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A music revolution and tank hacking

We talk to the founder of the music world's anti-label, which allows you to choose how much to pay for music, and find out how to stop a tank being hacked.13 Sep 2007

A text transcription follows.

This transcript is for anyone with a hearing impairment or who for any other reason cannot listen to the MP3 audio file.

The following is the text spoken by OUT-LAW journalist Matthew Magee.

Hello and welcome to Out-Law Radio, the weekly podcast that keeps you up to date on all the twists and turns in the world of technology law.

Every week we bring you the latest news and in depth features that help you to make sense of the ever-changing laws that govern technology today.

My name is Matthew Magee, and this week we talk to a man who is revolutionising the music business by letting customers decide how much to pay for song, and we look into a system designed to stop tanks being hacked.

But first, the news:

L’Oreal sues eBay over counterfeits; and
IT Project overrun cost UK £256m.

eBay is being sued across Europe by the world's biggest cosmetics firm for not trying hard enough to battle counterfeiting. L'Oreal is taking the action in five European countries, including the UK.

The cosmetics giant claims that eBay is profiting from the sale of counterfeit goods and is not doing enough to combat fakes. eBay has argued in the past that it always acts in such cases when notified of the sale of counterfeits.

Action has been taken in France, the UK, Germany, Spain and Belgium over cosmetics which are sold under brands such as Lancôme, Giorgio Armani and Ralph Lauren.

The issue of fake goods on sale on eBay is not a new one. Luxury goods group Louis Vuitton  Moet Hennessy and iconic jeweller Tiffany's have both taken action against the online auction site over similar claims.

One third of IT projects run over budget, costing the UK economy £256 million, according to computing giant CA. One IT projects expert has said that the problems could be contained by separating two critical aspects of major projects.

CA has published a survey of 100 IT directors which showed that executives in charge of large projects feel that they do not have sufficient control over them and that they often are not even sure what stage the project has reached. The survey found that a typical company is running 29 projects at any one time.

David Barker, a partner at Pinsent Masons, the law firm behind OUT-LAW, said that companies should consider hiring one firm to create a specification, and another to actually run the programme, to avoid the poor planning, which dogs many large projects.

That was this week's out-law news

No industry has been as radically, gravely and in some cases catastrophically affected by new media technologies as the music business.

Traditional major record labels stuck their heads in the sand, refusing to acknowledge that online delivery could be an exciting new route to market. It took music piracy on a staggering scale to shock them into action, and that action when it came was defensive and reactionary.

Meanwhile wave after wave of technologists built ever more ingenious systems through which people could download and swap music that they had not paid for.

Out of that scrappy mess came the compromise that is iTunes, a music sales system that owes little to the new economic flexibility that internet technology offers.

Fears about copyright violation have crippled the major labels, but dotted around the world are small pockets of inventive resistance to that stifling fear. One such pocket is Magnatune, a small Indie record label which has broken every intellectual property protection rule in the book. The US-based label is thriving and is on the cusp of launching a music-by-subscription service which it hopes will change the way its artists' fans listen to music.
Founder John Buckman explains the thinking behind Magnatune.

Buckman: The idea was simply to try and come up with some sort of business model  that may help sustain interesting music. I had friends who were classical musicians, for example, who were finding it was just pay to play to get records out, so classical musicians have to come up with a fair of money just to put a record out. Then  they give all the rights to a label. I had two ideas: one is a consumer business based on ethics with the slogan “We are not evil”.

Magnatune's entire approach appears to be based on a philosophy of trusting the listener, and encouraging them to listen to and share music. Its most radical move is that it allows you to choose how much you pay for music - a downloaded album has no fixed price.

Buckman: For example when you choose to buy we ask you how much would like to pay for this album, so somewhere between £5 and £18, and we mention that 50% of whatever price you pay will go to the artist. It turns out actually that people are quite generous and on average they pay about £8.40 even though they really do not anything more for paying more other than feeling that they are doing the right thing.

But the reality is today no one actually needs to pay for music at all. If you choose then they hit the buy button at Magnatune that means you are one of the people who has decided to actually pay for music and shouldn’t we reflect that on its behaviour back and say “Well, if you are actually one of the honest people then how much do you want to pay?”

Its methods solve other problems music fans have with major label downloads: there is no intrusive copy control technology, files are full CD-quality, and if you lose your entire collection when your computer blows up, Magnatune will send you a new copy of everything you bought. The company actually requests that you share everything you have bought with three friends, and it gives half of all revenue to the artist.

Buckman is no doe-eyed idealist, though; he describes himself as a born entrepreneur who as a child traded sweeties for profit at school. He founded then sold email list management company Lyris so needs no lessons in how to run a company. He spotted that while consumer sales were all very well, a massive two thirds of record company money comes from licensing music to films, ads, television and shops.

He decided to revolutionise the murky licensing world with a new, transparent, automated online licensing model. Crucially, he says, he wanted to provide an alternative to royalty-free CD’s of poor quality library music.

Buckman: I noticed that licensing was actually where two thirds of the revenue is, companies paying for music rather than music being sold as a CD. That’s really where all the money is. In fact most of the music we consume is paid for by other parties. We are the only company on the planet that was licensing on the web. What that means is you go to a website you pick some music you like you tell them I am going to use so and so when a price comes up and they ask you for a credit card. I mean, that sounds like a no brainer in terms of internet commerce but that is just not how it is done. The way it is done is, lets say you are a filmmaker and you want some music, you would call the attorneys of the record label and you negotiate a price and  your lawyer talks to my lawyer that typically costs at least £20,000 and what people do is they buy these really cheap royalty free CD’s, typically for $99, that have really just lousy music on them. So those are the two polar opposites right now for licensing is either super cheap junk or quite expensive contracts lawyer type approach.

The world of film music licensing is where Magnatune wants to be. Though it has found it an impossible world to break into, Buckman said that he is beginning to field Hollywood’s calls.

Buckman: We are starting to see some mainstream Hollywood interest; that probably means, you know, one every month and that's certainly nice. It's more and more people who are doing eccentric things. What we found though is though the editors and the creative types inside the studios might be very pro Magnatune they are not really the decision makers, it is usually the big boss man and, to an extent that I had under estimated, music licensing is still very much a buddy network where you call that friend that you used work with or who you met at the bar who simply arranges for music that you want.

Magnatune's business is changing, though. The company allows web users to listen for free to all its music online. Buckman said that that service is now outstripping song downloads, and that in the past two years its streaming audience has increased three fold to 45,000 a day, while its sales have halved.

He is now about to launch a set of services to take advantage of changing listening patterns, including a premium service for forty dollars a month for which a user could listen to all the music, download anything they like and have their favourite ten albums posted to them on CD every month.

Buckman: What I am finding actually is in an era now where we are all connected to the internet, a lot. People actually do not really want to download music because you do not have to manage it right you have to download it and make sure that you do not lose it if your computer blows up you have to go re-download it. It seems that what people want is simply access to music.

Buckman says his four person company is solvent and covers its costs, which is impressive in such a difficult market. He said he just wants to provide an alternative for people who love music.

Buckman: So the idea behind Magnatune was simply: if one wants to innovate in the music business it occurred to me the only way to really innovate as a small player was to get my own music, and that was really the first thing, was if I get my own music maybe I will be able to figure out what actually works.

You might think you have problems when your e-mail server is hacked into and you cannot get a vital tender out on time, or send that crucial presentation to the boss. But your troubles are nothing compared to those of a soldier on a battlefield who suddenly realises his tank has been hacked.

It has, apparently, happened. Israeli news sources reported last year that Hezbollah claimed it gained an advantage in fire fights when it hacked Israeli battlefield communications systems, helping them to thwart tank attacks.

Well, one IT security company has identified the military as a major market and is now selling a ruggedised version of its corporate firewall system called Sidewinder, for use in battle. Mike Smart is a product manager with that company, Secure Computing.

Smart: It is basically a ruggedised version of the Sidewinder products. It is an actual unit which the Sidewinder firewall technology runs on if you like. Ruggedised typically is for military or mobile installations and it is designed to withstand impact and be dropped out of planes and parachutes and all sorts of things. So it is really designed for field operations if you like.

You may be surprised to learn that tanks can be hacked at all; it is hard to imagine soldiers logging into their web mail on manoeuvres. But Smart said that modern military systems are as connected as a San Francisco coffee shop.

Smart: There are systems in the tanks now it is now no longer just levers and accelerators, there is a whole host of technology in tanks, computers and various information: GPS, you name it, it is probably are in there. And so, clearly that is all IT related and needs to be protected.

The product does have military roots. Secure computing is a spin out of Honeywell, the long established computing company that, Smart says, was asked by the US military years ago to build an operating system specifically for military use. Years later, that system is still fighting battles, beating off the digital invaders.

That's all we have time for this week, thanks for listening.
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Make sure you tune in next week; for now, goodbye
Out-law radio was produced and presented by Matthew Magee for international law firm Pinsent Masons.