Plug.In: CARP Battle, Devices Dominate

Things have not been working out so well lately for the streaming
media/digital music sector. News of shutdowns, layoffs, and poor financials
continue to
hog the headlines and, to make matters worse, a controversial Copyright
royalty payment structure is being described as the death knell for the
struggling industry.

Yet, beneath the underlying apathy, Jupiter’s Plug.In digital music
conference on “the future of digital music,” raised a glimmer of excitement,
especially on the device technology side where the industry is racing to
keep up with the need
for portability — and accessibility — to downloaded digital content.

As expected, the discussions at the conference focused on the ramifications
of the controversial Copyright Office’s Copyright Arbitration Royalty Panel
ruling (see in-depth coverage here
) with U.S. Congressman Rick Boucher,
D-Va., starting the buzz with a well-timed swipe at the major record labels
for what he described as an inherent distrust of the consumer market.

Boucher’s keynote, which included a call for the labels to put all their
music online with permanent downloads, transferability and per-track
availability, set off a string of upbeat discussions that included a rare
admission from EMI executive John Rose that the paid-subscription music
download model “appears to be dead.”

As Boucher outlined plans for a ‘Fair Use’
at the Congressional level, EMI’s Rose conceded the music industry
must turn to alternative business models as it attempts to stamp out piracy.
“We cannot build viable business models when competing with ‘free.’ It is
as simple as that. We cannot beat ‘free’ but we have to work hard to make
‘free’ less available,” Rose declared, urging the recording industry to
experiment and restructure the way digital content is distributed and sold
on the Internet.

Rose hinted that the industry would be wise to focus on the a-la-carte space
and even suggested the answer lies in partnering with ISPs to let service
providers absorb some of the costs of distribution.

“There is no one-size-fits-all answer. The existing models have the
consumers paying 100 percent of the costs. That is clearly not working. We
need to diversify and find revenue streams outside of paid subscriptions,”
the EMI Vice President added.


Rose’s upbeat keynote could not overshadow the pro-CARP/anti-CARP lobbies,
which seemed to infiltrate and dominate most of the two-day discussions.
From Boucher’s “we need to scrap the CARP” declaration to RIAA CEO Hilary
Rosen’s “CARP was a pretty thoughtful decision,” it was clear the Webcasters
and the recording industry remain miles apart on the issue.

John Jeffrey, a Live365 executive who manages the business development and
legal affairs teams for the streaming media firm, was among the anti-CARP
dismissing the CARP
as a “terrible result that is strangling an industry in its infancy.” The ruling set royalty rates at 0.07 cents per performance for Internet-only
broadcasts and AM/FM retransmissions.

Jeffrey, who shared the stage with Jon Simson of royalty-collection agency
SoundExchange and Ann Chaitovitz of the American Federation of Television
and Radio Artists (AFTRA) — the union which represents musicians — maintained
the royalty rates were an “unfair burden” borne by Internet broadcasters, a
sentiment predictably shared by Tom Des Jardins of Net radio ad agency

“It’s clear CARP is a devastating blow. Webcasters simply cannot afford the
rates set,” Des Jardins said, arguing that the soft advertising market would
force thousands of small Internet radio firms out of business.

SoundExchange’s Simson disagreed. “The Webcasters that have shut down have
very little to do with (the CARP decision). They were shutting down long
before CARP,” Simson said, insisting musicians should not subsidize the
bigger Internet radio companies like America Online and MTV

Both Simson and Chaitovitz criticized the CARP arbitration process as
cumbersome and expensive and insisted it must be reformed when the current
payment structure expires. “Looking back at how much money was spent to
simply participate in the arbitration process, it is clear that CARP needs
to be changed. The arbitrator’s fee alone was more than $1 million,”
Chaitovitz said.

Jonathan Potter, executive director of the Digital Media Association (DiMA),
predicted the royalty rates would force about 85 percent of Internet radio
out of business. “The per-performance fee structure is debilitating…We
believe the major labels will successfully weed out Net radio,” Potter said,
adding that the 0.07 cents per performance fee would suck 100 percent of the
profits of many companies.

While the CARP debate raged, the Plug.In conference also featured displays
from a small group of device makers showing off new digital entertainment
technologies. With the industry showing a trend towards portability of
digital content, companies like iRiver America, Xitel and Simple Devices
were all on
hand to show off the future of gadgets and devices that will be used to
shuttle content from PCs to home-based entertainment centers and vehicles.

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It’s all about portability

iRiver America, based in San
Jose, Calif., debuted its MCU-less VCD software and multi-CODEC player,
the iDP-100 device as the world’s first DataPlay Engine-adapted music
player. A company spokesman told the newest
DataPlay technology
will be enabled in its device.

DataPlay’s format, which is scheduled for launch in August, is a coin-sized
recording/playback media that can handle up to 500 MB of music (the
equivalent of 11 hours of MP3 files or five full compact discs).

“It’s all about portability these days. Consumers don’t just want their
music files on the PC. They want to access it from the home entertainment
system or in
the car,” said Christine Gasparac, an executive at Burlingame, Calif.-based
Simple Devices. Gasparac’s company is
hawking a multi-device platform that delivers premium content wirelessly
beyond the PC.

The platform, centered around the company’s SimpleServe device-networking
middleware, transforms an Internet-connected computer into a network server
that streams digital media and data to SimpleDevices-enabled products. With
a high-profile deal with Motorola in place, Gasparac said a home PC can now
be wirelessly linked to home and car stereos, allowing all three to share
music files. The system includes a SimpleFi receiver, a transmitter attached
to the PC and SimpleAuto, a receiver with either 10 gigs or 20 gigs of

The company’s business includes a SimpleMedia product set that targets
Network Service Provider. Gasparac said SimpleMedia combines content,
applications and
e-commerce tools with a distribution engine that allows network service
providers to offer tiered digital media service levels to subscribers.
SimpleMedia would sell hosting and technology to let service providers
deliver content from third-party content providers and to monetize that
service through
advertising, e-commerce opportunities and subscriptions.

Xitel, based in Australia, showed off its
HiFi-Link product, another device that links PCs with home stereo systems.
HiFi-Link, which plugs into a USB port on a computer and into the RCA inputs
of a stereo system, shuttles digital music from the PC to the home
entertainment system. The device, which retails for $49, promises to bypass
the soundcard while processing digital audio directly from the USB without
signal degradation.

“Millions of people have created play lists on their computers. But
listening to that music on a built-in soundcard gives a less than optimal
music experience. (Our product) bypasses the soundcard altogether,
allowing consumers to turn their computers into a powerful HiFi component,”
said Barrie David, managing director of Xitel.

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The Corona factor

As the digital media industry tinkers with business models, argues about
copyright laws and create new gadgets to keep up with consumers’ needs, all
eyes are fixed on powerhouses Microsoft and America
Online , for entirely different reasons.

Microsoft is preparing for the worldwide release of Corona, the
controversial iteration of the Windows Media Engine, which will be
integrated into the company’s .NET web services architecture. Corona, which
is being
by software developers, powers the compression and decoding of
video and is considered a key to the next version of the WMP software.

It is Microsoft’s answer to the MPEG-4 open standard, which was adopted by
competitors RealNetworks’ RealPlayer and Apple
Computer’s QuickTime player. Microsoft’s Corona push
has rankled feathers within the digital media distribution space because it
is proprietary and the company’s dominance of the software market gives it
an unfair advantage, critics argue.

According to published reports, AOL is also making waves in the space with
plans to develop technology to reduce audio/video streaming costs, a move
that many
believe will provide a shot in the arm for a struggling sector. If AOL’s
initiative can deliver on the early hype, the argument is that reduced costs
streaming audio and video to the consumer market would jump start

Recently, the sector has been chock full of bad news: Yahoo pulled the plug on its FinanceVision and Yahoo Radio streams,
Loudeye Corp.
fired its
and cut nearly 40 percent of its workforce, SomaFM shut down entirely and bellwether
RealNetworks warned revenues would come in much lower
than previously expected.

The depressing news is a dramatic wake up call for the audio/video streaming
media industry, hailed only a year ago by the Yankee Group as the hot sector of the

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