Digital Media

Reading through Greg Sandoval's detailed reporting of SpiralFrog's demise, I once again found myself wondering--as I did many times during the late 1990s dot-com boom and subsequent bust--how anybody could possibly have thought this was a good idea. Ad-supported music downloads that are incompatible with the iPod, the device that basically created the MP3 player market? Who would possibly buy such a thing? SpiralFrog seemed like such an obvious nonstarter, I wrote about it once in 2007 and never wasted time revisiting it. But investors were spending serious sums of money on it, right up until the end.

Album art is fine, but I'm more excited about the music in the grooves.

Apparently, some folks in the music business still haven't learned the lesson about Apple and iPod support, as demonstrated by recent reports that the major labels are planning to launch a new format for digital albums. Operating under the working name of CMX (as a friend quipped, "8-track" was already taken), the new format will allow users to browse album art, read lyrics, and so on. Basically, it's trying to duplicate some of the fun of buying and unwrapping LP records.

Unfortunately, Apple's not playing ball, but is rather working on its own competing format, code-named Cocktail.

So let's get this straight. First, it's a new format. Unless it takes advantage of existing technology like Adobe's Flash, that means users will have to download some new software or plug-in to access these files. Second, this format is meant to be consumed from your computer. But in my experience, the main reason to put digital music on a computer is in order to move it to other devices. Third--and probably most important--without Apple's support, the format won't be compatible with iTunes, the iPod, or iPhone. You can count the market share of the other players in this field on your fingers. Finally, the entire premise assumes that people aren't buying complete albums in digital format because they're not getting the fetishistic experience they used to get--unwrapping the physical object, admiring the cover, reading the liner notes. But the sad fact is that a lot of albums aren't and never were worth buying, and customers grew tired of paying $18 for one song they liked. (Chumbawamba, anyone?). Digital downloads free us from bundling practices that we never liked in the first place.

Unless there's more to the story--a tie-up with another player like Sony's X Series Walkman or Microsoft's Zune, for instance--how can anybody possibly think this will succeed?

After speaking to people supposedly investing in the acquisition of The Pirate Bay, former Grokster exec Wayne Rosso says he has doubts about a deal.

(Credit: Waynerosso.com)

Wayne Rosso, the former president of Grokster, has walked away from Global Gaming Factory because of "strong doubts" the Swedish company has enough funds to acquire The Pirate Bay.

Global Gaming, a Swedish software company, made big news last month by announcing plans to acquire The Pirate Bay for $7.8 million. Hans Pandeya, Global Gaming's CEO, then hired Rosso to negotiate legal music and film licensing deals on the company's behalf.

Rosso had spoken to executives from the top four major labels as well the music industry's worldwide trade group about The Pirate Bay, but now those talks have been "blown up," Rosso told CNET News on Tuesday. Rosso said he's spoken with some of the alleged investors Global Gaming had lined up.

"I and my colleagues have very strong doubts that the funding is in place," Rosso said. "And there are other issues regarding Mr. Pandeya's credibility that trouble us greatly."

Pandeya and Global Gaming have also not met payment deadlines to Rosso and his staff, according to Rosso. Pandeya said in a phone interview from Sweden that he was in the process of paying Rosso and his team.

"Everything is going to plan," Pandeya said. "We have plenty of investors that are interested in this and Wayne is just one of our many consultants...he might have been too impatient. We pay everyone we do business with."

Rosso's assertions raise even more doubts that The Pirate Bay, the famed BitTorrent tracker that enables users to find unauthorized copies of film and music, will become a legal site anytime soon.

Last week, Global Gaming's attorney stirred speculation about whether the public company would be able to complete a deal after he told a Dutch court that whether an acquisition can get done is "very much the question."

Following that, Pandeya told CNET that everything was fine, that the attorney was just stating a deal isn't done until the signatures are on the contract. He said in the interview, which Rosso also participated in, that he had the funding to acquire The Pirate Bay and just needed board and investor approval. He said they are due to vote on the deal sometime in August.

Elsewhere, the movie industry has filed suit against the founders of The Pirate Bay. The blog TorrentFreak, reported that nearly a dozen "major movie companies issued a subpoena to the Stockholm District Court demanding it put an end to the activities of The Pirate Bay."

A spokeswoman for the Motion Picture Association of America said "The Pirate Bay continues to facilitate the wholesale illegal infringement of film and television works in an organized and commercial manner despite the criminal conviction handed down by Stockholm District Court. The studios have simply applied to the Court to require the three operators and the ISP hosting the Web site and trackers to cease this infringement."

The Pirate Bay founders have maintained that they haven't owned the site since 2006, but the complaint, the studios allege that Reservella, the holding company that is the listed owner of the site, is controlled by Fredrik Neij, one of the four founders.

Apparently, the digital download didn't kill the album after all.

Can Apple revamp the album format?

(Credit: Polydor/Jimi Hendrix: Bold As Love)

The four largest recording companies and Apple reportedly have plans to create what they hope is the next-generation album. Driving the efforts is the hope that music can once again deliver fat profits, instead of the scrawny margins earned on 99 cent downloads.

On Sunday evening, the Financial Times reported that Apple plans to entice customers to accept packaged music by throwing in "photos, lyric sheets and liner notes" and also enable consumers "to play songs directly from the interactive book without clicking back into Apple's iTunes software."

A music industry source told me the labels are working on their own interactive album format and they will offer it to Amazon and other music services. Apple and the labels are shooting to release their album versions in the fall.

Critics will undoubtedly say such plans are folly. For nearly a decade, digital technology has enabled music consumers to bust the CD into pieces and obtain only the songs they wanted. Even music industry execs have acknowledged that for too long, fans were forced to pay on the order of $15 to obtain 12 or so songs of which only two might be any good.

Whatever the next-gen album is, it can't be a vehicle that forces unwanted music on fans for premium prices.

But the music industry's dilemma was sized up candidly earlier this year by David Ring, executive vice president of business development for Universal Music Group's digital arm.

"If what we're trying to do is one-by-one downloads...that's not a business that can grow," Ring told EconMusic Conference attendees. "It won't be healthy for the industry."

What that means is that there's too little money in selling individual songs. The ailing music industry appears to be looking for ways to give people music and then entice them to dig deeper into their wallets for extras.

Earlier this month, EMI began selling the "digital 45" to mark the 60th anniversary of the vinyl 45 single. A 45 was a vinyl record that was smaller in size than the standard album and typically featured two songs, one tune on the A-side and another song on the B-side. To create a similar effect, EMI began bundling hit singles with B-sides in a download format.

When it comes to boosting margins, the labels have already achieved some success.

Last January, in an unprecedented move, iTunes maker Apple announced that it would allow the recording industry to charge something other than the traditional 99 cents per song.

Perhaps Apple and the labels can come up with content combos that people will find valuable. But the danger here is in trying to force the packages on consumers and possibly alienating them even more, which could send them sailing into new piracy waters.

When news broke late Sunday that Apple has plans to create the next-generation music album, some in the record industry were steamed.

The Financial Times reported that Apple was working on a plan code-named "Cocktail" that involves the creation of "new type of interactive album material, including photos, lyric sheets and liner notes that allow users to click through to items that they find most interesting." That's nearly identical to a plan that executives from some of the four largest music labels pitched Apple about 18 months ago, said a music industry source who requested anonymity.

Even as the music industry cooperates with Apple's efforts, what has some insiders upset is that Apple rejected the labels' plan. By seizing credit, Apple is being "disingenuous," said the source. He added that Apple's attempt to develop a proprietary technology around the new interactive album is an example of the company once again falling back on "the walled garden approach."

What he was referring to was how users of Apple's iPod were prevented from playing songs wrapped in digital rights management made by competitors. That effectively blocked anybody but Apple's iTunes from selling music files to iPod owners. Now, most download stores sell songs in the MP3 format and these DRM-free tunes can play on iPods and iPhones.

Apple representatives did not respond to an interview request.

But Apple's refusal to participate in the labels' plan didn't mean they gave up. The largest recording companies have continued to develop software that will help them release their own version of a new interactive album. Apple will have Cocktail, but Amazon and all the other competing services will get access to the labels' version, which will offer more content than Apple's, said the music industry source.

Apple plans to have Cocktail ready to launch by September, according to the Financial Times, and that's when the labels hope to have their version ready as well, said the source.

Both Apple and the top recording companies appear to be pursuing the same goal: rejuvenating the album, which was the benchmark sales unit that helped the music business generate billions of dollars over the past half-century. Up until the digital download turned the music industry on its head, the album was the standard means for music distribution. Even after the switch from vinyl to the CD, the album format was preserved, as most CDs featured about a dozen tracks.

Record industry execs have long said that there's no way to grow the business by selling single-song tracks. But the big labels have an uphill fight--many consumers may well resent any attempt to force them into paying a premium for packages that include unwanted tracks.

Update: 6:06 p.m.: To include iLike's hopes to open a download store in the next 30 days.

Facebook's most popular music service, iLike, is in talks with the four major music labels about opening a download store, multiple sources within the music industry said Tuesday.

According to the sources, iLike is close to reaching final agreements with at least three of the top record companies. The sources did not disclose which labels are close but added that iLike is hoping to open its download store within the next month.

A spokeswoman for Seattle-based iLike said: "iLike engages in ongoing discussions with the labels about a variety of ways we might work together. While we don't discuss the specifics...I can tell you that our goal remains the same: to facilitate music discovery and consumption across the Web."

Details are few about what an iLike download store might offer, but it almost certainly would sell songs in the MP3 format. Few, if any, of the top download services offer music wrapped in digital rights management anymore.

The talks come as many of iLike's competitors are already well into offering downloads backed by full-streaming music. Imeem has launched a test version of its download store, featuring music from major label Warner Music Group and multiple indie companies this year. MySpace has offered full-streaming music and downloads from all four top record companies since September.

Up to now, iLike's full-length music offering has been light. The start-up's 50 million registered users can sample 30-second music clips, but must go to iTunes or other Web retailers to buy songs.

Sources said iLike is hopeful that it can profit from cutting out those middlemen.

Last year, iLike struck a deal to offer songs in their entirety with Rhapsody, the music service operated by RealNetworks and MTV. That deal was never popular with the labels and eventually fizzled out.

The record companies don't want music services piggybacking on each other's libraries. According to one music industry source, Rhapsody's deal with the labels didn't include offering full-length songs on iLike.

iLike isn't a company that has generated a lot of positive press lately. All Things Digital reported last year that iLike was for sale. The blog also broke the story that the Rhapsody deal had gone sour when Warner Music and Sony Music Entertainment, had pulled their music from the service.

The new Kazaa appears to be mostly a run-of-the-mill subscription music service, but it does add a few new twists. The one that stands out right from the sign-up phase is that subscribers can either pay by credit card or via their telephone company.

(Credit: Kazaa.com)

"Brilliant Digital Entertainment Inc. (BDE) and Kazaa are not affiliated with your local telephone company," Kazaa writes in the company's terms of service, "However, for your convenience, BDE's charges will appear on your local telephone bill."

Music industry insiders have long talked about creating subscription services in partnership with Internet service providers, who could tuck monthly charges into a phone bill. The thinking is that consumers would be less likely to feel the pinch of by monthly fees if they were mixed in with all the other fees found in typical phone bill.

These ISP-music stores have yet to emerge in any significant way, but Kazaa's subscription service, announced Monday, appears to borrow this idea in an attempt to make the $20 monthly charges a little more palatable.

One of the main problems I saw this weekend when I tried out Kazaa's new service was that in order to post the charges to my phone bill, the company asked me to submit my Social Security number. That is bound to spook plenty of people.

Ring-tone companies have charged customers this way for a while, but to the best of my knowledge, not another major music service offers a similar payment option.

After becoming one of the world's most popular file-sharing programs, Kazaa was nearly sued out of existence several years ago. The new iteration is much more legal, if not much more routine.

The songs are protected by digital rights management, which is the norm for most subscription services. The service supports PCs only, not Mac or Linux, which means it is not compatible with iPods. Of course, like most subscription services, when a person stops paying, they lose their songs.

Brilliant Digital Entertainment, Kazaa's parent company, appears to be betting that Kazaa's brand will give it an advantage in a U.S. market, which has seen a score of music subscription services come and go. None of them have found a significant audience.

The idea of a digital music kiosk, where customers can walk up, press a few buttons on a screen, and download music to some sort of portable storage medium (disc, phone, flash card), has been around for a few years now. Starbucks ended a two-year experiment with in-store CD burners back in 2006, and U.K. music retailer HMV began offering free downloads to USB drives from in-store kiosks in 2007.

CDs are so 20th century.

(Credit: MOD Systems)

Even if the trend hasn't exactly taken off, companies continue to try them out. Earlier this week, Seattle-based start-up MOD Systems entered the fray, announcing that it had signed deals with all four major labels, allowing it to package more than 5 million DRM-free songs for digital distribution via in-store kiosks.

There's a bit of irony in the announcement, as MOD co-founder Anthony Bay used to lead Microsoft's Windows Media Division, whose business model relied heavily on DRM (digital rights management). Microsoft hoped to convince content owners that it had a robust DRM system so they'd use Windows Media technologies to encode and host their content. But that was almost 10 years ago, and now that the recording industry has come around to the idea of selling DRM-free tracks on iTunes, Amazon, and countless other online stores, there's no reason to restrict retail kiosks from doing the same.

So is there any future for digital music kiosks? It's hard to imagine shopping at a digital-only record store when it's so much easier to buy MP3s over the Web on my home computer--which is where I store them anyway--or over the air from a phone or wireless-connected player. But kiosks might find a place in multipurpose retailers and big-box stores, where they'd take up a lot less space than the CD racks currently in place, or in other places with lots of foot traffic--hotel lobbies, malls, university campuses, and so on. I can even imagine a jukebox that not only lets you play songs, but also lets you download them to a flash drive--great for those late-night impulse buys.

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Sony has spoken with some of the major recording companies about providing music for the PlayStation Portable, music industry sources told CNET News.

The sources said the talks are only preliminary and no deals have been struck. But apparently, Sony is considering offering music on the PlayStation Network, the company's nascent multiplayer gaming and digital download service. Such a move could place the PSP in direct competition with other multiuse music players, most notably the iPhone.

Spokespeople from Sony and the big recording labels declined to comment for this story.

The PSP is a nifty little handheld that plays games, video, and music, but has never fully lived up to its potential, many say. With a larger screen and superior games, the PSP could have rivaled the iPod. The PSP's development, however, was partially hobbled by not offering digital content for download.

PlayStation Portable

(Credit: Sony Corp.)

Instead, Sony early on chose a walled-garden approach to content. To watch videos on the PSP, the company stuck with physical media and required customers to buy Universal Media Discs, the mini DVDs that play only on PSPs. UMDs never caught on, and one reason was that Sony didn't initially offer a means to watch the discs on a television. This meant PSP owners who bought a UMD movie had to pay out again for a DVD if they wanted to watch on a TV.

If you believe the rumors that have flooded the gaming sector in recent months, Sony plans to release a totally revamped PSP. Some reports say the device will feature a larger screen than the PSP 3000 and have slide-out controls--and it will no longer play UMDs. Told that Sony was interested in music for the PSP, Michael Pachter, an analyst with Wedbush Morgan Securities, a financial services company, applauded the idea.

"This makes total sense that Sony would try to get content for the device," Pachter said. "If Sony is smart, they would manage it the same way iTunes has and be device-agnostic. Whatever you get on a Sony site should play on an iPod as well.

"(Sony) should want that but right now you can't download a Sony PSP game to an iPod Touch because the operating system won't allow it," Pachter added. "I know I can get music from iTunes to the PSP...It's just a question, but I wonder if Sony will configure the PSP so it would be incompatible with iTunes. They could come up with their own proprietary format for music so that MP3s won't work."

As the current music format of choice is MP3, this would be bucking the popular trend in music, to be sure. The PSP currently plays unprotected MP3s and Apple and most other leading download services have removed digital rights management from their songs. Nonetheless, Pachter knows Sony's long history of trying to force proprietary formats on consumers.

Remember the Music Clip, Sony's first digital music player that ignored the public's preferance for MP3 and only played in its own ATRAC3 format? Sony's MiniDisc was supposed to replace the cassette tape but failed to catch on anywhere but Asia.

When it comes to selling music online, Sony hasn't had much luck there either. Connect was Sony's answer to iTunes, but the download service proved hopelessly buggy. Sony shut the service down in August 2007.

The good news for Sony is that CEO Howard Stringer appears willing to adopt a more open approach.

"If we had gone with open technology from the start, I think we probably would have beaten Apple," Stringer told Nikkei Electronics Asia recently. "Sony hasn't taken open technology very seriously in the past. Its Connect music download service was a failure. It was based on OpenMG, a proprietary digital rights management (DRM) technology. At the time, we thought we would make more money that way than with open technology, because we could manage the customers and their downloads.

"This approach, however, created a problem," Stringer said. "Customers couldn't download music from any Web sites except those that contracted with Sony."

This should be welcome news to PSP fans, many of whom consider the device an excellent game and video player. If Stringer is good to his word, and if Sony does offer music downloads, the company apparently won't try to imprison songs in a Sony system.

Imeem, a social-networking site geared for music fans, has obtained new funding that in all likelihood saved the company from closing, according to music industry sources.

The money received so far by Imeem, which streams ad-supported music to users' PCs, is unlikely to last the company through the end of the year but the start-up's financing efforts continue, said the sources.

In March, TechCrunch reported that Imeem was in financial trouble after managers failed to sell the company or raise more money. At that time, the company denied that a shutdown was imminent. The company went back to some of its investors, which included some of the major music labels and asked for help, which it received. But last month Imeem went back to investors and told them even with the added assistance, Imeem needed new funding to survive, according to two industry sources.

An Imeem spokesman declined to comment.

Imeem made it clear that if it didn't raise money soon, the situation was "dire," one source said.

This first quarter of 2009 has been particularly bitter for ad-supported music sites. SpiralFrog, a site that offered ad-supported downloads closed its doors in March. In January, Ruckus, the music site tailored for college students, shuttered operations.

Some of Imeem's remaining competitors are facing their own struggles, including MySpace Music, the joint venture from News Corp. and the major labels. Music industry sources say the big recording companies are dissatisfied with the ability of the 8-month-old service to generate revenue. Read more about that here.