Archive for February, 2007

I try to pace this, as I appreciate that you all might have regular stuff to do, and not be as absorbed by the issues of content distribution as we are, but I have to point out the comments made yesterday evening by ‘Mike’ of Techdirt staff about the DRM session at the Silicon Valley Tech Policy Summit.

Techdirt makes its living collecting and delivering information. They cover a wide range of topics, as their current homepage shows articles on auctions as a technique to solve urban parking, for instance. So their correspondent at the TPS came out pretty strongly on the DRM panel yesterday afternoon (3:45PM PST). ” the MPAA representative, David Garfield, kept saying over and over and over again that DRM was important because it opened up new business models. Yes, we’ve heard this all before. We’ve been hearing it for years, and those business models aren’t forthcoming. When that was brought up, all Garfield and the others could say is to give it time. Unfortunately, people have been giving it plenty of time and all they have to show for it is that they feel like criminals in their own homes for doing something that’s perfectly legitimate, and worries about what MPAA-pushed legislation will invade their technology next.”

And “It was a stacked panel (again). Gigi Sohn was there as the sole defender of consumer rights and fair use, but missed out on multiple opportunities to points out that the DRM everyone else was defending wasn’t just about a fight between content producers and consumers, but that it was simply bad for business.”

Yep. Bad for business.

What’s even better, from my point of view, is that ‘Mike’ (there are three listed Michaels on the “who we are’ page) also has written about just what it is that entertainment is. “Everyone may think that you’re buying “music” or “movies” but that’s very rarely what you’re actually buying. You’re buying the experience of going to the movies. Or the ability to have the convenience of a DVD. Or the convenience of being able to listen to a song on your iPod. And, in many cases, it’s not just one thing, but a bundle of things: the convenience of being able to hear a song in any CD player, combined with a nice set of liner notes and the opportunity to hear a set of songs the way a band wants you to hear. It can be any number of different “benefits” that people are buying, but it’s not the “movie” or the “music” itself that anyone is buying. “

Unfortunately for the industry, Mike isn’t supplying the MPAA and other leadership with his insights. That is up to us, and I don’t just mean USVO. I mean everyone that has an interest in a lively and uninhibited content marketplace in the digitally networked realm.

So get your drums out, or even pots and pans. Tell everyone you know that you want content to flow and be protected. Tell them you want to be presumed innocent when you buy and use content, and that you want the content owners to focus on people who are actually stealing their stuff.

PS_ Check out the comments section on Mike’s post

Thursday brought the news that the jury had decided in favor of Alcatel in its patent infringement action against Microsoft. While I found it fascinating that a jury decision in San Diego would be reported by a Pakistani publication with a dateline of Seattle, the more relevant meat was the turmoil and spinning that all sides of the IP patent world immediately made of the decision.

Naturally Microsoft will appeal, and the state of things in the world is such that the award had other giants wringing their hands for Microsoft. “THE PATENT SYSTEM in the United States is so dysfunctional that it can even generate sympathy for Microsoft.” said the LA Times in a Saturday editorial.
Somehow the thought that the initial invention of audio compression should be compensated has been disconnected from the action of people using the ideas without permission or license. Was it the amount of the award, which one imagines is somehow gauged to the scope of use of MP3 technology as opposed to a number that might get Microsoft’s attention? The award was for one half of one percent of the average selling price of every Windows computer worldwide since 2003. Apparently that fractional amount, while staggering by itself, doesn’t even represent all the ways in which other companies have been mashing up the compression idea. The expected chaos in the technical world has been enough to light up lots of blogs.

I could bury you in references, but suffice to say that one of the companies built on IP, and one of the greatest success stories of the 20th century, is in fighting paying for the use of someone else’s IP. The case is complicated by the fact that Microsoft paid Fraunhofer, one partner with Lucent in technology, for a license. This is also one of the companies that has been a leader in the DRM efforts, and whose leader, Bill Gates, has been heard running that same technology down recently. These are the folks that Hollywood is supposed to rely upon to protect their IP, er content?

Then you have the Oscars. Oldtime Hollywood triumphs in finally getting Marty Scosese a statue, and the return to tradition was such that a song with a chorus and a hook and no slang won best song. There was a return to old fashioned cleavage(check out the Thank you cam from backstage here and judge for yourself) Other than the web cam backstage, and the constant display of “oscar.com” on the commercial bumpers, it was not clear that new thinking has arrived at the Academy. While the President of the Academy said the word “digital” in his digitally sped up one minute film of what the Academy is up to, you would have to think the most relevant word that starts with a ‘d’ in that community is denial. There was nothing about going to the movies as a great experience, like last year. Nothing about piracy. Nothing about how artists get paid. Maybe that was best.

Just to wrap up the wacky IP weekend, today marks the opening of the BitTorrent commercial media store site. While the media has made much of the company that authored the code that supports untold piracy schemes, the attraction that the dealmakers of Hollywood has for the company is its access to users.
“Somebody once said you have to embrace your enemy,” said Doug Lee, executive vice president of MGM’s new-media division. “We like the idea that they have millions of users worldwide. That is potentially fertile, legitimate ground for us.” In other words, Hollywood isn’t looking for a more efficient(P2P is the foundation of BitTorrent’s code), hip (one third of all internet traffic volume is said to use BitTorrent’s open source code) or savvy way to deliver its goods, but for a company that has a following. Despite decades of command of its audience, Hollywood is going to get in with anybody that has its own ‘audience’.

Noteworthy is that the site will have free videos mixed in with the pay stuff, which will be rental only, as BitTorrent management felt the prices Hollywood would agree to sell outright were too high. ““We don’t think the current prices are a smart thing to show any user,” Ashwin Navin, BitTorrent’s co-founder and chief operating officer said. “We want to allocate services with very digestible price points.”

There is growing understanding of piracy’s impacts as reported in the LA Times, by Richard Verrier.. The city of Los Angeles funded a $25,000 study that found the local motion picture economy lost“$2.7 billion” and, in nine sectors, including apparel, more than 100,000 jobs due to counterfeit and pirated goods.

Over the last week there has been a great deal of attention and discussion about piracy, DRM, and just how the major content distributors are relating to the viral video sites. Viacom both pulled its content from viral leader YouTube and announced an agreement with Joost, the fledgling service from the founders of Kazaa and Skype.

Equally interesting, the CEO of Macrovision challenged Steve Jobs to engage in the work that will make DRM interoperable and transparent. Clearly Jobs open letter has galvanized the concerned to step up. Unfortunately in this case, the source is also an example of a cracked technology. Macrovision’s DVD security, for which many distributors pay about four cents a DVD to add, has been hacked for some time. Since the license fees are still coming in, there hasn’t been much pressure on the company to rework the code, as it still prevents the average user from making a VHS or duplicate DVD.

Another interesting development is the word that YouTube will only offer protection technology to distributors that it has license agreements with. According to the report “YouTube, owned by Google Inc., plans to introduce technology to help media companies identify pirated videos uploaded by users. But the tools are currently being offered as part of broader negotiations on licensing deals.” I find it fascinating that a company that makes money by making content available for free is going to only allow those it has money transactions with get protection. Consider this a step in the negotiation more than a policy.

However there are a few minds that are keeping the priorities straight. As David Card of Jupiter Research reminds us “Content isn’t king, Audiences are.”

By far the most interesting bit of thought available was this piece “Piracy isn’t the only enemy” by Glen Gamboa, the music writer of Newsday. Content distribution business is challenged for many other reasons, He compares the distribution of music with that critical component of living- water. “Sure, water is essential to life and music isn’t. But you can live without bottled water. You could, you know, turn on the tap or stand at a drinking fountain. Sales of bottled water continue to grow because marketing has created a need and distribution has filled that need in the way consumers want.”

This is the real opportunity for content distributors, to exploit the phenomenal opportunity available in the digital networked world to fill the customer’s needs in a way that the customers want. Note that I say ‘customer’ instead of consumer, because there isn’t one of us that thinks of ourselves as part of a demographic. We all have our own identity and our particular wants and needs, and that sense of who we are is a very big part of why we buy what we buy.

Imagine the content distributors using CRM, or the as yet to be developed VRM to actually converse with the marketplace as customers, and let customers not only say what they want, but what they are willing and able to pay. Imagine that the content they get they can use the way they want, and there won’t be technical hurdles to navigate between their bedroom and their family room. Imagine that the customer begins to feel that the distribution company knows and understands what they like and actually steers the appropriate product to them, like a trusted friend who happens to sell at the corner market.

First there needs to be an understanding that while fear of the dangers is understandable, building a business strategy on it has been proven to be disastrous. As pointed out here previously, trust and relationship are the critical ingredients in every marketplace. Why we think SmartMarks and watermarking in general are key ingredients to that we articulate in detail here.

There are going to be a lot of chapters in this emerging marketplace, and it is important to keep in mind that the way we get our products, especially our media products, is ultimately going to be decided by how people like to buy and use, not how distributors like to sell and control that use. There is no business that can afford to ignore what its customers want, even if the customers can’t articulate it. They vote with their money, and as the music business shows, they have been buying DRM even less than they are buying formula pop.

Lots of people are, and have been weighing in on the content security issue, and they love to try to explain it with analogies - like the Senator from Alaska saying the internet was like “a lot of pipes”. Except they often don’t have it quite right.Cory Doctorow, who originates Boing Boing, yesterday posted and commented about the breaking of security on the new HD disc formats. Like many others, he sees this from the outside in- ‘tear down these walls Mr. Studio Head!’

He does have some points- “There is no future in which bits will get harder to copy. Instead of spending billions on technologies that attack paying customers, the studios should be confronting that reality and figuring out how to make a living in a world where copying will get easier and easier. They’re like blacksmiths meeting to figure out how to protect the horseshoe racket by sabotaging railroads.”

Some of the things wrong with this:

The analogy is a bit wack, in that the method of conveyance has never belonged to the studios. They got out of that business in the 50’s. It was just that the method of conveyance required getting in line and getting a ticket. Later you had to show up on time and sit through the commercials. Now you don’t. And your sly nephew or niece is likely to mash up last night’s episode into who knows what kind of inside jokes for their peers. This is no railroad coming through, but a wholesale erosion of established channels in general. Everything is a channel, and the climate is chilly for those in established content business. DRM was the coat they wanted to protect them, and it is getting ripped to shreds right now.

Studios didn’t have horses, or make horseshoes. In fact they didn’t even carry freight, because the content is not something you actually get to carry away (although you do get to in physical media, but that deserves another post altogether).

The other problem with Doctorow’s statement is that it isn’t the studios spending billions, but the CE industry passing on that cost to all consumers through restricted capability equipment. We are all paying for it as a group. Clever of those studio folk isn’t it?

I should also tell you that the studios have never been blacksmiths either. They employ artists and craftspeople and they work with financial institutions, but the studios are fundamentally middle men in very well crafted aggregation systems where skills are concentrated and risk costs spread. They finance and distribute the production of motion pictures which audiences experience. Some of those make money, eventually, but most don’t recoup their production and marketing expense.

Despite these errors, that sentence about bits getting easier to copy- that he is totally right about. And yes, the studios need to figure out how to make a living in the new easy copy world.

It has been a great few weeks for those of us voices in the heretofore wilderness. It hasn’t caused a spike in calls from content owners asking us to protect their files, or even an up tick in market analysts looking for another angle to understand just where is this going. (Although it will sooner than later). I mean with the two big fish in US computer and CE business splashing all around on deck, it is probably too much to expect that someone would jump onto the question of what were on those hooks anyhow. Not even the cocktail hour at my neighbors’ very intelligent and content business savvy dinner last Saturday got past those two names.

In all the discussions the have resulted from having both Bill Gates and Steve Jobs dump on DRM in the last two weeks, there has been something missing, which would surely make a difference if it were present.

The existence of DRM is based upon a valid concern of copyright holders and distribution companies, especially those that are publicly traded. What happens to their business in the digital marketplace when any copy of their content can be exploited and distributed cheaply?

DRM is what was thought up when this question was put in front of the same technology oriented brains that helped create the capacity that threatens those existing businesses. It is an almost natural response to seek a silver bullet when ones fear of the werewolf enters ones awareness. And it is natural to think that those brainy folks who have wrought truly impressive wonders of product integration and empowered millions with instant digital communications through an ever expanding variety of channels will be able to master the demons that plague us in the analogue reality.

Except that they can’t. And saying that we should go out naked because eventually it will mean better business and a nicer world doesn’t really address the fact that it has been winter, especially in the music business. Letting people milk your cow through the fence is a very old joke built on some very cruel truths.

So what is missing is what are the content distributors going to dress their business with instead? Fortunately an answer is available, and at hand. As referenced in this report from the Progressive Policy Institute, “If online piracy is to be deterred, the rights holders must be able to identify the perpetrators and initiate legal action.”

While those attacking DRM aren’t yet really offering an alternative, the fact is that they will. And over here, we are ready with SmartMarks for every product, providing freedom for the customer, and the distributor to engage each other, resulting in support of the laws and prosecution of the thieves for all.

Once a player like Steve Jobs posts his “thoughts on music” the world chimes right in!
We can’t possibly read much less post and comment, but here are a few-

What you can gather is that every published item reflects a world view and agenda. The RIAA wants us to consider the alternative that Jobs says won’t ever happen- license FairPlay.

Longtime Silicon Valley pundit John Dvorak in his Marketwatch “Second Opinion” column suggests that Jobs is “begging” the music companies for DRM elimination. I don’t see any begging in Jobs statement, but I do see him pursuing Apple’s interest in getting less restrictions on transactions. Down the Dvorak page he says “most people would rather go to a record store and buy something. It’s actually cheaper to buy something if your time is worth anything at all.” which is a pretty interesting statement that I would like to see him quantify and some industry group measure on a broad basis.

Lost in the shuffle might be the announcement last night that Disney doubled its first quarter earnings, mainly on DVD sales of two tent pole properties “Cars” and “Pirates of the Carribean”. Two DVD sales lifted the earnings of the entire enterprise. That is what this is all about- money.

Steve Jobs, Apple CEO and the largest single stockholder at Disney, made worldwide headlines yesterday by posting an open letter to the world on his “thoughts on music”,

Quotes like “DRMs haven’t worked, and may never work, to halt music piracy.” and “If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store.” are big news coming from a guy who has up until now shown every intention of locking every Apple user into the Apple farm silo. Equally revealing is the Apple research stating “under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM.” In other words the sales of music is a side bet to Apple compared to the iPods, and something he is now trying to spin as hamstrung by the record companies. Most of us are loading our players with CDs we got some other way, hopefully legally.

The big type extracted in most places is his call to end DRM. The instant response from Norway, where Apple has been put on notice that they must open up the iTunes store by October 1 or face legal action, seems to think this is just Jobs “skirting key issues and passing responsibility to record companies.” Torgeir Waterhouse, senior adviser to the Consumer Council, told The Associated Press “It’s iTunes Music Store that’s providing a service to the consumers and therefore has the responsibility.”

The shift in consciousness in the Hollywood majors to engage in digital distribution has been, IMHO, based more on a fear of being left out of the digital marketplace finally being greater than the fear of being in the digital marketplace. I date this shift with Jobs getting his position on the Disney board as part of the Pixar acquisition. They still haven’t decided on how it will work.

It is still a long way from the death of the pursuit of the DRM dream of making theft impossible, much less the full enabling of frictionless transactions for digital content, especially from the major companies. Don’t expect the Big Four of music to fold their strategy just because Jobs and Apple suggest it.

Compared with the existing marketplace and delivery methods, the amount of attention given to viral video, YouTube, and its variants, and the rollout of online services from the likes of Wal-Mart, is out of scale with the financial realities. Until pressures are so great from losses of revenue, and one would think the music business had experienced sufficient pain five years ago, the struggle to maintain control of the audience will persist. As Jobs points out, these four companies “control the distribution of over 70% of the world’s music.”

The field is still green, and this is why the reaction is so large. We love the future, and guessing about it. Just like betting on who will win the Super Bowl, or an election, a lot more people today are talking and thinking about DRM, open sales, and interoperability than they were on Monday. However with this game, you can keep on betting week in and week out until the field is plowed planted and owned by the winners.

In contrast with the outright frozen with fear posture that dominated for several years, the recent activities, including USVO’s recently announced project with a major studio, are major steps forward. The opportunity for a frictionless enabler of copyright enforcement like SmartMarks is certainly enhanced by this movement in the public discourse. The game is definitely changing, and thanks to Steve Jobs, more on the minds of the public than ever before.

This article demonstrates another approach that has been long advocated but avoided by the major distributors.

One argument, that dates to the first attacks on the music distribution models that happened with the original Napster application, has been that the reason that piracy exists is because there is sufficient margin between the cost of goods and the retail prices the legal distributor charges for a pirate to steal, manufacture and distribute at a significant discount. Thus, the argument unfolds, the way to counter piracy is to reduce margins to eliminate the territory occupied by the pirate. The fallacy in this argument is that the cost of goods is radically different for the pirate, who merely must figure out which successful property to steal, as opposed to the legal distributor which must distribute the costs of every failed release across the successful ones.

Just the same, the argument isn’t without merit, and it will be interesting to see if Warner Bros. judges this strategy successful a year from now, or whenever the next ‘tent pole’ production is ready for market. Certainly putting the legal product on the streets of China at $2 is a bold move.

It begs a pirate to marry the mandarin dubbed picture to a pirated English soundtrack and sell to the domestic market. It also indicates that the long period of risk aversion in the established companies is over.

Following up last week’s efforts to bring attention to the lack of a law in Canada that would make camcording a movie in a theater a crime, comes this response.

There are a number of points made, but the key element is the undermining of credibility of the industry’s claims expressed in statements like this “ the Motion Picture Association of America (MPAA) and its foreign counterparts have put on a show that is much ado about nothing, featuring unsubstantiated and inconsistent claims about camcording, exaggerations about its economic harm, and misleading critiques of the law.”

It is easy to find the voices that echo this in various places such as the comments on the above article on Gizmondo.com

In other words the industry has a history of making specious and unsubstantiated claims about the issue. As stated in earlier posts, trust is the issue, and Hollywood hasn’t done a very good job over the last few decades of building it with their customers.

It isn’t like camcording is really thought of as a normal ‘fair use’, although some of those on the Gizmondo comments seem to think so, or that there is any legal precedent that makes this kind of activity a customary right that goes with buying a ticket to a theater. Yet the response demonstrates that the industry has a very significant hurdle to get over, that has nothing to do with the actual issue of piracy, but rather how the industry is perceived and looked upon by the public.

In the long run, this is another positive indication for USVO and SmartMarks. By focusing on enforcement of license limitations, and those that have actually taken money for selling the property of others, the industry can find moral authority and standing upon which it can start to build credibility, and eventually trust.

Now about the points Michael Geist makes-

about theatrical not being all that significant an area of concern because it represents only 15% of the overall revenue: This ignores that ‘flagship’ roll that the theatrical release and related campaign has in the overall success of the motion picture

that camcorder piracy only competes with the theatrical release for “a few weeks”: the camcorder piracy is an attack on the DVD sales of the property, not the theatrical release. Any source that supplies a competing DVD to the marketplace is an attack on the biggest growing part of the pie- DVD sales.

That camcorder copies are of such poor quality: the latest consumer electronics offerings have specs that sometimes exceed professional products.

While we have been pounding this drum for sometime, this week shows that lots of people and organizations are picking up the tune. As the only Hollywood industry spokesman at the Geneva conference, NBC Universal chairman and CEO Bob Wright called for greater cooperation from other businesses- “Legitimate businesses have to step forward and declare that they will not profit on the back of IP theft.” Note that this got coverage in India, where USVO is busy working to implement its products.

In Washington, the International Intellectual Property Alliance released a report that documents the size and importance of IP to the national economy. The figure is up to $819 Billion. Get a summary of the report here. Motion pictures are a big segment.

Red Herring reports that “Hollywood Dips Into Watermarking“. Key is the establishment of a consortium includes the MPAA, the Distributed Computing Industry Association (DCIA), an industry group spearheading secure P2P network distribution, and the Digital Watermarking Alliance (DWA), The report says that a MPAA white paper will be presented next week to Congress, that will recommend technologies to fight piracy.

That would explain this event in DC where watermarking will be discussed with the House Entertainment Industries Caucus, chaired by Los Angeles Congresswoman Diane Watson.

Also in the news this week was a call by a theater company executive for Canada to make camcording in theaters illegal. This isn’t yet the law north of the border. Watermarking is a key element in the Digital Cinema Initiative specification and is used to identify theater, date and time of performance. Pretty useless information until Canada makes it a crime.

There are also some interesting views published this week about the changing nature of television (“the end of “The O.C.” is a media omen we shouldn’t ignore”), the marriage of hardware and content, and the news that Romania’s technology industry is based upon pirated software (”Piracy Worked For Us, Romania President Tells Gates”). It is all part of the tapestry that makes up the marketplace for digital content, and USVO’s products.

And just in case you haven’t had enough, I would like to point out this excellent resource, the blog of William Patry (”The Patry Copyright Blog”). Patry was formerly copyright counsel to the US House of Representatives’ committee on the Judiciary, and today is Senior Copyright Counsel to Google. Having this man blog for you is about as close to a free expert opinion as you can get. This week he commented on international law being our law (“hell no, never”) a ruling on books on tape and what is called First sale that means you can rent out a book on tape without the copyright owner’s permission, as well as the most recent lawsuit against Sacha Baron Cohen for use of a phrase coined by an Israeli actor over 16 years ago.