Digital Media

CMU Review Of The Year 2012: The media and the internet

By | Published on Friday 21 December 2012


CMU’s Andy Malt and Chris Cooke look back at a year of digital music innovations and developments, and at the big stories and trends in the media industry.

And to think, this time last year it was all about the ‘Mega Song’. Remember that? Such innocent times. Yes, while the American movie industry did spend a lot of 2011 moaning about MegaUpload and its sister site MegaVideo, a file-transfer platform and YouTube competitor respectively, both of which were home to vast amounts of unlicensed movies, music videos and TV shows, few expected the dramas of 19 Jan to unfold the way they did.

With little warning (much to the annoyance of some Mega customers), the American authorities swooped on the US-based server facilities used by the file-sharing company and shut down the entire operation, while police in New Zealand raided the home of the controversial digital firm’s founder Kim ‘Dotcom’ Schmitz and arrested three other Mega execs too. The Mega management were accused of money laundering, racketeering and copyright infringement, and the US authorities began proceedings to extradite Dotcom et al back to America to face criminal charges.

But once he finally got bail, Dotcom started to fight back. Denying all the charges against him, he hit out at Hollywood and its allies in the US government. His lawyers argued that the Mega company didn’t have a corporate base in the US, so criminal proceedings against it weren’t possible, and that the charges against Dotcom personally weren’t enough to justify extradition. A US court wasn’t especially convinced by all these arguments.

Though in New Zealand, Dotcom’s extradition hearing was postponed, twice, amidst allegations that police there raided Dotcom’s home using the wrong kind of permit, that they broke laws by letting US officials take evidence seized in that raid back to America, and that the country’s intelligence bureau spied on Dotcom and his colleagues before the raid without the required clearances from the powers that be. Meanwhile the Mega men set about building an all new Mega file-transfer service, set to launch on servers outside the US in January, which – Dotcom reckons – is immune from claims of copyright infringement.

As 2013 begins, it remains to be seen if Dotcom will ever appear in an American courtroom to debate the legal arguments surrounding MegaUpload v1. Meanwhile the movie and music industries will be watching with interest the launch of v2.

While it was really the movie industry that led the battle against Mega, the American record industry continued its assault against Grooveshark in 2012, albeit with little actual progress. Grooveshark, of course, is the US-based Spotify competitor that allows users to upload music to its libraries, meaning a portion of its content is unlicensed. Grooveshark argues it operates a takedown system meaning that, under US law, it is not liable for copyright infringement, even though its users upload lots of unlicensed files all the time.

With that get-out something of a grey area, last year Universal, Sony and Warner sued Grooveshark alleging that employees of the company also uploaded unlicensed content, something that would void the ‘takedown system’ defence. Then this year EMI, the one major that had done a licensing deal with Grooveshark, terminated its agreement and subsequently joined in with the litigation party. For its part Grooveshark called for Universal’s lawsuit to be dismissed, while trying to force Digital Music News to reveal who had posted on the digital news site the original allegations of dubious staff-based uploading.

With all four majors now pursuing Grooveshark through the courts, and making it difficult for the streaming company to distribute its mobile apps through official channels, the digital firm is arguably on rocky ground. Though that didn’t stop Forbes listing its founders amongst the 30 most influential people under 30 in music today.

Talking of streaming music, what about those streaming platforms endorsed by the music industry? Overall, streaming set ups still account for a relatively small amount of revenue within the wider record and music publishing industries, but those revenues are growing rapidly and, in terms of public profile, this was definitely a good year for the digital services that stream.

And that’s despite some high profile critics, mainly in the artist community, where some still reckon the royalties paid by streaming platforms are just too low, especially if being on a streaming service might negatively impact download sales. In Europe, Spotify, while enjoying the highest profile amongst consumers by some distance, also tends to be the whipping boy when it comes to criticism about streaming in general. The most vocal critic this year was probably Scott Borchetta, boss of US independent Big Machine, aka the Taylor Swift label. He said he had no plans to immediately put new releases onto Spotify et al at all. Though his viewpoint isn’t the norm – both Universal Music and Beggars boss Martin Mills have come to Spotify’s defence this year.

While Spotify is still the market-leading streaming service in Europe, there were plenty of competitors hoping to take its crown (but, presumably, not the flack) in 2012, with other players expanding big time. French-based Deezer continued its occasionally bizarre expansion plans, US service Rdio arrived in Europe, and announced a big global push. Meanwhile UK-based We7 was bought by Tesco, with a revamp pending. Aware of all that competition, Spotify has just announced a major redesign with new features it hopes will retain its market leader status.

In the US, interactive radio service Pandora probably garnered the most column inches in the streaming music space, though, as with Spotify in Europe, a lot of that was negative – ie criticism from within the music community (more on which below) or its wobbly share price (especially whenever an Apple streaming service was rumoured). Though it did get to talk up its arrival in Australia and New Zealand earlier this month.

Speculation that one of the big guys – Apple, Google or Amazon – would enter the streaming music space this year was unfounded, though arguably Google already owns the biggest streaming platform in the world in the form of YouTube.

But for those three it was all about refining existing digital locker services in 2012. While Google and Amazon had both beaten Apple to market in 2011 with music-focused digital music storage services – whereby users could upload MP3 collections to the ‘cloud’ and access tracks from any net-connected device – Apple’s iCloud service was much more attractive because it offered scan-and-match, which scanned a user’s PC and automatically placed copies of any music it found into the customer’s cloud locker without them having to upload anything.

Google and Amazon couldn’t do that because they hadn’t involved the labels in their original locker offers, and while a basic cloud storage service can be run without a licence from rights owners (in most countries), scan-and-match cannot. But this year both caught up with Apple, doing the label deals and launching a fuller locker service, Amazon in July and Google in November (in Europe, in the US just this week). Now all offering pretty much the same service, and with the cloud storage market likely to expand further in 2013, all three will compete head on – Google by offering their service for free, Apple and Amazon by selling cloud storage alongside their market leading download stores.

Another streaming music service now, but one pretending to be a social network. Yes, MySpace is back, everyone. Who’d have thought it? Well, Justin Timberlake, for one. He was, of course, involved in Specific Media’s purchase of the near dead social network from News Corp last year, and was heavily featured in a promo video showing off the site’s big redesign in September. The new MySpace is going to be all about the music, see, and Justin’s presumably had an input on it all.

Now in beta, the all-new MySpace aims to provide a central hub for musicians to manage their online activity, and to monitor online interest in their work. Initial response from those who’ve played with the beta site has been positive, though more recently certain experts have had a deeper dig, and their reports haven’t been so glowing. Meanwhile some have questioned the business model behind the new look site, which will still come with an in-built (and expensive to run) streaming music platform. Looking for new investment, Specific Media outlined various reasons why it thought the new look MySpace was a goer as an online music service, though not everyone was convinced.

One of the plus points given to potential MySpace investors as to why the new look music-social-network could succeed in the increasingly competitive streaming music space is that it will push to the fore ‘interactive radio’ services over fully on-demand listening.

In the US such a service can be operated under a licence from collecting organisation Sound Exchange, and rates are generally much cheaper than under on-demand streaming licences secured directly from the record companies. Which is fine, except those are the rates paid by Pandora, and Pandora has been busy telling everyone this year that those rates are way too high and need to be cut.

Pandora points out that, in the US, online radio stations (including interactive radio services like the one its operates) need a Sound Exchange licence, but FM and AM radio stations can operate without paying any royalties to record labels at all. Satellite radio station Sirius XM is also required to pay royalties via Sound Exchange, but its rates are calculated in a different and more favourable way. Arguing that this gives its FM, AM and even satellite competitors an unfair advantage, Pandora this year asked US Congress to revise the American copyright system, so that the royalties it pays into the record industry are reduced. Needless to say, the record industry was not impressed with the proposal.

Indeed, the record industry would rather like it if terrestrial radio stations in America were made to pay it royalties (which would also make things fairer for Pandora), and has been lobbying to that effect, albeit unsuccessfully. Though the aforementioned Big Machine did persuade two major American radio firms – Clear Channel and Entercom – to voluntarily start paying undisclosed royalties when the indie label’s music is played on its FM and AM stations. How? By offering much more favourable rates for the broadcasters’ own Pandora-style online services. They are relatively small deals so far (also involving indie label Glassnote), but could pave the way for a whole new kind of licensing in the US radio and internet space in the coming years.

Staying with radio, and back in the UK the big radio industry story of the year was probably the further expansion of Global Radio, already the biggest commercial radio firm in the country as owner of Classic FM, Capital, Heart, LBC, Gold, Choice and Xfm.

In June, Global won the bidding to buy the two radio networks owned by the Guardian Media Group: Real and Smooth Radio. The deal was immediately criticised by competitors, who said that the merger would give Global far too much market share. But OfCom ruled that there were no plurality issues relating to the deal, though competition issues are still being investigated. In the interim, Real and Smooth have been spun-off into a standalone company, with downsizing already underway to prepare for integration with the rest of Global, assuming regulators green light the acquisition.

Elsewhere, chatter about a possible sale of Absolute Radio began once again this month, though unlike in 2011 the deal on the table will not likely result in the rock station being rebranded back to Virgin Radio.

Perhaps the biggest media story overall this year (giving even the Leveson Inquiry a run for its money) was Savile-Gate. In October, an ITV documentary made allegations that the late Jimmy Savile had frequently abused teenage girls throughout much of his TV and radio career, and sometimes at the studios of the BBC shows on which he worked. It then emerged that a similar investigation had been dropped almost a year earlier by the BBC’s own ‘Newsnight’, just as the Corporation was planning to air Christmas-time tributes to its former star presenter.

While a subsequent inquiry ruled that the ‘Newsnight’ report had not been canned because of pressure from BBC management, the editorial decision to drop the Savile revelations was heavily criticised, as was the failure of Beeb bosses to spot the implications of the ‘Newsnight’ investigation on their plans to celebrate their former employee. As the scandal grew (and allegations mounted up, against both Savile and other radio and music stars, forcing the axing of ‘Top Of The Pops’ repeats featuring the offending men), the BBC imploded.

BBC Director General George Entwhistle, still new to the job, proved himself particularly useless at managing the fallout of such a scandal, forcing him to resign after just 53 days in the role, though not before he’d negotiated himself a half million pay off, thus ensuring further PR hell for his former employer. All of which means the BBC has a lot of reputation repairing to do in 2013, while a police investigation into the permanently shamed Savile’s criminal conduct continues to work out who else was involved.

Away from the scandals, media companies continued to face commercial challenges in 2012, not least in the newspaper and magazine domain, where print circulations continued to decline while booming websites failed to generate big money. Though, for the first time in a number of years, there was a glimmer of hope, with research to suggest consumers who won’t pay to access websites might pay to download magazine apps. With tablet device use due to explode this Christmas, publishers everywhere are hoping the tablet magazine could be the saviour of print media.

Though it’s all too late for one of the UK music industry’s favourite magazines, The Word. In June its publisher David Hepworth announced that the title was to cease publishing, just a few months before its tenth anniversary. “In the nine years since the magazine launched there have been dramatic changes in the media and the music business” he noted. “These changes have made it more difficult for a small independent magazine to survive and provide its staff with a living. This hasn’t been made any easier by the economic climate of the wider world”.

Hepworth’s company Development Hell continues to publish its other title though, dance music magazine Mixmag, while also operating clubbing social network

And finally, after all that doom and gloom, a happy ending. Well, except for fans of nasty legal battles.

When not calling The Queen a dictator, accusing the royal family of hijacking The Olympics or suggesting that Kate Middleton brought about someone’s death, Morrissey found time earlier this year to proceed with his long-awaited legal action against the NME. This was the libel case relating to a 2007 article which the singer felt had unfairly accused him of being a racist. NME publisher IPC had failed to have the case dismissed in 2011, and the whole thing was set to come to court in 2012. Good times.

Of course cases like this often fail to reach court, but Morrissey seemed incredibly keen to have his say and make everyone involved stand up in front of a judge to explain themselves. And as that day drew ever closer, our anticipation for what might have been the most entertaining music industry trial in a very long time only grew. But then in June all that anticipation was smashed when it was announced that the singer and the magazine had settled. Boo. And all Morrissey got out of it was an apology. An apology that stressed that his accusations were wrong.

Oh well, we might have been a bit disappointed by it all, but hey, reconciliation. That’s to be celebrated right? And with that, consider CMU and 2012 fully back on speaking terms.

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