Despite assurances otherwise from Napster, the talk at MIDEM seems to be Napster's near-certain demise amid a larger shakeout of digital music services and continued label heartburn over Apple's flat-rate pricing.
Given that CD sales are continuing to plummet (I guess that ROI on consumer and p2p service lawsuits is the proverbial "check in the mail") and digital music sales are far from covering the gap, Big Music might want to consider a strategic investment or two in the services. If a near-monopoly like iTunes is considered a loss-leader, then you can almost smell the cash burning at totally undiversified plays like Napster.
Still, you almost have to admire the almost blinding '90s nostalgia espoused by some label execs:
"It's inconceivable that others wouldn't come in (to challenge Apple)," EMI Chairman Eric Nicoli told Reuters. "To talk about dominance this early in the game is short-sighted. It's not a five-year game, it's a 30- or 40-year game."
Uh, Eric? You know all those p2p services you'd rather sue than do a deal with? They're hosting about three times as many files at any given moment as all the so-called legitimate services sold in all of 2005. Perhaps it's time to have somebody from biz dev, rather than legal, give them a call.

I guess you can only live so long on Apple's leftovers.

In the build-up to its February earnings call, Napster is busily denying reports that the company is imploding. With Apple claiming 83% of the US digital music market and 54% in the UK, that leaves Napster battling with RealNetworks, Virgin Digital, Yahoo! Music, WalMart and others for Apple's table scraps.

As a result, Napster is rumored to be considering options ranging from mass layoffs to liquidation. A Napster representative countered the claims, telling Digital Music News that there are "no imminent plans for significant layoffs," which doesn't inspire confidence.

During its second quarter (which Sept. 30, 2005), Napster reported a net loss of $13.61M on revenues of $23.38M.

V Cast, Verizon's new song download service, which will launch Jan. 16, is built around Microsoft's digital media technology and thus, as Brad Hill suspected, Verizon has decided to kill its phones' ability to play MP3 files. The rationale, according to a spokesman, is simplicity.

"We don't view this as restricting functionality," said Jesse Money, Verizon's director of consumer multimedia services told CNET. "We wanted one music player on the phone with a simple and consistent look and feel throughout the player. If we were to leave (the MP3 support intact), then there would be two players with different experiences."

Translation: It's real simple. If you want to play music on your phone, you have to buy it from us.

The V Cast service will initially be available on the LG VX8100 and the Samsung a950. Samsung promptly changed its a950 billing as the phone that can "play MP3 masterpieces" to one that simply plays "musical masterpieces." See? The beauty of simplification.

But that doesn't mean that users would be forced to buy Windows versions of songs they already own in MP3 form.

Microsoft's Windows Media 10 software automatically makes copies of MP3 songs on your hard drive and loads them onto the phone in the correct Microsoft-based format, leaving the original unchanged.

But that software is only available for PCs today, leaving customers with Apple Macintosh or Linux-based computers out of luck, unless they find a different way of translating their MP3 songs into Microsoft's format.

Before 1997, this would have been the most oblique and half-baked venture ever to solicit public money. And it still might be. Digital Music Group, whose website’s bevy of information amounts to “Stay tuned for more information soon…,” is looking to raise $33 million in an IPO of 3.7 million shares ($8-$10 apiece) under the ticker "DMGI" on the Nasdaq.

In spite of DMGI's seeming obscurity, quite a bit is known about the company.

According to Marketwatch, Digital Music, based in Sacramento, acquires digital rights to audio recordings, digitizes music and distributes it to online music stores.

The company has rights to over 200,000 tracks and about 88% of its revenue came from iTunes, with a current sales agreement in place with Apple through April 2007. Per Hoovers, the firm changed its name from Online Music Corporation to Digital Music Group in 2005. Presumably using the funds it raises from the IPO, DMGI plans to acquire rival Digital Musicworks International and assets of Rio Bravo Entertainment (doing business as Psychobaby). Digital Musicworks reported a loss of $1.2 million and revenue of $256,000 for the nine months ending Sept. 30. Rio Bravo Entertainment reported net income of $43,000 and revenue of $234,000 in the same period.

“Our strategy is to rapidly acquire by purchase or license the digital rights to as many music and other sound recordings as possible,” the company said in its offering prospectus. “Our focus is on acquiring rights to back-catalog, out-of-print, past hits and independent-label recordings, including those that are not currently available for sale in traditional music retailers.”

The Sacramento Business Journal reports that DMGI’s top sellers include Fats Domino’s “Blueberry Hill” and “Ain’t That A Shame,” Eddy Grant’s “Electric Avenue,” “Build Me Up Buttercup” by The Foundations, “Five O'Clock World” by The Vogues and “Dead Man’s Curve” by Jan and Dean.

Pro forma results for the company show revenue of about $224,000 and a net loss of $866,172 for the six months ended June 30. The company has never been profitable, but revenue has increased in each successive quarter and losses declined from first-quarter 2005 to second-quarter 2005.

I-Bankers Securities Inc., and FTN Midwest Securities Corp., not exactly a white-shoe tandem, are the underwriters.

Pretty clearly, this is an undiluted long-tail play and little else. If DMGI is providing any special metadata services beyond simply digitizing the music, they’re in no rush to tell anyone about it. And unlike the Independent Online Distribution Alliance, IRIS Distribution, the Orchard, Digital Rights Agency or other aggregators of independent music, DMGI doesn’t trouble itself with marketing its music beyond simply dumping it in the music services’ catalogs.

So why these guys? How much upside is there to a company that hopes to cash in on the digital rights to Eddy Grant and Jan and Dean? When you look at what is offered by the other content aggregators in independent music, DMGI starts to look distinctly under-baked and thus the unlikeliest IPO candidate I’ve seen since the late 1990s. Whatever money they raise this year will probably be a great measure of the frothiness of the digital music industry.

The US Government is unloading some of its beachfront largesse, vacating 90 megahertz of the wireless spectrum. The move could expand the content distribution capabilities of 3G wireless carriers such as Cingular Wireless, AT&T, Bellsouth, Verizon Wireless and Sprint Nextel and 3G-enabled phones made by phone makers Nokia, Motorola, Kyocera and LG.

As Wired reported last November, carriers can spend anywhere from 15 to 60 cents to transmit a song wirelessly, hence the relatively exhorbitant amount that Sprint charges ($2.50) for downloads on its mobile music service. As more spectrum becomes available, look for that cost to wane and thus open the gates for more reasonably priced OTA downloads.

In the UK, sales of songs in digital format exceeded 23 million this year, four times 2004's sales. The BPI expects that figure to spike sharply in the week before New Year as music fans who received MP3 players for Christmas try out their new gifts.

I’m sure the French have a mot juste for this, but, with my French minor failing me for the umpteen millionth time since college, I’ll chalk this up as one more bit of Gallic perversity that I find inexplicable, or, as the French say, inexplicable.

Anyway, let’s time-travel way back before the Ages of Enlightenment, Reason, or … La Renaissance. It was a dark and mean time, when getting access to music was zealously guarded and those who sought access without paying through the nose were threatened with jail time. It was a time we called Wednesday.

Calling for three-year jail sentences and fines of 300,000 euros for illegally copying music, video or any other copyright-protected files, French legislators drafted “emergency legislation” that would require software makers to include digital-rights management software in their products.

Over time, attitudes changed and enlightenment spread across France’s bucolic landscape. Many moons passed. Well, really, barely one moon.

It was a time known as Thursday. France, having bathed itself in the reasoning of Voltaire and others, proclaimed itself the first country in the world to propose the legalization of P2P downloading even though Spain had done it a year earlier.

In reality, what appears to have happened is that, on a bill that would severely criminalize file sharing, opponents have tacked on an amendment that would legalize the practice and gotten that amendment approved 30 votes to 28.

Of note was the following passage:

”Authors cannot forbid the reproductions of works that are made on any format from an online communication service when they are intended to be used privately and when they do not imply commercial means directly or indirectly.”

The Association of Audionauts supports pairing the amendment’s text with a royalty tax collected from Internet service providers. Those companies would likely raise the money by levying a monthly fee—say, 2 to 5 euros—on customers who engage in a certain amount of downloading and uploading.

In a classic case of ready-fire-aim, music publishing giant Warner-Chappell apologized to PearLyrics founder Walter Ritter, whose application searched users' files and the Web for lyrics to import into their iTunes folder.

As reported earlier, Warner-Chappell's first reaction to the application was a cease-and-desist letter as part of a crackdown on sites that publish lyrics and song scores.

Trouble was, PearLyrics isn't a site and it doesn't publish lyrics or song scores — it just searches for sites that do, just as Google, Yahoo! or any other search engine would.

While PearLyrics lacked the legal guns to call Warner-Chappell's bluff, the Electronic Frontier Foundation's Fred Von Lohmann wasn't intimidated. In a widely circulated letter to W/C, he noted that "pearLyrics does not violate U.S. copyright law and that any legal threats by Warner/Chappell against U.S. software developers in connection with software similar to pearLyrics could expose Warner/Chappell to legal action in U.S. federal courts."

Microsoft and MTV have teamed up to offer a digital music service, saddling it with the unfortunate nom de guerre "Urge."

Due to launch next year, the service will be integrated into the next version of Microsoft's Windows Media Player. According to today's announcement, the service will offer over 2 milion songs a la carte, as well as "original content and MTV Networks programs."

Financial terms weren't disclosed, although the two companies plan to unveil further details in January at the International Consumer Electronics Show in Las Vegas.

Biometric DRM. When I saw these two words paired together, it took me close to a half hour to think of a more repellent two-word concept. Nuclear hemorrhoids?  Close. Cancerous gonorrhea? Hmm. I'll let it go for now, but consider the issue far from settled.

What evil genius is behind the marriage of one of the most restrictive and surreptitious technologies with the gathering of the most deeply personal information – the biological kind – in order to manage and protect content? That would be inventor Cary Brant.

Brant's latest product is the MuViBOXX, a set top box that uses broadband and P2P technology to create a network secured by biometric digital rights management. Brant's company, Veritouch, claims support from one major Hollywood studio and one of the big four labels.

The product comprises a mix of search and BitTorrent-style P2P file sharing, as Brant explained to The Register:

"The appliance lets you search for any movie that, say, George Clooney has appeared in, and download it. You'll have access to more movies than you get at Blockbuster, and you don't even have to walk to the mailbox, like you do with NetFlix."

Access to the network requires a fingerprint, which is attached to the file the user downloads and becomes the key that allows that file to be played. The fingerprint can also be used to trace unauthorized acquisition of copyrighted material.

MuViBOXX uses a watermark identification like Snocap to distinguish copyright material from uploaded personal movies you might want to share with friends of family.

Increasingly used in banking and public security as part of a wave of post-9/11 security measures, biometrics is thought to be an effective method of authentication as it is unique to an individual.

But, as Digital Music News analyst Richard Menta notes, "The problem is that once a fingerprint is stolen, it can't be changed like a credit card number, and it is compromised forever. One, of course, doesn't have to go to grotesque lengths of stealing the finger itself, just the algorithm that represents the fingerprint electronically on a device or file. Once VeriTouch records a fingerprint, the user is trusting that they will be able to protect it."

In one corner stood hopelessly out-lawyered pearLyrics creator Walter Ritter, an Austrian developer whose application cleverly searched the Internet for the lyrics to songs playing on iTunes. The application would then automatically append the lyrics field of the ID3 tag for a particular song.

In the other corner stood more-than-amply lawyered publishing giant Warner-Chappell Music.

Fly, meet Buick.

Suing file-sharers is apparently so 18-months-ago that the music industry, in dire need of something new to justify their hefty legal retainers, has taken aim at sites that offer "unauthorized" lyrics and unlicensed song scores. The Music Publishers' Association (MPA), which represents US sheet music companies, said it will launch its first campaign against such sites in 2006. MPA president Lauren Keiser told the BBC that shuttering websites and imposing fines aren't quite sufficient, saying if authorities can "throw in some jail time I think we'll be a little more effective." Ho, ho, ho.

Ever loathe to let facts get in the way of a good jihad, Warner-Chappell conveniently overlooks the fact that, rather than reproduce lyrics, Ritter's software merely searches publicly available sites that do.

So, one cease-and-desist order later, down goes pearLyrics. One wonders how quickly Google would have folded its cards.

"As a freeware developer I can not afford to risk a law suit against such a big company, although personally I don't see where pearLyrics should infringe any copyrights handled by them," Ritter wrote. "After all pearLyrics only searches and accesses publicly available websites, displays, and, at the users wish, caches its content. Something that can easily be done with any combination of search engine and webbrowser too."

In an update, Ritter proves himself a good sport:

"Please try to understand Warner/Chappell, they are only trying to ensure that their artists get compensated for what they are doing - after all, it's their job."

Apparently worried that teenagers weren't evolving quickly enough into Cheetoh-fed gaming drones, Yahoo!, NVIDIA and Big Bear Entertainment have partnered to launch a do-it-yourself video service called "Artist Mods." The video game-music video mash-up concept allows music fans to maneuver caricatures of artists, choose backgrounds and modify settings to create customized, animated videos.

The idea comes from "Video Mods," half-hour episodes on MTV2 that showcase video games as their characters perform in music videos. In the first episode, Video Mods showcased Lil Jon's "Get Low" mixed with the video game Fight Club; Evanescence's "Everybody's Fool" recreated by BloodRayne 2; the Fountains of Wayne's "Stacey's Mom" (which, thanks to the incessant Dr. Pepper ads during college football season, I've decided is the sole song in Hell's soundtrack), featuring the Sims 2; and the Von Bondies' "Cmon Cmon" recreated by Tribes: Vengeance.

Artist Mods users need only download Modmaker from NVIDIA's nZone to make an animated video for each featured song. Budding Spike Jonzes can change characters, their wardrobe, camera angles and the scenery surrounding them.

In fairness to the teens, this highly interactive music offering is a hell of an improvement over what was offered to the fatted calves of my generation, for which combining the words "interactive" and "music" meant 30 skull numbing minutes of "Remote Control."

Satellite radio providers XM and Sirius are providing new receivers that allow subscribers to record several hours of music in a move sure to alarm music labels, reports the Wall Street Journal. Labels get much lower fees for songs played on satellite radio than they do from subscription and a la carte digital retail services.

The new devices "are an iPod that pulls down the satellite signal," David Israelite, president and chief executive of the National Music Publishers' Association, told the WSJ.

Current agreements between the two satellite-radio companies and the labels expire next year. Along with the separate fees the services pay songwriters, royalty fees equal about 7% of the satellite companies' revenue, according to Jonathan Jacoby, an analyst at Banc of America Securities.

With subscriptions to satellite radio more than doubling in the past year, labels were already going to want to boost their rates.

Now, with satellite radio behaving more and more like Napster (indeed, XM will allow users to buy higher quality versions of the songs they like through a partnership with Napster and transfer those songs to other devices), the line between satellite radio and subscription music service seems blurry to the labels. If it walks like a duck …

Satellite companies' rebuttal comes from a 1992 federal law that allows consumers to record radio. The companies contend that the storage capability is "a legal time-shifting device," no different from a digital-video recorder such as TiVo.

Sirius's S50 has been flying off the shelves at $330 a pop, since its launch a few weeks ago. It stores 1 Gb of music and allows users to edit and organize songs as they could on an iPod. XM's device, the Nexus won't be out until next year.