TORONTO – In less than two years, Musicrypt’s DMDS has become the de facto standard in the radio business when it comes to music distribution.
There just isn’t anything else out there as good as the Canadian company’s patented Digital Media Distribution System. Mailed or couriered CDs are joining relics of the past like 8-track tape as most Canadian radio stations have adopted Musicrypt’s free system. The freight is paid by the record labels themselves – all of whom have signed on to the ultra-secure, biometrically-protected system.
It’s fast, flexible and secure and is now in use by every large radio station group in Canada. It’s delivered over 1,100 songs to 450,00-plus destinations. The company recently began rolling the technology out south of the border and has already been endorsed by Clear Channel and XM Satellite Radio.
But, what’s next for Musicrypt? Global domination? Video? Maybe, vice-president marketing and sales Peter Diemer (right) told www.cartt.ca in an interview last week. The company became a public company in March of 2003 (it trades on the TSX Venture exchange and is lightly traded, with a share price of $0.33 as of yesterday) and Diemer says “we believe we’re the leading, secure B2B delivery system for the music industry.”
What follows is an edited transcript between www.cartt.ca editor and publisher Greg O’Brien and Diemer.
Greg O’Brien: How and why was Musicrypt created?
Peter Diemer: It was developed because, number one, the record labels were looking for a more secure way of locking down their properties, their content, their music in a pre-release environment and then also finding a cheaper, more effective and cost-efficient way of delivering music to all of their broadcast partners.
It really is a two-fold story, one that starts with internal distribution and then external distribution. When we built the system, we built it with a couple of things in mind. Security is number one – and the one thing we have is biometric password protection. We’re the only company that does that.
GOB: How does that work?
PD: To do biometric security, usually you require hardware, say a thumbprint reader or retina scanner or a voice system, that sort of thing.
GOB: Yours is more of a keyboard rhythm thing though, right?
PD: Yes. What we have is a patented keyboard stroke recognition system. The first time a user registers on DMDS, they create their own user ID, their own password and the biometric password protection takes an average keystroke dynamic from users – it recognizes the rhythm, the speed, the cadence of your own typing pattern. Everybody does, in fact, have their own unique typing pattern.
Once you’re into the system if you’re ever downloading or uploading, all of our files are encrypted – it’s a virtual matrix encryption – a very secure module that’s never been broken.
The final part of it is that every single file is watermarked to the end user… rather than putting DRM (digital rights management) or a restriction telling people you can’t do this or that. Radio people, we’ve found, want to be able to move a file, say, to their on-air server, they might want to burn a copy to give it to a remote person doing a club mix or a PD wants to take it into their car or they want to move it to their iPod. They can move it unrestricted but ultimately we put accountability back on them because they have a watermark back onto their own personal name.
GOB: So if a song ever gets out there when it shouldn’t in the P2Pm world, it’s traceable back to the culprit.
PD: Absolutely. We find that accountability is probably better than restrictions. And, it is a business to business environment, so there is a trusted relationship that everybody has.
Finally, putting all those three key components together – because we’re a web-based system, we can now do this on a portable basis. We’re building it on open standards with a few of our key pieces involved, but ultimately, you can do this from any computer in the world.
GOB: Have you grown mostly in the Canadian industry?
PD: We have all of the major labels in Canada on board: EMI, Sony/BMG, Universal and Warner Brothers. We also have a number of independent deals. We basically have all of the radio stations on board. We have 100% of the Chart-monitored stations using the system and it is the de facto standard for delivering new music now to broadcasters in Canada.
Also, a lot of the labels use us for internal delivery in a pre-release mode. We partnered in December with Billboard Radio Monitor down in the States and our rollout began with them about three months ago in America. We are heavily involved in distributing material right now – but are in the early stages. We have a full endorsement from Clear Channel (the largest North American broadcaster with over 1,200 radio stations) and from XM.
GOB: So they’re fully using your system?
PD: Absolutely. We are at this point working with labels. It took about 18 months to do the full transition in Canada. It’s the ultimate Catch-22 in that the record labels would love to see all the radio stations registered and the radio stations would like to see all the record labels on the system.
So, this is what we’re going through – exactly what we went through in Canada.
GOB: In terms of competition, what do you face in the States. Sony has their own distribution system and there’s another company in Florida isn’t there?
PD: Promo-Only is our only competitor in that market but ironically we went head-to-head with them in Canada and the industry chose us. We went through the testing phase at the exact same time as Promo-Only and ultimately, the industry made a clear choice to the point where Rogers Broadcasting in Canada was the first one to endorse us exclusively, followed closely behind by Standard and then Corus – and then by that point, everybody else was already using the system anyway.
GOB: Besides the security aspect, what sort of costs does this drive from the system?
PD: For the broadcaster, it’s absolutely free to them and basically what we’re doing is replacing the physical hard copy that the record label has to manufacture – and there’s quite a process they have to go through to do that. Not only is it just the raw cost of manufacturing, you have to create artwork for the disks, you have to have manpower to bicycle all of those materials around and ultimately, you then have to have a distribution model as well (snail mail or courier) and FedEx can be $20 to $25 overnight for one package (and think about how many radio stations there are), so the savings just on the hard costs can be tremendous.
If you work with a record company – and I was at EMI for a dozen years – we had people whose jobs were only to take the material in from the manufacturing plant, break the boxes open and then re-package it, label it and send them back out.
GOB: Beyond the U.S. market, where do you envision Musicrypt growing next?
PD: We’re already testing in many of the markets of the European Union. We’ve done extensive testing in the UK already and we are looking at other international markets as we speak.
GOB: What about moving beyond the B2B realm and into the consumer market?
PD: The original premise of the company was built on being B2C (business to consumer) in 1999. They were going to go public in the fall of 2001, prior to when I was involved, and the stock market crashed – 9/11 shut that all down. But, that was also at the time when Napster and Kazaa were coming out, so the thought of doing a digital distribution company then, fighting against those peer-to-peer sites – it was the wrong time to do it.
So, the company was re-tooled in 2002 and made into a B2B company.
One of the other things that we will be doing – and we’re doing some testing already – is delivering more than just music. Because it’s a digital file, we can deliver just about anything securely – so delivering commercials will be our next application and we’ve already begun that process. National advertisers do send out their commercials already electronically, but the way they may be doing it may be just an mp3 file, or it may be a server-based system – it’s not a desktop solution the way ours is.
As far as the B2C stuff, there is an opportunity for that moving forward but the focus right now is strictly B2B.
GOB: Now, since these files are all just ones and zeroes, what about moving into video distribution with the TV side of the broadcast industry?
PD: We could easily do that. It’s just a much bigger file. The inherent problem is when compared to a music file – an uncompressed linear music file might be 30 or 40 MB and compressed – as we deliver it, maybe seven or eight MB. However, when you get into video, what you’re really delivering then is a file that is 250, 300, 400, 500 MB.
That comes down to: Will the broadcaster want to receive such a file and will they have the bandwidth available on their end to receive that?
GOB: They’re not exactly approaching a tape-free environment yet.
PD: No. They’re not replacing that physical asset yet whereas in music delivery that physical asset, we’ve proven it here. With Sony/BMG in Canada, all of their staff are on portable Dell Jukeboxes and they circulate all of their material around internally using DMDS without sending a hard copy – and then they send it to radio. They are coming very close to eliminating that hard copy in the business-to-business environment.
