It's an old adage of journalists that one's a curiosity, two's a coincidence, but three makes a trend. This week, enterprising pundits have found not one, but two different trend stories to trumpet: the demise of digital music and the demise of broadband.
The first item to kick off the trend is that MP3.com, which had managed to settle with four of the five major record labels that had sued it for copyright infringement, on Wednesday lost the toss with the fifth. Universal Music Group won its lawsuit against MP3.com, and was awarded a judgment of $25,000 for each CD that MP3.com had illegally copied into its My.MP3.com storage database. Although we will have to wait a month for the final count of Universal CDs that MP3.com had diligently copied, estimates put the cost to MP3.com at about $118 million. That's on top of what SEC filings and industry observers estimate to be $100 million in settlement and legal fees for its cases with the others so far.
Will MP3.com survive the hit, or will this force the company into bankruptcy? This could, after all, open the floodgate for more lawsuits from independent record labels. Just imagine ... thousands of indie bands that have grown to love MP3.com's promotional service could discover that they are now part of a database "asset" that's up for sale. And if that were the case, wouldn't it be ironic if Universal was wise enough to use its newly flush coffers to, say, purchase those very same assets that it helped put out of business?
With the final damages still up in the air and MP3.com filing an appeal, it's far too early to answer these questions. But it's never too early to speculate, which is why this week has already seen a number of "the end of Internet music" stories, conflating the MP3.com drama with the ongoing record industry vs. Napster trials taking place in San Francisco. Add to this the news that Scour.net -- an also-ran Napster clone facing similar RIAA lawsuits and backed, in part, by the infamous Michael Ovitz -- laid off 52 of its 64 employees this week due to lack of funding and: Bingo! It's a trend! Those smug Internet music executives who thought they'd overthrow the record industry are getting theirs!
Certainly, it hasn't been a happy week for the industry; but that hardly means that the digital music revolution has been halted by the RIAA's Molotov cocktails. If anything, the opposite is true: Every day, another Napster-like clone hits the market; projects like Aimster, Gnutella and Freenet are picking up customers as fast as their competitors get picked off; and according to News.com, Microsoft is negotiating to buy the music search engine MongoMusic. Even Universal is getting into the digital download business. Napster boasts 20 million music traders alone; and those fans aren't going to give up easily.
Still, there are some lessons being learned. Michael Robertson, CEO of MP3.com, has learned that, regardless of whether your intentions are pure, perhaps you shouldn't launch a legally dubious product without consulting a horde of lawyers. Scour.net -- which never racked up the usership of Napster -- has learned that playing copycat to the most controversial software of the year is not a good way to woo investors to your side. And Napster? Well, with the lawsuits currently battling their way through the courts, it's unclear what we can glean except that federal District Judge Marilyn Hall Patel isn't fond of piracy shenanigans and that, gosh, those kids sure like their free music.
The lessons of the digital music industry are being echoed, in part, by the shock waves vibrating around the broadband industry. Pop.com, the online entertainment site produced by a Hollywood dream team of executives including Steven Spielberg, laid off its staff after deciding that its plans were just too darn ambitious (and, therefore, expensive). The future of the site that never launched is uncertain, but suitors looking to buy Pop.com were reputedly scared away by the overly high price tag. Shockwave -- a spinoff of Macromedia that offers cartoons and games -- followed suit by laying off 20 of its 170 employees; and of course, the tale of DEN's profligate spending and ugly end is still reverberating through the lunchrooms of Los Angeles. (That's, yes, three ugly broadband tales. Add the fact that Pseudo Networks in New York laid off 58 employees in June, and that makes four.)
Shockwave CEO Lawrence Levy was quick to note that, just because his layoffs coincided with Pop.com's and DEN's, did not mean that he was following in their foundering footsteps. He is, of course, right. Online content is horribly expensive to make, and the deals that Shockwave cut with celebrity cartoonists like Trey Parker and Matt Stone might have been unwise. But that hardly means that online content isn't viable: Atom Films, for example, is building a strong niche in online and offline distribution of films and DVDs. The necessary broadband pipes may still be elusive, and the critical mass of customers therefore distant, but online films and cartoons are already becoming part of the everyday routine of millions of online viewers. It isn't going away.
It seems that just about every week, another industry sector gets hit by the declining dotconomy. This week, it's online entertainment; next week, it'll be e-delivery services or B2B or, god forbid, pet portals. So call it a trend, but please don't call it the end.