Boinc becomes latest digital roadkill

05 January 2012

by Eamonn Forde

Next-generation digital music service Boinc (formerly known as Beyond Oblivion) appeared to have everything stitched up – funding worth over $87 million [A$84.1m] and a model that could have turned the entire industry on its head. Yet it all collapsed in spectacular fashion before it even got into beta testing. So what went wrong?

Its model was to use a cloud-based micro-payment system through a license that comes pre-installed on connected devices (mobiles, tablets and certain MP3 players). This was going to be used to pay rights owners a per-play micro-royalty and last for the life of the device. It could also be applied retrospectively to existing devices either via an app or through a deal with mobile operators. The company also claimed this model could also monetise the grey and pirate markets, tracking down rightsholders for bootlegged tracks users might have and feeding them into its micro-royalty payment system.

Yet this might have been its biggest problem – it was hugely complex on a licensing level and even more confusing on a consumer level, trying to break into an Apple-inspired market that is increasingly tilting towards the simple and intuitive.

Speaking to Boinc founder and chief executive Adam Kidron in March, he said of the fact most digital music was pirated, “We have to transcend a broken model that relies on a few suckers dumb enough to pay for music to subsidise the consumption of those that don’t.”

Explaining how it all worked, he said, “I came up with the idea that all of [a user’s] plays would be folded into a licence and the licence would be attached to the device. This would be made as invisible as possible to the consumer so when the consumer buys the device, they buy the right to access this enormous library that we store in the cloud. [Our] solution is to make music free to download and own and to build the cost into usage.”

We’ve been here before, of course, with services promising the earth and then finding that the economic and licensing realities stopped them dead in their tracks. In 2008, Qtrax dominated the headlines at Midem when it announced it was going to launch with 25m licensed tracks (iTunes at the time had fewer than 12m tracks). Very quickly the labels and publishers denied any such deals were in place. The company went to ground, reappearing sporadically and making grand claims but a full launch never happened.

LimeWire also pledged a brave new service even as it was facing down multiple lawsuits in the US in 2010 and 2011 – as it planned to move from an illegal service to a fully licensed one. Again, nothing ever went public and the company pulled the project as its settlement fees last year went through the roof.

In the UK, ISP Virgin Media had promised for several years an unlimited MP3 download service. Despite securing a deal with Universal Music, it never materialised and Virgin instead signed a deal with Spotify in October 2011 to bundle its service into certain broadband and mobile packages.

The nearest equivalent to Boinc was Nokia’s Ovi Music Unlimited, which was tied to particular handsets (Boinc believed being device-agnostic was the way into the mainstream and where Nokia went wrong). But last year the company closed its offering in all but six (mainly developing) markets.

When I asked Kidron about Nokia’s failure here, he was bullish. “It’s important not to be intimidated by other people’s mistakes and look to what was brilliant about what they did,” he said. “[Nokia] said there was an intrinsic value to music but weren’t sure what it was. Their huge problem was that they ghettoised Comes With Music [latterly Ovi Music Unlimited]. It was only available on Nokia phones but at that stage Nokia handsets were not aspirational devices; people were aspiring to get iPhones. They were on a class of devices that was not desired. The devices they were bundling it with were at least a life cycle behind everything else.”

In a statement on Boinc’s closure, Kidron laid the blame at the doors of the record labels and publishers. "[Boinc] was always a tremendously grand ambition as the advances required by the record labels and music publishers were substantial,” he said, “reflecting the breadth of the rights required to create a true digital music one-stop.”

The sad fact is that Boinc is just the latest in a long line of services that either failed to get off the ground or, when they did, immediately hit the wall. With Napster struggling to last the distance and being acquired by Rhapsody last October, there are serious question marks hanging over the viability of the digital music sector beyond just one or two services.

Several VC companies, including Index Ventures, will not invest in any music service that requires rights clearance from labels and publishers. Meanwhile, one of the companies it invested in early, SoundCloud, has just raised an estimated $50 million [A$48.3m] in new funding from Kleiner Perkins among others. This is where the VC money is going – not download and streaming services.

While the industry is rightly concerned about the iTunes monopoly in digital, the nature of the market makes it almost impossible for any rival services to break through on the same scale. While Spotify might have 2.5 million subscribers, it is still burning through start-up capital (and had to give labels an equity stake to get off the ground) and it will be years, if at all, until it breaks even.

All this – and the spectacular crash and burn of Boinc – could further drive investors and entrepreneurs away from digital music as the numbers seem impossible to make add up properly. A situation like that helps no one. It merely reinforces the dominance of the few and erects new and higher barriers for the services of tomorrow. New services are the lifeblood of the digital content industry and without them the market risks becoming atrophied and growth stunted. For a forward-looking business, this is a dangerously backward situation.