It pays to break the rules

Mark Cuban’s question in a post below asks us to imagine if my old company – aka Loudeye (which encoded lots of a-list music and video) decided to throw all the content it had online.  That would have been one hell of a site from a user’s perspective – movies, music videos, cd’s (in fact at one point every single music CD sold online), and more.  The only problem is that it would have been illegal. 

That trip down memory lane started by Mark’s comment, did get me thinking.  First there was Napster.  Then and now arguably YouTube.  All skirting the rules or maybe downright illegal.  But this isn’t meant to be another rant on the legalities of YouTube as I will leave that to Mark, et al (and for those that don’t know Mark knows what he’s taking about with regards to the DMCA since he was active in the trade group – DIMA – that negotiated the law). 

My point is how those legal risk takers were rewarded.  Napster got a lot of funding from Hummer Winblad and a buyout from BMG (what were they thinking). was bought by Vivendi Universal making its founder a multi-millionaire.  Kazaa made a fortune for its developers and future owners Sharman Networks.  And we all know about YouTube’s $1.6 billion dollar buy out from Google.  That’s a lot of money for potentially illegal business activity.  Who says you can’t profit from illegal activity ;-)

And what happened to the companies that tried to follow the rules?  Dave Pakman’s with a legal version of hit a wall (Dave did go on to run the now successful eMusic site).  Loudeye struggled to get commercial music licenses for two years ultimately missing the boat on consumer music apps when iTunes came onto the scene.  Not to mention the gutter of history filled with online video companies who struggled to license content like AtomFilms (think how big that would have been with a nod and wink to copyright).

I am not arguing whether the current laws and rules are fair – I often think they are a major pain in the ass.  Just because you don’t like them does it mean you can ignore them as some VCs seem to want to imply - just ask Cablevision Systems (seriously given the the ruling I don’t know how they thought they were going to prevail without direct licenses).  But if you were an enterprising person – breaking the rules might be just the thing to make a lot of money. 

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