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The Radiohead Effect
by Jason McCabe Calacanis
Editor, Silicon Alley Reporter

In the past month, the debate over the MP3 file format boiled over, changing the music industry forever. The revolutionary rap group Public Enemy got into a heated battle with PolyGram records when Chuck D, the group's outspoken leader, decided to release their next album in its entirety on the band's website www.public-enemy.com. But PolyGram fought back, and Public Enemy was forced to pull the tracks from the site.

During my brunch with GeoCities founder Dave Bohnett in L.A. a few
weeks ago, Bohnett showed me his portable, $200 MP3 player from
Diamond MultiMedia. The device weighs 2.4 ounces, has no moving parts, holds an hour's worth of music, doesn't skip, and runs on one AA battery for 12 hours. It hooks up to your PC via a parallel port. Bohnett is really excited about the technology and is thinking about all kinds of interesting ways of incorporating it into his community website. When I got back to New York, he sent me one of his extra Rios to use until my back-ordered ones arrive.

For the past week, I've been running around town with my MP3 player. This is the device I've been waiting for. I can go running with it because it doesn't skip. It sounds like a CD, and it only requires one AA battery. Plus, I can drag and drop songs from my desktop onto my Rio player and load it up with new songs every day.

In the interest of investigative journalism, I've been surfing the Web to see how many MP3 files I can find. I've been able to download about 400 tracks that are taking up 1.5 megs of my eight-gigabyte hard drive. I paid for none of them. Those tracks are probably worth $1,000, especially considering I'm downloading the best tracks instead of whole albums.

What MP3 has done for me more than anything is spark my interest in
music again. Why? First, because I can sample songs from my desktop
24 hours a day. If I don't like the songs, I delete them. If I like them, I research the artist further. I call this the Radiohead effect because since finding a bunch of Radiohead tracks on the Net, I've become a huge fan of their music. I've been talking them up to all of my friends. Nothing would please me more than e-mailing a few of their songs to Dave Bohnett and saying, "Hey, check this band out! Let me know if you like them." However, right now that would be illegal. I would also love to burn a CD for my brother on our $300 CD burner that we use for the magazine. The
blank disks are only $1.50. Of course, I would never do that. ;-)

So, what does this mean for Radiohead? What if I didn't pay for their album, but sent it to 10 of my friends? Do you think they would prefer 10 new fans or the $2 from me buying their CD? I can tell you this, the next time Radiohead is in New York, I plan on buying tickets to their show, and I would definitely buy a Radiohead T-shirt. If they were on HBO, I would tune in.

Would I pay for Radiohead's next album? Not unless I could get it for less than $5. I am the music industry's worst nightmare. And I'm not the only one. The millions of kids on AOL right now who live and breathe the Net are starting to think music is supposed to be free.

This week, music industry executives and the Recording Industry Association of America (RIAA) announced the creation of the Secure
Digital Music Initiative (SDMI), a "framework to work with the technology community to create a voluntary digital music security specification by next fall." NEXT FALL?!?!? Hello? This should have happened two years ago! Sorry major record labels-it's too little, too late. The genie is out of the bottle. Your own artists are sick of you, and many of the Net-savvy ones like Public Enemy see MP3 as the road to emancipation.

Everyone is talking about the various technologies like Liquid Audio that provide secure transmission of music over the Net. These things have been around for a long time, but they will only work if the music industry changes its pricing model.

Can piracy be stopped on the Net? Not a chance. Piracy on the Web is a never-ending battle, just ask Paramount's legal department about StarTrek sites. I think the music industry will be able to do a good job of stopping MP3 websites. But there is no way it will be able to stop millions of people from doing point-to-point copies. While e-mailing images and text is popular already, MP3 files are all the rage now.

I'm thrilled that technology is going to decimate the music industry. These guys have been selling $15 to $17 CDs for 10 years when it costs only $1 to produce them. With the reduction in packaging and the factories paid for 100 times over, the industry should have reduced the cost a long time ago. I can tell you right now that I will never again pay $15 for an album. I'm not saying I'm going to steal music, but the music industry has painted consumers into a corner by limiting choice and keeping prices artificially high. Unless the price of CDs drops to less than $10 apiece, the industry is going to crash and burn big time. The music industry, because of its greed, has lost me as a revenue source forever. But the artists have found a brand new fan.

Instead of buying a 200-disc CD player for my loft, I'm going to turn all my CDs into MP3 files and leave them on a PC stereo. Why? Because setting up a traditional stereo costs as much as buying a sub-$1,000 PC with a 10-gig hard drive. I'll be able to create my own play lists so I can have a Frank Sinatra section, a Bob Dylan section, a pop section, and a classical section. After I load all of those songs into my machine, I can give the old CDs away. Would that be illegal? Do you think most consumers will care if it is? I could even borrow a bunch of disks from my friends at the office,
load them into my PC, and give them back the next day. Of course, that would be illegal, too.

I'm not the only one with grand MP3 visions--meet Ryan Veety of
Middletown, New York (www.ryanspc.com/carmp3/). Ryan is building,
for around $750 in parts, a Lynx-based MP3 player for his car that will hold 2.5 gigs of music. At five megs a song, that's around 500 songs. There is no reason he couldn't spend another $150 for a 10-gig drive and house 2,000 songs.

Looking at my Diamond Rio player, Palm III and Sony cell phone, I can't help but imagine a world where all three are merged. There is no reason why a Palm Pilot can't play and store MP3 files. I would be very surprised if the next version didn't come with MP3 support and a headphone jack.

During my travels on the Net, I was able to download a bunch of Beastie Boys tracks. Not only was someone giving these tracks away for free, but they had remixed them. If the music industry is not ready for users to download music, how does it feel about them changing their intellectual property and republishing it?

In five years, many established artists will have little or no need for a record label. That is what the technology revolution does, it takes out the middleman. Will the record labels exist in 10 years? Sure, but they are going to have to do a lot of soul searching to figure out what their value is in a world where they don't own, and can't control, the distribution.

Artists hate their record labels, record labels are scared, and consumers have a cheaper and better option. Sounds like a revolution to me.

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