Midem In an interview from the music business annual Midem, we speak to John Kennedy, chairman and CEO of the IPFI, the international trade group representing record labels. (Later in the week we'll hear the view from the independent sector – presenting a very different picture.) Here he talks about the new ISP strategy, and the future of the big label.
Is your goal with the networks just to get them to "clean up" – so people buy legal digital – or is it that you feel some of that revenue is morally, correctly yours?
There's three things.
It would be good if they engaged in good commercial business, I think, that makes sense to them. I would like them to take a share of the revenues that we've contributed to them. The third is to clean things up.
On a daily basis we see people consuming more music than ever before, and yet the music industry is seen as parasites and idiots – all the worst words we can think of. So we need to turn the corner. The digital music online business now takes three times as much as the newspaper industry, five times as much as the film industry... so why aren't things getting better?
Two things have happened. Firstly people have loaded their iPods and music players with CDs – so they're going to back catalogues for the moment. Now they're thinking "well we need some new music". And either they're going to take it for free, because it's so tempting, or they're going to buy. And I need them to buy. And the only way that's going to happen is by the ISPs making it tougher.
We've put kids into focus groups, and we say to them: do you know what you're doing is wrong, and they say absolutely. Well why do you it then? They say, it's too easy. You've got to make it more difficult for us or you've got to make so there are consequences for us. We say, OK if you're in charge, what would you do? They say: well your lawsuits aren't bad, but none of our friends have been sued. We've heard you talk about disconnection – well, now you're getting scary for us, because none of us want to lose our internet connection. If you can deliver on disconnection then in fact there may be a solution – because there's a risk.
I'm sure you've heard my story about my kids – there's a 19-year-old girl, a 15-year-old boy and nine-year-old girl. In my house. If the boy got them disconnected, his sisters would kill him. I started telling this story a year ago. Now it's the parents who would because the parents can't manage without the article. So the prospect of losing your interconnection is going to change behaviour – there's no doubt about it.
But how do you get more of that wallet share back that is going to live music? Or games?
You talk about people valuing music - I've noticed something recently. When you want one song from an artist, you download their whole catalogue on BitTorrent, it's there as one download. Then you get the song you want, and throw the rest away! You'd have to be a real fan to collect someone's life work once – but now people routinely throw away their life's work, as if you never had it. To me that's incredible. So isn't the "value" going down all the time you don't license music?
There's no doubt in people's minds the value of music has gone down.
There's the bundling problem – where people pick one song from an album they like. But the first step is to actually get people back into the habit of buying, and 99c or 79c [Euro] is not a problem for people once they don't have the choice of free.
Again, if you give any of my kids a pound to go down the sweetshop they look at you as if you're mad. So 79p has to be a good deal. Then you have to scale up to what volumes people are going to buy.
But isn't so much of this traffic disappearing behind encryption? When we last met six months ago that wasn't the case – now the clients turn on encryption by default. So it's difficult for an ISP to tell what's legitimate and what's infringing? Aren't you going to end up in a position much like now where most people know it's something they don't have to worry about.
I don't think it is. It's incredibly difficult, but we have two choices. We give up, and go away, and let things get worse, or we fight in very difficult terrain. Filtering can deal with encrypted material. When I started talking about filtering three years ago, it was difficult and cumbersome and not 100 per cent reliable. Now filtering is effective, it's really cheap and it works including dealing with encrypted streams.
Now we've always dealt in the real world where there's an 80:20 rule: 80 per cent legal and 20 per cent pirate. In the online world we may never get to 100 per cent legal, and we may never even get to 20 per cent illegal, but it's a question of people getting into the habit of buying, and now even parents have got into the habit of following their kids onto P2P networks. So we need that change of behaviour on the ISPs. I fervently believe that will make a dramatic difference.
And I think you're right, we need to increase the share of wallet in that context. But at the moment trying to increase the share of wallet against free is virtually impossible.
Filtering vendors can't cope with encryption
[Editor's note: Filtering equipment vendors, for example, Sandvine say they do not have the ability to look inside an encrypted stream. However, unless a BitTorrent user has taken steps to conceal their IP address, the IP address is visible to other users sharing the same Torrent.]
I expected when I went to our technology guys for them to tell us that they we're completely done for with encryption. But that's not what they're tell us. So I'm not an expert in the field, but if our technology guys say they can deal with it then they have to deliver.