Despite revenue slump, RIAA still not getting the big picture

By Eric Bangeman | Published: April 18, 2007 - 01:12PM CT

The Recording Industry Association of America has released its 2006 year-end shipment statistics, and they tell a familiar tale. Shipments of physical media such as CDs continue their decline while the number of downloads continues to soar. Overall revenues continue their slide, as revenues from the increased number of digital sales failed to make up for falling CD sales.

For 2006, the RIAA reports that manufacturers shipped 553.2 million "retail units." That number includes CDs, music videos, vinyl albums, and singles. That's down 12.8 percent from 2005's 634.8 million figure and is just over half of 2000's 1.08 billion shipments. It is not an unexpected trend—last week we noted a study that predicted a continued free-fall for the music industry at least through 2012.

Digital sales—which include downloads, kiosks, ringtones, subscriptions, and music videos—continue to be a success story for the music industry. The RIAA reported a 27.6 percent increase in digital sales versus 2005, and when mobile sales (e.g., ringtones and direct-to-phone downloads) are taken out of the picture, unit sales jumped 63.2 percent. It's a significant drop from last year's 166.2 percent year-over-year growth, but still something the industry should be pleased with.

Data source: Recording Industry Association of America

The RIAA is pleased with how digital sales are performing. "Today's music marketplace has challenges but it also offers reason for hope and optimism," said RIAA chairman and CEO Mitch Bainwol. "The appetite for music is as strong as ever and a digital marketplace now worth nearly $2 billion has emerged virtually overnight."

Still unclear on the concept

Unfortunately, it appears that the music industry is still having trouble grasping the scope of the challenges it faces. Another quote from Bainwol reflects this: "Our continuing mission is to help level the playing field so retailers and legal services don't have to compete with piracy and to work for parity in a marketplace with increasing convergence between various music distribution and broadcast outlets."

Retailers and legal services will always have to compete with piracy, and no amount of file-sharing litigation is going to change it. File-sharing still goes on, with much of it pushed deeper into the recesses of darknets to evade detection. The music industry will always have to compete with "free," since it remains a viable alternative to millions of music fans, despite the record industry's best efforts to eradicate it.

Some influential figures in the music industry do grasp the necessity of competing with pirates. When he announced that music at the iTunes Store would remain at 99¢, Apple CEO Steve Jobs framed the decision in part by the need to compete with piracy. "If the price goes up, [consumers] will go back to piracy and everybody loses," said Jobs. And he's not the only one who understands it.

The unfortunate fact for the RIAA that Bainwol doesn't seem to grasp is that the game has fundamentally changed forever, and there's no going back to the days of year-over-year revenue growth, at least not for the next five years or so. CD sales are on a downward slope and they're taking the industry's revenues with them.

Is the Surge Backfiring?

Tuesday, Apr. 24, 2007
By Mark Kukis/Baghdad

You never get much sleep at a patrol base at night. In Ramadi, where Marines man several combat outposts amid the inner city, darkness often brings fear as Iraqi security forces come and go, leaving some Marines wondering whether they are among friends or enemies. In Ghazaliya, a violent neighborhood in western Baghdad with similar combat outposts, nearby gunfire cracks through the inky blackness outside seemingly every time you drift off. And in Diyala Province, where nine U.S. soldiers died Monday, troops stand watch on rooftops overlooking stretches of palm groves where they know insurgents dwell, waiting for the right moment to strike.

Increasingly across Iraq, U.S. forces are leaving the comfort and safety of their fortified mega-bases and establishing small combat outposts and patrol bases like the one insurgents struck outside Baquba that left 20 soldiers wounded as well. Some patrol bases are well protected with blast walls and large numbers of troops. Others are little more than abandoned houses that a few platoons circle with Humvees while hunkering down inside. As a reporter frequently embedded with U.S. forces, I've visited many such patrol bases, and the sense of vulnerability at them is all too palpable. The paratroopers tasked with controlling the volatile territory on the outskirts of Baquba knew they would face attacks from insurgents in the area as they stepped up their presence by manning such patrol bases. But they saw little choice, since the ongoing surge strategy calls for U.S. forces to abandon the old notion of return-to-base patrols in favor of living full time in deadly areas.

Word of yesterday's deadly assault in eastern Diyala Province spread quickly among U.S. troops as far away as the western city of Tikrit, where soldiers with the 82nd Airborne kept a close watch on reports of their comrades sent to the Baqubah area to deal with rising violence there. The strike was what U.S. soldiers call a complex attack, one involving elaborate planning to maximize casualties. Initial assessments suggest that first a suicide car bomber rammed a vehicle into the gates of a small U.S. patrol base outside Baquba in the same area where single car bomber attacked a patrol base last month. A second suicide car bomber apparently followed the first in yesterday's attack, however. And at the same time insurgents fired small arms and rocket propelled grenades, according to soldiers from the 82nd Airborne. In the end, the patrol base was all or mostly destroyed, with several soldiers dead beneath the rubble.

At least one other U.S. patrol base remains in the same area of the Diyala River valley as American troops struggle against insurgents who appear to be increasingly bent on turning the territory around Baquba into the most deadly front of the war in Iraq for U.S. forces. It remains to be seen whether the dozens of other combat outposts popping up around Iraq amid the surge will come to face similar attacks aimed at sending U.S. troops back into heavily fortified compounds and, in the hopes of insurgents, ultimately home to the United States in defeat.

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April 27, 2007

Murdoch Is Taking MySpace to China

By DAVID BARBOZA

SHANGHAI, April 26 — Rupert Murdoch’s News Corporation is bringing MySpace.com to China, a latecomer that is betting it can overcome its handicap by competing unconventionally as a start-up.

The News Corporation signed a deal to license the brand for its popular online social networking site and allow local Chinese entrepreneurs who understand their market to pick and choose to build an indigenous business. With this approach, the News Corporation, hopes to succeed where other Western Internet ventures have failed.

The company and two venture capital firms agreed earlier this month to hire a former Microsoft executive to license the MySpace.com brand and technology in China in an attempt to capture some of the business in the world’s fastest-growing Internet market.

MySpace.com is entering China at a time when social-networking and online gaming and entertainment sites are already wildly popular.

“They want to avoid some of the mistakes made by the first and second waves of international Internet companies that came to China,” said William Bao Bean, a partner at Softbank China & India, a venture capital firm. “By putting a local manager in, they give the company a fighting chance. This is a very crowded area with at least 100 companies competing in the same space that MySpace has entered.”

American Internet companies have scrambled to set up operations in China’s booming online marketplace, which already has more than 137 million Internet users, second only to the United States.

But the China operations of Amazon.com, eBay, Yahoo and even Google have all either lost ground or ceded the leading market position that they enjoy abroad to local rivals despite, in some cases, spending hundreds of millions of dollars to acquire established Chinese competitors.

The new company, called MySpace China, will tailor the site to the Chinese market. For instance, while MySpace.com invites newcomers to meet their first friend, Tom, who is a company founder, MySpace China introduces new visitors to a Chinese friend.

Still, it faces stiff competition from China’s home-grown Internet companies, including Baidu, Tencent, Sina and 51.com, as well as dozens of other MySpace.com-like Internet start-ups.

Analysts say that Chinese Internet entrepreneurs like Robin Li of Baidu, Ma Huateng of Tencent and Jack Ma of Alibaba.com, have managed to outmaneuver their Western counterparts, partly because they have a better sense of the needs of Chinese Internet users.

Foreign Internet companies have also struggled to find the right balance between complying with China’s stringent censorship — sometimes having their sites blocked in China — and providing enough interesting content to attract users.

Mr. Murdoch has tried to gain access to the Chinese market for some of his media properties, but has faced difficulties because of tight controls. Now the News Corporation, which acquired MySpace in 2005 for about $580 million, has teamed up with IDG VC, a unit of the Boston-based International Data Group, and China Broadband Capital Partners. In effect, they are financing a Chinese start-up.

Richard Ji, an Internet analyst at Morgan Stanley, said MySpace China might use the News Corporation’s content. “They have a competitive advantage in sports content,” Mr. Ji said. “The Chinese government likes sports content, and so do advertisers here.”

The group, headed by the News Corporation, did not say how much it has committed to investing in MySpace China, but people close to the talks say that the funding is substantial. The strategy and partnership were partly devised with the help of Wendi Deng, Murdoch’s Chinese-born wife, according to people involved in the deal. Ms. Deng is not an officer of the News Corporation, but she has been named to the board of directors of MySpace China, according to people involved in the talks.

According to the deal, the News Corporation, IDG and China Broadband Capital will largely fund the operations of MySpace China. IDG, which is headed in China by Hugo Shong, has more than $800 million under management and has invested in some of China’s biggest Internet start-ups, including Baidu, Tencent, 3721.com and Eachnet.

Luo Chuan, 38, who used to run Microsoft’s MSN portal in China, will be the company’s chief executive. “We want to create a site that allows people to find serious relationships and to share something with new friends,” he said, “to share pain and loneliness.”

U.S. marijuana even stronger than before: report


Wed Apr 25, 2007 1:27 PM ET
By Maggie Fox, Health and Science Editor

WASHINGTON (Reuters) - The marijuana being sold across the United States is stronger than ever, which could explain a growing number of medical emergencies that involve the drug, government drug experts on Wednesday.

Analysis of seized samples of marijuana and hashish showed that more of the cannabis on the market is of the strongest grade, the White House and National Institute for Drug Abuse said.

They cited data from the University of Mississippi's Marijuana Potency Project showing the average levels of THC, the active ingredient in marijuana, in the products rose from 7 percent in 2003 to 8.5 percent in 2006.

The level had risen steadily from 3.5 percent in 1988.

National Institute on Drug Abuse Director Dr. Nora Volkow fears the problem is not being taken seriously because many adults remember the marijuana of their youth as harmless.

"It's really not the same type of marijuana," Volkow said in a telephone interview.

"This could explain why there has been an increase in the number of medical emergencies involving marijuana."

The pharmacy department at Mississippi has compiled data on 59,369 samples of cannabis, 1,225 hashish samples, and 443 hash oil samples confiscated since 1975. "The highest concentration of (THC) found in a cannabis (marijuana) sample is 33.12 percent from Oregon State Police," the report reads.

'THIS IS POT 2.0'

Hashish and hash oil concentrations are far higher, as they consist of processed plant product.

"Researchers and treatment experts have argued for some time that today's more powerful marijuana has more harmful effects on users. This report underscores that we are no longer talking about the drug of the 1960s and 1970s -- this is Pot 2.0," John Walters, director of National Drug Control Policy, said in a statement.

Volkow said demand has driven growers to cultivate the stronger stuff. "It is the market," she said. "Like in the market you favor the best tomatoes. When people buy marijuana, they don't want a weak cigarette."

Volkow's institute has been studying the effects of cannabis, whose active ingredients are very similar to important brain chemicals called endogenous cannabinoids.

"It clearly is addictive," she said.

If children and adolescents use marijuana, it could affect their still-developing brains, she said.

The report said more than 60 percent of teens receiving treatment for drug abuse or dependence report marijuana as their primary drug of abuse.

"Although the overall number of young people using marijuana has declined in recent years, there is still reason for great concern, particularly since roughly 60 percent of first-time marijuana users are under 18 years old," Volkow said.

According to the National Survey on Drug Use and Health 4.1 million Americans, or 1.7 percent of the population, report they use marijuana.

War escalates between paparazzi and Perez Hilton

At issue is the use of a video of the dead Anna Nicole Smith on Hilton's website.

By Rachel Abramowitz
Times Staff Writer

April 25, 2007

The battleground consists of such photographic revues as "Hoochie Mama" (the inner life of Beyoncé Knowles), "Posh Hairy Beast" (Victoria Beckham) and "Britney in Black Hoodie at CVS" (the pop star healing her wounds amid the shampoo and Band-Aids of her local drugstore).

But it has been Anna Nicole Smith's untimely — and highly lucrative — demise that has sparked World War III between a raft of the nation's most ardent paparazzo agencies and the lone blogger known as Perez Hilton, a.k.a. 29-year-old Mario Lavandeira.

That infamous video of the dead Smith being carried out on a stretcher belongs to Splash News and Picture Agency and Splash contributor Ralph Notaro, so Splash President Gary Morgan is angry that Hilton played it on his cheeky gossip site, Perezhilton.com.

"It's unfair to the business people who bought it and paid a lot of money for it — he's using it without paying," says Morgan, who along with rival agencies Bauer-Griffin, Flynet Pictures, Insight News & Features and London Entertainment filed a copyright infringement lawsuit against Hilton demanding more than $7 million in damages for posting celebrity pictures on his website without paying for their use.

The photo agencies warned Hilton in December about using their material, but the blogger, who gets 2.5 million hits a day, has appeared blithe in the face of their threats. His attorney Bryan Freedman contends that Hilton's blog falls under the fair use exception to copyright laws. (Hilton often doodles on the photos, adding, for instance, white trails of "cocaine" dripping from celebrity noses.)

In November, Hilton was sued by another celebrity photo agency, X17 Inc., for using their photographs, and Universal Pictures sued him for posting a topless photograph of Jennifer Aniston that was allegedly taken from outtakes of "The Break-Up." Both suits are pending.

Contacted at his "office" at a Coffee Bean & Tea Leaf on Sunset Boulevard, Hilton said, "I would love to see the lawsuit. I would love to see if I am the only one being sued. Is there something I am doing differently from the thousands of gossip bloggers out there that would mean singling me out? But regardless, I don't think I am doing anything wrong or illegal."