December 9, 2003

eWeek Editorial [6:46 pm]

Copyright and Fair Use: Repeated abuse of a statute is a sign that the law itself is defective.

The Skylink and Lexmark examples show that the DMCA is disturbingly susceptible to use as an anti-competitive weapon. Repeated abuse of a statute in this way is a sign that the law itself is defective. We call upon legislators and the courts to attain a balance that will promote the interests of copyright owners while respecting the rights of consumers. Thus, we back U.S. Rep. Rick Boucher’s H.R. 107, under which circumvention for the purpose of exercising fair-use rights would be allowed. The Virginia Democrat’s bill would also allow making and distributing hardware and software if the technology is capable of substantial noninfringing use.

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A Re-Examination of the FAT Patents? [6:28 pm]

Probably not what Microsoft had in mind when they offered to license some of their technology — but is this just wishful thinking on Andrew Orlowski’s part?: Microsoft FAT patents ‘could be re-opened’

If Microsoft decides to mine its patent portfolio for cash, it’s likely to face a few unexpected consequences. A new patent body that’s vowing to defend the free software community against Microsoft’s new patents-for-cash revenue strategy says it will ask the US Patent Office to go back to square one, and systematically examine the validity of the patents in question. This is an unusual tactic that promises to bring the overworked USPTO’s approval of questionable patents right into the spotlight.

[...] The Public Patent Foundation’s mission is to advise and counsel people who object to patents that threaten to “restrict civil liberties and free markets”, Dan tells us. The PPF has other options including filing friend of the court briefs on behalf of defendants, and broader education. He’s keen to encourage companies form mutually beneficial “disarmament treaties”, too.

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Jobs on Music [6:21 pm]

Steven Jobs is interviewed in Rolling Stone: Steve Jobs: The Rolling Stone Interview: He changed the computer industry. Now he’s after the music business. (Slashdot discussion: Steve Jobs and the State of Legal Music Downloads)

Interesting to see just how hard it is for him to make his case:

David Bowie predicted that, because of the Internet and piracy, copyright is going to be dead in ten years. Do you agree?

No. If copyright dies, if patents die, if the protection of intellectual property is eroded, then people will stop investing. That hurts everyone. People need to have the incentive so that if they invest and succeed, they can make a fair profit. But on another level entirely, it’s just wrong to steal. Or let’s put it this way: It is corrosive to one’s character to steal. We want to provide a legal alternative.

Of course, a lot of college students who are grabbing music off Kazaa today don’t see themselves as doing anything any different from what you did when you were a teenager, copying bootleg Bob Dylan tapes.

The truth is, it’s really hard to talk to people about not stealing music when there’s no legal alternative. The advent of a legal alternative is only six months old. Maybe there’s been a generation of kids lost — and maybe not, who knows? Maybe they think stealing music is like driving seventy mph on the freeway — it’s over the speed limit, but what’s the big deal? But I don’t think that’s the way it’s going to stay, not with future generations, at least. But who knows? This is all new territory.

There’s a contradiction at the heart of what he’s trying to say. For example, there’s this:

Of course, music theft is nothing new. There have been bootlegs for years.

Of course. What’s new is this amazingly efficient distribution system for stolen property, called the Internet — and no one’s gonna shut down the Internet.

And it only takes one stolen copy to be on the Internet. The way we expressed it to them was: You only have to pick one lock to open every door.

And yet, he gets what really needs to be sold to compete with “free:”

Our position from the beginning has been that eighty percent of the people stealing music online don’t really want to be thieves. But that is such a compelling way to get music. It’s instant gratification. You don’t have to go to the record store; the music’s already digitized, so you don’t have to rip the CD. It’s so compelling that people are willing to become thieves to do it. But to tell them that they should stop being thieves — without a legal alternative that offers those same benefits — rings hollow. We said, “We don’t see how you convince people to stop being thieves unless you can offer them a carrot — not just a stick.” And the carrot is: We’re gonna offer you a better experience . . . and it’s only gonna cost you a dollar a song.

The other thing we told the record companies was that if you go to Kazaa to download a song, the experience is not very good. You type in a song name, you don’t get back a song — you get a hundred, on a hundred different computers. You try to download one, and, you know, the person has a slow connection, and it craps out. And after two or three have crapped out, you finally download a song, and four seconds are cut off, because it was encoded by a ten-year-old. By the time you get your song, it’s taken fifteen minutes. So that means you can download four an hour. Now some people are willing to do that. But a lot of people aren’t.

Not to mention explaining the record industry/artist conflict succinctly:

They feel they’ve been ripped off.

They feel that. But then again, the music companies aren’t making a lot of money right now . . . so where’s the money going? Is it inefficiency? Is somebody going to Argentina with suitcases full of hundred-dollar bills? What’s going on?

After talking to a lot of people, this is my conclusion: A young artist gets signed, and he or she gets a big advance — a million dollars, or more. And the theory is that the record company will earn back that advance when the artist is successful.

Except that even though they’re really good at picking, only one or two out of the ten that they pick is successful. And so most of the artists never earn back that advance — so the record companies are out that money. Well, who pays for the ones that are the losers?

The winners pay. The winners pay for the losers, and the winners are not seeing rewards commensurate with their success. And they get upset. So what’s the remedy? The remedy is to stop paying advances. The remedy is to go to a gross-revenues deal and tell an artist, “We’ll give you twenty cents on every dollar we get, but we’re not gonna give you an advance. The accounting will be simple: We’re gonna pay you not on profits — we’re gonna pay you off revenues. It’s very simple: The more successful you are, the more you’ll earn. But if you’re not successful, you will not earn a dime. We’ll go ahead and risk some marketing money on you. But if you’re not successful, you’ll make no money. If you are, you’ll make a lot more money.” That’s the way out. That’s the way the rest of the world works.

So you see the recording industry moving in that direction?

No. I said I think that’s the remedy. Whether the patient will swallow the medicine is another question.

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Media Consolidation — VoIP Meets Cable [6:02 pm]

NYTimes: Time Warner to Use Cable Lines to Add Phone to Internet Service; CNet News: Time Warner Cable reaches VoIP deals

I know I read something about the competitiveness issues around this move, but I can’t find it. Consider, though, what the opportunities are for bundling. With luck, I’ll find it eventually.

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Derek’s First Report On the ACS Meeting [11:59 am]

ACS Meeting Report, Pt 1

I came out of the meeting a lot more interested in what comes in-between where we are now and a mandatory compulsory licensing model - that is, something like Professor Fisher’s voluntary co-op idea. Right now, there is little chance the record industry will voluntarily offer blanket licenses. Digital music services will continue to evolve, but it will be a long time before they attempt to realize the potential of the Internet and create a model that does not depend on controlling all copying and distribution. So someone outside the current industry would have to step up to demonstrate the model’s potential. The value in that demonstration, whether it leads to a government-mandated or market model, is significant.

[...] One key thread that came up during both this conference and the Gartner/Berkman conference is that norms will factor in to a large extent. The voluntary co-op model would comport with people’s norms, in that it would not allow people to download and upload content on P2P, as long as it was authorized by that voluntary ACS. However, that is not a guarantee that it can compete with free.

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Benny Evangelista on the Music Conference [11:53 am]

Online music on center stage: Conference grapples with new digital world

Some interesting quotes:

“Since the first century, music has always had the same business,” said Ron Stone, founder of artist management agency Gold Mountain Entertainment. “We play music, you like it, you pay us money.” Later, he noted how file sharing has devalued music. “Music for a generation has become disposable and it used to be a collectible,” Stone said.

Other new research showed the future of the record industry might harken to its past, when 45 rpm singles ruled the charts. The NPD Group found consumers who used licensed online music services downloaded just one or two songs from an album 94 percent of the time. Consumers downloaded five or more songs only 2 percent of the time, NPD said.

Most the songs downloaded were older songs from an artist’s catalog: 18 percent of the songs were released after February 2002 and 82 percent were songs older than that.

“It makes sense to offer a discount when consumers buy four or five songs from the same artist, regardless of what album they originate from,” Crupnick said. “Less-popular tracks offered as free downloads might even be effectively leveraged to market paid downloads of more popular songs and drive sales of full CDs.”

However, the study didn’t jibe with Apple Computer’s data that 45 percent of the songs downloaded using iTunes Music Store were whole albums.

"Collectible" — somehow, I think of the Franklin Mint when I hear that word, not the music that I have and enjoy. And, when it comes to collectible, I’m surprised to see a claim that digital downloads have limited collections. My experience with music downloaders is that they have stored more music on their hard disks than they can ever expect to listen to — in fact, the size of their collection is a key factor in their continuing efforts to expand it.

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More on Music Pricing [10:51 am]

CNet News: How much is digital music worth?

Speaking at the iHollywood Forum’s Music 2.0 conference in Los Angeles Monday, executives on both sides focused on the 99-cent price tag that has become the market’s standard for downloadable music.

Critics say that that price needs to come down if mainstream consumers are to start buying in large numbers, making the Internet a serious factor in the record industry’s bottom line. Record labels say they can’t afford to go lower.

“There’s very little money in this to begin with,” said David Ring, vice president of Universal Music Group’s eLabs division. “A lot of people are already recognizing that we’re going to have to sell a lot more singles at 99 cents in order for us to make money, and for artists to be able to make a living.”

[...] Despite these positive early signs from iTunes and its rival services, consumers are still showing resistance to today’s prevailing market price for digital music, conference attendees said.

“I’ve been hearing 99 cents (as a price for digital songs). If it’s that, I would just go out and buy the CD,” said Alina, a UCLA student who participated on a panel discussing college students’ music behavior.

She said she had never used any of the paid digital music services. The students did not use their full names, in part because in some cases they were talking about downloading music illegally. “If it’s 30 cents I would buy it.”

[...] “There has not really been an attempt to explore the price elasticity of this product,” said Robbie Vann-Adibe, CEO of Ecast, a company that provides digital music jukeboxes for bars and retail businesses.

Currently, close to two-thirds of the 99 cent digital song price goes to labels and other copyright holders, leaving slim or even negative margins for the song stores themselves. Apple CEO Steve Jobs recently said his company remains interested in the business because it helps sell the company’s profitable iPod music devices.

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Things Go Better With Coke [8:16 am]

The next wave of corporate sponsorship for music continues — Coke floats music download service

In January of next year, the myCoke Music site will go live in the U.K. Coke has promised a selection of over 250,000 songs from 8,500 artists at a cost of 99p each. The new service will be run in partnership with music distributor OD2 - Microsoft’s European DRM supplier.

You’ve got to admire the tremendous sack of a company that can pull off handing kiddies teeth-rotting drinks with one hand while serving up a DRM infection with the other. The cunning marketeers at Coke, however, are one step behind rival Pepsi, which already announced a deal with Apple to give 100 million iTunes songs. But Apple has yet to roll out a Euro service, and Coke is stepping up to give the UK kiddies what they want.

In different shapes and forms, we now have Apple, Microsoft, Dell, HP, Napster, Pepsi, Coke and maybe even Wal-Mart hawking songs online. All of these companies are rushing to enter a business with atom thin margins at best and business sinking losses at worst. In almost every case, the motive is to link to a larger sale be it pricey iPods or placing a brand in the consumer’s face for other, profit-making goods.

Update: CNet News with the Reuters feed: Call it pop–Coke to launch online music service

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