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Is Breaking The Law the Secret to Success in Digital Music?

Kim Hart

As you might expect, piracy is one of the hottest topics of debate here at the Digital Music Forum in New York.

Can companies distribute music legally while still attracting a large enough audience to be successful? A rather heated exchange over this very question occurred onstage during one of the panels this morning. Gerd Leonhard, CEO of Sonific ---a company that makes widgets to distribute music through blogs, profiles and Web sites---made the observation that many successful digital music download firms found success by offering pirated files or copyright-violating mp3s. Look at services like Napster and Limewire, he said, which built up a following by offering a vast library of illegal material. Even a company like iMeem, which has become a popular music sharing social network that streams ad-supported music, amassed millions of users by breaking the law before a law suit brought by a major record label forced it to change its ways, he said.

As it happens, Steve Jang, who handles iMeem's content and technology partnerships, was sitting a few seats away. He quickly disagreed. He did not dispute the company's previous problem with copyright infringement--Warner Music sued iMeem last year for building a large base of users by hosting copyrighted music. But he argued that iMeem achieved success by striking early licensing deals with smaller indie labels and then forging partnerships with larger labels. (In December, Universal Music Group agreed to license its catalog of music to iMeem for a share of the advertising revenue). "Next time you try to rewrite our company's history...maybe you should ask me first," he shot back.

Leonhard brought up an interesting point, though. He said big labels won't strike licensing partnerships with Sonific because it doesn't have millions of users and a large pot of revenue to share. Is this a barrier to entry for some music-distribution start-ups?

A member of the audience then posed an pointed question: Isn't simply being cool the secret to success? Consider Apple, for example. Napster became popular because it was considered "cool." Now iMeem is benefiting from its cool factor.

So at the end of the day, how do you decide where to find your digital music?

By Kim Hart  |  February 27, 2008; 11:09 AM ET  | Category:  Kim Hart
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It's not the only thing, but being somewhat laissez faire with intellectual property has clearly helped video sites like youtube and dailymotion become dominant players.

To all intents and purposes imeem is the youtube of music and the same attitude to copyright that made youtube the monster it is today is evident in imeem's behaviour.

Posted by: Robin Hardy | February 27, 2008 7:36 PM

I remember David Pakman making similar complaints half a decade ago, complaining that his company had played nicely with the record labels and nobody was using them, while napster was getting all the glory.

Now David is the CEO of emusic.

Posted by: Jason Fisher | February 28, 2008 12:16 AM

imeem is better than sliced bread! much much better. so much better I can hardly stand it. wow, I think I'll go to imeem now and listen to more of my favorite music! did I mention that I like their site?

Posted by: Greg Noss | February 28, 2008 7:10 PM

One correction to your article. Imeem did not do a revenue sharing deal with Universal Music. I know that what was reported all over the press but it's not what happened. Imeem guaranteed them millions of dollars up front. They gave them equity in their company. They agreed to pay a per stream fee. And as a final element of their deal (in addition to all of the above) they have to share ad revenue.

This is not a revenue sharing deal as it is known in the industry. In a true revenue sharing deal both parties are partners and both profiting or not from the flow of revenue. Both parties sharing in the upside and risking in the downside.

The imeem deal with UMG was the same deal the industry has done for 10 years where they demand millions guaranteed up front. If you want the real details of the deal you can read my blog at: www.MichaelRobertson.com

-- MR

Michael Robertson.

Posted by: Michael Robertson | February 29, 2008 1:45 AM

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