For those of you that don't know, public playing of music generally falls under ASCAP and BMI. This is the regulatory umbrella that allowed radio stations to exist. The problem was that Sony and some others wanted to withdraw their content from Pandora exclusively:
"Pandora filed the complaint after Sony and others tried to partially pull out of ASCAP in order to deny their digital catalogue to Pandora — a move that would have severely depleted Pandora’s music selection. In a December decision, however, another court ruled that Sony and others had to be “all in or all out” when it came to using ASCAP which, along with BMI, operates under a Justice Department consent decree that requires them to issue licenses to all radio providers."
In my limited understanding of our legal system, the above ruling was the right one, as allowing Sony and others to make a exception to the existing system would have disastrous implications elsewhere. How would soundtracks be licensed, and how would those contracts be stable if Sony were allowed to unilaterally withdraw from ASCAL and BMI? Well, more advantageously- for the license holder. Spotify is not covered by ASCAP, because of its uniquely customizable approach. This is where things get complicated really fast. The main thing to note is that Spotify is considered "cannibalistic" because of its customization, hence, Spotify does not use an ASCAP license.
Along comes Judge Cote to solidify the distinction between Pandora and Spotify arguing that Pandora, while utilizing an algorithm instead of a DJ, is still more like traditional radio than Spotify. This makes sense, because Pandora users approximate the traditional radio experience of picking a station of their choosing, but the "station" picks all of the music from that point on. Yes, the station can be personalized with likes and dislikes, but the user still does not have complete control of the content.
So Judge Cote's ruling is probably technically accurate. Whether or not Pandora is "good" or "ethical" remains to be seen, but the ruling seems sound. eBooks are another problem entirely, as there is not ASCAP or BMI whereby libraries and vendors can go and find expected and regulated prices for items. Instead, we have even more insecurity in the market, and the law is even more nebulous. First Sale does not apply to econcent, so we have less predictably than the highly volatile legal environment we are seeing in the music industry. What is clear, is that libraries are more analogous to Spotify than Pandora. Meaning, we develop the collection, but let the users pick what they read and use. If a judge were to make this comparison, we could reasonably expect to see higher costs rather than lower, as we would fall under that cannibalistic description.
Now of course we will, and have, always argued that we do not hurt the book market, but as I have noted numerous times, that was in a market where books were not commodities. In spite of last year's PEW findings that ebook lenders are also buyers, we cannot assume that those old patterns will hold true. Judges and legislators will most likely look at the music industry, and not one PEW survey, where they will see undeniable evidence that digitization has indeed cannibalized profits and extrapolate that ebooks in libraries will most likely do the same. Judges will also look at Netflix, which is even more similar to the library model than Spotify. Because Netflix is video (we have now looked at all 3 major econtent formats), because Netflix does not have third party adds and third party integration is minimal (Facebook etc).
What is interesting is that all three of the content competitors we are looking at have become giants in less than a decade, but we still do a couple of things better than they do: metadata, search, and discovery. They do content, availability and price better. The ultimate wild card will be how legislation will evolve to address the cannibalization and commodification effects of digitization. This will make or break libraries. I was talking to Eli Nieberger this week about the monetization aspect of all this, and found it encouraging that both of us had come to the conclusion that the regionalized approach libraries have always used may actually work better for some content creators than Pandora or Spotify- if we can get enough of our colleagues to accept our model. Currently, I am not prepared to discuss that model, as both of us are still developing it. But we hope to have something done in the next two years.