Original URL: http://www.theregister.co.uk/2008/01/28/mcguinness_telco_blast/

U2 manager blasts telco pigopolists

Don't play the innocent with me

By Andrew Orlowski in Cannes

Posted in Media, 28th January 2008 23:47 GMT

Midem There's another kind of pigopolist, U2's manager Paul McGuinness said today: the giant network operator who profits from music, but doesn't give anything back. McGuinness used a keynote slot at the world's biggest music festival in Cannes today to call for network operators to pay musicians a slice of the pie.

McGuinness said operators have had their "snouts in the trough for too long".

Small ISPs, who can barely scratch a living reselling DSL, will choke at the suggestion. In the UK, operators barely make a profit reselling BT Openreach. And in the US, as we've reported before, small ISPs must retail their network service in competition with their Baby Bell wholesaler, which simply sells their service at a discount, cheaper than the wholesale price. Illegal? Not if it's a time-limited offer: just one that happens to be permanent.

Tough luck, reckons McGuinness. That point aside, the U2 boss was positive about technology, and urged the music business to recruit better staff, and develop a start-up mentality.

(Hopefully not a Web 2.0 mentality – they've got enough problems as it is, without the handicaps of poor scalability, low data integrity, and security holes that clueless AJAX coders bring with them).

McGuinness began by remind the audience that for a good while, U2 didn't make any money from live performances. This was a response to the notion that the music business should give up the idea of getting revenue from sound recordings, and sing for their supper.

"Network operators should take responsibility for the content they've profited on from years," he said.

He scorned the idea that the demand for the internet came from innocent activity.

"Kids won't pay $25 a month for broadband if they just want to share their photos, do their homework and email their friends."

Free music is the killer app for ISPs, he said, and operators who think otherwise are living in the past.

McGuinness had met Silicon Valley's tech entrepreneurs and discovered they just don't value creative material. He said that a lot of them, and the equity people who funded them, were old Deadheads who had been inspired by Abbie Hoffman's Steal This Book. He said:

"They were brilliantly innovative in finance and technology - and though they would pay lip service to 'Content is King' - what many of them instinctively realized was that in the digital age there were no mechanisms to police the traffic over the internet in that content, and that legislation would take many years to catch up with what was now possible online. And embedded deep down in the brilliance of those entrepreneurial, hippy values seems to be a disregard for the true value of music."

(It might be more complicated than that – here's another way of looking at it.).

He added:

"These tech guys think of themselves as political liberals and socially aware. They search constantly for the next 'killer app'. They conveniently forget that the real 'killer app' that many of their businesses are founded on is our clients' recorded music."

McGuinness had intervened from the audience on Saturday to ask Vivendi CEO Jean-Bernard Levy,, the boss of his record label's boss, why digital formats left audiophiles short-changed. He said he was part of the "lossless" movement, in favour of lossless compression formats such as FLAC, and repeated the call in his keynote.

The BPI said McGuinness's idea was long overdue. It wants ISPs to police their networks, with a three-stage termination process: written warning, suspension, then a ban.

It's a rare example of someone speaking with the entire music business behind him: composers, publishers, small labels all share the same sentiment – the others are simply more diplomatic.

Broadband profits

Two questions to chew on, then. Is he right? And will it fly?

On the first count, McGuiness is on firm ground, historically. While there are many ways of delivering music from producer to us so that it "feels free"- radio and music in pubs and shopping malls, for example there aren't any examples where a transport technology has popped up where the operators don't pay the creator at all. (The nearest we can think of is US radio, which doesn't pay the sound recording owner, but it does pay the songwriter. Some non-US radio stations consequently snub the US on reciprocals - but that's about it, and it's an anomaly).

Network operators today claim they're just passing along bits, but that argument has been tried before and failed every time.

The counter argument is that when you're in a pub, restaurant or mall, then you hear the music whether you want to or not. Why should users who don't consumer any digital music online, except where and when they choose to, also share the operators cost? That's one the music business has to make, and I haven't heard it addressed yet.

Can broadband suppliers afford it?

The results of the largest companies speak for themselves. We're talking telephone numbers.

Verizon, for example, today reported quarterly revenues of $23.8bn, with a net income, after tax, over $1bn. But half of this comes from mobile, and much of the rest of the profit from business the company might also point out it has $31.2bn in debt, and that it's spent hugely to create a competitor to cable. Comcast earned $7.7bn in its most recent quarter, with broadband earning $1.6 billion.

The money's there, and Big Telco dwarfs the tiny music business, which globally nets less than Verizon does alone in three months.

The music business has a strong argument up its sleeve, however. Data is a drag on revenues, which is cross-subsidized by either voice or TV. Once a subscriber has ticked the box marked "Internets, please", the only way the telco can make more money from them is by cutting costs, usually by consolidating - and in the US at least, the era of consolidation is almost over. The other way is to offer new services which are actually better than the darknet, in which net users become a revenue opportunity rather than a whining nuisance.

But that needs a carrot, as well as a stick. What kind of carrot? For audiophiles, here's an excerpt from McGuinness:

There are signs of a consumer backlash and an online audiophile P2P movement called “lossless” with expanded and better spectrum that is starting to make itself heard. This seems to be a missed opportunity for the record industry shouldn’t we be catering to people who want to hear music through big speakers rather than ear buds? This is obviously going to need more bandwidth in the future. Do the digital machine makers and network owners care? They WILL because they’ll have to ramp up capacity to service all their other legitimate users properly

That's a start.®