RealNetworks learned the hard way that folks who listen to music online really do care when companies stealthily collect personal information. So why would a music company dare to snoop on your listening habits? Because your personal data is very, very valuable.
After a privacy advocate revealed that the RealJukebox software could track the music files that people listen to without their consent, the company promised a software patch. But mailing lists and message boards continue to blaze with posts from ticked-off users pledging to delete Real software from their hard drives.
The biggest problem most had was that RealNetworks didn't tell its users it was collecting the information about what music they listen to. "It [the stealthy collection of personal data] makes me nervous," said Monty Schmidt, president of Sonic Foundry, which also makes a digital music software player. "I don't know of anybody else who's doing this right now, but again, how do you know? That's the scary thing here."
"It goes without saying that you respect users' privacy and clearly inform them, and give them the option to disable any information gathering that invades their privacy," said Robert Lord, spokesman for Nullsoft, which makes the Winamp player software. He said Nullsoft collects data from the one-time user registration, which is optional.
Increasingly, users in the United States have to assume they will give up some personal data online, said Joel Reidenberg, law professor at Fordham University and co-author of Data Privacy Law. Reidenberg said that although a company may not have any plans to sell users' profiles, they could later be acquired by larger entities with different policies.
Fred Davis is CEO of Lumeria, a company that aims to give consumers control over their personal information assets and the means to profit from their sale. He said that consumer marketers are currently paying between 10 cents and US$2.50 for profiles of consumers, often based on their zip code and buying habits.
"There's a $500 billion, almost growing to a $1 trillion, direct sales market, and these people digest $75 billion worth of customer information every year," Davis said. "So, there is $1,000 to $3,000 per person being spent to reach you through direct marketing and telemarketing. That's a lot of assets."
Davis speculates that RealNetworks may have been getting ready to sell their customer information to someone like BMG Music Club, and not informing its customers ahead of time was no accident.
"Here's a major Web player with tens of millions of customers and makes a big hoopla with a very detailed privacy policy ... which means zip," he said.
RealNetworks was "absolutely not" going to sell the data it collected, said Jay Wampold, spokesman for the company. He said it was only using the data in a cumulative way, to track things like the fact that 20 million people have recorded CDs with the software.
"Everyone who comes in [to the online music business] has data as a service in mind," said Mark Hardie, music analyst at Forrester Research. They come in and say, 'We'll sell data.' It's naive to think they're not going to."
Hardie added he doesn't think the music industry will necessarily be as aggressive about data collection as other Internet business categories since consumer confidence is key to music sales.
Some sites are even willing to pay cash upfront for the right to track Web surfers' movements.
"Everyone's trying to hide the music [and] get as much information [about the user] as possible." said Jack Moffitt, technologist at Green Witch Radio, a streaming technology company. Green Witch tracks people through Web server logs, where there is an IP address for every file that the user looked at. But he said the company would never sell that information.
Moffitt pointed out that music site Riffage has a program called "sell your friend for a song," where people are paid $2 time they sign up a friend to the site's service. "It's obviously worth at least two dollars to Riffage," he said.
"As long as the issue [of what and how data is being collected] is out in the open, very few people will have issues with it," said David Weekly, audio consultant. Weekly pointed out that marketing company "AllAdvantage believes knowing where your clicking is worth 50 cents an hour."
"I've heard that very rich user records are going for $40 a pop," said Dennis Mudd, CEO of MusicMatch, which makes competing player software.
The latest version of MusicMatch gives users the option to upload their core "listening history, which tracks the artist's name, title track, the number of times it is played, and the genre," in exchange for customized music recommendations.
"This is voluntary," said Mudd. "They can uncheck the option if they want to." In exchange for their data, the user gets five recommended tracks per day, which helps them wade through the mass of music content.
Mudd said the company will never share people's personal data with others, but it does report the general demographics of customers gleaned from surveys they fill out.
Perhaps the most important determining factor of personal data's price tag is just how individual companies use what they collect, said Forrester's Hardie. "It's pretty hard to make recommendations on what people have listened to in the past, since everyone views their tastes as eclectic."
"For us, the one-to-one relationship with the consumer is what's valuable," said Marc Schiller, CEO of Electric Artists, which does online marketing for bands like Lenny Kravitz and Alanis Morrissette.
"Data for data sake is valuable ... [but] you can have too much data. Data can lead you in the wrong direction," said Schiller. "The key to marketing music ... is very clearly building that one-to-one relationship."
Instead of recommendations or mass emailing consumers with music offers, Schiller's company tries to find the most fanatical of fans indirectly by offering an email like joesmith@bandx.com -- something only the most hardcore of fans would pay for.
Then, they market things like T-shirts and nail polish with their favorite band's name on it to those core fans. Whereas a core fan may normally spend about $61 a year on an album and a concert ticket, said Schiller, they could potentially spend "$900 over the year because [such] fans buy everything you put in front of them."
