jump to navigation

Why Does Apple Want to Halve the Price of On-Demand Music? October 26, 2014

Posted by Bill Rosenblatt in Business models, Music, Services, United States.
add a comment

Apple is asking record labels to agree to a $5/month subscription price for its Beats Music on-demand service, instead of the going rate of $10/month that it and others (Spotify, Rhapsody, etc.) charge in the US market.  This development started as rumor a few weeks ago, then rose to specific evidence of record label conversations confirmed by musician and artists’ rights champion David Lowery at the recent Common Ground intellectual property conference at George Mason University near Washington DC.  As of this past Friday, the evidence became strong enough for the Wall Street Journal to treat it as fact.

Re/code also reports that despite the major labels’ apparently cool reception to the new pricing, Spotify is already responding by offering a family plan in which additional family members can add their own subscriptions to a $10/month plan for $5/month.  (Beats Music has been offering discounted family plans through AT&T wireless accounts for a while.)  As Re/code reports, one reason that Apple has given for the change to $5/month is that it has found that its best iTunes customers spend about $60/year on the service.  Given that music download revenue has begun to drop rapidly, Apple apparently believes that it can entice iTunes users to an all-you-can-eat subscription service at the same spending level, instead of losing those users to free music services (or illegal downloads).  In other words, $5/month subscriptions are being offered to labels as a way to shore up revenues at $60 ARPU (annual revenue per user) from people who actually still pay for music .

This reasoning is clearly designed to appeal to record labels, which are known to be unhappy about the accelerating decline in purchases.  But is it Apple’s real motivation for halving the price of on-demand subscriptions?  I don’t think so.

The first thing to understand about on-demand music services is that despite all the talk about monthly subscription fees, the vast majority of users do not pay for them.  Research from Edison Research and Triton Digital has determined that the use of YouTube as a de facto on-demand music streaming service draws a US audience of four times all other on-demand services combined – including Spotify (paid and free).  Put another way, only about 8% of US users of on-demand music services actually pay for them.  Spotify’s percentage of paying US users has stabilized at 25% — which I am proud to say that readers of this blog predicted three years ago — while Google Play, Rhapsody, Rdio, and Beats Music do not offer free tiers for on-demand music.

On-demand music use is growing rapidly, but Apple only has a tiny piece of the market.  Beats Music has merely a few hundred thousand users, compared to the estimated 60 million who use YouTube as an on-demand music service and Spotify’s 12 million total US users.  Even when one counts only paying users, Beats Music still accounts for well below 10% of the market.

Apple clearly must do something dramatic to become a serious contender.  Integrating Beats Music into iTunes (and thereby marketing it heavily to the enormous iTunes audience) by itself isn’t going to expand the market enough to be meaningful to Apple.  And even if Apple thinks it can increase the paying user base disproportionately by halving the price, that’s not much of an increase in audience size — especially since the vast majority of the on-demand audience already gets it for free.

No, my view is that Apple’s primary purpose in halving the price is to throw the on-demand market into disarray.  Services like Spotify and Rhapsody have been operating their businesses based on the expectation of $10/month revenue for years.  Obviously, if Apple comes out with a rebranded Beats Music (iTunes On Demand, iTunes Beats, iTunes Unlimited, iTunes Jukebox, or whatever they end up calling it) at $5/month, all of the other on-demand services will have to offer the same price.  Spotify, Rhapsody, and Rdio would find themselves with unsustainable financial structures and/or the necessity of renegotiating their record label deals.  The best that any of these “pure play” services could hope for is to become acquisition bait for companies that are big and diverse enough to be able to cross-subsidize them (Yahoo and AOL come to mind).  A move to $5/month could even cause Google to rethink its plan to launch a paid subscription music service associated with YouTube.

In short, I predict that if Apple gets record companies to agree to $5/month for on-demand music, we will see a repeat of the shakeout that occurred around 2007-2008, which left only a handful of on-demand services in the market.  When the smoke clears, Apple could well find itself with a much larger chunk of the on-demand music market than if it were to try to grow its share organically.

The remaining mystery is whether Apple intends to add a free tier to Beats Music, such as a limited on-demand capability under the iTunes Radio banner.  The advent of free, legal on-demand music from Spotify and (effectively) YouTube in 2011 did cause the on-demand model to grow from a niche product for music geeks to a mainstream offering.  On-demand is still not quite as popular as Internet radio — I estimate the on-demand audience to be about 60% of the size of the audience for Pandora, iHeartRadio, etc. — but it has surpassed the user base for paid digital downloads.

On-demand is clearly a big part of the music industry’s digital future.  Apple is behind in the transition from downloads to access-based models and needs to catch up.  Only dramatic, disruptive gestures can make this happen, and halving the price is certainly one of them.

Now, since you were so good at predicting Spotify’s percentage of paying US users, let’s see how you do with this one.  Here’s a poll: 

That Old Question Again September 28, 2014

Posted by Bill Rosenblatt in DRM, Economics, Music, Services, United States.
add a comment

I’m looking at the U.S. music revenue numbers that the RIAA just released for the first half of 2014; at the same time, I’m reading Download: How Digital Destroyed the Record Business, a 2013 book by the noted UK music journalist Phil Hardy, who tragically passed away in April of this year.  For “numbers guys” like me, the book is a bonanza of information about the major labels’ travails during the transition from CDs to purely digital music. It’s a compendium of zillions of hard facts and opinions delivered with Hardy’s typical dry British wit  — though (like his other books) it would have benefited from a copy editor and, occasionally, fact checker.

One of the statements in Hardy’s book that sits somewhere between fact and opinion is his assertion — as recently as last year! — that the elimination of DRM from music downloads boosted sales.  Sigh… that old question again.

The question of whether DRM-free music download sales helped or hindered the music industry (no doubt it was good for consumers) served as a sort of Rorschach test back in the late 2000s after Apple and Amazon started selling DRM-free downloads — rather like the Rorschach test of Radiohead’s “pay what you wish” experiment in 2011.  If you hated DRM, DRM-free was going to usher in a bright new era of opportunity for everyone; if you liked it, removing DRM was going to spell the end of the music business.

So I thought that with the RIAA revenue statistics database in hand, I could put the old question to rest.  Here is what I found:

U.S. Digital Music Revenue, millions of 2013 dollars.  Source: RIAA.

U.S. Digital Music Revenue, millions of 2013 dollars. Source: RIAA.

In this chart, “Downloads” includes singles plus albums; “Streaming” includes both paid and ad-supported on-demand services (Spotify, Rhapsody, YouTube, Vevo)* as well as Internet radio (Pandora, iHeartRadio, Slacker, TuneIn Radio), plus satellite radio and a few other odds and ends.  I estimated totals for 2014 by taking the RIAA’s newly released numbers for the first half of this year and applying growth rates from the second half of 2013 to the first half of this year.

The relevant dates are:

  • April 2003: Apple opens the iTunes Music Store.
  • May 2007: Apple launches iTunes Plus, selling tracks from EMI without DRM for $1.29.
  • January 2008: Amazon launches AmazonMP3 with DRM-free MP3s from all labels.
  • May 2009: iTunes goes completely DRM-free in the US.
  • 2011: Spotify launches its “freemium” model in the US; major labels complete ad revenue share deals with YouTube, so that virtually all major-label music is available on YouTube legally.

Before we get into the analysis, let’s get one thing out of the way: the biggest change in music industry revenues from 2003 onwards was, of course, the dramatic drop in revenues from CDs.  Those numbers aren’t shown here; for one thing, they would dwarf the other numbers.  This is all part of the move from physical products to digital products and services, which has affected both downloads and streaming.

Now let’s look at what happened after 2007.  Growth in download sales began to slow down a bit, while streaming remained fairly flat.  Starting in 2008, growth in paid downloads remained virtually unchanged until the ad-supported on-demand year of 2011.  2008 was a transitional year for DRM, as Apple only offered a small amount of music DRM-free (and at higher prices), while Amazon offered all DRM-free music but had only a single-digit share of the market.  The real post-DRM era for paid downloads started in May 2009.

So, to see what happened after the major labels agreed to sell digital files without DRM, we need to look at the period from May 2009 to the start of 2011, which is highlighted in the chart.  What happened then?  Not much of anything.  Growth in download sales was essentially unchanged from the preceding two years.

One could argue that if streaming hadn’t ever existed, download revenues might have grown after January 2009, given that streaming revenues from 2009-2011 started to grow faster.  But given that streaming growth didn’t accelerate immediately after January 2009, I wouldn’t make that causality.

So there you have the answer to the old question: removing DRM from music files had little or no effect on download sales.

As a postscript, my 2014 projections included an interesting factoid: vinyl album sales, if current growth rates continue, should reach about $340 million this year.  That takes the resurgence of vinyl from a mildly curious hipster phenomenon to almost 5% of total music revenue.  For comparison purposes, it makes vinyl almost as valuable as ad-supported on-demand streaming (YouTube, Spotify Free, Vevo) and puts it on track to exceed that segment in 2015.  Vinyl could even end up equaling CD revenue sometime around 2016-2017 — for the first time since the late 1980s!

*Paid subscription on-demand services include download features, which use DRM to tie files to users’ devices and make them playable as long as the user pays the subscription fees. But the RIAA reports these as part of “subscription services,” lumping them in with streaming on-demand music.

Ghosts in the UltraViolet Machine September 24, 2014

Posted by Bill Rosenblatt in Business models, Music, Publishing, Services, Video.
add a comment

A few brief items of interest this week.  First is a reminder about Copyright and Technology London 2014 next Wednesday – there’s still time to register!  We have a great lineup of keynote speakers, including Shira Perlmutter, Maria Martin-Prat, and Dominic Young of the Copyright Hub, as well as panels on hot issues such as ISP responsibility for policing infringement and content protection for “4K” video content.  I look forward to seeing some of you in London next week.

Meanwhile…

Apple and Amazon Add UltraViolet-Style Family Accounts

Amazon and Apple recently announced the addition of “family accounts” for sharing content.  These enable up to six users who share a billing address to link accounts and get access to each other’s content, including e-books, apps, music, and video.  Apple’s Family Share is a feature of the new version of its mobile operating system, iOS 8, while Amazon’s Family Library feature is expected to launch later this Fall.

The primary difference between the two is that Apple Family Share enables the sharing of all videos downloaded from iTunes while Amazon only allows sharing of video streamed via Amazon Prime Instant Video, as opposed to videos purchased by non-members of Amazon Prime.  (In other words, this is yet another gambit to entice more users into Amazon’s US $99/year Prime service.)  Some websites have commented that Amazon’s service does not allow sharing of purchased music, while Apple’s does; but this is a bit silly given that music downloaded from both services is DRM-free.

It’s not particularly surprising that Hollywood studios have given both Amazon and Apple the rights to extend purchases to family accounts.  That’s because the rights are similar to those that the studios already extend for the same types of content under UltraViolet usage rules.  In fact, the availability of family access to video content from two of the biggest digital movie retailers eats into the advantages that UltraViolet offers.  (UltraViolet’s principal retail partners are Nook (Barnes & Noble), Target, and Best Buy).

More surprising is that one of these retailers decided it was worth the development effort to add this feature (causing the other to add it as well); perhaps this is a sign that UltraViolet is catching on?  Either way, this is yet another example of how the mainstreaming of digital content products and services has exposed deficiencies in the rights that users get to digital content compared to physical products such as DVDs (not to mention print books) and has led to innovation.  I would expect a similar announcement from Google Play in time for the holiday shopping season.

Garth Brooks Launches GhostTunes

Finally, a minor hypestorm erupted in the music industry recently over the beta launch of GhostTunes, a new digital music retail site spearheaded by country music superstar — and longtime digital holdout — Garth Brooks.  Contrary to initial reports, GhostTunes does not only sell albums; it also sells single tracks — though only at artists’ or labels’ discretion. Purchased music is available in an online locker and can be streamed or downloaded as DRM-free MP3s.  Some items are multi-album packages that contain multimedia items, in the vein of Apple’s iTunes LP.

Many musical artists will surely like GhostTunes’ willingness to sell single tracks only if the artist permits it.  The recorded music industry has been looking for ways to prop up the sales of albums in the digital age — just as UltraViolet was originally intended to help Hollywood studios prop up sales of movies while all of the growth is in streaming.  According to RIAA statistics, single track sales accounted for about 1% of unit volume when the iTunes Music Store opened in 2003 and have grown to over 80% today.

Yet GhostTunes looks like it is shaping up to be the music industry’s Pluto Nash moment: an expensive undertaking whose primary function is to cater to the whims of a big influential star rather than to be successful as a business.  Although GhostTunes is billed as an “artist-friendly” retail site, there’s little reason for anyone to go there other than the exclusive availability of Garth Brooks’s music in digital form… legally. The music selection comes from all three major labels but is limited: the press release touts “a million tracks” (compared to more than 20 million on iTunes or Spotify), while the site itself appears even more limited to a few dozen releases in each of several genres.  The highlight of the current catalog is a bundle of a dozen albums plus a concert video from Brooks himself for $30.

GhostTunes received a moderate amount of attention two weeks ago, ranging from neutral and factual to critical and skeptical. The press release contains a combination of vague hype (“music fans and artists deserve more”) and either falsehoods or anachronisms (“Just as it seemed fans would be left buying music in an increasingly more restrictive configuration without the ability to take the music they purchase anywhere they please, GhostTunes.com offers a new way.”)

It’s hard to see what GhostTunes can possibly offer that isn’t available on iTunes or Amazon — other than low prices for album bundles — but we’ll see what it does offer when (or if) it goes from beta to full launch.

Dispatches from IDPF Digital Book 2014, Pt. 1: Wattpad June 1, 2014

Posted by Bill Rosenblatt in Events, Publishing, Services, Uncategorized.
2 comments

The International Digital Publishing Forum (IDPF), the standards body in charge of the EPUB standard for digital book publishing, puts on a conference-within-a-conference called IDPF Digital Book inside the gigantic Book Expo America in NYC each year.  Various panels and hallway buzz at this year’s event, which took place last week, showed how book publishing is developing regarding issues we address here.  I’ll cover these in three installments.

First and most remarkable is the emergence of Wattpad as the next step in the disruption of the value chain for authors’ content.  The Toronto-based company’s CEO, Allen Lau, spoke on a panel at the conference that I moderated.  Wattpad can be thought of as a successor to Scribd as “YouTube for writings.”

There are a few important differences between Scribd and Wattpad.  First, whereas Scribd had become a giant, variegated catchall for technical white papers, vendor sales collateral, court decisions, academic papers, resumes, etc., etc., along with more recently acquired content from commercial publishers, Wattpad is focused tightly on text-based “stories.”

Second, Wattpad is optimized for reading and writing on mobile devices, whereas Scribd focuses on uploads of existing documents, many of which are in  not-very-mobile-friendly PDF.  Third and most importantly, Scribd allows contributors to sell their content, either piecemeal or as part of Scribd’s increasingly popular Netflix-like subscription plan; in contrast, Wattpad has no commerce component whatsoever.

In fact, the most remarkable thing about Wattpad is that it has raised over $60 million in venture funding, almost exactly $1 million for each of the company’s current employees.  But like YouTube, Facebook, Tumblr, and various others in their early days, it has no apparent revenue model — other than a recent experiment with crowdfunding a la Kickstarter or Indiegogo.  There’s no way to buy or sell content, and no advertising.

Instead, Wattpad attracts writers on the same rationales by which YouTube attracts video creators (and Huffington Post attracts bloggers, etc.): to give them exposure, either for its own sake or so that they can make money some other way.  For example, Lau touted the fact that one of its authors recently secured a movie deal for her serialized story.

Apparently Wattpad has become a vibrant home for serialized fiction, fan fiction, and stories featuring celebrities as characters (which may be a legal gray area in Canada).  It has also become a haven for unauthorized uploads of copyrighted material, although it has taken some steps to combat this through a filtering scheme developed in cooperation with some of the major trade publishers.  Wattpad has 25 million users and growing — fast.

This all makes me wonder: why isn’t everyone in the traditional publishing value chain — authors, publishers, and retailers — scared to death of Wattpad?  It strikes me as a conduit for tens of millions of dollars in VC funding to create expectations among its youthful audience that content should be free and that authors need not be paid.

There’s a qualitative difference between Wattpad and other social networking services. Copyright infringement aside, TV networks and movie studios didn’t have much to fear from YouTube in its early days  of cat videos.  Facebook and Tumblr started out as venues for youthful self-expression, but little of that was threatening to professional content creators.

In contrast, Wattpad seems to have crossed a line.  Much of the writing on Wattpad — apart from its length — directly substitutes for the material that trade publishers sell.  Wattpad started out as a platform for writers to critique each others’ work — which sounds innocuous (and useful) enough — but it’s clearly moved on to become a place where the readers vastly outnumber the writers.  (How else to explain the fact that despite the myriad usage statistics on its website, Wattpad does not disclose a number of active authors?)

In other words, Wattpad has become a sort of Pied Piper leading young writers away from the idea or expectation of doing it professionally.  Moreover, there are indications that Wattpad expects to make money from publishers looking to use it as a promotional platform for their own authors’ content, even though — unlike Scribd — it can’t be sold on the site.

By the time Wattpad burns through its massive treasure chest and really needs to convert its large and fast-growing audience into revenue from consumers, it may be too late.

MP3Tunes and the New DMCA Boundaries March 30, 2014

Posted by Bill Rosenblatt in Law, Music, Services, United States.
2 comments

With last week’s jury verdict of copyright liability against Michael Robertson of MP3Tunes, copyright owners are finally starting to get some clarity around the limits of DMCA 512.  The law gives online service operators a “safe harbor” — a way to insulate themselves from copyright liability related to files that users post on their services by responding to takedown notices.

To qualify for the safe harbor, service providers have to have a policy for terminating the accounts of repeat infringers, and — more relevantly — cannot show “willful blindness” to users’ infringing actions.  At the same time, the law does not obligate service providers to proactively police their networks for copyright infringement.  The problem is that even when online services respond to takedown notices, the copyrighted works tend to be re-uploaded immediately.

The law was enacted in 1998, and copyright owners have brought a series of lawsuits against online services over the years to try to establish liability beyond the need to respond to one takedown notice at a time.  Some of these lawsuits tried to revisit the intent of Congress in passing this law, to convince courts that Congress did not intend to require them to spend millions of dollars a year playing Whac-a-Mole games to get their content removed.

In cases such as Viacom v. YouTube and Universal Music Group v. Veoh that date back to 2007, the media industry failed to get courts to revisit the idea that service providers should act as their own copyright police.  But over the past year, the industry has made progress along the “willful blindness” (a/k/a “looking the other way”) front.

These cases featured lots of arguments over what constitutes evidence of willful blindness or its close cousin, “red flag knowledge” of users’ infringements.  Courts had a hard time navigating the blurry lines between the “willlful blindness” and “no need to self-police” principles in the law, especially when the lines must be redrawn for each online service’s feature set, marketing pitch, and so on.

But within the past couple of years, two appeals courts established some of the contours of willful blindness and related principles to give copyright owners some comfort.  The New York-based (and typically media-industry-friendly) Second Circuit, in the YouTube case, found that certain types of evidence, such as company internal communications, could be evidence of willful blindness.  And even the California-based (and typically tech-friendly) Ninth Circuit found similar evidence last year in a case against the BitTorrent site IsoHunt.

The Second Circuit’s opinion in YouTube served as the guiding precedent in the EMI v. MP3Tunes case — and in a rather curious way.  Back in 2011, the district court judge in MP3Tunes handed down a summary judgment ruling that was favorable to Robertson in some but not all respects.  But after the Second Circuit’s YouTube opinion, EMI asked the lower court judge to revisit the case, suggesting that the new YouTube precedent created issues of fact regarding willful blindness that a jury should decide.  The judge was persuaded, the trial took place, and the jury decided for EMI.  Robertson could now be on the hook for tens of millions of dollars in damages.

(Eleanor Lackman and Simon Pulman of the media-focused law firm Cowan DeBaets have an excellent summary of the legal backdrop of the MP3Tunes trial; they say that it is “very unusual” for a judge to go back on a summary judgment ruling like that.)

The MP3Tunes verdict gives media companies some long-sought leverage against online service operators, which keep claiming that their only responsibility is to respond to each takedown notice, one at a time.  This is one — but only one — step of the many needed to clarify the rights of copyright owners and responsibilities of service providers to protect copyrights.  And as far as we can tell now, it does not obligate service providers to implement any technologies or take any more proactive steps to reduce infringement.  Yet it does now seem clear that if service providers want to look the other way, they at least have to keep quiet about it.

As for Robertson, he continues to think of new startup ideas that seem particularly calculated to goad copyright owners.  The latest one, radiosearchengine.com, is an attempt to turn streaming radio into an interactive, on-demand music service a la Spotify.  It lets users find and listen to Internet streams of radio stations that are currently playing specific songs (as well as artists, genres of music, etc.).

Radiosearchengine.com starts with a database of thousands of Internet radio stations, similar to TuneIn, iHeartRadio, Reciva, and various others.  These streaming radio services (many of which are simulcasts of AM or FM signals) carry program content data, such as the title and artist of the song currently playing.  Radiosearchengine.com retrieves this data from all of the stations in its database every few seconds, adds that information to the database, and makes it searchable by users.  Robertston has even created an API so that other developers can access his database.

Of course, radiosearchengine.com can’t predict that a station will play a certain song in the future (stations aren’t allowed to report it in advance), so users are likely to click on station links and hear their chosen songs starting in the middle.  But with the most popular songs — which are helpfully listed on the site’s left navbar — you can find many stations that are playing them, so you can presumably keep clicking until you find the song near its beginning.

This is something that TuneIn and others could have offered years ago if it didn’t seem so much like lawsuit bait.  On the other hand, Robertson isn’t the first one to think of this: there’s been an app for that for at least three years.

“Netflix for E-Books” Approaches Reality October 7, 2013

Posted by Bill Rosenblatt in Publishing, Services.
add a comment

Back in 2002, a startup company called listen.com had just concluded licensing deals with all of the (then five) major labels.  The result was Rhapsody: the “celestial jukebox” finally brought to life, the first successful subscription on-demand music service.  Rhapsody — whose original focus on classical music must have made it seem like a low-impact experiment to the majors — didn’t get on the map until they closed those deals.*

Eleven years later, something analogous is happening in the world of book publishing.  Last week, the popular document sharing site Scribd obtained licenses to all backlist titles from HarperCollins, one of the Big Five trade book publishers (along with Penguin Random House, Simon & Schuster, Macmillan, and Hachette), for an $8.99/month all-you-can-read subscription service.  It should only be a matter of time before the other four trickle in.  The service had been in “soft launch” mode since January with catalogs from smaller publishers such as RosettaBooks and SourceBooks.

Why Scribd and not Oyster or any of the others?  Because Scribd already has a huge user base — 80 million monthly visitors — making it an attractive existing audience instead of a speculative one.

Scribd started in 2006 as sort of a “YouTube for documents.”  The vast majority of the documents on the site were free; many were individual authors’ writings, corporate whitepapers, court filings, and so on.  Scribd also enabled authors to sell their documents as paid downloads (DRM optional).  Eventually some publishers put e-books up for individual sale on the site, including major publishers in the higher ed and scholarly segments.

The publishing industry has been buzzing about the possibility of a “Netflix for books” for a couple of years now.  A few startups, such as Oyster, have built out the infrastructure but have only gotten licenses from smaller publishers and independent authors.  At least for now, only Scribd has a major publisher deal; that will make all the difference in taking the subscription model for e-books to the mainstream.  Like it or not, major content providers are key to the success of a content retail site.

From a technical standpoint, Scribd’s subscription service has more in common with music apps like Rhapsody and Spotify than with video services like Netflix.  Like those music services, Scribd is mainly a “streaming” service, a/k/a “cloud reading,” in that it retrieves content in small chunks instead of downloading entire e-books but also gives users the option of downloading content to their mobile devices.  (Thereby enabling me to use it on the subways in NYC.)  Files stored on mobile devices are obfuscated or encrypted, so that users will not have access to them anymore if they cancel their subscriptions.  And also analogously to the interactive streaming music services, Scribd uses a simple proprietary “good enough” encryption scheme instead of a heavyweight name-brand DRM technology such as the Adobe DRM used with the Nook, Kobo, Sony Reader, and Bookish systems.

Although Scribd is the first paid subscription service with major-publisher licensing, it’s actually not the first way to read major-publisher trade e-books on a time-limited basis: OverDrive introduced OverDrive Read, an HTML5-based cloud reading app for its public library e-lending service, a year ago.

In fact, OverDrive Read is currently the only (legal) way to read frontlist e-book titles from major publishers through a browser app on a time-limited basis.  And that leads to an important difference between Scribd’s service and interactive streaming music services: HarperCollins is only licensing backlist titles, not frontlist (latest bestsellers).  From the publishers’ point of view, this is a smart move that other Big Five publishers will most likely follow.

In that respect, Scribd could become more like Netflix than Rhapsody or Spotify, in that Netflix only offers movies in the home entertainment window — Hollywood’s rough equivalent of “backlist.”  In contrast, the major music labels licensed virtually their entire catalogs to interactive streaming services from the start, save only for some high-profile artist holdouts such as the Beatles and Led Zeppelin.  Instead, the record labels have had to settle for (hard-won) price differentiation between top new releases and back catalog for paid downloads.  Just as readers who want the latest frontlist titles in print have to pay for hardback, those who want them as e-books will have to buy them.  (Or borrow them from the library.)

*The story of Rhapsody is somewhat sad.  For music geeks like myself, the service was a revelation — a truly new way to listen to and explore music.  But Rhapsody slogged through years of difficulty communicating the value of subscription services to users amid numerous ownership changes.  Subscribership grew gradually and plateaued at about a million paying users; then it suffered unfairly from the tsunami of hype around Spotify’s US launch in 2011.  It didn’t help that Rhapsody took too long to release a halfway decent mobile client; but otherwise Spotify’s functionality was virtually identical to Rhapsody at that time.  Now Rhapsody is struggling yet again as it attempts to expand to markets where Spotify is already established, training its 24 million users to expect free on-demand streaming with ads while losing money hand over fist.  And in the latest insult to its pioneering history, a 6,000-word feature on Spotify in Mashable — a tome by online journalism standards — mentions Rhapsody not once.

Comcast Adds Carrots to Sticks August 9, 2013

Posted by Bill Rosenblatt in Fingerprinting, Services, Video.
1 comment so far

Variety magazine reported earlier this week that Comcast is developing a new scheme for detecting illegal file downloads over its Internet service.  When it detects a user downloading content illegally, it will send a message to the user with links to legal alternatives, including from sources that aren’t Comcast properties.  This scheme would be independent of the Copyright Alert System (CAS) that launched in the United States earlier this year.

What a difference the right economic incentives make.  Comcast has significant incentive for offering carrots instead of sticks: it owns NBC Universal, a major movie studio and TV network.  This means that Comcast has incentives to protect content revenue, even if it comes from third parties like iTunes, Netflix, or Amazon.  In addition, if Comcast protects its own network from infringers, it has a stronger position from which to negotiate content distribution deals for its own Xfinity-branded services from other major studios.

Comcast will most likely use the same monitoring services as content owners — like NBC Universal, whose people are collaborating on the design of this (as yet unnamed) system — use to detect allegedly infringing downloads.  It will be able to send messages to users in close to real time — in contrast to CAS, which processes data about detected downloads through a third party before they get sent to users.

This scheme is reminiscent of one of the earliest uses of fingerprinting technologies in a commercially licensed service: around 2005, a P2P file-sharing network called iMesh cut a deal with the major record labels (or at least some of them).  They would allow iMesh to operate its network with audio fingerprinting (supplied by Audible Magic, still a leader in the field).  The fingerprinting technology would detect attempts to upload copyrighted music to the network and block them.  Instead, iMesh offered copyrighted music files supplied by the labels, encrypted with DRM, for purchase.  Given that several other P2P file-sharing networks (such as LimeWire) continued to operate at the time without such restrictions, iMesh wasn’t much of a success.

Comcast is hoping to get other ISPs to adopt similar schemes, presumably both as a service to major content owners and in hopes that this anti-piracy feature doesn’t drive users to its competitors.  But that gambit is unlikely to succeed.  Of the four other major ISPs in the US — AT&T, Cablevision, Time Warner Cable, and Verizon — none are corporate siblings to major content owners.  (Time Warner Cable was spun off from Time Warner in 2009, though it retains the name.)  In other words, they won’t have the right incentives.

In contrast, France’s HADOPI scheme is supposed to steer people to legal alternatives by simply giving those services a “seal of approval” that they can use themselves.  What Comcast has in mind ought to be more effective.  In the world of movies and TV shows, it would be that much more effective if legal services were to offer content with anything like the completeness of record label catalogs offered through legal music services.   But that’s another story for another day.

 

The Coming Two-Tiered World of Libary E-book Lending June 4, 2013

Posted by Bill Rosenblatt in Libraries, Publishing, Services, United States.
2 comments

A group of public libraries in California recently launched a beta version of EnkiLibrary, an e-book lending system that the libraries run themselves.  EnkiLibrary is modeled on the Douglas County Libraries system in Colorado.  It enables libraries to acquire e-book titles for lending in a model that approximates print book acquisition more closely than the existing model.

Small independent publishers are making their catalogs available to these library-owned systems on liberal terms, including low prices and a package of rights that emulates ownership.  In contrast, major trade publishers license content to white-label service providers such as OverDrive under a varied, changing, and often confusing array of conditions — including limited catalog, higher prices than those charged to consumers, and limitations on the number of loans.  The vast majority of public libraries in the United States use these systems: they choose which titles to license and offer those to their patrons.

Welcome to the coming two-tiered world of library e-book lending.  E-lending systems like EnkiLibrary may well proliferate, but they are unlikely to take over; instead they will coexist with — or, in EnkiLibrary’s own words, “complement” — those used by the major publishers.

The reason for this is simple: indie publishers — and authors, working through publisher/aggregators like Smashwords — prioritize exposure over revenue, while for major publishers it’s the other way around.  If more liberal rights granted to libraries means that borrowers “overshare” e-books, then so be it: some of that oversharing has promotional value that could translate into incremental, cost-free sales.

In some ways, the emerging dichotomy in library e-lending is like the dichotomy between major and indie labels regarding Internet music sales.  Before 2009, the world of (legal) music downloads was divided into two camps: iTunes sold both major and indie music and used DRM that tied files to the Apple ecosystem; smaller services like eMusic sold only indie music, but the files were DRM-free MP3s that could be played on any device and copied freely.  That year, iTunes dropped DRM, Amazon expanded its DRM-free MP3 download service to major-label music, and eventually eMusic tapered off into irrelevance.

Yet it would be a mistake to stretch the analogy too far.  Major publishers are unlikely to license e-books for library lending on the liberal terms of a system like EnkiLibrary or Douglas County’s in the foreseeable future; the market dynamics are just not the same.

In 2008, iTunes had an inordinately large share of the music download market; the major labels had no leverage to negotiate more favorable licensing terms, such as the ability to charge variable prices for music.  The majors had tried and failed to nurture viable competitors to iTunes.  Amazon was their last and best hope.  iTunes already had an easy-to-use system that was tightly integrated with Apple’s own highly popular devices.  It became clear that the only meaningful advantage that another retailer could have over iTunes was lack of DRM.  So the major labels were compelled to give up DRM in order to get Amazon on board.  By 2009, DRM-free music from all labels became available through all major retailers.

No such competitive pressures exist in the library market.  On the contrary, libraries themselves are under competition from the private sector, including Amazon.  Furthermore, arguments that e-book lending under liberal terms leads to increased sales for small publishers won’t apply very much to major publishers, for reasons given above.

Therefore, unless libraries get e-lending rights under copyright law instead of relying on “publishers’ good graces” (as I put it at the recent IDPF Digital Book 2013 conference) for e-lending permission, it’s likely that libraries will have to labor under a two-tiered system for the foreseeable future.  Douglas County Libraries director Jamie LaRue — increasingly seen as a revolutionary force in the library community — captured the attitude of many when he said, “It isn’t the job of libraries to keep publishers in business.”  He’s right.  Ergo the stalemate should continue for some time to come.

Mega’s Aggressive Takedown Policy? February 1, 2013

Posted by Bill Rosenblatt in Law, New Zealand, Services.
add a comment

Here is an interesting addendum to last week’s story about Mega, the new file storage service from Kim Dotcom of MegaUpload fame.

Recall that Mega encrypts files that users store on its servers, with keys that only the users know… unless they publish URLs that contain the keys, like this one.  This means that Mega can’t know whether or not files on its servers are infringing, unless a user publishes a URL like that.

As TorrentFreak has found, Mega is crawling the web in search of public URLs that contain Mega encryption keys.  When it finds one, it proactively removes the content from its server — at least if the file in question contains audio or video content — and it sends the user who uploaded the file a message saying that it has taken down the file due to receipt of a takedown notice from the copyright owner.

It’s impossible to say for sure whether this is a blanket policy, and of course Mega’s web-crawling technology probably doesn’t work perfectly.  But if this is Mega’s policy, then Mega is being at least as aggressive as RapidShare in going after public links to infringing content.  RapidShare finds public links to files on its service and, apparently, examines them with content identification technology to see if they are infringing.  According to TorrentFreak’s findings, Mega does no analysis; it uses no fingerprinting or other content identification technology; it just takes the content down.  It has taken down unambiguously legal content.  (My file wasn’t taken down, because it’s just a PDF of a presentation that I created, and/or because it’s only on this blog and not on a known P2P index site.)

Mega could be doing this in order to conform to the terms of Kim Dotcom’s arrest.  Whatever the reason, it helps make sure that pirated material on Mega can only be shared by sending encryption keys through means such as email… or perhaps URLs  that are publicly available but are themselves encrypted.  And if you truly want to share audio or video material to which you have the rights, then Mega wasn’t going to be the best place for you anyway.

A commenter on TechDirt put it best: “So we’re still allowed to share the stuff, but just not on linking sites? Seems fair enough to me. Probably for the best too, since some dumbasses clearly don’t know how to hide their copyrighted material properly.”

Kim Dotcom Embraces DRM January 22, 2013

Posted by Bill Rosenblatt in DRM, New Zealand, Services.
add a comment

Kim Dotcom launched a new cloud file storage service, the New Zealand-based Mega, last weekend on the one-year anniversary of the shutdown of his previous site, the notorious MegaUpload.  (The massive initial interest in the site* prevented me from trying out the new service until today.)

Mega encrypts users’ files, using what looks like a content key (using AES-128) protected by 2048-bit RSA asymmetric-key encryption.  It derives the latter keys from users’ passwords and other pseudo-random data.  Downloading a file from a Mega account requires knowing either the password that was used to generate the RSA key (i.e., logging in to the account used to upload the file) or the key itself.

Hmm.  Content encrypted with symmetric keys that in turn are protected by asymmetric keys… sounds quite a bit like DRM, doesn’t it?

Well, not quite.  While DRM systems assume that file owners won’t want to publish keys used to encrypt the files, Mega not only allows but enables you to publish your files’ keys.  Mega lets you retrieve the key for a given file in the form of a URL; just right-click on the file you want and select “Get link.”   (Here‘s a sample.)  You can put the resulting URL into a blog post, tweet, email message, or website featuring banner ads for porn and mail-order brides.

(And of course, unlike DRM systems, once you obtain a key and download a file, it’s yours in unencrypted form to do with as you please.  The encryption isn’t integrated into a secure player app.)

Yet in practical terms, Mega is really no different from file-storage services that let users publish URLs to files they store — examples of which include RapidShare, 4Shared, and any of dozens of file transfer services (YouSendIt, WhaleMail, DropSend, Pando, SendUIt, etc.).

Mega touts its use of encryption as a privacy benefit.  What it really offers is privacy from the kinds of piracy monitoring services that media companies use to generate takedown notices — an application of encryption that hardcore pirates have used and that Kim Dotcom purports to “take … out to the mainstream.”  It will be impossible to use content identification technologies, such as fingerprinting, to detect the presence of copyrighted materials on Mega’s servers.  RapidShare, for example, analyzes third-party links to files on its site for potential infringements; Mega can’t do any such thing, by design.

Mega’s use of encryption also plays into the question of whether it could ever be held secondarily liable for its users’ infringements under laws such as DMCA 512 in the United States.  The Beltway tech policy writer Paul Sweeting wrote an astute analysis of Mega’s chances against the DMCA over the weekend.

Is Kim Dotcom simply thumbing his nose at Big Media again?  Or is he seriously trying to make Mega a competitor to legitimate, prosaic file storage services such as DropBox?  The track records of services known for piracy trying to go “legit” are not encouraging — just ask Bram Cohen (BitTorrent Entertainment Network) or Global Gaming Factory (purchasers of The Pirate Bay’s assets).  Still, this is one to watch as the year unfolds.

*Or, just possibly, server meltdowns faked to generate mountains of credulous hype?

Follow

Get every new post delivered to your Inbox.

Join 634 other followers