowed EMI, one of the four largest recording companies, to continue to pursue the copyright claims against MP3tunes, court documents show.

The case, filed last November in U.S. District Court for the Southern District of New York, was brought by 14 record companies and music publishers affiliated with EMI.

MP3tunes enables users to store music in the so-called cloud. The company's 150,000 customers upload their music into "lockers." They can then access the tunes from nearly any Web-enabled device.

EMI argues that MP3tunes doesn't have authorization to exploit the company's music this way. A representative from EMI couldn't be reached for comment late Wednesday evening.

Few in Silicon Valley know their way around a courtroom as well as Robertson. After founding MP3.com, which also enabled users to upload songs into digital music lockers, the major labels and publishing company took him to court. What's unique about EMI's most recent suit is that the recording company went after him personally.

"Suing CEOs personally is a nasty tactic media companies are engaging in to intimidate individuals," Robertson said in an e-mail. The tactic forces them to "either enter into a settlement or face the possibility" of financial hardship.

District Judge William Pauley said in dismissing the case that he didn't have jurisdiction over Robertson in New York. As for the continuing fight his company faces against EMI, Robertson said "the case against MP3tunes will determine if it is permissible for consumers to store their music in online commercial services for everywhere access, directly analogous to the way they currently store documents, photos, and other personal data in cloud services."