Original URL: http://www.theregister.co.uk/2006/10/18/allofmp3_defends_business_model/

AllofMP3 sends out peace feelers. Enemies prefer Cold War

iTuneski's foes gain strength

By Drew Cullen

Posted in Media, 18th October 2006 06:53 GMT

AllofMP3.com may hail from Russia, but the rebel retailer is the North Korea of the music industry. The record labels accuse it of online piracy and hate what it does, but only now are they figuring out how to deal with this internet phenomenon.

AllofMP3.com logoAllofMP3 denies the copyright theft claims: it obeys the laws of its country, owner Mediaservices says, and that is good enough for the company. But it is beginning to lose its sang-froid just a little.

In its current form, AllofMP3 would certainly be unable to operate in any western country that we can think of. For it does not have permission from the labels to sell the music it stocks. The company pays royalties - 15 per cent of revenues - into a local collection society, The Russian Multimedia and Internet Society (ROMS). But this society is not recognised by the international music labels, which will not legitimise it by taking the dough.

As online royalties go, 15 per cent is a nice percentage - for an artist. But add in the label's pigopolist mark-up and it looks somewhat lame. Especially when the retail price is so low.

At prices starting at 3c a DRM-free song - set at Russian levels, AllofMP3 says - a lot of downloads go a little way (if not for Mediaservice, which generates £20m a year, according to industry estimates).

People from overseas are not encouraged to use the service - (so why the foreign language versions?) - but if they do it is their responsibility to ensure that they comply with the laws of their own country, says AllofMP3. And flock from abroad they do. With 14 per cent market share, AllofMP3 is, for instance, the second biggest music retailer in the UK, behind only the ubiquitous iTunes. And unlike the renegade P2P services, such as Kazaa in the days before it was castrated, it is unclear if British consumers are breaking local laws by using the service.

Hard time

But the music industry wagons are beginning to circle. In Russia, the International Federation of the Phonographic Industry is suing the company's owners in the Moscow courts over copyright abuse. If AllofMP3 is obeying its country's laws, then it has nothing to fear on this score. A more vexing challenge is presented by the recent intervention of the US government in the dispute. Two weeks ago, US trade representative Susan Schwab publicly attacked AllofMP3, declaring: "I have a hard time imagining Russia joining the WTO with a website like that operating."

Such failure of imagination neatly illustrates Calvin Coolidge's boast that the business of America is business. Never is this more true in international trade negotiations and disputes, where America will always go that extra mile for California pear farmers, Lousiana shrimp fisherman, American DRAM producers, Hollywood, and, lest we forget, the music industry. But is the US government really prepared to deny the benefits of American-style globalization to 140m people, who have destroyed many more nuclear bombs than North Korea, or Iran come to that, will ever make. All because of one internet retailer? Well, yes it would.

Schwab's threat was enough to smoke out AllofMP3, which organised an online press conference today to "address issues surrounding the AllofMP3's business model".

Stressing that the company paid Russian taxes and complied with Russian law, Vadim Mamotin, director general, said: "We are troubled by the business dispute and believe that this has hurt our business... we are considering a number of options to address the issues including appealing for direction negotiations with the record labels. As we see it, the record label really have an issue with ROMS, and perhaps, the Russian government. But suing AllofMP3 and enlisting the US government to put pressure on us is not the solution to their problem. They really should view us as an opportunity."

We think this call will fall on deaf ears. Inevitably, Russia will, at some point, however gracelessly, change copyright laws to bring it into the pigopoly orbit. This will remove a crucial prop for AllofMP3. The record labels - see their call to AllofMP3 below - will then seek to negotiate the service into sterility - look at Napster and Kazaa.

Our advice to AllofMP3? Double your prices and make hay while you can, lads. ®

Flip to the next page for the full text of the labels' missive.

Bootnote

INTERNATIONAL MUSIC SECTOR CHALLENGES ALLOFMP3.COM: "ADMIT YOU ARE ILLEGAL"

Cross-sector alliance calls on Russian website to come clean on its violation of copyright laws -

London, Washington, Paris, Moscow, October 17th, 2006

INTERNATIONAL MUSIC SECTOR CHALLENGES ALLOFMP3.COM: "ADMIT YOU ARE ILLEGAL"

Cross-sector alliance calls on Russian website to come clean on its violation of copyright laws -

The international music sector today threw down the gauntlet to Russian-based website Allofmp3.com, accusing it of stealing the music of legitimate copyright holders and creators across the world. Bodies representing authors, composers, music publishers and record companies internationally and in Russia are demanding that Allofmp3.com, which is facing legal proceedings both in Russia and internationally - admits it is an illegal service that is flagrantly breaching the rights of the artists, composers, music publishers and record producers who make the works it sells.

Allofmp3.com sells and distributes hundreds of thousands of songs by international and local artists without having any legitimate licence to do so. It claims to be licensed by a Russian-based society ROMS, but ROMS has no mandate from international rights owners to licence the site in or outside Russia.

Under the copyright laws of virtually every country in the world, including Russia, it is illegal to distribute recordings without the permission of the rights owners.

The site is called on to answer to four simple questions that are issued today by an alliance of organisations representing the legitimate international music sector.

QUESTIONS: 1. What are your revenues, and what share of them have been distributed to artists or copyright owners? What are your top 10 best sellers, how much has your top-selling artist been paid and can you identify any artist or copyright owner who will confirm they have received payment from Allofmp3.com?

2. How can Allofmp3.com justify its business model by saying it is licensed by Russian-based body ROMS to make available and sell music over the internet, when ROMS does not have the mandate from any of the relevant copyright owners (record producers, authors and music publishers worldwide) to issue such licences in or outside Russia (and was furthermore expelled from CISAC in October 2004)?

3. Copyright societies representing hundreds of thousands of composers, authors and music publishers around the world have written to ROMS making it plain that ROMS has received no such rights from them. This means that Allofmp3.com is making copyrighted works available without the permission it needs. When is Allofmp3.com going to stop illegally exploiting the works of composers, authors and publishers?

4. Allofmp3.com's website admits it may not be legal in countries other than Russia, yet it is available in English and even publishes charts from the US, UK, Germany and France. What steps is Allofmp3.com taking to comply with the law outside Russia?

The questions are posed by:

  • Mitch Bainwol, President of the Recording Industry Association of America (RIAA)
  • Eric Baptiste, Director-General of CISAC, the International Confederation of Societies of Authors and Composers
  • Peter Jamieson Chairman, BPI, representing the British recorded music industry
  • John Kennedy, Chairman and CEO of IFPI representing the recording industry worldwide
  • Martin Mills, Chairman of IMPALA, representing European independent record labels
  • Ronald Mooij, Secretary-General of BIEM, representing mechanical rights societies internationally
  • Yuri Slyusar, Chairman of the Board of NFPP Board representing record companies in Russia
  • Jenny Vacher, General Counsel, ICMP/CIEM representing music publishers worldwide
  • Alison Wenham, President of world independent labels body WIN