By now, most of us have grown pretty used to hearing the word “theft” used to describe what happens when someone downloads a movie or a song that isn’t theirs, and certainly media and entertainment lobby groups make heavy use of such terms — as do people like News Corp. founder Rupert Murdoch when talking about what Google News does with his newspaper content. But as Rutgers law professor Stuart Green describes in a New York Times opinion piece, this terminology is fundamentally flawed, since copyright infringement is a very different thing from theft of physical property.

Why does this matter? Because seeing it as theft makes it easier to accept ridiculous court decisions and/or unreasonable government legislation that vastly over-reaches what copyright is supposed to cover.

Green notes that the Justice Department is busy prosecuting a massive legal case against MegaUpload, the file-hosting and sharing site run by the colorful German hacker Kim Dotcom. But while the documents filed by the FBI and others for the indictment included enormous estimates of the amount of digital property allegedly “stolen” by the company — just as the record industry has in cases against Napster and other sites — it isn’t clear that MegaUpload has done anything different from what YouTube and others do. And whatever other things the company might be guilty of, theft isn’t among them.

Intellectual property is unlike any other kind of property

As with the Napster and Grokster and other similar cases, the argument made by the movie and music and software industries is that all of the files that are shared on such sites represent a theft of their property — their “intellectual property,” to use another term that is filled with contradictions and actually muddies the debate even further. Obviously, all of the people who downloaded movies and software from MegaUpload did so instead of buying a physical copy, and therefore it represents theft — just like walking into a movie store and taking a DVD. Except that it doesn’t represent anything of the kind, as Green notes:

If Cyber Bob illegally downloads Digital Joe’s song from the Internet, it’s crucial to recognize that, in most cases, Joe hasn’t lost anything. Yes, one might try to argue that people who use intellectual property without paying for it steal the money they would have owed had they bought it lawfully.

But there are two basic problems with this contention. First, we ordinarily can’t know whether the downloader would have paid the purchase price had he not misappropriated the property. Second, the argument assumes the conclusion that is being argued for — that it is theft.

As Green and others too numerous to mention have pointed out, downloading or copying something doesn’t represent the loss of anything tangible at all, which is what makes “intellectual property” such a misnomer. If I take your car or your coat, you no longer have them — that represents real theft. And even the argument that the content industries fall back on, which is that downloading or copying represents the loss of a potential sale, doesn’t hold water. As Tim O’Reilly of O’Reilly Media has noted, many of those who copy his books likely would never have paid money for them in the first place.

This is about more than just legal terminology or semantics

But this is all just semantics, right? Not really. For one thing, seeing it as theft makes it easier to steamroll right over issues like “fair use,” which is an incredibly important principle and one that is unique to copyright law (there are distinctions around public use of land in property law, but that’s a topic for another day). In a nutshell, the principle of fair use allows both individuals and corporations to take copyright content and use it in various ways without being guilty of infringement — it’s like a get-out-of-jail-free card, and it was included in copyright law to make creative use of content legally defensible.

One of the problems with fair use, however, is that it is incredibly complicated and filled with grey areas: as I described in a recent GigaOM Pro report on Pinterest (sub. req.) it is a four-factor test in which judges try to assess the original intention of the work, the nature of the infringing use, the amount of the original that is used, and the effect on the market for the original. In some cases the courts have decided that Google should be allowed to use images in search, because thumbnails are seen as a “transformative use.” Exceptions are also often made for journalistic or educational purposes.

But seeing any form of copying or unauthorized use as theft makes it virtually impossible to justify any of these actions, and makes it easier to see them as a crime.

And so we have the Authors’ Guild fighting for years to prevent Google from copying books so that they can be easily found, because the group argues that the simple act of copying them — even if only small portions of those books ever see the light of day — amounts to theft. And YouTube gets a takedown notice when a user’s video happens to have a song playing faintly on a radio in the background while her son dances. And laws like SOPA and PIPA and too many others to mention are drafted to prevent the widespread “theft” that is allegedly stealing billions from intellectual property holders.

And all the while, content industries deliberately ignore the fact that the intended purpose of copyright law is to promote innovation and creativity, not to smother it. Are there real issues around how creators get compensated for their work, and how we can accomplish that most effectively in an era of unlimited copying? Sure there are. But using terms like “theft” and “piracy” doesn’t get us any closer to solving those very real issues in any meaningful sense — it pushes us further away.

Post and thumbnail images courtesy of Flickr users David Goehring and Seth Anderson

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Pinterest reawakens Napster-style debate over copyright
• SOPA, OPEN and the fight for the Internet
• Q4 Wrap-up: SOPA and the future of digital content

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Social media in Q1: commerce and discovery dominated
• Controversy, courtrooms and the cloud in Q1
• Connected world: the consumer technology revolution

iLike launched as a standalone service in 2006, initially focusing on a combination of a web service and an iTunes sidebar. In early 2007, it debuted as one of the first music apps on Facebook, and soon attracted millions of new users per month. What made iLike so successful? The service not only offered free streaming, but also tracked users’ listening habits and served up social recommendations. The service also attracted bands and labels, who used it to create buzz for new releases.

At one point, it had 10 million monthly active users on Facebook alone, generating some 1.5 billion page views. The company got $17 million in funding, including a $13 million investment by Ticketmaster, and briefly seemed like the next big thing in online music.

However, iLike struggled not only with licenses for its music, but also with its reliance on Facebook as a platform as well as its overall business model: Turns out, serving up free, ad-supported music is really, really hard, and concert ticket referral fees never really made a big difference either. iLike eventually sold to Myspace for a reported $20 million in 2009, and has since been living alongside the more popular Myspace Music service, slowly withering to obscurity.

Of course, iLike isn’t alone with this fate: Imeem, which offered a very similar service, was also absorbed and eventually shuttered by Myspace. Napster’s assets were sold to Rhapsody last fall, and the service eventually shut down in December. And Apple shuttered Lala’s streaming service after it bought the company in late 2009 to power its cloud platform.

All of this should be a warning to music services like Rdio and MOG, which currently are trying to grow their user base with free music. Insiders have long predicted that even Spotify, arguably the biggest of this new crop of streaming services, can’t be profitable with the licenses offered by the labels. And if there’s any lesson to be learned from iLike, it’s that a large user base alone isn’t enough to succeed.

Image courtesy of Flickr user Hitchster.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Connected world: the consumer technology revolution
• Defining the next era of social music
• Rankings: Spotify Leads the Streaming Music Scene

The report was commissioned by the Computer & Communications Industry Association, which counts companies like Google and Facebook as its members. It’s definitely worth a read (check out the full PDF) and will likely provoke discussion, especially in light of the entertainment industry’s ongoing push for tougher copyright laws. For a CliffsNotes-like version, check out the following infographic:

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Controversy, courtrooms and the cloud in Q1
• Pinterest reawakens Napster-style debate over copyright
• When video gets democratized, who wins and who loses?

The Incumbent

On the eve of the big Midem music conference in Cannes, Rhapsody today says it is moving in to Europe by acquiring Napster International, the division service the UK and Germany. That is the latest piece of the jigsaw after the company in October announced Napster’s U.S. acquisition from Best Buy.

The company pioneered the unlimited music space in 2001 but, despite turning around customer decline following its spin-out from RealNetworks (NSDQ: RNWK) and Viacom (NYSE: VIA), its subscriber base has been overtaken four-year-old Spotify.

Last disclosed user counts were 750,000 versus 2.5 million. Napster brings an estimated 350,000 extra customers to Rhapsody. The combined figure of over a million, which Rhapsody itself disclosed on Thursday, is still shy of Spotify, but moving in to the big new territory of Europe – just as, vice versa, Spotify has embraced Rhapsody’s U.S. patch – could grow Rhapsody’s customer base further.

In Europe for the first time, Rhapsody will migrate Napster subscribers to its own platform in March, introducing its own web player, but the Napster brand and employees will remain in place in the UK and Germany.

What’s Happening

Rdio, Mog, Spotify, Rhapsody, We7 and all manner of others are jostling for early dominance in a promising new paid content sector that has been ignited by mobile and by music labels seeking new growth after the slowdown of track sales.

Global music subscribers grew by 65 percent to 13.4 million in 2011, according to labels’ IFPI umbrella. But that is peanuts compared to what the sector could become as consumers switch from ownership to access. The opportunity is to create an iTunes beater.

Labels’ support has opened a window of opportunity for new entrants to race to own this new area. Here are the latest…

The Massive Failure: News Corp

Beyond Oblivion, a fatally-named, New York-based unlimited music service invested in by News Corp and Allen & Co’s Stanley Shuman, has filed for bankruptcy, owing between $100 million and $500 million despite having not yet launched.

The company owes Sony (NYSE: SNE) Music Entertainment and Warner Music Group (NYSE: WMG) $50 million each, Reuters reports. News Corp.’s digital chief Jon Miller is a board director.

Reasons for the collapse are not clear. News Corp had invested just $9.2 million for a 23 percent stake in April 2010.

The Fringe Player: Aspiro

Norway-based Aspiro, which provides its music service WiMP through ISP and white label partners mostly in Spotify’s backyard of Scandinavia, on Thursday announced its latest ISP partner, the Netherlands’ Ziggo. The deal guarantees Aspiro at least nine million Swedish krona ($1.3 million) over two years.

Aspiro is now active in Sweden, Norway, Denmark, Portugal and the Netherlands but wants to expand in to new territories and is in the process of rolling out to Ireland and Germany.

The Radio Player: Pure Music

DAB and internet radio maker Pure on Thursday unveiled its own unlimited-access cloud music service, Pure Music, for £4.99 a month in the UK. Naturally, the service is available on some of Pure’s own radios, but also on web and on smartphones, where music subscription services are getting the majority of their paid custom.

Pure has the device capability to make an impact in music on radio, but customers may already be more excited about unlimited music on new-wave “radio” devices like Sonos and through AirPlay than conventional “radio”, even internet radio, per se.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Connected world: the consumer technology revolution
• Forecast: the future of the digital music industry
• Updated: 4 reasons Pandora could win the fight for digital music

Rhapsody previously bought Napster’s U.S. business and subsequently laid off pretty much everyone, but its plans for Europe are looking a little different. All employees will keep their job, according to a press release, and they won’t even have to get new business cards: The service will continue to be called Napster in both countries, but subscribers will be migrated to Rhapsody’s infrastructure (and presumably will have to download the company’s client) in March. The pricing of the service will stay the same in both countries as well.

The question is: Will the Napster brand help Rhapsody to take on Spotify, which has been dominating the music subscription business in Europe? Spotify is already the biggest subscription service in the U.K., where Napster is currently holding the number two spot. Spotify hasn’t launched in Germany yet, even though there are rumors such a launch is imminent. Napster is believed to have a 70-percent market share in that country and is competing with smaller players like the Cologne-based streaming service Simfy.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Forecast: the future of the digital music industry
• Connected world: the consumer technology revolution
• Rankings: Spotify Leads the Streaming Music Scene

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Connected world: the consumer technology revolution
• Monetizing music in the post-scarcity age
• Who and what to watch in the new era of the living room

The rise shows that if Spotify is the music service that is getting all the attention at the moment, bringing lots of awareness of the streaming music model, it is also the case that its rising tide is also lifting other boats.

Rhapsody says that it is delivering on average more than 10 million tracks daily — meaning that it has a fairly high level of engagement from its paying users, with some 10 tracks listened to every day.

Rhapsody gives users the ability to stream unlimited amounts of music from its catalog of 13 million tracks for a flat fee of $9.99 per month. Unlike competitors like Spotify, it has not elected to run with a freemium model, although it does offer a free 14-day trial.

On the occasion of the million-subscriber milestone, I had a chat with Jon Irwin, Rhapsody’s president, about what the company has planned next:

On partnerships: Rhapsody claims to be available on more devices — more than 60 — than any other music service; but so far the company has yet to sign a deal with a device maker to preload and have a special prime place on the device. That’s a key area for music companies to explore, since many OEMs do not have their own music services but still are keen to compete against the likes of Apple (NSDQ: AAPL) with combined device and content offerings. Irwin says that the company is currently speaking with device makers and may have something to announce “in 2012″.

Pursuing mobile users looks like a safe bet for the company: the number of subscribers already using the service via mobile is 40 percent, pointing to a clear audience looking for those kinds of services and willing to pay for them. The company already has partnerships with others in the mobile ecosystem: a deal with MetroPCS, for example, bundles the service together with the carrier’s prepaid data and unlimited text plans, as a way of encouraging users to take their higher-tier services. Verizon also bundles Rhapsody on to its LTE devices.

On Napster: At the end of November, Rhapsody completed the U.S. part of its acquisition of music streaming company Napster from Best Buy. Irwin says the next step will be to complete the acquisition of Napster’s European business and use it as a lever to finally move into international markets. Napster in particular has a strong position in Germany as well as the UK. It is unclear whether Rhapsody will rebrand Napster or whether the two products will initially co-exist together.

On competition/consolidation: Irwin is clear to try to point out how his service differs from the many others on offer, from Spotify and Rdio to Mog and most recently Rara. But ultimately these services are more alike than they are different, and consolidation is inevitable, he says.

“Our business is to take content that other people own, artists and composers, and distribute it on a patform to fans. We might do that directly or via a partner, but we take a very thin piece of that. The cost for labels and artists is the majority of what we receive,” he says. “We have to be efficient and at scale… It’s either go big or go home.”

On funding. Since breaking from Real Networks in April 2010, Irwin says Rhapsody has not had to raise any money from VCs to operate: one of the advantages of having a paid-only model is that the company has an incoming revenue stream every month and it operates its company accordingly. In contrast, he points out that those competitors that have raised more VC funds and are running through that cash quickly in the race to build up scale will have to at some point be able to show some kinds of returns. “The cost of giving way free music to try to get those free subscribers to toconvert starts to get expensive,” he said.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Connected world: the consumer technology revolution
• Forecast: the future of the digital music industry
• Updated: 4 reasons Pandora could win the fight for digital music

Positioning it as the “next big step” for music, Spotify is opening up its platform to include apps from other companies, which will provide music reviews and news from the likes of Pitchfork and Rolling Stone, as well as internet radio from Last.fm.

Rolling Stone founder and publisher Jann Wenner went onstage next to herald the pop culture magazine’s integration into Spotify. Essentially, Rolling Stone’s app within Spotify will help provide recommendations as well as playlists.

(Rolling Stone and Pitchfork already have set up playlists, but it’s nothing more than what users can currently do themselves. Still, it was not immediately clear how this official Rolling Stone app would be more robust than what it currently offers.)

Earlier, Ek noted all the requests for features that Spotify gets, such as “DJ mode” for playing songs, lyrics to what’s being listened to, and accessing concert tickets and related info. Those features will now be supplied by app partners Last.fm, Tunewiki and Songkick, respectively.

One of the most polarizing things about Spotify’s integration with Facebook is the automatic sharing of what’s being listened to at a given moment. Users will now be able to segment out their “real” friends, whose musical tastes correspond more closely.

All the apps will be available to users of the basic, free Spotify version as well the paid subscribers.

So what’s the value to app developers and partners who appear on Spotify? Right now, it’s the promotional aspect of being able to reach Spotify’s 10 million active users.

“These are early days and we’re still trying to figure this out,” Ek said.

“Right now, there is no monetization model for the apps on Spotify’s platform [in terms of revenue sharing]. However, they can attract users, who want to buy concert tickets, as in the case of Songkick.”

Original post: After 20 minutes of serving truffled quail eggs, mini bagels with smoked salmon and other assorted amuse bouches, Ek took the stage at Spotify’s much-hyped New York press conference with a history of the CD in 1981. “Do you know what artist had the first CD? It was Abba, which like me, is from Sweden.”

He then went through Napster and iTunes. “Only 500 million are listening online. You need a better product than piracy. Fast and easy to share. it’s all about access. That’s why the CD is so ubiquitous: it works everywhere. Secondly, we want to ensure that artists get paid and continue to make great music.”

“We’re adding 20,000 new tracks a day and currently have 15 million songs — literally a lifetime worth of music,” Ek said. “We’ve become the second biggest revenue source for European record labels and have paid $150 million so far. Sweden was the land of music piracy. 33 percent of the Swedish population listens to Spotify — since that time, piracy has declined 25 percent.”

Since launching in the U.S. this fall, the company has 10 million active users, with 2.5 million paying subscribers. There have been 7 million users added since September, when it began linking up with Facebook as an app on the social network.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Connected world: the consumer technology revolution
• GigaOM Euro 20: the European startups to watch
• How social discovery is transforming entertainment

According to a report in music magazine The Wire, STHoldings — a British distributor that specializes in electronic music — said that almost every one of the 238 small labels it works with would be pulling out of several streaming agreements. And although the headlines have focused on Spotify, the reality is that the move also includes Rdio, Napster and the German service Simfy.

STH and its partners aren’t the first to make this move: in fact there’s been a steady stream of independent labels deciding to quit Spotify and the rest this year, something outlined deftly by Robert Andrews over at PaidContent:UK. In fact, just yesterday a heavy metal label called Sumerian made the same move.

So what’s their problem? Put simply, they aren’t getting paid enough.

Essentially, it’s the disparity between consumption and compensation: people are doing a lot of listening on Spotify, but labels and artists don’t see a great deal of cash. That’s particularly true for indie outfits, because the majors — Sony, BMG and Universal — own a chunk of Spotify. And it’s made worse by the fact that Spotify doesn’t pay labels directly, but through rights agencies — with whom it has made a secret deal. In the end, it means that indie labels feel they’re getting the raw end of the deal.

ST’s owner, Andrew Parkinson, told Music Week that the income from streaming was “negligible” and unsustainable.

“Despite these services offering promotion to many millions of music listeners we have concerns that these services cannibalise the revenues of more traditional digital services. These concerns are confirmed in our own accounts and a recent study by NPD Group and NARM.”

And there’s the rub: the study he refers to, out this week and reported by Digital Music News, suggested that on-demand access (such as streaming) was replacing purchasing for many music fans. That is important, because it makes the argument about streaming much more complex: until now, the argument in favor of streaming had broadly been that on-demand services fill the same sort of function as radio: a discovery system that leads to purchasing.

But the NPD and NARM numbers suggest that, for many people at least, the opposite is true — having music streamed on demand made them less likely to purchase. That’s what many have worried about for a long time, and it seems now they are starting to act.

And in addition to the study data, there’s the simple fact that a software startup has come out of nowhere to become a financial entity that dwarfs most of those it relies on for content. That idea — that streaming platforms are making a shedload of money off artists and giving almost nothing back — was thrown into particular relief by the $4 billion sale of EMI this week. Months earlier Spotify had raised $100 million $1 billion valuation.

The boycott is a sour note for Spotify, which yesterday was trumpeting its rollout in three new countries, Australia Austria, Belgium and Switzerland. But although the actions of these tiny labels aren’t going make big waves with consumers, the pebbles keep falling into the pond — and it looks like the antipathy between independents and streaming services won’t be dying off any time soon.

Update: NARM, the National Association of Recording Merchandisers and the sponsor of the survey, has now put out a statement pointing out that Spotify was not specifically named in its report — in fact, the survey was done at the same time as Spotify’s launch (so it would hardly make an impact on people’s behavior). According to NARM chief Jim Donio:

“[Digital Music News'] Paul Resnikoff’s citing of Spotify in this story is incorrect; no specific access services were named in the NARM/NPD report, and in fact Spotify had only just launched in the U.S. when this survey was conducted. There are many different types of music access models, and licensed services such as Spotify, which do pay royalties for the music on their services, are an increasingly important part of the mix of digital retail options for consumers.”

That will please Spotify (which is happily circulating the statement) but it doesn’t really change the broader situation: STHoldings says it made its decision based on the NARM study, and Spotify isn’t the only service affected.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Connected world: the consumer technology revolution
• Rankings: Spotify Leads the Streaming Music Scene
• Forecast: the future of the digital music industry