The music industry will never be able to fully stop consumers from downloading songs for free from the Internet, any more than the computer industry has been able to halt the proliferation of pirated software.
But what the music business giants can do is make the companies that provide enabling technology for downloading free music pay a price they simply can’t afford.
That’s what’s happening to MP3.com
, which last week settled lawsuits with Warner Music Group and BMG Entertainment. Though exact figures haven’t been disclosed, MP3.com reportedly will fork over to each company more than $20 million, in return for being able to include songs from Warner and BMG in its Internet database.
The market’s reaction – shares of MP3.com rose more than 11 percent on Friday, the day the settlements were announced – indicates it understands only the short-term implications of the settlements. It would be as if the value of the British pound soared after Neville Chamberlain stepped off the plane in 1938 and declared he had achieved “peace in our time.”
If investors realized the long-term ramifications, MP3.com’s stock would have fallen, for the settlements mark the beginning of the end for MP3.com and any other independent Internet music companies striving to construct viable business models.
I’m not even talking about the fact that MP3.com still faces lawsuits from Sony Music Entertainment, Universal Music Group and EMI Group. They too will get their up-front payout and generous (for them) royalty agreements.
And I’m not referring to MP3.com President Robin Richards’ comments that the deals will adversely affect the company’s earnings going forward. (Given that MPPP has a net loss of $59.2 million in the last four quarters, this could hardly be an encouraging statement for shareholders.)
No, I speak of the music industry’s primary goal, which is to make sure as much as humanly possible that no one else earns a dime on the “product” for which they own all legal rights. That’s why there are more lawyers on the payrolls of music companies than there are musicians.
For the music industry oligarchs, the settlements are merely a stop-gap measure until they can figure out how to do themselves what the Internet interlopers are doing now. The next step will be to squeeze out companies such as MP3.com altogether, either through acquisition or attrition.
Indeed, for all intents and purposes, the music industry already owns MP3.com and any other Internet music companies. They’re just waiting for Neville Chamberlain to sign the documents.