The Illusory Promise of P2P Licensing

In Glenn Peoples' business analysis on Billboard.biz today, he notes the paltry revenues generated by Limewire in spite of their lack of significant operating or licensing costs.

"One number makes clear a P2P service would have a hard time turning into a legitimate company while retaining its millions of users: $20 million. That's LimeWire's latest annual income. Think about that – the company that had the largest P2P application share in the U.S. could get only $20 million from its users ($34.95 per year for the Pro version) and advertisers. That's as much revenue as a $10 per month subscription service brings in annually from just 167,000 subscribers. Such low revenue flies in the face of arguments that labels should simply license P2P (this argument goes all the way back to Napster). Labels collect more money from iTunes in a single week than LimeWire made in an entire year. On revenue of $20 million, labels would get next to nothing from the most successful P2P application."

As he notes, this undermines the commonly held assumption that the record labels' fatal mistake was in refusing to license their content with Napster when they had the chance in 2001. If the labels had done so, the thinking goes, they could have altered the trajectory of online music, simultaneously reaping significant profits and adapting to make Freeloading work for their bottom line. Perhaps, as this post implies, the majors correctly realized there wasn't enough of a potential upside to make p2p licensing worth the risk. As with other "free" models and streaming services,so far the money just isn't there to sustain labels and musicians.

How can we expect a legal subscription or p2p site to gain the number of paying users needed to adequately scale the business in the age of Freeloading? Why would consumers choose to pay for a site that operates an awful lot like an illegal p2p and barely compensates artists, when they can opt for getting anything they want for free simply by entering a torrent search? This is an example of how Freeloading cripples the ability of labels, artists and businesses to find sustainable digital models for the industry, crowding out potential growth like some invasive digital species.