SMART Letter #42
July 19, 2000

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------ SMART Letter #42 -- July 19, 2000 Copyright 2000 by David S. Isenberg -- "Stoning Media Goliaths" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > Quote of Note: Dave Winer > Courtney Love Explains How the Music Biz Works > Conferences on my Calendar, Copyright Notice, Administrivia ------- QUOTE OF NOTE -- Dave Winer "The mingling of artists and technologists will revolutionize the technology industry. . . . We will see products in a new light, as the creative work of human beings, not the blustery proclamations of billionaire icons." Dave Winer, from DaveNet: The Napster Weblog, July 17, 2000 ------- COURTNEY LOVE EXPLAINS HOW MUSIC BIZ WORKS [Courtney Love's articulate parable, below, is a front-line story of war between the media giants of the old economy and the guerilla creators of new value and new values. The media-giant version of Video-on-Demand (aka ITV) failed abjectly in the mid-1990s. Yet today's Audio-on-Demand is the biggest winner-app since email and web browsing. Why? The most rapid value creation occurs at the edge. It is no accident that today's Audio-on-Demand is a chaotic, undefined mix of independent, disruptive, even illegal forces that threaten the music- broadcast-entertainment establishment. And despite industry proclamations to the contrary, today's Audio-on-Demand is more about sharing, communication and personal interaction than it is about ownership and broadcast. Video-on-Demand could be huge, but it would have to follow the model of today's Audio-on-Demand. Caution! This is a scenario -- it is far from certain. And it has its enemies. Two preconditions must be met -- high-bandwidth access and a Stupid Network. AT&T-TCI-MediaOne, AOL-Time-Warner and ABC-Disney will not wittingly sow the seeds of disruption of their own incumbent video entertainment paradigm. AT&T is building access that's orders of magnitude slower than current technology will support, and it is putting intelligence -- awareness of content, origin, destination and the status of 'private commercial arrangements' -- into its access plant. This distorts the end-to-end architecture that made the Internet such a wild success. Public policy will shape the future as much as will the marketplace. Do we want a rapidly expanding and chaotic economy (where even the largest firms are free to fail) or do we want a slowly growing economy in which protected incumbents re-invent ITV and call it progress? Courtney Love has a foxhole perspective on a pivotal battle in this war. When her May 16 speech at Digital Hollywood crossed my screen, I wanted to put the whole thing in the SMART Letter -- but that'd be a copyright violation :-). So with much work, I've distilled some essential points -- this is covered by 'fair use' doctrine. You can read the whole thing at -- David I] "What is piracy? Piracy is the act of stealing an artist's work without any intention of paying for it. I'm not talking about Napster-type software. I'm talking about major label recording contracts." [*snip*] "When you look at the legal line on a CD, it says copyright 1976 Atlantic Records or copyright 1996 RCA Records. When you look at a book, though, it'll say something like copyright 1999 Susan Faludi, or David Foster Wallace. Authors own their books and license them to publishers. When the contract runs out, writers get their books back. But record companies own our copyrights forever. "The system's set up so almost nobody gets paid." [*snip*] "Last November, a Congressional aide named Mitch Glazier, with the support of the RIAA, added a 'technical amendment' to a bill that defined recorded music as 'works for hire' under the 1978 Copyright Act. "He did this after all the hearings on the bill were over. By the time artists found out about the change, it was too late. The bill was on its way to the White House for the president's signature. "That subtle change in copyright law will add billions of dollars to record company bank accounts over the next few years -- billions of dollars that rightfully should have been paid to artists. A 'work for hire' is now owned in perpetuity by the record company." [*snip*] "Writing and recording 'Hey Jude' is now the same thing as writing an English textbook, writing standardized tests, translating a novel from one language to another or making a map. These are the types of things addressed in the 'work for hire' act. "Three months later, the RIAA hired Mr. Glazier to become its top lobbyist . . . " [*snip*] "Stealing our copyright reversions in the dead of night while no one was looking, and with no hearings held, is piracy. "It's piracy when the RIAA lobbies to change the bankruptcy law to make it more difficult for musicians to declare bankruptcy. Some musicians have declared bankruptcy to free themselves from truly evil contracts. TLC declared bankruptcy after they received less than 2 percent of the $175 million earned by their CD sales. That was about 40 times less than the profit that was divided among their management, production and record companies. "Toni Braxton also declared bankruptcy in 1998. She sold $188 million worth of CDs, but she was broke because of a terrible recording contract that paid her less than 35 cents per album. Bankruptcy can be an artist's only defense against a truly horrible deal and the RIAA wants to take it away. "Artists want to believe that we can make lots of money if we're successful. But there are hundreds of stories about artists in their 60s and 70s who are broke because they never made a dime from their hit records. And real success is still a long shot for a new artist today. Of the 32,000 new releases each year, only 250 sell more than 10,000 copies. And less than 30 go platinum." [*snip*] "Story after story gets told about artists -- some of them in their 60s and 70s, some of them authors of huge successful songs that we all enjoy, use and sing -- living in total poverty, never having been paid anything. Not even having access to a union or to basic health care. Artists who have generated billions of dollars for an industry die broke and un-cared for. "And they're not actors or participators. They're the rightful owners, originators and performers of original compositions. "This is piracy." [*snip*] "It's not piracy when kids swap music over the Internet using Napster or Gnutella or Freenet or iMesh or beaming their CDs into a or music locker. It's piracy when those guys that run those companies make side deals with the cartel lawyers and label heads so that they can be "the labels' friend," and not the artists'. "Recording artists have essentially been giving their music away for free under the old system, so new technology that exposes our music to a larger audience can only be a good thing. Why aren't these companies working with us to create some peace? "There were a billion music downloads last year, but music sales are up. Where's the evidence that downloads hurt business? Downloads are creating more demand. "Why aren't record companies embracing this great opportunity?" [*snip*] "The present system keeps artists from finding an audience because it has too many artificial scarcities: limited radio promotion, limited bin space in stores and a limited number of spots on the record company roster. "The digital world has no scarcities. There are countless ways to reach an audience. Radio is no longer the only place to hear a new song. And tiny mall record stores aren't the only place to buy a new CD." [*snip*] "Now artists have options. We don't have to work with major labels anymore, because the digital economy is creating new ways to distribute and market music." [*snip*] "I want to work with people who believe in music and art and passion. And I'm just the tip of the iceberg. I'm leaving the major label system and there are hundreds of artists who are going to follow me. There's an unbelievable opportunity for new companies that dare to get it right." [*snip*] "Since I've basically been giving my music away for free under the old system, I'm not afraid of wireless, MP3 files or any of the other threats to my copyrights. Anything that makes my music more available to more people is great." [*snip*] "Let's not call the major labels "labels." Let's call them by their real names: They are the distributors. They're the only distributors and they exist because of scarcity. Artists pay 95 percent of whatever we make to gatekeepers because we used to need gatekeepers to get our music heard. Because they have a system, and when they decide to spend enough money -- all of it recoupable, all of it owed by me -- they can occasionally shove things through this system, depending on a lot of arbitrary factors. "The corporate filtering system, which is the system that brought you (in my humble opinion) a piece of crap like "Mambo No. 5" and didn't let you hear the brilliant Cat Power record or the amazing new Sleater Kinney record, obviously doesn't have good taste anyway. But we've never paid major label/distributors for their good taste. They've never been like Yahoo and provided a filter service." [*snip*] "And if [the big recording companies] aren't going to do for me what I can do for myself with my 19- year-old Webmistress on my own Web site, then they need to get the hell out of my way. [I will] allow millions of people to get my music for nothing if they want and hopefully they'll be kind enough to leave a tip if they like it." [*snip*] "A new company that gives artists true equity in their work can take over the world, kick ass and make a lot of money. We're inspired by how people get paid in the new economy. Many visual artists and software and hardware designers have real ownership of their work. "I have a 14-year-old niece. She used to want to be a rock star. Before that she wanted to be an actress. As of six months ago, what do you think she wants to be when she grows up? What's the glamorous, emancipating career of choice? Of course, she wants to be a Web designer. It's such a glamorous business! "When you people do business with artists, you have to take a different view of things. We want to be treated with the respect that now goes to Web designers." [*snip*] "I know my place. I'm a waiter. I'm in the service industry. "I live on tips. Occasionally, I'm going to get stiffed, but that's OK. If I work hard and I'm doing good work, I believe that the people who enjoy it are going to want to come directly to me and get my music because it sounds better, since it's mastered and packaged by me personally. I'm providing an honest, real experience. Period." [*snip*] "If you like [my music] enough to have it be a part of your life, I know you'll come to me to get it, as long as I show you how to get to me, and as long as you know that it's out. "Most people don't go into restaurants and stiff waiters, but record labels represent the restaurant that forces the waiters to live on, and sometimes pool, their tips. And they even fight for a bit of their tips. "Music is a service to its consumers, not a product. I live on tips. Giving music away for free is what artists have been doing naturally all their lives." [*snip*] " . . . in a world of total connectivity, record companies lose that control. With unlimited bin space and intelligent search engines, fans will have no trouble finding the music they know they want. They have to know they want it, and that needs to be a marketing business that takes a fee. "If a record company has a reason to exist, it has to bring an artist's music to more fans and it has to deliver more and better music to the audience. You bring me a bigger audience or a better relationship with my audience or get the fuck out of my way." [*snip*] "But don't talk to me about "content." "I get really freaked out when I meet someone and they start telling me that I should record 34 songs in the next six months so that we have enough content for my site. Defining artistic expression as content is anathema to me. "What the hell is content? Nobody buys content. Real people pay money for music because it means something to them. A great song is not just something to take up space on a Web site next to stock market quotes and baseball scores." [*snip*] "Every single artist who makes records believes and hopes that they give you something that will transform your life. If you're really just interested in data mining or selling banner ads, stick with those "artists" willing to call themselves content providers." [*snip*] "I also feel filthy trying to call my music a product. It's not a thing that I test market like toothpaste or a new car. Music is personal and mysterious. "Being a "content provider" is prostitution work that devalues our art and doesn't satisfy our spirits. Artistic expression has to be provocative. The problem with artists and the Internet: Once their art is reduced to content, they may never have the opportunity to retrieve their souls." [*snip*] "As a user, I love Napster. It carries some risk. I hear idealistic business people talk about how people that are musicians would be musicians no matter what and that we're already doing it for free, so what about copyright? "Please. It's incredibly easy not to be a musician. It's always a struggle and a dangerous career choice. We are motivated by passion and by money. "That's not a dirty little secret. It's a fact. Take away the incentive for major or minor financial reward and you dilute the pool of musicians. I am not saying that only pure artists will survive. Like a few of the more utopian people who discuss this, I don't want just pure artists to survive." [*snip*] "We suffer as a society and a culture when we don't pay the true value of goods and services delivered. We create a lack of production. Less good music is recorded if we remove the incentive to create it." [*snip*] "I'm looking for people to help connect me to more fans, because I believe fans will leave a tip based on the enjoyment and service I provide. I'm not scared of them getting a preview. It really is going to be a global village where a billion people have access to one artist and a billion people can leave a tip if they want to. "It's a radical democratization. Every artist has access to every fan and every fan has access to every artist, and the people who direct fans to those artists. People that give advice and technical value are the people we need. People crowding the distribution pipe and trying to ignore fans and artists have no value. This is a perfect system. "If you're going to start a company that deals with musicians, please do it because you like music. Offer some control and equity to the artists and try to give us some creative guidance. If music and art and passion are important to you, there are hundreds of artists who are ready to rewrite the rules." [whew . . . ] -------- CONFERENCES ON MY CALENDAR September 13-15, 2000. Lake Tahoe CA. TELECOSM. Featuring George Gilder, Clayton Christensen, yours truly, and a cast of geniuses, troublemakers, and people who got rich by listening to George. This thing sells out, folks -- a word to the SMART. November 5-9, 2000. Rose Hall, Jamaica. Porter Stansberry's Pirate Investor's Ball, featuring Eric Raymond, Tom Petzinger, Porter's impressive research director David Lashmet, and yours truly. Porter is a big-picture guy, a cross between George Gilder and Tony Robbins, with a nose for leading edge values in infotech and biotech. Contact Andrea Shaw,, 410-223-2648. ------- COPYRIGHT NOTICE: Redistribution of this document, or any part of it, is permitted for non-commercial purposes, provided that the two lines below are reproduced with it: Copyright 2000 by David S. Isenberg -- -- 1-888-isen-com ------- ADMINISTRIVIA [to subscribe to the SMART Letter, please send a brief, PERSONAL statement to (put "SMART" in the Subject field) saying who you are, what you do, maybe who you work for, maybe how you see your work connecting to mine, and why you are interested in joining the SMART List.] [to unsubscribe to the SMART List, send a brief unsubscribe message to] [for past SMART Letters, see] [Policy on reader contributions: Write to me. I won't quote you without your explicitly stated permission. If you're writing to me for inclusion in the SMART Letter, *please* say so. I'll probably edit your writing for brevity and clarity. If you ask for anonymity, you'll get it. ] ** David S. Isenberg, inc. 888-isen-com 908-654-0772 ** -- The brains behind the Stupid Network -- **