Napster Proposal is a win/win situation for labels

Upon hearing the offer from Napster to pay the record labels 1 billion (yep, with a B) dollars over the next five years, I began to wonder if the RIAA would look at this as a strategy to put public pressure on the labels, or if they would see the opportunity to make a claim in the digital market.

Most of the comments surrounding this recent announcement point to the fact that Napster is going to have a hard time making their $200 million a year settlement agreement, as they would have to get a fair number of it's users to subscribe to the service. Even Chief Executive Hank Barry says that they will go out of business if they can't raise the $200 million in promised payments.

Note to RIAA: This is what you wanted all along; some way to turn digital downloads into profit while shutting down Napster. If Napster does indeed make its $200 million/year, then you get $150/year without doing a thing. Go ahead and argue that you're losing album sales, but I'll guarantee that most use Napster to find songs from an album that they wouldn't laydown $15 for, or are downloading rare and unreleased material. The RIAA has failed miserably at their own individual attempts to rake in some digital dough, here is a service that already has millions of users that weren't using the labels method.

A deal with Napster will also save the record labels millions in distribution costs. The record companies fear the loss of control over distribution, but the flip side is that they offload distribution costs to ISP's and Napster users.

One can't help but be reminded of the battle between the music industry and the VCR. Jack Valenti, president of the Motion Picture Association, cried out that the VCR would be the demise of the movie industry, and nearly two decades later video sales account for the majority of the industries profits. New revenue models aren't the devil here, especially when the old revenue model is still in place.

The music industry might see it this way: they already make approx. $40 billion in revenue every year, is $150 million worth signing a deal with the devil? Seeing as more and more decentralized P2P networks are being developed, the RIAA better jump on the train or they'll be left behind.

One other curious thing I noted this week at the O'Reilly P2P conference: there wasn't a single representative for the record labels in attendance that I could see. This shows me one more sign that the labels don't quite grasp the potential of digital distribution.