Oblivion, But Not Beyond January 2, 2012
Posted by Bill Rosenblatt in Music, Services.19 comments
Last week, the music startup Beyond Oblivion ceased operations. The shutdown happened after three years of development and shortly before the company’s service was to go into public beta. The news was leaked to Engadget last Thursday and became “official” when it was reported in the Financial Times on Saturday.
First, the disclosure: I consulted to Beyond Oblivion throughout much of the company’s existence. I’m proud of what we did, privileged to have worked with its top-notch management team, and sad about what happened last week.
I’ll leave it to others to chew over the amount of cash that the company burned through or why the company shut down at this particular time. Instead I want to talk about the company’s vision and business model, which — if it had seen the commercial light of day — did in fact have the potential to change the online music industry for the better. Although Beyond Oblivion did get some press coverage, its unique model was never fully explained.
At a basic level, Beyond’s model was a hybrid between download services like iTunes and streaming services like Spotify. It was based on the concepts of licensed devices and play count reporting. Users could buy new Beyond-licensed devices or purchase licenses for their existing PCs or other devices. They could download tracks from the Beyond catalog to their licensed devices (a la iTunes) and listen to them as often as they wanted. The Beyond client software would securely count plays and report them for royalty purposes (a la Spotify).
Users could also add their own music files to their Beyond libraries using a process that is now called “scan and match”; Beyond would report plays of those files too, even if the original files were obtained illegally. We had also designed a way for users to add music to Beyond’s music catalog (we called it “catalog crowdsourcing”), with permission of rights holders, which could have resulted in the world’s largest legal online music catalog.
There would be no limit to the number of tracks a user could download to a licensed device. Furthermore, Beyond users could freely share their files with other Beyond users; a Beyond file could play on any Beyond-licensed device (within a given country).
Beyond Oblivion had two signed major-label deals with others in the works, and over seven million tracks in its catalog at last count.
Now here’s the real differentiator: users would pay neither monthly subscription fees nor per-download charges for the service. Beyond’s business model was to charge device makers or network operators the license fees, with the expectation that they would subsidize these fees or perhaps bundle part of them into users’ monthly network charges. If users wanted to add Beyond to their own devices, they would pay a one-time charge, expected to be well under US $100, for unlimited downloads for as long as they owned the device.
Whenever anyone knowledgeable about digital music asked for a quick explanation of Beyond’s model, I would answer, “It’s like Comes With Music on steroids.” (Comes With Music was Nokia’s attempt to create a subsidized music model for a few of its own devices.)
The problem with device maker subsidized models is that they are limited to new devices from that maker. Instead, Beyond’s intent was to build a large, global ecosystem of subsidized music that would work on a wide range of devices and networks. It would be an intermediary between device makers and network operators (license fee payers) on the one hand and music copyright owners (royalty recipients) on the other. Beyond’s pitch to the former was simple: here is a chance to eat into Apple’s market share for digital music by offering a service to users that “feels like free” but is completely legal.
The Beyond concept was based on a fundamental insight by founder Adam Kidron, a serial entrepreneur, former pop record producer, inveterate frequent flier, and spreadsheet Jedi Master. In fact, his business model began on a spreadsheet. He figured out that if he could count every play of a digital music file and pay a small royalty to the copyright owners for each one, he could make a profitable business by charging device licensing fees — essentially trading off device license fees against those “micro-royalties” — and still offer legal music for much less money than anyone else. His model took into account factors such as the expected ownership lifespans of certain device types such as PCs and mobile handsets.
Kidron determined that technology companies were the only remaining entities in the digital music value chain where revenue could come from: users are being led toward expecting to get music for free, and ad revenue has been disappointing. Thus, we tried to define a model and features with enough appeal to tech companies to get them to pay the licensing fees.
But Beyond would only have had industry-wide impact if it could sign up a critical mass of network operators and device makers at launch — a process that would require a lot of salesmanship, faith-building, and delicate discussions about exclusivity versus the power of the ecosystem. When Kidron first approached me three years ago about helping the company and explained the model, my initial thought was, “This might actually work if someone threw enough money at it.” Then he proceeded to explain the funding plan. I was impressed; he had thought it through. He didn’t just want to launch yet another music service, he wanted to move the music industry “beyond oblivion.”
The company did raise large sums of money in order to seed the entire ecosystem. It was in advanced talks with companies worldwide. A few name-brand device makers were considering putting out new Beyond-enabled models of handsets, tablets, and other devices. Wireless carriers in several geographies were considering launching services for Beyond-enabled devices. Major record labels signed licensing deals. But even with cash in hand, the negotiations among the various constituencies proved to be a long, hard slog.
Yet Beyond’s impact on the music industry was potentially much wider than mere profitability for one business. To understand this, it’s useful to look at its economic model in light of various recent governmental attempts to get network service providers to assume more responsibility for curbing copyright infringement. These have boiled down to operators paying for three different things: technology to monitor activity for possible infringement; per-user levies for use of content, and ”piracy fees” to cover copyright enforcement costs.
All of these models have serious drawbacks. Levies are inaccurate in paying copyright owners according to actual use of their content and unfair in that they charge all users the same amount regardless of their use. If network operators paid for their own piracy monitoring, they would do it in the same way that device makers have implemented DRM: at the lowest possible cost, with little regard for efficacy, and in ways that benefit them instead of copyright owners, such as customer lock-in. And “piracy fees” are the most inequitable idea of all.
A market-based solution that enables network operators to offer functionally rich access to legal content in a way that feels like free seems like a much better approach — a carrot rather than a stick. It can entice people away from copyright infringement while compensating rights holders fairly and accurately. Given the choice, a network operator ought to want to compete on offering the most attractive music service rather than be forced to pay a “copyright tax” as a cost of doing business. (By the way, this is not my retrospective view; it was all part of the original thinking.)
When Beyond was starting development, users had strong preferences for file ownership over streaming. We started with a download model and figured out a way to reconcile file ownership with usage reporting. We also designed a mechanism for determining (with reasonable accuracy) when a device changed owners, so that it would not be possible to sell a Beyond-licensed device on eBay (for example) and have the second owner inherit the music rights along with the device; “lifetime of device ownership” was key to making the numbers work.
Since then, streaming has become more popular. Yet on-demand streaming services like Spotify and Rhapsody have business models that were originally based on monthly subscription fees; they face the choice of living with a “freemium” model in which only a fraction of users pay subscription fees (Spotify, Rdio, MOG, Deezer) or persisting with an all-pay model against the rising tide of freemium (Rhapsody, Slacker Premium, Sony Music Unlimited). Either choice may be hard for those services to sustain financially over time.
In contrast, Beyond was designed to be a scalably profitable subsidized pay-per-use model from the beginning. As such, it could have had better long-term prospects than those other services.
However, three years is a very long time to be developing any kind of online business in today’s world of iterative development-and-release a la Google. Many of Beyond’s innovative features started making their way into the market through other services during the past three years. For example:
- Catch Media launched a service in the UK in 2010 that counts and monetizes users’ plays of MP3 files regardless of their origins, although the service costs users £30 per year.
- Spotify, Deezer, and Rhapsody have gotten a few bundling deals with wireless carriers, though none of these are full subsidies.
- Spotify also recently introduced an API for app developers, another feature that Beyond included from the beginning.
- The small US mobile carrier Cricket Wireless launched MuveMusic a year ago; it is an unlimited-download package bundled with Cricket’s wireless service. It has attracted over a quarter million users, although the service is limited to five handset models (mostly Android-based).
- Several services have introduced scan and match features that download files from servers to users’ devices. Apple and Catch Media offer this, while others offer it through streaming instead of downloading.
Yet only Beyond put all these features — and more — into a single offering. Apart from the business model and concepts, I can attest that its user experience was terrific. Its interface, responsiveness and sound quality on mobile devices all beat Spotify. It’s a real shame that this highly promising service did not get a chance to make the impact on the music industry that it could have.
European High Court Says No to ISP-Level Copyright Filtering November 28, 2011
Posted by Bill Rosenblatt in Europe, Fingerprinting, Law, Music, Services.add a comment
Last Thursday the European Court of Justice (ECJ) ruled that ISPs cannot be held responsible for filtering traffic on their networks in order to catch copyright infringements. This ruling was the final step in the journey of the litigation between the Belgian music rights collecting society SABAM and the ISP Scarlet, but it is a landmark decision for all of Europe.
This ruling overturned the Belgian Court of First Instance, which four years ago required Scarlet to install filtering technology such as acoustic fingerprinting to monitor Internet traffic and block uploads of copyrighted material to the network. Scarlet appealed this decision to the Brussels Court of Appeals, which sought guidance from the ECJ.
The ECJ’s statement affirmed copyright holders’ rights to seek injunctions from ISPs like Scarlet to prevent copyright infringement, but it said that the Belgian court’s injunction requiring ISP-level copyright filtering went too far. It cited Article 3 of European Union Directive 2004/48, which states that “measures, procedures and remedies [for enforcing intellectual property rights] shall be fair and equitable, shall not be unnecessarily complicated or costly and not impose unreasonable time-limits or unwarranted delays.” The ECJ decided that the mechanism defined in the appeals court’s ruling did not meet these criteria.
The real issues here are the requirement that the ISP bear the cost and complexity of running the filtering technology, and the fact that running it would slow down the network for all ISP users. It’s easy to see how this would not meet the requirements in the above EU Directive.
This decision has direct applicability in the European Union, but its implications could reach further afield. For example, the issue currently being argued between Viacom and Google at the appeals court level in the United States boils down to the same thing: whose bears the cost and responsibilty to police copyrights on the Internet?
Of course, EU law doesn’t apply in the United States. In the Viacom/Google litigation, Google is relying on the “notice and takedown” portion of the Digital Millennium Copyright Act (DMCA), a/k/a section 512 of the US copyright law. This says that if a copyright holder (e.g., Viacom) sees one of its works online without its authorization, it can issue a notice to the network service provider to take the work down, and if it does so, it won’t be liable for infringement. Google’s argument is that it follows section 512 assiduously and therefore should not be liable.
Viacom’s task in this litigation is to convince the court that the DMCA doesn’t go far enough. More specifically, its argument is that the legislative intent behind the DMCA is not served well enough by the notice-and-takedown provisions, that network service providers should be required to take more proactive responsibility for policing copyrights on their services instead of requiring copyright owners to play the Whack-a-Mole game of notice and takedown.
The ECJ’s decsion in SABAM v. Scarlet has no precedential weight in Viacom v. Google. But it may help get the Third Circuit Appeals Court to focus on what Jonathan Zittrain of Harvard Law School has called the “gravamen” (which is legalese for “MacGuffin“) in this case: who should be paying for protecting copyrights.
ReDigi Gets RIAA Nastygram November 15, 2011
Posted by Bill Rosenblatt in Economics, Law, Music, Services, United States.8 comments
Last week the RIAA issued a cease-and-desist letter to a music startup called ReDigi, which has been attempting to create a market for “used” digital music files. It allows users to sell their music files for prices below those of “new” files on iTunes or Amazon, and gives a portion of the proceeds to record labels. (It does not have licenses from the labels to do this.)
I had been paying attention to ReDigi since it had gotten some attention on the tech blogs when it issued a beta release a month ago, and I consulted a couple of copyright law experts about the legality of what they are doing. Based on the results of my research, the RIAA’s actions towards ReDigi were about as surprising to me as an announcement that the sun will rise tomorrow morning.
Who were the “legal experts” that ReDigi claims told it that what it does is within the law? What investors were credulous or rash enough to finance this venture? Or did everyone involved do this just to try to make a point? Regardless of the motivation, ReDigi’s legally embattled state has been a foregone conclusion.
ReDigi purports to implement something called Digital First Sale. The First Sale Doctrine (a/k/a Section 109 of the U.S. copyright law, and known as Exhaustion in most other countries) says that if you obtain a copy of a copyrighted work legally, you can do as you wish with it – keep it, lend it, sell it, give it away, use it to line a birdcage – as long as you obtained it legally and you don’t do anything with it that infringes copyright law, such as make unauthorized copies.
The issue is that this law was designed to apply to physical goods; no one is quite sure about its applicability to piles of bits. The U.S. Copyright Office was asked for an opinion on Digital First Sale a decade ago. The Office stated that Digital First Sale would require a complex technical mechanism that ensured that once you gave your copy of a file to someone else (whether for money or not; whether permanently or not), you had no further access to the file. The technical shorthand for such a mechanism is “forward and delete.” The Office opined that such a mechanism might be feasible at some point in the future but wasn’t then, so it declined to endorse the concept of Digital First Sale.
ReDigi claims to have implemented a robust forward-and-delete mechanism. It uses acoustic fingerprinting from Gracenote to ensure that once a user has sold a file, the same song no longer exists on the user’s PC or iPod. There are ways to hack the system, but that’s somewhat beside the point.
Digital First Sale remains very much unsettled law, even according to copyleft legal scholars, such as Jason Schultz of Berkeley (formerly of the Electronic Frontier Foundation), who would generally like to see Digital First Sale become reality.
Even putting First Sale aside, there’s another legal issue with ReDigi’s model. ReDigi only lets users sell files that they bought on sites such as iTunes and Amazon, in order to ensure that users are only reselling legally-obtained files. (The source of a file can be determined by examining metadata or watermarks.) There’s just one little problem with that: these sites have Terms of Use that expressly forbid resale of purchased digital files. (Here are Amazon’s and iTunes’s.) In other words, users who sell files on ReDigi may or may not be infringing copyrights, but they are certainly running afoul of iTunes or Amazon’s Terms of Use, which are contracts between the retailer and the user.
But wait a minute: if the Terms of Service forbid users from doing something that copyright law allows, which one prevails? Apparently that’s an unsettled question as well, according to both a senior legal authority at the Copyright Office and one of America’s leading copyright litigators. The latter told me “the ink is not dry” on this area of copyright law.
Yet one thing is very clear: Digital First Sale scares the media industry to death. Think about it: if anyone could resell their digital content at any price, then ReDigi would only be the beginning. There would be many competing content-resale marketplaces. People could auction their “used” files on eBay. People could “donate” them to public libraries with virtually no cost or effort – and get a tax deduction for a charitable donation. All perfectly legal. The result of this would be a rapid acceleration of what I have called the race to the bottom: the price of legal content would drop to near its cost of coping and distribution, i.e., virtually nothing. Furthermore, the major copyright owners would lose a lot of control over distribution; for example, Hollywood studios’ release windows would become virtually meaningless.
It’s also evident that the media industry would much rather nip this trend in the bud than endure years of litigation with uncertain outcomes. Even attempting to negotiate a license with a service like ReDigi would imply some comfort with Digital First Sale at a conceptual level, which is something that the media industry would surely want to avoid. Thus the RIAA’s actions against ReDigi come as no surprise.
The RIAA’s “nastygram” points to file copying that must take place in order for ReDigi’s system to work as evidence of copyright infringement, even though, of course, that’s not the real issue here. Other litigation concerning Digital First Sale, such as Vernor v. Autodesk (commercial software), is working its way through the courts. Whatever happens with Digital First Sale, the law will take years to reach clarity — and until then, services like ReDigi will continue to be in limbo.
Incidentally, Digital First Sale is going to be a topic at our Copyright and Technology conference week after next (Wednesday November 30). We will have legal experts on this topic as well as Paul Sweazey of the IEEE 1817 standards initiative, which is another attempt to implement something approximating Digital First Sale. The discounted registration offer I made last week still stands.
Irdeto Acquires BayTSP October 24, 2011
Posted by Bill Rosenblatt in Fingerprinting, Publishing, Services, Video.2 comments
Irdeto announced on Monday that it is acquiring the antipiracy services company BayTSP. Terms were not disclosed, but this is the culmination of a “strategic alternatives exploration” process that BayTSP had been engaging in for some time.
BayTSP monitors P2P networks, file-sharing services, and other places where unauthorized content might lurk and generates evidence that content owners can use to support legal action against infringers. It uses a range of technologies, including sophisticated network traffic analysis and fingerprinting. It has been one of a shrinking number of providers of such services as the industry has consolidated.
This is a good strategic fit for Irdeto in various ways. First, BayTSP will boost Irdeto’s existing antipiracy services; this will strengthen the company’s competitive positioning particularly against NDS, which is known to have robust antipiracy services to complement its content protection technologies. Second, BayTSP has made some recent forays into e-book antipiracy services, which will complement Irdeto’s own new content protection technology for the e-publishing market.
Yet the consolidation of antipiracy services within a major content protection company has interesting implications for the economics of content protection. Typically, copyright owners pay for antipiracy services such as those of BayTSP, Peer Media, and Attributor, but downstream entities such as network operators, online retailers, and device makers pay for content protection technologies such as conditional access and DRM. At the same time, pay TV operators are starting to launch services in which the content can go beyond the customer’s set top box, possibly onto their tablets, mobile handsets, and PCs. The question is: do pay TV operators believe it’s their responsibility to protect the content beyond the STB?
Irdeto will have to decide the answer to this question. Specifically: will it continue to charge content owners for BayTSP’s antipiracy services, or will it attempt to add to the fees it charges its operator customers? To put it more cynically, have Hollywood studios encouraged Irdeto to acquire BayTSP (as they encouraged Irdeto to buy BD+ Blu-ray content protection technology from Rovi just three months ago) so that they no longer have to pay for it?
Seen in this light, Irdeto’s acquisition of BayTSP becomes part of the company’s overall strategy to offer more comprehensive and higher-grade content protection services to pay TV operators, on the theory that they will pay more to get better protection. This is a risky strategy, but given the growing footprint that Irdeto has in the overall content protection market, it’s a risk that Irdeto can probably afford to take.
C&T 2011 Conference: Registration Now Open October 4, 2011
Posted by Bill Rosenblatt in Events, Music, Services.add a comment
(Re-running this for those who may have missed it over the Jewish New Year last week.)
Online registration for the Copyright and Technology 2011 conference, November 30 in New York, is now open!
Take a look at the program and you’ll see that we have most of the panels filled out – though a few opportunities remain, particularly for moderators. Please contact me if you are interested.
I am also pleased to announced that the law firm of Frankfurt Kurnit Klein & Selz has become our latest sponsor.
We invite law firms with practices in the digital copyright area — like Frankfurt Kurnit — to sponsor the conference as well. We have an exciting lineup of panels in our legal track. We will attract a high-caliber audience of professionals from media and technology industries who are coming to grips with issues of intellectual property in the digital age. If you are interested in sponsorship materials, please contact me as well.
In other news, the long-expected consolidation of music subscription services has begun with Monday’s announcement that Rhapsody will acquire the assets — mainly the subscriber base — of Napster.
Rhapsody is the first of the on-demand streaming subscription services to have gotten licenses from all of the major labels. They did this back in 2002, when there were five majors and Napster was still trying to recover from being shut down by a federal judge. Napster re-launched the following year… that is to say, the Napster brand was used to re-badge a service originally called Duet, then pressplay, which was a joint venture of two of the majors.
A first wave of subscription services appeared in the mid-2000s. Rhapsody and Napster were survivors of consolidation that took place around 2007, with other players like Virgin Digital disappearing. Now, with the launch of a second wave of subscription services, another cycle of consolidation has been inevitable.
Rhapsody only operates in the US, whereas Napster runs in a few other countries. Rhapsody will retain the Napster brand name outside of the US. Once the deal closes, Rhapsody will have 1.2 million paying subscribers, compared to 2 million for Spotify.
It’s a two-horse race now: Spotify vs. Rhapsody. The value of press hype and the long buildup to its US launch have done wonders for Spotify, which — as many would argue, and notwithstanding its superior mobile client — has considerably less functionality than Rhapsody. As I’ve said before, the consolidation will continue over the coming months.
Facebook: Making the World Safe for Music Subscription Services September 25, 2011
Posted by Bill Rosenblatt in Business models, Music, Services.2 comments
Facebook’s announcement of the integration of several music services at its f8 conference last week attracted a lot of hype and even more breathless press coverage. But what exactly will it do for these services?
A lot. A huge amount. In fact, this could be a tipping point in favor of subscription services against the iTunes paid-download model.
First I must get some personal bias out of the way: I have always been a fan of subscription services, and I’ve never had much use for iTunes. I’ve tried them all. I feel that subscription services have suffered from a lack of marketing resources and from negative treatment in the press, which — at least until the hype started to build around Spotify’s US launch — dismissed them as “rental” and thus inferior to the iTunes ownership model.
I always felt that this was a naive and unfair characterization of subscription services, which offer a value proposition that happens to be unfamiliar to people who are used to radio and record stores. iTunes is a digital version of a record store; Pandora is digital radio, taken to the limits that the law (specifically Section 114 of the Copyright Act) will allow. That familiarity is why each of them have more than 100 million users today.
But subscription services have languished at a lower order of magnitude. Even Spotify, with its free, ad-based offering, claims total membership somewhere between 10 and 15 million. Paid subscription service membership is said to total around 5-6 million worldwide, with the top two (Spotify and Rhapsody) making up at least half of that total.
And it’s true that even if people understand the value of subscription services — the celestial jukebox, with libraries of over 10 million tracks available on demand at any time, for the price of about one downloaded album per month — they are not for everybody. They aren’t good deals if you have a few favorite songs that you want to listen to over and over again. They are much better for “grazers” like myself, who like to try all sorts of music before (in most cases) losing interest and moving on to something else.
But I wonder about cause and effect here. Do people listen to the same few songs over and over again because they have been conditioned to the record-store model — where every song represents a financial investment — or would they still do so even if the model changed? (Did I become a grazer while being a radio DJ for 12 years and enjoying access to large music libraries at three radio stations?) It’s hard to say in general, but I bet that at least some people will change their habits once they see the advantages of the alternatives.
That’s where Facebook comes in. Subscription services have competed with each other by offering more and more features that are likely to appeal to the same core audience, attempts to be all things to all people, or pure bloatware. Rhapsody, MOG, and Napster in particular have become many-headed beasts that try to appeal to all types of listeners while not succeeding in attracting many beyond the cadre of grazers.
Facebook integration should change all that. The basic idea of Facebook integration is that whenever you play a song on one of the integrated services, it shows up on your Facebook page for all your friends to see. They can click on a link and play the same song on the service on which you are playing it. The participating services have set up various flavors of free trials and restricted free tiers of service a la Spotify. This will introduce subscription services to a vast new audience of people, many of whom would otherwise not have considered subscription services at all.
Subscription services have “share” features, through which users can post their songs playing or playlists to Facebook, Twitter, blog posts, email, etc. But how many people actually do this, and how many people actually respond? Not very many. It’s not consistent, it doesn’t scale well, and most users probably treat this kind of thing as an annoyance, a form of spam. The new Facebook integration amounts to an opt-out version of this: if you connect with Facebook, all of your plays get posted there. Given Facebook’s enormous reach, that’s one hell of a lot of “I’m listening to this song” posts; they will become a fact of life on Facebook and virtually impossible to ignore.
I don’t know of any financial terms between the participating services and Facebook (e.g. commissions on paid subscriptions), but as they say, you can’t buy this kind of publicity.
Yet I am a little concerned about how all of the subscription services are falling over each other to offer freemium deals to take advantage of all that publicity. There are just too many subscription services now. Spotify and Rhapsody are the top two, and there are enough differences between their feature sets to keep them both viable for a while. I worry that second-tier services like MOG, Rdio, and Slacker will try to compete on price or by extending their free offerings to the point that the public will come to expect more and more for nothing.
I have little doubt that the market can’t support more than two or three of these services and that the others will wither and die. (Rdio, which depends too heavily on features that Facebook integration now renders redundant and has a lackluster mobile client, ought to be the first to go.) Let’s just hope they don’t take the entire industry down with them by setting public expectation that they should be free while hemorrhaging money all the while.
Facebook integration is the marketing tidal wave that subscription services have needed ever since Rhapsody became the first to launch with major label licensing back in 2002. I predict that by this time next year, total paid memberships of subscription music services will reach 10 million and free memberships will cross the 50 million barrier. iTunes and Pandora certainly aren’t going away, but subscription services will finally join them as the viable music business model that they deserve to be.
iTunes Match Goes Beta, and It Downloads September 2, 2011
Posted by Bill Rosenblatt in Fingerprinting, Music, Services.2 comments
When Apple announced iCloud back in June, it announced an intriguing feature called iTunes Match. iTunes Match will scan users’ hard drives for music files and identify them using techniques such as acoustic fingerprinting and scanning ID3 metadata in MP3 files. If it identifies a track that’s in the massive iTunes library, it will download that track to the user’s Apple devices or PCs/Macs running iTunes software. Apple will charge US $24.95/year for iTunes Match. Earlier this week, Apple took it into beta and released it to developers.
Astute readers may have caught a very interesting word in the previous paragraph: download.
We had been speculating whether Apple would supply tracks to users’ devices by download or streaming; Apple itself had been ambiguous — I would say intentionally — on this point. A poll of Copyright and Technology readers suggested that streaming was the likely method, by more than a two-to-one margin. No: in the latest version of the beta, as of August 31, it’s downloading. (To be more precise: progressive downloading, meaning that the track starts playing shortly after the download starts.)
I imagine that stream vs. download was an issue in Apple’s licensing negotiations with the music industry leading up to the iTunes Match launch; and it’s possible that Apple may move to streaming at some point in the future. Royalty structures for downloads and streams differ. Streaming is cheaper yet requires much more technical infrastructure — although Apple supposedly owns such infrastructure as the result of its purchase of the streaming service la la in late 2009.
The implications of iTunes Match as a downloading “cloud sync” service are worth considering, and they don’t look very favorable to the record companies. ITunes Match helps Apple lock users into the iTunes/iPod technology stack now that it no longer uses DRM — although all of the files involved are unencrypted and therefore easy to use in non-Apple music players.
At the same time, iTunes Match is essentially an amnesty service for people who have unauthorized music files. For $25 per year, you can get pristine, legal AAC-encoded copies of up to 2500 of your music files on all of your devices. That’s a penny a track to go legal and get the added convenience of music synced to all your Apple devices.
On the one hand, this service probably won’t appeal to hoarders — those people who have accumulated multi-terabyte hard drives full of dubiously legal content. 2500 tracks, roughly 250 albums’ worth, is not much for hoarders. It’s unlikely that many of them will be interested in paying $25 to ease worries about infringement for a small fraction of their holdings.
The use case that Apple (and record companies) most likely had in mind is, in fact, very much like the DRM use case: to apply to so-called casual copiers, who may have ripped a few of their friends’ CDs or downloaded the occasional track from a file-sharing network but would pay a modest amount for legal music plus the convenience of keeping it on multiple devices.
On the other hand, the opportunities for abuse — the analogs to DRM hacks — are interesting to contemplate.
Here’s one example. I presume that iTunes Match uses Gracenote’s music identification technology, because iTunes already uses Gracenote. Yet this is different from the usual content identification use case, in which it’s safe to assume that ID3 tags actually signify the music in the file. In other words, music ID technology typically looks for ID3 tags (or equivalent metadata in other file formats) first and stops if it finds them, otherwise it goes on to analyze the actual content in the file using acoustic fingerprinting.
If iTunes Match comes across a music file, does it check to make sure that the music in the file is actually the music that the metadata describes? One would think not, because this would be inefficient. But in that case, it would be possible to create libraries of MP3 files that contain dummy MP3 data along with ID3 tags signifying actual music. Do you want a nice collection of a couple thousand tunes in your favorite genre? Just download this ZIP file of fake MP3s and run iTunes Match on them; you’ll get legal files of all those tracks on all of your Apple devices.
Although such dummy files would take some effort to create, they would be easy enough for non-techies to use with iTunes Match. To me this sounds just like a hack to a weak DRM, with one big difference: whereas it’s a crime to hack DRMs, this hack is perfectly legal. Furthermore, I would argue that because the files are unprotected, this type of hack is more of a problem for record companies than for Apple compared to DRM.
iTunes Match is still in beta, with launch expected in the coming weeks. We’ll see whether this feature leads to more abuse than DRM hacks relative to the money that it puts in record companies’ pockets.
Amazon Kindle Cloud Reader Lowers the Speed Bump for E-Books August 31, 2011
Posted by Bill Rosenblatt in DRM, Publishing, Services.9 comments
Amazon launched Kindle Cloud Reader a few weeks ago. This version of the Kindle e-reader app runs within web browsers and therefore on a wider variety of platforms than its hardware Kindle devices and pre-existing e-reader apps for platforms such as Apple iOS and Android.
The main intent of Kindle Cloud Reader is to get around app stores, so that Amazon can make e-books available on iPads, iPhones, and Android devices without having to pay Apple or Google — both competitors in the e-book space — a percentage of its revenues. Yet Kindle Cloud Reader is different from the others in a way that could turn out to be just as important as its interoperability: it doesn’t encrypt e-book files.
Various people have discovered that Kindle Cloud Reader is a straight HTML5 app and that the server sends it unencrypted content a chapter at a time. It would be fairly easy to build a program that captures the HTML and stores it locally. This would be roughly equivalent to “stream capture” for audio and video, except that the result would be a perfect browser-renderable copy of the e-book.
This means that Kindle Cloud Reader does not operate in the same way as other web-based e-readers, such as Google Editions or Amazon’s older Amazon Pages technology. These display page images that would have to be fed sequentially to an OCR engine in order to capture the text – a higher “speed bump” than Kindle Cloud Reader uses.
E-book DRM technologies have generally been hacked, but this move by Amazon lowers the e-book copying “speed bump” significantly — not as low as DRM-free music downloads, but getting there.
Furthermore, Kindle Cloud Reader lacks certain functionality that other e-readers have, such as copy-to-clipboard. Google Editions allows copy-to-clipboard with limits. Ironically, the lack of copy-to-clipboard in Kindle Cloud Reader has inspired hackers to figure out how to add this functionality and thereby stumble upon the fact that the content is not encrypted.
Three questions arise out of this development. First, why is Amazon doing this? Second, do the publishers that license material to Amazon know about it? Third, would a program that captures e-book content in Kindle Cloud Reader be illegal under anticircumvention law (DMCA 1201 in the United States)?
The first question is most likely answerable. This development indicates that Amazon is confident enough about its leadership position in the e-book market that it does not feel as much need to lock customers into its platform, as it has done (more strongly) with its DRM.
It also shows that Amazon intends to make its e-book money more on e-books themselves than on reader devices. This is in line with analysts’ projections that the tablet market will grow faster than e-reader devices and therefore that e-readers will come under increasing price pressure. Amazon’s intention to launch a tablet device of its own by the end of this year corroborates this.
The third question is an interesting one. The anticircumvention law was designed to place liability for hacks to “technical protection measures” (TPMs) on hackers themselves rather than on the suppliers of the TPMs. This has led to the question of how strong a TPM has to be in order to qualify for protection under this law.
The 7th Circuit appeals court addressed this question in Universal v. Reimerdes (2000) regarding the hacked CSS encryption scheme for DVDs: the defendants in the case suggested that CSS shouldn’t qualify for legal protection because it was so easily hacked. The court did not want to establish a test for TPM effectiveness, so it declined to address that issue.
More recently, a company called SunnComm that made CD copy protection technology threatened to sue a researcher for discovering that its technology was trivially easy to circumvent: just press the Shift key on a PC when inserting a protected CD into the PC’s drive and the copy protection mechanism could be bypassed. SunnComm withdrew the lawsuit. One reason for this could have been fear of the repercussions of an adverse court decision — which would most likely have resulted in just such a test for TPM effectiveness.
If a publisher sues someone under the anticircumvention law for making a program available that extracts e-book content from Kindle Cloud Reader, then we’ll see what the answer to the third question above is (if the suit goes to trial). Or, if a publisher sues Amazon for breach of licensing agreement over the lack of encryption, we’ll know the answer to question number two.
Of course, there is also a fourth question: is this the beginning of the end of DRM for e-books? I suspect the answer is yes, although this should happen more slowly (or not at all) for certain segments of the publishing market, such as higher education and expensive professional/technical content. In general, I don’t believe it will happen as quickly as it did for music.
The digital music industry is moving from a model based on file ownership to one based on cloud storage. Storage of content on servers instead of on users’ devices goes hand-in-hand with elimination of file encryption. This transition is just beginning and will take years to complete. Even so, cloud-based e-reading seems like more of a stretch than cloud-based music: although the “celestial jukebox” model has been available for several years, its uptake has been slow. People are only just now starting to envision a world without physical music ownership. It will take them considerably longer to envision a world without physical books.
Mixed Verdict for EMI against MP3tunes.com August 23, 2011
Posted by Bill Rosenblatt in Law, Music, Services, United States.4 comments
A federal district court judge in New York this Monday delivered a mixed-bag opinion in long-running copyright litigation between a number of record companies led by EMI and MP3tunes.com, led by that veteran of music industry litigation, Michael Robertson.
The summary judgment decision affirmed yet again the principle that online content providers have no obligation to proactively “police” their sites or services for their users’ copyright infringements — which has been established in such recent cases as Viacom v. Google (YouTube) and Universal Music Group v. Veoh, at least at the district court level. As long as service providers respond “expeditiously” to takedown notices under the Digital Millennium Copyright Act (17 U.S.C. § 512) and terminate the accounts of egregious repeat offenders, they aren’t liable for their users’ infringements.
MP3tunes provides what has come to be known as a locker service: users can upload their music to the service and access it from any Internet-connected device. That aspect of MP3tunes.com got a clean bill of legal health from Judge William Pauley.
Another feature didn’t, though: the “sideload” feature. MP3tunes operates a separate website called sideload.com, which lets users search third-party sites that contain free music files (whether legal or not). Users can search all of those sites with a single search command, select files from them, and copy the files into their MP3tunes lockers. Sideload.com currently claims access to over 160,000 tracks. MP3tunes responds to takedown notices on such files by removing its links to them from sideload.com search results, but not removing copies of the actual files from users’ lockers. Judge Pauley didn’t buy MP3tunes’ argument that doing the latter would violate its users’ privacy and personal property; instead he found MP3tunes liable.
Michael Robertson is a wealthy man, having sold his previous music venture, MP3.com, to Universal Music Group for over US $370 Million back in 2001. Now it seems that he spends his time and effort designing technology products and services that provocatively test the boundaries of both copyright law and copyright owners’ patience. Robertson started MP3tunes.com in 2005, and in doing so, he invented the idea of “cloud sync” locker services, which are now virtually mandatory checklist items for online music services. Other vehicles for Robertson’s copyright nose-thumbing include AnywhereCD (buy a CD, get the MP3 for free) and Linspire (Linux-based operating system that runs Windows programs), both now defunct.
As Judge Pauley’s order reveals, MP3tunes.com looks like a site that was designed by Robertson in consultation with copyright law experts with the objective of figuring out just how much they can get away with without record company licenses. As an example of this, consider a feature in some locker services known as scan and match. With scan and match, a locker service need not upload a user’s actual files. Instead, the service scans each file and identifies the music through various means such as examining ID3 tags (metadata in MP3 file headers) and acoustic fingerprinting. If it has that music in its online catalog already, it skips the upload step and gives the user access to the copy of the file that the service already has.
Scan and match has two big advantages over uploading. First, uploading could take hours, days, or even weeks depending on the size of the user’s collection. Second, scan and match eliminates the need for the service to store many files of the same music; it only needs to store a single copy.
Scan and match is a controversial feature; record companies claim that it requires a license from them to cover the “master” files that the service provider hosts. Apple has a license to implement scan and match for its forthcoming iTunes Match service. Catch Media has a license for this as well. Google and Amazon do not.
MP3tunes finesses this issue by actually uploading users’ files but only storing a single copy. It claims to be able to restore the copy that a user actually uploaded when she wants it — possibly by storing some information about how the uploaded file differs from the file that MP3tunes stores and then using that information to reconstruct the user’s original file on demand. In other words, MP3tunes has it both ways: it presumably avoids the need for record company licenses (by doing actual uploads instead of scanning and matching) while also avoiding both the storage overhead and the copyright liability of storing multiple copies of the same music on its servers (because each copy is a separate possible infringement, and each infringement carries high financial penalties). MP3 tunes thus does not actually source its music from record companies; it sources the files from its users. Another service that operates this way is Grooveshark, which has also found itself in legal hot water.
The point is that MP3tunes’ implementation has nothing to do with the user experience and everything to do with treading on the knife-edge of the law.
Similarly, sideload.com is based on the legal principle that because users don’t know whether the music on the third-party sites to which it links is unauthorized or not, the company should not be liable for contributory infringement for those files. The judge concurred with this.
Robertson’s comments (e.g. on CNet) on the heels of Judge Pauley’s decision reinforce the impression that he is doing this as a professional goad to the music industry: he seems to be much more interested in the decision’s impact on Google and Amazon than on his own site and its 300,000 users. This decision doesn’t seem to help Google and Amazon much, though: at bottom, it merely reiterates findings from the Veoh and YouTube cases at the district court level. We won’t know much more about the legal boundaries of online storage services at least until an appeals court renders a decision in one of these cases.
How High Will Spotify’s Paid Subscribership Go? August 10, 2011
Posted by Bill Rosenblatt in Business models, Europe, Music, Services, United States.1 comment so far
More on the direct consumer revenue trend: the first set of results of Spotify’s US launch are in, courtesy of the Wall Street Journal’s All Things D. As of earlier this week, only a month into the service’s US presence, Spotify has signed up 1.4 million subscribers, of which 175,000 are paying. At 12.5%, that’s a bit lower than the 15-16% paid subscribership Spotify is enjoying in Europe, but it doesn’t change Spotify’s overall paid-subscriber rate very much.
All Things D’s Peter Kafka points out that the US conversion rate from free to paid is likely to be lower because US subscribers get more free music during the first six months of the US launch than European free subscribers do. But I would also argue that the conversion rate is lower because Spotify is new in the US, and people are just trying it out — many of whom may already subscribe to a competing service such as Rhapsody.
Given that the addressable market for Spotify increased by 150% when it launched in the US (about 150 million Internet users in the seven European countries in which Spotify operates vs. about 220 million in the US), Spotify’s total subscribership could end up in the multiple tens of millions fairly quickly. But to me, the more important question is: given the steep growth in its percentage of paid subscribers, where does that growth stop?
Here’s a poll:
Azita Arvani
Niels Thorwirth
Bill Rosenblatt
Bill Jones
