Having done this blogging thing for over a year now I'd like to think I've gotten better at it.  When I first started I hadn't written an essay (which are what blog posts essentially are) since college.  So the going was a little rough.

And while I still have a ways to go in restoring my writing skills I think the average post on this blog is better now than it was a few months back.

That said, occasionally, I just blow it.  Such was the case with my last post.  But the point is so important I'm going to take another shot at it. 

The Theory

There is a group of people who think it's mathematically proven that music should be free.  They base this on the economic principle that says the price of goods will fall as the cost to produce them goes down. 

This group extrapolates that theory to digital music and claims it proves music should be free.  Since you can make an infinite number of digital copies and it costs nothing.  So they believe that music should be free since the cost to create digital files is $0. 

The Problem With That Theory

1.  You can't make an Infinite Number of Copies: When trying to prove things using math you have to play by the rules of mathematics.  One of those rules is that "infinite" is defined as "a number so large there is no limit to it".  Since there is a limit to how many digital copies of a song you can create (eventually you'd run out of hard drive space) you can't say that an infinite number of copies could be made.

The counter argument to that would be the cost of making digital copies is still $0 so the price should be zero even if you can't make an infinite number of copies.  But that ignores...

2.  Production Costs: The people who use this theory as justification like to disregard the cost of producing a song.  But the truth is it costs a lot to make every song (artist, producer, technician, etc...) so every digital copy you make takes on a part of that cost to produce it. 

3.  Processing Power: Making digital copies does cost money in processor power, hard drive space, Bandwidth, etc...  Put a popular song on Amazon's S3 service and make it downloadable for free and you'll see just how expensive making digital copies can be. 

4.  No one said cost and price fall equally: No economic theory says that price falls in exact proportion to cost.   Again, drug companies can make a bottle of pills for $.10 and then charge $80 for it.  So why can't a digital copy that costs $.00000001 be sold for $.99?

Conclusion

So in the end this theory has no basis in fact.  Every part of the equation they are using is flawed and even the equation itself doesn't work in the way they claim it does. 

And that...was my original point (hopefully much clearer now)

Hopefully some of these people will see this post (and not the last one) and come to their senses.

The LA Times has an article which questions Apple’s decision to give labels the ability to set a price that is higher than $.99 per song on iTunes(popular songs would be $1.29).  They quote a few music outliers who seem to think customers are going to be enraged by having to pay $.29 more per song. 

In a world of $4 lattes it all seems kind of silly.

But it provided a starting point for bringing up this old argument…

Oddly, the LA Times article claims that the new pricing scheme is "true to supply-and-demand economics," but, as Gizmodo notes, that's not true at all. The supply is infinite. So if it were true to supply-and-demand economics, the price would be free. The actual price is based on an artificially limited supply and a made up demand.

So the theory is when you have an infinite supply of something the price of that something falls to $0 and they claim there's no cost to digital music which means there is an infinite supply which means it should cost nothing.  This is based on the real economic theory that postulates the price of goods tends to go down when the cost to produce those goods goes down.

Now I've discussed this before but it’s been a while and I’ve never really gone after this theory directly so I thought I’d make a post.  I have to apologize in advance though because, honestly, a lot of this is going to be kind of ridiculous. 

I admit it.  I don’t know how to avoid it.  The whole thing is backwards.  They claim market theory dictates how the market must act when in reality market theory simply tries to document how the market will act. 

So even if the theory they are using was correct, which it isn’t, it still would not guarantee how the market will act.

That said, there is one silliness I won’t spend time on and that’s how infinity is a special case in math.   Yes, if they were truly dealing with the ability to make an infinite number of copies that would require a discussion on infinity in math.  But they aren’t.  Truth is they’re just wrong when they say “infinite number of copies”.  You can’t make an infinite number of copies.  You can certainly make a large amount but eventually all the hard drives in all the world will fill up.  The space is not infinite. 

So in a mathematical sense they aren’t dealing with “infinity”.

That said, let’s look at two points.

First, for this theory to work you have to completely disregard any money spent in the creation of the music.  They are claiming this abstract equation only applies to the cost in reproducing each song but that’s not reality.  In reality the money spent up front is passed down through each copy of a song.  No matter how many copies of a song you make it still inherits a percentage of the initial creation cost (no matter how tiny a percentage that is).

Second no matter how small a cost it is there is a cost to making each copy of a file.  In processor time, bandwidth, storage space, etc…  In fact, a whole industry (Cloud Computing) has sprung up to charge for this particular resource.  So even if we take the other flawed points on faith we still end up with a theory that doesn’t make sense. 

Now again, the numbers here are small and truthfully music probably should be cheaper than it is.  But the cost is there and that fact makes their theory completely flawed.

Beyond that there is no mathematical theory that even claims to define what markup a business uses.  Drug companies can make a bottle of pills for a dime and then go on to sell it for $80.  You see this everywhere.  So really the low cost of each digital copy has virtually no bearing.

The only economic theory that applies here is that competition tends to drive down prices when the cost behind those prices is low.  But the music industry doesn’t suffer from that because artists are signed exclusively which eliminates competition

(and again that is something that should be dealt with but it’s also a topic for another time)

So when you lay out the facts you realize this “economic theory” is simply a very weak justification for file sharing. 

Mary Jo Foley has some interesting, and somewhat sad news about Microsoft’s Azure Platform…

Will Microsoft allow enterprises to do on-premise hosting based on its cloud computing Azure platform? The latest — and perhaps final — answer is no.

Since Microsoft first rolled out its Azure cloud platform last fall, I’ve seen conflicting reports about whether or not the Redmondians will provide business users with some way to do private/on-premise cloud computing via Azure (i.e., host the Azure operating system and/or Azure services themselves in their own datacenters, instead of in Microsoft’s Quincy, Wash., and/or San Antonio, Texas, ones).

I really think this is something people should pay more attention to.  What the above basically means is a company writing an application on Azure will have to stay with Azure (and it’s monthly fee) indefinitely.  Either that or face rewriting a large chunk of their application.

This isn’t the case for services like Amazon’s EC2 which imitate actual servers. An application written on EC2 can be moved to a local server almost seamlessly. 

The point is an important one because the larger you get the less sense Cloud Computing in general makes.  Many companies and/or startups are going to eventually get to the point where it makes more financial sense to house their own servers and have their own full time staff to maintain them. 

At that point Azure falls flat. 

Probably more important though is the fact that companies that will never grow that large don’t know it.  Everyone plans to one day be big enough to have their own datacenters.  I mean, who goes into a startup thinking it’s not going to be the next big thing?  No one that I’ve ever met.  Meaning Azure’s inability to run anywhere but on Microsoft’s servers will disqualify it for a lot of projects.

As I’ve said before on this blog I like Azure.  The idea that the cloud can deal with all the scaling issues for you is a very compelling one.  But Azure just seems to have a few fatal flaws that will prevent it from being a true success in the market place. 

Today is a good day for me.  First, I think a point I’ve been trying to make for months has been proven quite nicely.  Second, I can tell almost the whole story in quotes (less work for me is always good).  So off we go.

Remember this post by Robert Scoble…

Interesting to have been in that room, though, talking about tech policy with one of Barack’s advisers. He told me that Obama is going to make tech (both the policy of, and understanding of) one of the key differentiating points between Obama and McCain. To me that mattered more than who was raising money for the candidates, even as that story swirled all around us.

I linked to it at the time and explained why I thought it was a bad thing…

That being said, and with as little intended offense as is humanly possible, the above quote is profoundly ignorant of what I think are the realities of the world we live in.  Government involvement is not a good thing.  Ever.  Sometimes it's a necessary thing and that is why Governments exist in the first place but its  never preferable. 

Why is that?

Because Government exists to restrict freedoms.  That's their job.  If you get drunk and then hop in your car you are a danger to others around you so Government makes laws to prevent it.  They restrict your freedom to drive based on your intoxication level because of how dangerous your intoxication makes you to others.  But they are restricting your freedom because that is what Government does. 

So the question becomes whether there's something so dangerous on the Internet that it requires the restriction of people's freedoms.

Because there is a danger in Government intervention itself and that is Government's inevitable need to over restrict.  The FCC started as a service that simply assigned frequencies to people so they wouldn't interfere with each other's broadcasts.  But its now grown into an agency that concerns itself with everything said and done on any of those airwaves and which actually doles out punishment for saying things that the Government doesn't approve of. 

If you remember nothing else from this post remember this: Once Government turns its attention to something it will continually place more restrictions on that thing.

Now some might ask me to prove the above statement.  For that, I give you Australia…

Logging into a Bogota internet café last year as I was backpacking around South America, I nearly choked. Australia’s new government had slightly tweaked their election commitment: they no longer wanted to help parents filter the Internet to prevent their children from stumbling on child porn (children don’t watch child porn, and lets not forget the fact that child pornographers have a sophisticated offline network that bypasses technology), but now the government was going to mandate a “clean” feed on everybody. Mandatory censorship on the Internet is not a future I want. It made my blood boil.

It was to be a filtration regime, that the government would censor whatever they thought was deemed censorable. An unaccountable, shady regime using the high moral ground of claiming to look after children, but in subsequent examinations, has proven to be just the start. A recent leak has shown that there has been considerable scope creep. Pornography, gambling, abortion websites - all the good stuff in life that make conservative Christian’s pray for a flood and famine to clean society up - would be part of this black list, despite being perfectly legal for adults. The question isn’t why is the government banning porn and the like; it’s where will the line be drawn and who determines that? We are seeing a moral crusade, cloaking a very real civil rights issue.

Now this is where a lot of people will jump up and say President Obama would NEVER do something like this.  But see, that’s the point.  Maybe he would and maybe he wouldn’t but he’s only going to hold the job for a short period of time (4 to 8 years).  Then someone else will come, and someone else after that, and so on. 

So the question isn’t whether the current President would put up a filter.  It’s “now that we’ve given the Government this power will any President after him ever try to put up a filter?”. 

Given Australia’s current Prime minister is a leftist, and George W. Bush (who is firmly on the right) was asked to consider a similar Internet filter by his Evangelical supporters there’s support for this on both sides.

Which means you can almost guarantee we’ll eventually see something like this in the U.S.’s future.

Nielsen reports today that Twitter is growing very fast. 

Twitter.com continues to grow in popularity and importance in both the consumer and corporate worlds. No longer just a platform for friends to stay connected in real time, it has evolved into an important component of brand marketing. Unique visitors to Twitter increased 1,382 percent year-over-year, from 475,000 unique visitors in February 2008 to 7 million in February 2009, making it the fastest growing site in the Member Communities category for the month.  Zimbio and Facebook followed, growing 240 percent and 228 percent,

Now Twitter is growing and that’s great for them.  I have no problem with it.  But to those who use it as proof that Twitter is now “mainstream” I’d ask them one question: Why do you think Twitter is growing?

Twitter, up until a few months back, had been a tool of the geeky-elite.  Basically your TechCrunch reading crowd.  But as it happens there’s another group of people who read TechCrunch and that’s marketers.  As news of Twitter traveled through that community it eventually landed on the doorstep of the “Image Consultant”

Now the Image Consultant is an interesting beast.  They basically make their money by trying to prove they’re hip and cool to people who are actually hip and cool so those people will pay them to give advice on how to stay hip and cool.  Because those actual hip and cool people fear one thing more than anything else and that’s the day they stop being hip and cool. 

So they pay Image Consultants to help them jump on the bandwagon of every fad in existence.

Which is where Twitter comes in.  Image consultants are now telling their clients that Twitter is “the hot thing to do".  So you have Shaq, Lindsey, et al. tweeting away on Twitter now.

This draws in the TMZ crowd who love raw celebrity gossip and that is where Twitter’s growth is coming from.  Now that’s great for Twitter, don’t get me wrong, but it doesn’t mean they’ve become mainstream.  It simply means they’re playing to a slightly larger audience now.

So basically what I’m saying is when this…

Equals more than this…

Plus this…

I’ll begin to consider the notion that Twitter is going mainstream.  Right now I think it’s just latched on to a slightly larger niche.

The New York Times has an article about Government agencies feeling the pressure to be "hip and social" with all this wacky Web 2.0 technology.  The article itself provides some really great quotes.

Like this one...

“We have a Facebook page,” said one official of the Department of Homeland Security. “But we don’t allow people to look at Facebook in the office. So we have to go home to use it. I find this bizarre.”

There are many other procedures at government agencies that aren’t just tradition, they are the law.

For example, the mostly harmless feature of Facebook that allows users to specify their religious and political views, may run afoul of the Privacy Act. That law prevents the government from using the site because a provision in the Privacy Act bans it from keeping records related to how people exercise their first amendment rights.

and this one...

Speaking of the First Amendment, one person asked, does the government have the right to remove offensive comments on a blog or social network page? And if it does, must it keep copies of the deleted material under the Federal Records Act and provide them to people making Freedom of Information Act Requests? Yes, it can remove comments that violate posted policies about decency and so on, and yes, it must keep them for a specified time, other participants said.

and finally this one...

Peter Swire, a former government privacy official who now teaches law at Ohio State University, raised another question: anti-corruption law prevents federal officials from receiving gifts of goods and services. Does that prevent an agency from using software or services available free on the Web?

That alone is worth the blog post.  But I do have a point and it's this:  The "Web 2.0" mentality being referred to here is all about transparency.  But you need to ask yourself: Why do we want transparency?

In the real world we want transparency because it allows us to have an impact on things that matter to us.  If Scott Guthrie has a blog with comments I can tell him what I don't like about ASP.NET and maybe he'll get his people to fix it.  That's what is great about transparency.

But Government isn't the real world.

Government is a place where no one in the actual organization is setting the rules for or making the decisions about the organization.  Government decisions are made by policy makers a.k.a. your representatives.  Meaning these Government organizations can have all the transparency in the world and it won't do anyone a bit of good.

In my opinion, you really only need two things from your Government to have the ideal.

1.  You need an easy way to get feedback to and hear from your representative.  I think Senators who tweet are great (though I'd prefer they blog so we could get some actual worthwhile thoughts out of them).

2.  You need to see what policies are being set and what money is being spent.  I think making government agencies syndicate how they spend money is a great idea.

Beyond that though, there's no real point.  Maybe someone at the CIA or Military can find an interesting way to recruit from Facebook, and that's great.  But those will be individual cases and I don't need or want to be informed of them.

Bottom Line: as a citizen I'm happy to let the black box of Government stay closed as long as I know exactly what goes in and what comes out of it. 

Addendum: One last point.  Even if you do get transparency in these types of agencies you won't really have it.  Because there are so many rules of conduct that people are afraid to say anything honest for fear they'll violate code #xj19702 (or whatever).  So they'll parse their words until their intended blog post becomes the "government speak" filled press releases we get now.

I have a pet peeve.  I hate people who make graphs with no numbers behind them.  Graphs such as this...

So I walked into Hutch Carpenter's article entitled "Microblogging will Marginalize Corporate Email"' with a bias.  Even so, I think his point is...well...silly.  Here's why...

Software in all it's forms represents a solution to a problem.  Even games are a solution to lack of entertainment.  All software solves a problem.

So when you talk about one type of software replacing another type of software you have to ask yourself "What problem did the software being replaced solve?"  To answer that I made up a quick list of the "types of e-mail" I've gotten/sent in the past week.  They are...

Stupid/Funny Jokes/Pics: These simply don't fit in 140 characters. (see 140 character disclaimer below)

Move Around Files: This might work with Microblogging but usually these files are accompanied by a "this is what I changed" message that wouldn't fit in 140 characters.  The obvious addendum here is that there are better technologies to do this with. 

CYA: I hate to admit it but these are the types of e-mails I send the most.  Basically this is the e-mail where you very specifically spell out something so if the person receiving the e-mail later claims they weren't told about it you can point back to that e-mail and say "yes you were!".   Because of the needed specificity of these of e-mails they have to be longer than 140 characters. 

Announcements: These are the only one's that would probably be better served by microblogging but that's in my opinion.  Most people like to dress their announcements up.  Back grounds, clip art, etc...  Every one of the announcements I got in the last week had some form of "style" applied to it.

Interpersonal Communication: This could be solved by private messages in a microblogging form.  But the question is "Why?"  Everyone already has e-mail and it can take as many characters as you want.

*** 140 Character Disclaimer: Some microblogging providers offer solutions with unlimited characters but if you use that you aren't MICROblogging anymore ***

So as you can see Microblogging provides a solution that wouldn't handle any of the e-mail I've received in the last week.  Which begs the question: What are the advantages of Microblogging then?

Mr. Hutch's article lists these advantages for Yammer (one microblogging provider)...

• Behind the firewall installation
• Public notes
• @replies
• DMs
• Groups
• Private groups
• File attachments
• Favorites (a form of bookmarking)
• Tagging
• Conversation threading
• Unlimited character length (i.e. not limited to 140 characters)
• Search

Now in the above list, what is there that E-Mail can't do?  Because people will still need e-mail to communicate with other companies.  So in suggesting corporate microblogging you are (a) asking IT departments to implement and run a whole new server while (b) asking users to monitor yet another inbox (of sorts).  If you're asking all that you better have a significant advantage to offer.

Call me crazy but I just don't see that in the above list.

I've never made a secret of my love for the so-called "bitch-meme."  To me they are discussions about the philosophical side of tech-life and that's something I'm not ashamed to admit interest in.  Today's revolves around Conflicts of Interest and has led Michael Arrington of TechCrunch to do this...

one change I’m going to make at TechCrunch is to get rid of all of our investment conflicts. I’ve long been an angel investor and have continued to make a very few investments even after starting TechCrunch. These investments are always disclosed and in my opinion we do more than enough to maintain transparency there. But it’s also a weak point that competitors and disgruntled entrepreneurs use to attack our credibility. So over the next few months I’m going to divest myself of all of those investments in an orderly fashion, and I’ll update readers on the progress. I’ll also discontinue making any further investments.

Now, we all hear the term "Conflict of Interest" and have a basic understanding of what it means.  But I think it will help to have an actual definition.

A Conflict Of Interest is when your own interests interfere with the interests of whomever you are providing a service to.

In this case Michael Arrington is trying to avoid making Investments because it would interfere with the news he provides to his readers.

But the problem with that solution is it doesn't work.  He still has conflicts of interest.  He still uses software right?  That's a far bigger conflict of interest than who he invests in.  What software he personally uses colors his views on a daily basis.  How can he objectively review other software having spent years getting used to the software he chooses to use?

Clearly the solution is for him to give up using a computer all together.  It's the only way. 

But now let's talk about this typewriter (which is what he's using to write his articles on now that he's stopped using the computer).  What color is it?  If it's gray than clearly he can't review any software with color in its interface because it would undoubtedly look more attractive in comparison to a gray typewriter.

So really he'll just have to live his un-TechCrunch-related life blind folded.  It's the only way. 

I trust you've all gotten my point (probably a couple paragraphs ago).  We all have conflicts and any conflict is going to color our judgment.  That in turn (going back to our definition above) means we all have built in conflicts of interest because we use our judgment in everything we do and that includes things we do for other people. 

So a person shouldn't identify conflicts of interest with the goal of eliminating them. 

Instead people should focus on knowing what they are.  Because when we're made aware of them we can (a) advise others who might be influenced by us and (b) try our hardest to fight against them.

THAT'S the real point here. 

It isn't about not having conflicts of interest it's about fighting against them.  Michael Arrington can stop investing in companies if he wishes but he can't stop himself from wanting to invest in them and that's the same conflict. 

Actually, and I didn't realize this when I started the post, it's really made his audience worse off.  Because before he'd always disclosed the companies he invested in but no one discloses which companies they wish they could invest in.

Which just reinforces my point that it's better to know your conflicts and actively fight against them than it is to try to avoid conflicts altogether (which is impossible).

Addendum: One point I forgot to make: Some will cite “the appearance of a conflict” which is what the TechCrunch article really focuses on. To that I’d say this:

Anyone who is accusing you of a conflict of interest after you’ve made full disclosures is just trying to attack you. Accordingly they’ll undoubtedly make the accusation whether you try to eliminate your conflicts or not. So it’s pointless.

But I’m willing to put my judgment to the test. I’ve put a reminder in my Outlook calendar and if no one in the next 6 months accuses Michael Arrington of having conflicts of interest I will print out a copy of this blog entry and eat it. That’s my vow to you.

Informa Media Group predicts that Android phones will outstrip iPhone sales by 2012.  Here’s the quote…

According to a new report by the Informa Media Group Sony's PS3 will outsell Xbox 2 by roughly three to one. Informa Media Group believes Sony will sell more than 32 million PS3s in Europe by 2010, while Microsoft's Xbox 2 will trail with 10 million sales and Nintendo will be left behind both companies with just five million sales of the 'Cube's successor.

Oh wait, I’m sorry.  That’s a quote from 2003 where they predicted the PS3 would sell 3 times more than the Xbox 360 and that Nintendo would trail behind both of them.  For the record, current sales have the PS3 at 21 Million, the Xbox 360 at 28 million and the Nintendo Wii at a whopping 45 million.

But anyway, back to the Android story.  Here’s the quote…

Informa predicts games industry worth USD 58.4 billion by 2007

Informa Telecoms and Media has revealed details of its fifth Dynamics of Games report, suggesting massive growth for the games industry - spearheaded by next generation consoles and broadband gaming.

The report suggests that the entire games industry will be worth USD 35.3 billion in 2005, which is an increase of 5.3 percent on last year. The staggered release of the next generation of games consoles, which begins with Microsoft's Xbox 360 in November, is predicted as the main catalyst for an unprecedented leap in market growth.

Oh, I’m sorry.  That’s an article from 2005 when Informa predicted the Game industry would be worth 58.4 billion dollars by 2007.  The actual number was a still respectable $41.9 billion.  Here’s the Android quote…

The iPhone's lead over smartphone upstart Android may be short-lived, according to an industry watcher's predictions.

Android smartphone sales will outstrip iPhone sales by 2012, market researcher Informa Telecoms & Media has predicted in a new report.

I don’t necessarily mean to pick on Informa here, though they are a small firm using a sensational headline which makes it a little suspicious. 

Still, my real point is that predictions like this are largely pointless when it comes to technology.  No one knows what’s coming down the pike and any one of those things could turn everything upside down (the Wii’s success for example).

If you feel you must trust a prediction make sure you ask questions about the methodology. In the above example I don’t see how they could have developed a methodology that would give weight to their predictions. 

How exactly do you extrapolate sales on an industry with practically no historical precedent (consumer smartphones)?  What data are they using exactly?  I mean, there’s only one Android phone and it’s been out for less than half a year.  How do you get from that to outselling the iPhone? 

Anyway, all those questions bring me back to my original point.  These predictions just can’t be trusted.

Michael Arrington of TechCrunch had lunch with a record executive last week and probed him on why the labels are so anti-online.  The unnamed record executive said this in response...

It’s all part of a master plan. The labels fully understand that recorded music, streamed or downloaded, is going to be free in the future (we’ve argued this relentlessly). CD sales continue to decline by 20% per year, and the only thing that’ll stop that trend is when those sales reach zero. Nothing will replace those revenues.

They also understand that recorded music will largely be little more than marketing collateral, meaning that the Internet services being sued today for copyright infringement will be embraced in the future as ways to get the word out on hot new music. These services pay for the privilege today (either through high streaming rates or in court), but in the future they’ll be the ones getting paid by labels. Think radio payola at a whole new level, and there won’t be any more talk about social networks giving stock to labels and artists. Money will flow the other way, as it should.

By 2013 (maybe as early as 2011) it’ll make sense for the labels to finally reorganize their business models around the reality created by the Internet and person to person file sharing services. No longer will the labels be tied to revenue limited to sales of master recordings - by then most or all artists will be under 360 music contracts that give the labels a cut of virtually every revenue stream artists can tap into - fan sites, concerts, merchandise, endorsement deals, and everything else.

Now I don't doubt Mr. Arrington heard this from a record executive.  In fact, I strongly suspect I know who this executive is.  But even if it isn't who I'm thinking I'm almost sure it's someone relatively low level and who specifically works in a department that is tech related. 

Because this is exactly the type of thing you hear from tech people in record labels but it's something I've never heard from any executive that does anything else in a record label (I spent a large part of my life last year going to parties and interacting with these types of people)

But more important than my own anecdotal evidence when you really think about this "plan" it doesn't add up. 

First no industry in the history of mankind has given up their primary revenue stream willingly.  I doubt the recording industry will be the first.  Which means they'd only "go free"  if no one was willing to pay for music anymore.  But that's never going to happen (much of this is based on the idea that CD sales will eventually fall to zero which I consider unlikely).  So for music to go free the Record Labels would have to actually turn down money from people willing to pay.  Do you really see them doing that?

Second, this plan to give away music doesn't account for all the money that's made by acts that can't tour.  Just think about the money made off every Beatles album released and ask yourself if the record companies would willingly give that up.  There are thousands of classic albums that still make money 20 or 30 years after they were recorded and there's simply no way to duplicate that revenue.

Third, and related to my second point, this would represent a major drop in revenue for the record labels.  The entire touring industry grossed $4 billion last year while the music industry grossed roughly $5 billion in full album sales alone (not counting individual song downloads).  Those numbers might seem close but remember the labels are essentially making all the net profit off an album while tour money has traditionally gone to artists (meaning the labels would have to fight for a share).    

Finally, the biggest argument against giving away music is iTunes.  iTunes makes money.  The iTunes model works.  Even teenagers seem to have no problem buying from iTunes. 

On the topic of iTunes if this plan were true you have to ask yourself why record execs are so nervous about Steve Jobs.  What does Jobs and his power over the industry matter if record execs are planning to give away music by 2011 (and hence rob him of that power)?  More importantly, if there's some master plan in place to give away music and it's talked about so openly that someone would tell TechCrunch than why is Apple wasting so much time and money building iTunes up? 

Absolutely no offense to Michael Arrington but I'm pretty sure Steve Jobs is more "dialed-in" than his lunch mate is. 

So in closing, this supposed plan just doesn't make sense.  But it's exactly the kind of thing that an under appreciated tech exec working in a record label would think is inevitable.  Meaning it's exactly what that exec would say when questioned about his company's actions.  So I don't give it much credence.  

Addendum: I focused mostly on touring revenue above but the original quote does mention "fan sites, merchandise, endorsement deals, and everything else".  The truth is revenue from these is pretty negligible.  They are the bones that record labels throw to artists to keep them happy.  If they generated any significant revenue than the labels would have taken them over a long time  ago.