Question: There are those who say that peer-to-peer systems foster the sharing of pirated music.
Answer: The same argument can be used with Mercedes. Mercedes builds these cars that can go 160 miles per hour and greater, and they sell them in the U.S. They advertise them that way. But there is no place in the U.S. where you are allowed to drive that fast. Should Mercedes be responsible for traffic violations when people break the speed limit? The basic question of this entire litigation is: Can the manufacturer of a product be held liable for how their customers use that product?
Q: Is getting music for free a bad thing?
A: For decades, consumers have been getting music for free over the radio, and it has helped fuel record sales, build careers for performers and has helped sell lots and lots of tickets. That's a good thing. If peer-to-peer is today's radio, it could be used to give the same value that artists and copyright holders get for radio now. It's important for artists to get paid and there are all sorts of ways they can be compensated: by users purchasing a digital file, by having a digital download sponsored by an advertiser, or by using peer-to-peer network as a promotional vehicle to start buzz about a specific song.
Q: What do think about iTunes? Is Apple cornering the market?
A: I wish iTunes would open up their format to other portable media players. I think iTunes is serving Apple well in helping sell iPods, but the majority of all the profits are driven by iPod sales, not music sales.
Q: How do you compete with them or with free sites?
A: Today, we make money off of the free Morpheus version through advertising. But we also sell the premium version of Morpheus for $19.95 right there next to our free version. The difference between the two is basically that you don't get advertising with the premium version. And we sell a lot of those so yes, you can compete with free. All the independent research says you can.
Q: StreamCast is now offering a pay option, the Morpheus Wallet. Why did you wait until now?
A: The record companies have tried to block us, even with the wallet partner that we have. We had another company in place a year ago that was forced to retreat from our deal because they were basically threatened. Record companies said, "if you do a deal with Morpheus, you're never gong to do a deal with us."
Q: What's going on with the Supreme Court ruling?
A: The Supreme Court sent the case back to the lower court to start from the beginning to see if there was "inducement" to see if this company tried to induce or encourage its users to break the law. We just filed our motions on Oct. 3, and we'll have our first judgment on Nov. 7.
Q: What would be the worst-case scenario for your company?
A: The worst case is if the plaintiffs come in and say, "the Supreme Court clearly thinks this is wrong, we shouldn't have to go through with this trial." If the judge decides we shouldn't have our day in court, he could shut us down. But whoever loses I guarantee will be appealing to the 9th Circuit Court of Appeals, and whoever loses that one I guarantee you will appeal back up to the Supreme Court.
Q: So this could go on for months?
A: Absolutely. It could take years.
Q: How did you get into this messy business?
A: I was always involved in the movies and entertainment space. My background is in video I opened the third video store in the world back in 1978 in Chicago. We were selling videos for $80 or $90, and we had customers coming in and asking just to rent the movie for the night, saying "we want to see this movie, but we don't really want to buy it can't you just rent it to us?" It started happening to other retailers, and the movie industry tried to fight it. We fought them and we won.
Q: What do video rentals have to do with music downloading and peer-to-peer networks?
A: The entertainment industry has always tried to stop new technology. And when they can't stop it they try to control it they go to Congress to change laws, for example. Then, they try to co-opt the technology and they'll make more money then they ever have before.
Q: So where does Morpheus come in?
A: We still believe you can turn downloaders into consumers. Every piece of independent research that comes up says the same thing. In March, Forbes came out with a story that said 70 percent of the people who buy music on digital music stores do so because they first hear the music on a peer-to-peer network. So I'm saying we need to give those users the option to make that purchase. If you don't give them the option at all, what are they going to do? They're going to take.
Q: Do you really think Morpheus customers will start paying for things?
A: You will still have public peer-to-peer, we can't stop that. But on top of it, we will have the premium service to pay for things. The question is if you have free and if you have paid, will anybody pay? And the answer is yes, yes, yes. If I were a content provider, I'd go back into my history of the home video business. When the studios finally got behind the home video rentals, the industry skyrocketed.
Q: If the Supreme Court hadn't ruled against peer to peer, do you think you'd be offering a paid version?
A: Absolutely. We'd be up by now with users paying for content. Before the Supreme Court decided to take the lawsuit, we were talking to three of the major record labels and I think we would have had one or two of those deals. But when the Supreme Court took the case, everything went dead because nobody wanted to tarnish the potential outcome of the case by proving this could work. I still say to the industry: We are not the enemy.
Q: Where do you see music and movie sales in five years?
A: We're seeing the rise of peer-to-peer networks, of media developed by ordinary people podcasts, blogging. All of this is giving more and more choices to users. We want to give more choices we're trying to be the Google of peer-to-peer. That's where the growth is. Five years from now, peer-to-peer will be four or five times what it is today. Hopefully by then the entertainment industry will co-opt it.
Q: And if the major record labels keep fighting you?
A: The independent music industry is 28 percent of the worldwide market in terms of sales. All the independents are embracing peer-to-peer. Even if the majors don't come on board, I think there will be a robust future.
Q: Who is your main competition?
A: Our competition is not iTunes. Our competition is MySpace. That's where we're going. We're going to put a MySpace-type program in an application, call it Morpheus, and distribute it and it's going to be much more efficient because our technology is better.
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