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REALITY CHECK ON CONVERGENCE
- A SUDDEN BRAIN DIARRHOEA -

Molnar Daniel

Sure, we all have "convergence" buzzing in our mind; we've all learned our first lesson on new economy, "listen and repeat". But the ultimate breed of the telco-media-IT parents seems somehow absent. We've been fired up by thinking set-top-boxes will rule the living room, and couch potatoes will turn from channel surfers to interactive TV geeks, but ER still thrives. They've tried to subscribe us to content-on-demand services for small fortunes to be able to watch MPEG transmission errors on 15" monitors as they flicker like rainbow coloured "game of life" animations. Convergence in the US mindset should have been some kind of "The Fly" transformation of the TV or the PC to each other, but this idea hasn't come to life yet. I believe that the real convergence will be much more intimate than we previously thought because it will affect our very personal space.

I think of customradio.com where I can customise my own radio station from a vast song database -- it does contain thousands of relevant songs -- or just tune to one of the zillions of stations pre-programmed by other poor souls. (MTV has invested and I hope that the auto-customising expert system is on its way to beef up the engine.) I think of Qualcomm pdQ, the mutant Palmphone that needs some more support on the game front and could annihilate Gameboys from the Earth. I think of the Samsung mobile phone that contains 16 megabytes of RAM to store sound files in it. Now if you combine all these things in one gadget, that's what I call convergence. And if you still miss something of your customised music playing phone-PIM then you should start using its IrDA port as a remote control.

By the way, the poor music industry should finally realise that they're watching the wrong movie. Their customers do not want labels, nor artists or albums. They want songs, or rather, they want melodies, grooves or just simply sounds. (If you don't watch MTV, tune in on their Megamixes. Forget non-stop sound mixes. Here comes the wheel of music video karma.) The average unit of music is the song or something even smaller. Music industry insiders confessed that the relevant percentage of their income has nothing to do with whether the customer really likes it or even knows what's been bought -- the pleased client will return. The biggest message of the MP3 craze is not that nobody will ever buy "official" music. No. People will buy the ones they really like, and no more incidental, marketing-affected crap, please. Message number two is that the CD is not a medium. The CD is a box.
So if you can take your stuff with you without a box, you will not pay for a box. Or if we have access to broadband wireless networks, as we will in the future, you don't have to bring anything with you but your access device -- player, phone, label, it as you like.

Daniel Molnar
Chief Researcher
Carnatin Consulting

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THE MUSIC INDUSTRY IS MISSING THE POINT

According to Nielsen/NetRatings, Napster traffic rose 92 percent last week as a federal judge threatened to shut down the site for copyright violations at midnight Friday. The number of home Napster visitors increased to 849,196 on Friday, compared with 443,070 on Tuesday. (Napster popularity boosts gadget demand, CNET, July 31, 2000)

According to ratings firm Media Metrix, more people visited Napster.com last week than they did Amazon.com, long one of the best-known brands on the Web. "The record companies have kind of blown it," said Malcom Maclachlan, an analyst with International Data Corp. "They've completely lost the ability to train music listeners into the kind of online consumption patterns that would be beneficial to them." In June, 4.67 million people used the Napster software at home in the US, and only 760,000 people used the software at work, Media Metrix said. (Napster traffic figures raise new questions, CNET, August 4, 2000)

"Whether Napster wins or loses is highly irrelevant," said Mark Mooradian, an analyst with Jupiter Communications. "What everybody should be looking at is who's going to be smart enough to create a business model based on this service." Though the start-up does not make a dime in revenues, the service has put its finger on precisely what online music consumers want: fast access to a comprehensive library of songs to download. Before such a model can work with online music sales, record labels have to learn from Napster, analysts said. The labels will need to license their closely held music libraries to third parties to match Napster's broad offerings. In addition, they must find an interface that "a moron could use," as one industry insider put it, referring to the start-up's ease of use. Record companies still have a long way to go on these fronts, analysts and music executives said, as most continue to keep tight control over their catalogues of copyrighted works. Though the companies offer some music downloads over the Internet, consumers still have no place to go legitimately to find the breadth of Napster's collection. Analysts say that until labels relax their control, there is little chance of creating a viable online marketplace for legitimate music, because music consumers do not care, or even know, about which labels distribute their favourite artists. Offering a service that lets people access songs only from one label's enormous library remains a limitation, not a liberation, they say. The labels "don't have the ability to aggregate an offering like a third party can," said Marc Geiger, CEO of Artistdirect, a network of Web sites for popular musicians. "You never achieve a complete product offering for a consumer." "My belief is the third parties will have a greater degree of likelihood to succeed than the major record companies doing it on their own," said Andrew Lipsher, senior vice president of world-wide corporate development at BMG. (Record firms learn Napster lessons slowly, CNET, August 2, 2000)

A survey released by PC Data Online indicates that 60 percent of Napster fans would continue to download music even if the practice is ruled illegal. The survey indicated "strong support for the concept of sharing music over the Internet," said Sean Wargo, Internet analyst for PC Data. "The recording industry is behind the times in terms of where the technology is," he said. "Trying to stop Napster is like trying to contain a wild beast. The technology is already there, it's growing, and consumers will continue to align themselves with it." Even though 57 percent of respondents regarded
the recording industry's defence of its intellectual property rights as admirable, they said they thought it was unrealistic to think that the industry can control the free exchange of music. The survey also showed that the pace of downloading files from the Internet is likely to accelerate. Of people surveyed, 32 percent said they plan to increase the number of free digital music files they download in the next ear.(Study: Fans will find new ways to download music, CNET, July 26, 2000)

On detailed background of MP3, Napster, Gnutella and Freenet and profiles of people using the Internet for music downloading in the US check Pew Research "Millions of 'freeloaders'".

Note: this text was published at http://www.pewinternet.org/reports/toc.asp?Report=16
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re:
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From: "Derek Holzer"
Subject: (Xchange) The end of free MP3s?
Date: Tue, 24 Oct 2000 00:12:43 GMT

THE END OF FREE MP3s?

The two paragraphs below from www.mp3licensing.com, the website of MP3
source code owners Thomson Multimedia and Fraunhofer Institute, deal with upcoming licensing fees for content providers using the MP3 format. Three things are important to note: first, the minimum fee of US$ 15,000 for a distribution license, second the vague status of MP3 streaming licenses, and third, the fact that this status will change as of Jan 1, 2001. What they currently refer to as a small anual minimum could quickly become a very prohibitive fee without warning.

---begin www.mp3licensing.com
###Electronic Music Distribution

Electronic Music Distribution systems, where mp3 encoded data is sold to
end-users, are licensed as follows:
1.0 % of the price charged to the listener (minimum US$ 0.01 per download). US$ 15,000 annual minimum, payable upon signature and each following year in January, fully creditable against annual sales. Reporting is to be based on the system as used by the copyright
organizations.
---
###Broadcasting/Streaming

We do not charge royalties for mp3 streaming or mp3 broadcasting (e.g.
Internet Radio) until the end of the year 2000. Beyond this date we
anticipate to charge a small annual minimum and a percentage of revenue.
However, this model is not yet fully developed because we cannot yet oversee
where this new market is going.
---end www.mp3licensing.com
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