Have Indies Surrendered to P2P Taliban Or Are They Fulfilling Music’s Destiny?

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Record companies licensing music to a store owned by the number one illegal P2P enabler? Did I miss a memo?!?

It seems everyone these days has a store, so why not LimeWire. But what label in their right mind would license their music to the company who distributes what is arguably a music thief’s software of choice.

How about, The Orchard, CD Baby, IRIS and TuneCore? Four of the most trusted names in the indie music business. Combined, they control the vast majority of digital rights in the indie music space. Now each will be supplying songs to LimeWire.

These companies have long been noted for their support of the little guy. Why have they made LimeWire the de facto largest store for indie music? To find out, I interviewed their Presidents:

Greg Scholl – The Orchard
Jeff Price – TuneCore
Brian Felsen – CD Baby

You may not like what each has to say, but it gives us a great window into the thinking and the fears of some of indie music’s top movers, and the possible future of our industry.

TURNABOUT

What impressed the aggregators? All three started off with similar answers: “LimeWire convinced us that they are trying to turn over a new leaf.” It was a little odd how each used almost the same words with similar inflection, like they’d been to the same Amway seminar. But who cares what I think. Let’s see if you agree with them.

HOW IT WORKS

First we need to take a second to examine exactly how the LimeWire Store promotes the pay versus pilfer philosophy, which is the core of their “new leaf.”

A person looking for a free and illegal song-file on the LimeWire P2P network normally types in some data, like the song’s title. The software searches various networks and finds several sources. Sometimes 100s of them. A user would now pick one and begin the download process– thus committing a crime with penalties raging from $700 to $150,000 per download– if caught.

But, in the new-leaf LimeWire if the title you are searching for matches one in their store’s catalog, the experience changes a bit. A new window will pop up, much like Google advertising, in the right side of the screen. It’s one that offers you a choice: buy the same title, legally, virus-free, without DRM and support the artist. All for just under a buck.

By appealing to the users’ conscience the hope is that, to use Greg Scholl’s eloquent phrase, “We’re turning a file sharing moment into a revenue moment.”

LimeWire takes about 30% for this service. The rest is passed onto the aggregator and then split with the artist as per their contract. (I haven’t yet inquired how third party mechanicals are handled.)

A 30% vig for LimeWire seems more than reasonable considering that they are both the store itself and the marketing vehicle that drives the traffic to the store. By comparison most other on-line stores including iTunes take about 30% and don’t provide any traffic.

So… does it work?

All three aggregators have confirmed revenue from the system. None will talk about how much as yet. Jeff Price told me he has definitely seen a diversion where a P2P moment became one where revenue was created.

LimeWire does not sell music for every client of every aggregator they license with, only those artists who have opted into the system. So far many have. The store claims over 300,000 artists including selected tracks (mostly live) by some crusty heavies like Dr. John, David Byrne, Brian Eno and Willie Nelson.

SLEEPING WITH THE ENEMY?

Okay, so they’re monetizing P2P. That’s the good news. But is it good, in the bigger picture, to help make a company richer who has built their business model on the back of P2P theft?

TuneCore took a practical approach. Before they bought in, TuneCore did a survey of their clients to see who was interested in using LimeWire’s new system. According to Price, the vast majority said yes. “My problem with Lime is personal,” said Price, “But I can not let that affect my desire to offer my clients a choice. Some musicians want it. They believe there is a value in having their music bit torented.”

Although Orchard did not do a survey, their philosophy, according to Scholl, was similar, “[P2P] is not preventable. I feel our job is to work with the system.”

And finally, CD Baby’s new president, Brian Felsen, whose response mixed karmic imperatives with folksy rationale, “I’d like to encourage a company when they do the right thing. Since any song pretty much can be shared on any network anyway, a retail store offering some protections is more important than trying to forever find a way to ‘solve’ DRM. LimeWire thought it out and developed it well. Their store works independently of their P2P software in that they actually provide a way to prevent P2P theft of the purchased files from being shared in a LimeWire software client without onerous DRM.”

What? Back up! A DRM free copy protection that “prevents” un-authorized P2P?!!? And only LimeWire has it? And you can only get if you license to their store?

Some words are coming to mind and they are not, “yeah for the little guy”. This requires more investigation.

THE HOLY GRAIL OF COPY PROTECTION

LimeWire claims that is has developed what many would consider to be the Mecca of music sales security: a technology that is both a DRM-free MP3 file, but yet, somehow has the ability to be filtered out of their P2P application.

Ahh. Forget the “encouragement,” and “choice” BS. This security was a significant selling point to each CEO when they referenced the “new leaf.” And no doubt many independent artists will be attracted to it as well.

Unfortunately, no one at LimeWire will talk about what it is, so we’re a bit short on peer review. “A condition [of our deal with LimeWire],” said Scholl, “was that we not discuss the details of how the anti-theft system works.” (I got the same spiel from Price and Felsen.)

George Searle, CEO of LimeWire refused to answer any of my questions about the security system’s methodology. According to Searle, it would “compromise copyright holders. We can’t discuss how it works because people would then be able to dismantle it.”

Well, concern for copyright holders was a refreshing viewpoint from a LimeWire exec. but his comments had me thinking, is it that easily gamed? I don’t have any special computer skills. Let’s see if even a luddite like me can crack it.

CRACKED LIKE A NUT

My first attempt took less than five minutes. I was able to steal a song from a relatively new artist that was listed on the front page of LimeWire’s store. At no point in the search process did any of the promised ads show up on their P2P interface offering me a choice to buy.

So, this was a bad start for LimeWire’s new leaf, and now I’m gonna be sued by the RIAA to boot. (smiles)

My next attempts worked better. One of the established celebrity tracks available on LimeWire’s store was not accessible through their P2P application, or to be more accurate, they showed up in a search but problems occurred in the download process that would exhaust the patience of all but the most persistent thief. However advertising and a “choice” still were absent.

My last attempts were a bit more successful. With several randomly chosen artists from the LimeWire Store I experienced the same frustrations but this time, ads popped up and I was offered a hot link to their page on the Store.

All-in-all the system worked as advertised about 85% of the time in my tests.

But, a 15% margin is high when dealing with hundreds of thousands of masters. I sought clarity from Searle about this. His response to me in an email: “I strongly suspect the files you located on the Gnutella network were not purchased from the LimeWire Store.”

Maybe, but they had the same titles and were the same recordings. So this explanation is of little solace to the artists who are not getting the revenue and missing out on a key purport of the LimeWire licensing experience– protection.

Searle’s email continued, “We have put in place limited safeguards to prevent songs in the LimeWire Store from being shared by the LimeWire file sharing application, but we don’t have the technological capability to filter songs that already exist and are shared on the Gnutella network.”

Regardless. The practical translation of all the above for you, my reader, who are mostly artists, songwriters, producers and their lawyers/support team, is this: LimeWire can not prevent P2P theft on the Gnutella network. The vast majority of people using LimeWire for illegal P2P, get their songs on the Gnutella network. In other words, even if LimeWire blocks files bought from their store, there could always be a clone-file out there that you can still get with their P2P software.

Bottom line, this mysterious security system, however it works, doesn’t work well enough to be considered a real value added. At least not yet. But 85% is a hell of a start and it’s far better than anyone else’s efforts.

We’ll see what future improvements bring.

If you’re an artist already in the LimeWire store, test your tracks to see if clone versions are available through the P2P software. If they are, I suspect that LimeWire will be happy to address your concerns. You can email them here: partners@limewire.com.

FLOWERS AND CANDY

As for the, “P2P moment turned revenue moment,” concept itself…

Like all cynics, I secretly want to believe that everyone’s intentions are good. And, from an innovation viewpoint LiveWire’s concept of P2P monetizing is very promising, maybe even genius (although it has as ways to go before it reaches Spotify status.), but I’m truly stumped, morally.

On one hand I must concur with the companies I spoke with. They just want to sell more of their client’s music. And I’m all for that. But on the other hand, should you do it through LimeWire, even if they are, as these CEOs think, trying to turn over a new leaf?

Say, for example, you had a young kid on your block giving away illegally made CD compilations to attract people to his lemonade stand. Since he’s getting a lot of customers this way, would you encourage this by letting him sell your CDs on his stand, right next to the ones that he’s giving away? What kind of message does this send: steal from me enough and I’ll let you profit off my work?

Compound this with the fact that the kid is saying, let him sell your work and he’ll make sure NOT to include your music in his illegally made compilations. It starts to sound a bit like the Mafia shaking you down for a protection payment. No?

When I’ve been a bad boy to my gal, I bring flowers and candy to get out of the dog house. I guess I’d like to see a bit more from LimeWire before I’m ready to put aside my skepticism. Where’s their sense of humility about their past activities? Where’s the respect for the backs of the artists they build their model upon? Where’s the peace offering; their new, P2P monetizing– that will make them richer; their secret technology– that will make them richer? I’m not feeling the love yet.

I want artists to see some flowers and candy before they give them their trust.

SEARLE

Searle: “Music consumers have been very clear about what they want in a music service – convenience, access, ownership, compatibility, portability– and that’s exactly what we’re trying to give them with the LimeWire Store.”

This is a fairly common position from those on the technology side and congruently those not experiencing massive revenue dumps because of P2P: give the customer what they want. But record companies don’t believe that this is absolute and it should never mean theft. Yet, it is from this fold that Searle claims he wants to make new allies.

He purports to be in talks with majors, but, so far only several Indies have surrendered their trust, and my guess, despite what Felsen said about “encouraging a company when they do the right thing,” aggregators’ participation thus far is more about business as usual than congeniality.

George Searle claims he wants the future of LimeWire to be part of the solution, not the problem.

God, I want to believe him.

But if LimeWire has this great non-DRM copy protection technology, why not license it to the majors who still control about 75% of the product, or, for that matter, any label who wants it? Why limit it to those few willing to do business with you? And why not work towards creating filters for ALL songs on your network, not just ones that pony up?

Searle thinks I’m being too hard on him.

He wants me and others to put LimeWire’s past behind us and look at their “new leaf.” As an offer of proof Searle said, “We put warnings that infringement is illegal. We make sure that every user understands this.”

“True,” I responded, “But isn’t that like a bar posting warnings about drinking to excess and how alcohol leads to birth defects? The law requires it, but the bar still wants you to drink.”

He sighed, a bit drained from our Socratic talk. Normally George had such quaffed, poised and pungent responses. This time he was short, “We’re not a bar.”

This ended our conversation, but I suspect will not be the last time we’ll speak and more will come as the story develops.

Moses Avalon

PS: If you can make sense of Searle’s answer, “We’re not a bar” please post it below along with any other opinions about this. Your voice counts.