Is music's future on the Isle of Man?

25th January 2009 By Eric Pfanner c/o
A generation ago the Isle of Man gave the world the Bee Gees. Now it says it wants to help the wounded music industry stay alive.
The island a rainy outpost in the Irish Sea is promoting an offbeat remedy for digital piracy which the record companies blame for billions of dollars in lost sales. Instead of fighting file-sharing the government wants to embrace it - and it is trying to enlist a skeptical music industry in support.   Under a proposal announced this month the 80 000 people who live on the Isle of Man would be able to download unlimited amounts of music - perhaps even from notorious peer-to-peer pirate sites. To make this possible broadband subscribers would have to pay a nominal fee of as little as £1 or $1.37 a month to their Internet service providers. Ron Berry director of inward investment for the Isle of Man said the music industry needed radical approaches because of the utter failure" of its current strategies. Global music sales have fallen nearly 25 percent since 2000. And despite a nearly decade-long anti-piracy campaign the industry's international trade group estimates that 95 percent of tracks distributed over the Internet are pirated generating no revenue at all for the record companies. "A lot of people in the business are concerned with how much money they are losing but not with how much money they could make "Berry said. Under his proposal the money collected by the Internet providers would be sent to a special agency that would distribute the proceeds to the copyright owners including the record labels and music publishers. They would receive payments based on how often their music was downloaded or streamed over the Internet as they now do in many countries when it is performed live or on the radio. The Isle of Man didn't invent the idea. The concept of a so-called blanket license to distribute music in digital form has been discussed since the days when Napster before its rebirth as a legal service thumbed its nose at the music industry. There are precedents for such systems in Europe where many countries have mandatory license fees for television owners to finance public broadcasting. Several European countries also have taxes on blank CDs as well as audiovisual and computer equipment; the money typically goes to support cultural industries. In 2006 a French proposal similar to the one now being discussed on the Isle of Man made it to Parliament but it was rejected after fierce lobbying from copyright owners. The government later threw its weight behind a new approach: requiring Internet service providers to disconnect persistent pirates. That plan is still wending its way through the legislature but it has drawn interest elsewhere including in Britain. There policy makers are dangling the threat of a similar proposal to try to get Internet providers and the music companies to agree on ways to stimulate the development of legitimate digital music sales and to curb piracy. While the Recording Industry Association of America which represents the major labels in the United States has backed away from a nearly six-year campaign of litigation against individual file-sharers the music companies' continuing effort to battle piracy in other ways dismays some analysts. "They spend 90 percent of their time trying to keep me from doing what I want to do and 10 percent of their time trying to make it possible " said Gerd Leonhard author of "The Future of Music." Actually the major music companies - Universal Music Group Sony Music Entertainment Warner Music Group and EMI - have grown considerably more flexible in recent months making their music available in all sorts of ways that they might once have considered beyond the pale. New services offering "free" music bundled into the cost of a broadband subscription or financed by advertising are proliferating. They include Imeem a streaming service; MySpace Music a joint venture between the social network and the major record companies; and TDC Play from an Internet service provider in Denmark. Nokia the cellphone maker provides unlimited music downloads with the purchase of some phones. Warner Music has been studying a proposal for U.S. university campuses where students are prolific users of file-sharing services that resembles the Isle of Man's idea. Internet providers would levy a fee on broadband connections in dormitories and libraries in exchange for allowing students to download music to their hearts' content. But music executives remain wary about imposing such a system on a national level as the Isle of Man would like to do saying this would reduce innovation among digital music services and undermine the value of music in the eyes of consumers who still pay for it. "On the drawing board these are very virtuous models but it's all about getting the right implementation " said Michael Nash executive vice president for digital strategy and business development at Warner Music. "You don't want to completely displace all your existing consumers and end up with a lower-value model." Analysts say music companies are also worried that blanket licensing would help musicians bypass the labels entirely and distribute their music independently over the Internet. Rather than adopting one-size-fits-all licensing terms the record companies say their preferred approach is to work with individual partners to increase digital revenue which accounted for about 20 percent of the industry's sales last year according to the International Federation of the Phonographic Industry. "Record labels are proactively licensing a new generation of services that allow consumers access to unprecedented amounts of music and offer great value for money " said John Kennedy chief executive of the trade body. "This is a far cry from what would effectively be a
state-imposed tax that would be unworkable in practice and discriminate against consumers who want Internet access without music services." But executives of some new music businesses complain that negotiations to license music can be tough and tortuous; in the meantime the startups' venture capital can run dry. Pandora a popular ad-supported music streaming site in the United States last year abandoned plans to expand to Europe blaming excessive royalty demands from the music labels and publishers. The major record companies insisted on equity stakes in a new music service started by MySpace the social networking service in exchange for making their music available. Under proposals like those discussed by the Isle of Man such negotiations could become a thing of the past because only the Internet service provider would need a license. Technology that can track downloads and streams across the Internet including peer-to-peer sites already exists. The island perhaps best known as a tax haven - the government prefers "tax-efficient jurisdiction" - has taken an interest in digital music and other high-technology businesses as it seeks to diversify the economy beyond financial services. In 2001 it was the first place in the world to start third-generation or 3G cellphone services. Broadband is available in every home and more than 70 percent of households are connected. Berry who is also a D.J. and part owner of a radio station on the island said he had begun talks with music companies to try to muster support for his plan. He said it would require no changes in copyright law because it would go ahead only with the cooperation of the music companies - something that Berry acknowledged could be a long time coming. "Our size demographics and history of innovation means that the island could be an ideal test bed to trial this concept " he said. By Eric Pfanner c/o   "