Facebook Beacon either is pure marketing genius or yet another form of online privacy intrusion that needs to be stamped out. It depends on your perspective.

Beacon was unveiled earlier this month as a new Facebook marketing initiative which includes a system for other websites to collect and bounce back to Facebook, information about Facebook users activities on those other sites the idea is to expand the ways Facebook users can share information about their favorite products and services (online purchases, wish lists, etc.) with their Facebook friends. It works in conjunction with Facebooks targeted ad-serving program based on user and friend profiles and activity data (Facebook Social Ads). The genius factor is that advertisers get to harness the analytic data and performance metrics (Facebook Insights) of users where users have acted on specific brand preferences rather than simply having typed in a few key-word search terms as in a Google ad. Its part of Facebooks powerful new form of word of mouth advertising, where Facebook users preferences are published to friends in a way that stimulates a virally-induced buzz about a product or service. So, whats wrong with that? Well, the knock against Beacon seems to be that Facebook has crossed the line, where users previously were prepared to play along within the confines of what was being served up on the direct Facebook experience, but feel violated if theyre being followed once they log off their Facebook account.

With respect to privacy, Facebooks CEO Mark Zuckerberg states that, “no personally identifiable information is shared with an advertiser in creating a Social Ad,” and that “Facebook users will only see Social Ads to the extent their friends are sharing information with them.” Yet, the privacy problem with Beacon relates to its reach. Will your friend, Nancy, find out through Facebook that youve just bought her that new book shes been asking for the one you were going to give her as a surprise?

Yes, the backlash has been predictable. Already there are Facebook groups on Facebook complaining about Facebook (e.g. the group, “I dont want Facebook tracking my Internet use”). There is never a shortage of Internet users ready to complain about a free service. They could vote with their keyboards and move to other social networking sites that so far appear free of Beacon-like intrusions, like Ning, co-founded by Netscapes creator, Marc Andreeson, but the problem with other social networking sites is that they lack the critical mass of Facebook. Not enough people use them. Theyre not the place to be at, and so, Facebook users critical of Beacon say in effect that Facebook has thrown a party where everyone has shown up but now the free hors doeuvres blow.

Its somewhat disingenuous to complain about a free service, yet people do, and no doubt theres already been a rash of complaints to privacy regulators. On the surface, it seems there is something to complain about, especially about the “negative option” where a Facebook user does not opt-in to Beacon, but must somehow try to figure out how to turn the darned thing off the problem being that most users are not sufficiently aware whats going on from a technical point of view to know how to configure Beacon. The Office of the Privacy Commissioner of Canada states for example.

“Organizations covered by the Personal Information Protection and Electronic Documents Act are required to inform you fully and accurately about what personal information they collect, why they collect it, what they intend to do with it and how they protect it. Organizations must always have your informed consent before they may collect, use or disclose your personal information, and you must be given meaningful options for accessing that information and for resolving privacy issues and complaints.”

Informed consent is a touchstone of privacy legislation, yet it tends to be a moving target where companies collecting and using data online will point to terms of service on their sites to demonstrate that users have been informed, with those terms of service being modified as the services themselves are modified.

My continuing hope is that inevitable backlashes to new technologies do not become over-reactions on the part of regulators. There are plenty of sites for squeamish Internet users to play on those users who dont like the idea of their moves being tracked by Facebook. In a free society, the commercial exhibitionism and voyeurism represented by Facebook is a healthy and tolerable thing. Users quickly will deflate Facebooks critical mass if Facebook alienates them by becoming too crass or if too much attention is shifted to product placement. As for intrusions of privacy, well, if you dont like the direction that Facebook is headed, you should move off it, rather than trying to spoil the party for everyone else.

The music industry has become of late, unabashedly about selling products. Formerly, 10 or 15 years ago, there used to be more pretense to artistry. Many if not most bands would eschew “selling out.” It was not only seen as bad for the creative muse, it was bad for business as fans tended to shun artists who took that route. In those bygone days, “artistic integrity” meant that commercial tie-ins were tightly controlled in recording artist agreements. The artist was able, and almost encouraged, to prevent commercial tie-ins. This was an anomaly in most deals because few other commercial terms were negotiable as far as the labels were concerned. When it came to preventing labels from creating tie-ins with commercial products, bands often had the last say.

So much has changed, in so little time. Most everyone has decided it’s OK, after all, to scramble for the almighty bucks being waved by advertisers and sponsors. In part, this is because there is less and less reliable revenue from CD sales. In part, this is because record companies have done a good job of scaring artists into believing that the industry is depressed due to peer-to-peer file sharing. In part, this is because the lifestyle of music has become woven into so much of what we do. For many reasons, bands are now operating as brands, with emphasis placed not just on the copyrights in the compositions and recordings themselves, but more and more, on the trademarks and goodwill being exploited.

And like all valuable brands, those rights need to be managed. From a trademark point of view, this means going after other confusing trademarks or knock-offs. From a marketing point of view, this means keeping brand awareness front and center. It makes one wonder, as the role of distribution of physical product dwindles for record companies, whether they are really just advertising agencies for their artists’ brands. And if that’s the case, does a 360 deal make sense?

The 360 deal is the record industry’s answer to declining sales of physical products. But really, this has been happening for a long time. Traditionally, record companies made records (CD’s, vinyl, i.e. physical products). So it was natural that artist royalties would be based on sales of those products, and that all other revenue belonged to the artist. Then, it became more usual to find record companies demanding a rate on mechanicals (i.e. payments to the music publishers representing the composers whose songs were being recorded) for so-called controlled compositions (i.e. songs composed by the artist or band under the recording contract). Then it became common for the record company to demand an ownership interest in those compositions. And on and on. And please, as far as A&R is concerned, labels are great at jumping on bandwagons and telling artists how they should make their art, but with some exceptions, they rarely create successful acts from scratch. So here we are with the 360 deal, where the label takes a cut of the artist’s entire career.

The quid pro quo is supposed to be, that with the 360 deal, the label can get behind the artist, bankrolling and pursuing alternative revenue sources. But what are those revenue sources, really? Touring? That’s always been sacrosanct, because without the meager profits from grinding it out on the road, many bands would not survive to record another album. Is a label really going to commit resources, for the long haul, to a band that’s playing to 50 people a night, in the hope that someday they’ll be huge? Dream on. Sure there is room in a 360 deal for a better slice of the pie to be cut for the artist. 15% can become 30%, if you’re talking about giving the label a piece of everything. But will the label dare to spend money it might not recoup? The same risk aversion and risk taking principles apply, whether it’s a conventional deal or a 360 deal. Everyone prefers a sure thing. Risk is, well, risky. When big money is being spent, who do you think has the last say in how it’s spent? When revenue might come in through commercial tie-ins these days, to recoup that big money, who do you think is going to have the last say in how the rights are exploited? Except for mega-stars perhaps, not the artist.

Meanwhile, where are all the managers? Well, managers tend to not invest their own money into a project. They might be better suited for the focus that’s needed to place artists into lucrative product endorsement deals. But they tend to not have the resources to launch an artist. Face it, recording an album, making a few videos, then promoting the singles to radio, does not come cheap.

In my opinion, as the clout of the record labels continues to decline, their 360-deal-death-grip on artists will loosen, and it’s not going to be the artists themselves or their managers who end up controlling the music we hear, it’s going to be the advertisers and the sponsors themselves.