Who’s Subsidizin’ Who? February 9, 2012Posted by Bill Rosenblatt in Business models, Music, Publishing, Services, Uncategorized, United States.
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Barnes & Noble has just announced a deal offering a US $100 Nook e-reader for free with a $240/year subscription to the New York Times on Nook. Meanwhile, MuveMusic, the bundled-music service of the small US wireless carrier Cricket Wireless, passed the 500,000 subscriber mark last month. MuveMusic has vaulted past Rdio and MOG to be probably the third largest paid subscription music service in the United States, behind Rhapsody and (probably) Spotify at over a million each.
MuveMusic isn’t quite a subsidized-music deal a la Nokia Ovi Music Unlimited, but it does offer unlimited music downloads bundled with wireless service at a price point that’s lower than the major carriers. (The roaming charges you’d incur if you leave Cricket’s rather spotty coverage area could add to the cost.) Cricket is apparently spending a fortune to market MuveMusic, and it’s paying off.
It looks like the business of bundling content with devices is not dead; on the contrary, it’s just beginning. The fact that both types of bundling models exist — pay for the device, get the content free; pay for the content, get the device free — means that we can expect much experimentation in the months and years ahead. Although it’s hard to imagine a record label offering a free device with its music, we could follow a model like Airborne Music and think of things like, say, a deal between HTC and UMG offering everything Lady Gaga puts out for $20/year with a free HTC Android phone and/or (HTC-owned) Beats earbuds. Or how about free Disney content with a purchase of an Apple TV?
As long as someone is paying for the content, any of these models are good for content creators. device makers, ane consumers alike. Bring them on!
Creative Commons for Music: What’s the Point? January 22, 2012Posted by Bill Rosenblatt in Law, Music, Rights Licensing, Services, Standards.
I recently came across a music startup called Airborne Music, which touts two features: a business model based on “subscribing to an artist” for US $1/month, and music distributed under Creative Commons licenses. Like other music services that use Creative Commons, Airborne Music appeals primarily to indie artists who are looking to get exposure for their work. This got me thinking about how — or whether — Creative Commons has any real economic value for creative artists.
I have been fascinated by a dichotomy of indie vs. major-label music: indie musicians value promotion over immediate revenue, while for major-label artists it’s the other way around. (Same for book authors with respect to the Big 6 trade publishers, photographers with respect to Getty and Corbis, etc.) Back when the major labels were only allowing digital downloads with DRM — a technology intended to preserve revenue at the expense of promotion — I wondered if those few indie artists who landed major-label deals were getting the optimal promotion-versus-revenue tradeoffs, or if this issue even figured into major-label thinking about licensing terms and rights technologies.
When I looked at Airborne Music, it dawned on me that Creative Commons is interesting for indie artists who want to promote their works while preserving the right (if not the ability) to make money from them later. The Creative Commons website lists ten existing sites that enable musicians to distribute their music under CC, including big ones like the bulge-bracket-funded startup SoundCloud and the commercially-oriented BandCamp.
This is an eminently practical application of Creative Commons’s motto: “Some rights reserved.” Many CC-licensing services use the BY-SA (Attribution-Share-Alike) Creative Commons license, which gives you the right to copy and distribute the artist’s music as long as you attribute it to the artist and redistribute (i.e. share) it under the same terms. That’s exactly what indie artists want: to get their content distributed as widely as possible but to make sure that everyone knows it’s their work. Some use BY-SA-NC (Attribution-Share-Alike-Noncommercial), which adds the condition that you can’t sell the content, meaning that the artist is preserving her ability to make money from it.
It sounds great in theory. It’s just too bad that there isn’t a way to make sure that those rights are actually respected. There is a rights expression language for Creative Commons (CC REL), which makes it possible for content rendering or editing software to read the license (in XML RDFa) and act accordingly. As a technology, the REL concept originated with Mark Stefik at Xerox PARC in the mid-1990s; the eminent MIT computer scientist Hal Abelson created CC REL in 2008. Since then, the Creative Commons organization has maintained something of an arms-length relationship with CC REL: it describes the language and offers links to information about it, but it doesn’t (for example) include CC REL code in the actual licenses it offers.
More to the point, while there are code libraries for generating CC REL code, I have yet to hear of a working system that actually reads CC REL license terms and acts on them. (Yes, this would be extraordinarily difficult to achieve with any completeness, e.g., taking Fair Use into account.)
Without a real enforcement mechanism, CC licenses are all little more than labels, like the garment care hieroglyphics mandated by the Federal Trade Commission in the United States. For example, some BY-SA-licensed music tracks may end up in mashups. How many of those mashups will attribute the sources’ artists properly? Not many, I would guess. Conversely, what really prevents someone who gets music licensed under ND (No Derivative Works) terms from remixing or excerpting in ways that aren’t considered Fair Use? Are these people really afraid of being sued? I hardly think so.
This trap door into the legal system, as I have called it, makes Creative Commons licensing of more theoretical than practical interest. The practical value of CC seems to be concentrated in business-to-business content licensing agreements, where corporations need to take more responsibility for observing licensing terms and CC’s ready-made licenses make it easy for them to do so. The music site Jamendo is a good example of this: it licenses its members’ music content for commercial sync rights to movie and TV producers while making it free to the public.
Free culture advocates like to tell content creators that they should give up control over their content in the digital age. As far as I’m concerned, anyone who claims to welcome the end of control and also supports Creative Commons is talking through both sides of his mouth. If you use a Creative Commons license, you express a desire for control, even if you don’t actually get very much of it. What you really get is a badge that describes your intentions — a badge that a large and increasing number of web-savvy people recognize. Yet as a practical matter, a Creative Commons logo on your site is tantamount to a statement to the average user that the content is free for the taking.
The truth is that sometimes artists benefit most from lack of control over their content, while other times they benefit from more control. The copyright system is supposed to make sure that the public’s and creators’ benefits from creative works are balanced in order to optimize creative output. Creative Commons purports to provide simple means of redressing what its designers believe is a lack of balance in the current copyright law. But to be attractive to artists, CC needs to offer them ways to determine their levels of control in ways that the copyright system does not support.
In the end, Creative Commons is a burglar alarm sign on your lawn without the actual alarm system. You can easily buy fake alarm signs for a few dollars, whereas real alarm systems cost thousands. It’s the same with digital content. At least Creative Commons, like almost all of the content licensed with it, is free.
(I should add that I wear the badge myself. My whitepapers and this blog are licensed under Creative Commons BY-NC-ND (Attribution-Noncommercial-No Derivative Works) terms. I would at least rather have the copyright-savvy people who read this know my intentions.)
UltraViolet Gets Two Lifelines January 12, 2012Posted by Bill Rosenblatt in Economics, Fingerprinting, Services, Standards, Video.
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A panel at this week’s CES show in Las Vegas yielded two pieces of positive news for the DECE/UltraViolet standard, after a launch several months ago with Warner Bros. and its Flixster subsidiary that could charitably be called “premature.” Of the two news items, one is a nice to have, but the other is a game-changer.
Let’s get to the game-changer first: Amazon announced that a major Hollywood studio is licensing its content for UltraViolet distribution through the online retail giant. The Amazon executive didn’t name the studio, though many assume it’s Warner Bros. Even if it’s a single studio, the importance of this announcement to the likelihood of UltraViolet’s success in the market cannot be overstated.
Leaving aside UltraViolet’s initial technical glitches and shortage of available titles, the problem with UltraViolet from a market perspective had always been a lukewarm interest from online retailers. As I’ll explain, this hasn’t been a surprise, but Amazon’s new interest in UltraViolet could make all the difference.
UltraViolet is the “brand name” of a standard from a group called the Digital Entertainment Content Ecosystem (DECE), headed by Sony Pictures executive Mitch Singer. It implements a so-called rights locker for digital movies and other video content. Users can establish UltraViolet accounts for themselves and family members. Then they can obtain movies in one format (say, Blu-ray) and be entitled to get it in other formats for other devices (say, Windows Media file download for PCs). They can also stream the content to a web browser anywhere. The rights locker, managed by Neustar Inc., tracks each user’s purchases.
In other words, UltraViolet promises users format independence and a hedge against format obsolescence, while providing some protection for the content by requiring it to be packaged in several approved DRM and stream encryption schemes. It includes a few limitations on the number of devices and family members that can be associated with a single UltraViolet account, but in general UltraViolet is designed to make video content more portable and interoperable than, say, DVDs or iTunes downloads.
Five of the six major Hollywood studios (all but Disney*), plus the “major indie” Lionsgate, are participating in UltraViolet.
One of the design goals of UltraViolet was to ensure that no single retailer could attain a market share large enough to be able to control downstream economics — in other words, to avoid a replay of Apple’s dominance of digital music downloads (and possibly Amazon’s dominance of e-books). To do this, the DECE studios pushed for ways to thwart consumer lock-in by online retailers that would sell UltraViolet content.
The most important example of this is rights locker portability: users can access their rights lockers from any participating retailer. UltraViolet retailers must compete with each other through value-added features.
Amazon’s Kindle e-book scheme offers a good illustration of platform lock-in and how it differs from other features that a retailer can build or offer. If you buy an e-book on Amazon, you can download and read it on a wide variety of devices: not just Kindle e-readers but also iPads, iPhones, Android devices, BlackBerrys, PCs, and Macs — in other words, pretty much everything but other e-reader devices. You get e-book portability — it will even remember where you last left off if you resume reading an e-book on another device — but you are still tied to Amazon as a retailer. If you want to read the same e-book on a Nook, for example, you have to buy it separately from Barnes & Noble (and then you can read that e-book on your PC, Mac, iPhone, Android, etc.).
This lock-in gives Amazon power in the market as a retailer; it had 58% market share as of February 2011 (by comparison, Apple has over 70% of the music download market). UltraViolet wants to make it as difficult as possible for a single digital video retailer to assert such market power.
The downside of that policy has been a lack of enthusiasm among retailers to sell UltraViolet-licensed content — which entails significant development investment and operational expenses. A good shorthand way to evaluate the potential impact of a standards initiative is to look at the list of participants: what points in the value chain are represented, how many of the top companies in each category, and so on. In DECE’s case, members have included most of the major movie studios, plenty of consumer device makers, lots of DRM and conditional access technology vendors, and so on, but few big-name retailers… one of which (Best Buy) already had a different system for delivering digital video content via Sonic Solutions.
Warner Bros. tried to jump-start the UltraViolet ecosystem by acquiring Flixster, a movie-oriented social networking startup, adding digital video e-commerce capability, and using it as an UltraViolet retailer for a handful of Warner titles. This has been little more than a proof-of-concept test, which was plagued by some technical glitches and suboptimal user experience — all of which, according to Singer, have been fixed.
It would be unworkable for Hollywood to pin its hopes for its next big digital format on a small unknown retailer owned by one of the studios. It has been vitally necessary to attract a big-name retailer to both validate the concept and provide the necessary marketing and infrastructure footprints. There had been talk of Wal-Mart entering the UltraViolet ecosystem, although it already has its own video delivery scheme through VUDU. But otherwise, the membership list had been short on major retailers.
Of course, Amazon is the major-est online retailer of them all. And it so happens that Amazon’s digital video strategy is a good fit to UltraViolet in two ways. First, Amazon currently runs a streaming service (Amazon Instant Video), whereas UltraViolet is primarily focused on downloads, a/k/a Electronic Sell Through (EST): the idea of UltraViolet is to buy a download and only then be able to view it via streaming.
Second, Amazon Instant Video does not look particularly successful. Of course, Amazon does not reveal user numbers, but it is telling that Amazon included Instant Video Unlimited as a perk in its US $79/year Amazon Prime program… and that when people extol the virtues of Amazon Prime, they tend to emphasize the free overnight shipping but rarely the streaming video.
The biggest winner thus far in the paid online video sweepstakes is Netflix, with about 24 million subscribers as of mid-2011. Netflix’s subscription-on-demand model is most likely far more popular than Amazon Instant Video’s pay-per-view (except for Amazon Prime members) model. Thus Amazon may be looking for ways to improve its market position in video without having to hack away at the Netflix streaming juggernaut.
The video download market is in comparative infancy. It has no runaway market leader a la Netflix, or Apple in music. If this situation persists long enough, and if Amazon’s trial run with UltraViolet is successful, then other retailers might see UltraViolet as a viable format as well… precisely because it will make them better able to compete with the Online Retailing Gorilla.
Yet the other dimension of UltraViolet that is currently lacking is availability of titles. And that’s where the other CES announcement comes in. Samsung announced a “Disc to Digital” feature that it will incorporate into new Blu-ray players later this year. With this feature, users can slide in their Blu-ray discs or DVDs, and if the content is “eligible,” they can choose to have that content available in their UltraViolet rights lockers for delivery in any UltraViolet-compliant format.
The Disc to Digital feature is a collaboration between Flixster (i.e. Warner Bros.) as online retailer and Rovi as technology supplier. It works in a manner that is analogous to “scan and match” services for music such as Apple iTunes Match: it scans your DVD or Blu-ray disc, identifies the movie, and if the movie is available in the UltraViolet library of licensed content, gives you an UltraViolet rights locker entry for that movie. Rovi’s content identification technology and metadata library are undoubtedly at the heart of this scheme.
There are two catches: first, users will have to pay a “nominal” fee per disc for this service, which is even larger (and as yet unspecified) if they want it in high definition; second, it is limited to “eligible” content, and no one has offered a definition of “eligible” yet (beyond the fact that the content must come from one of the DECE participating studios). But surely the “eligible” catalog will exceed the current list (19 titles) by orders of magnitude, or the service will not be worth launching.
Nevertheless, these developments are very positive news for DECE/UltraViolet after months of embarrassments and bad press. DECE still has lots of work to do to make UltraViolet successful enough to be the major studios’ designated successor to Blu-ray, but at last it’s on track.
*Yes, I’m aware of the irony of using a tag line from “Who Wants to Be a Millionare” in the title of this article: Disney owns the home entertainment distribution rights to that hit TV game show.
Oblivion, But Not Beyond January 2, 2012Posted by Bill Rosenblatt in Music, Services.
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, 2011Posted by Bill Rosenblatt in Europe, Fingerprinting, Law, Music, Services.
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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, 2011Posted by Bill Rosenblatt in Economics, Law, Music, Services, United States.
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.
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, 2011Posted by Bill Rosenblatt in Fingerprinting, Publishing, Services, Video.
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, 2011Posted by Bill Rosenblatt in Events, Music, Services.
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(Re-running this for those who may have missed it over the Jewish New Year last week.)
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, 2011Posted by Bill Rosenblatt in Business models, Music, Services.
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, 2011Posted by Bill Rosenblatt in Fingerprinting, Music, Services.
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.