A Copyfighter’s Musings

Ernest points out some of the challenges of pay-per-download (PPD) stores.  I generally agree that the subscription services will eventually be market leaders.  But, in the near term, I doubt it’s gonna happen.  The prices, summed over a year, are still substantially above average consumer spending on music (~120 v. 71).  It might take some time to get portability figured out, especially considering all the interop issues in the current PPD stores.  The sooner the better for the subscription services on that front.  (BTW, it  appears I was wrong earlier when I said that Napster 2.0 allowed premium service tethered downloads to be moved to portable players. I remember reading it in the terms and conditions when it launched, but I think the terms have been updated, and this press release makes it pretty clear that porting can’t happen.)

Meanwhile, in the long run, PPD stores might actually be able to reduce their prices.  As volume goes up the credit card payments will be more manageable, and there will be a little more flexibility in pricing.  Bulk pricing rates would have a similar effect. However, given that people are using the PPD stores now because they don’t have to buy in bulk, I’m not sure how successful this will be; if they want bulk, they’ll go to the subscription services, so long as the portability issues are resolved.

Finally, I’m not sure the iPods are actually going to change expectations too much in the near term.  If you have enough cash to spend 500 bucks on a 40 GB iPod, you’re probably an adult, who has already accumulated large CD collections. Large enough to fill 40 GBs?  Probably not.  But adults also are not the primary P2P downloaders, so it’s not like buying the iPod is going to drive more people away to P2P.  Of course, as Ernest pointed out to me over email, kids are getting the the iPods as gifts, so that will work against this hypothesis.

Filed by Derek Slater at 12:27 am under General news
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Ernest wrote a great post about how artists could release remix construction sets – “the bits and parts used to create the work,” that could enable people to remix it themselves.  Notably, many Magnatune artists already do this, with no additional charge for non-commercial uses. 

Ernest’s post also gives me the opportunity to tell a little personal story.  A couple months back, my step-father gave me a copy of his redone version of Yes’ Tales from Topographic Oceans.  Many consider Yes in general pomp prog rock crap, but even among those who appreciate their music, Tales is widely panned. It’s one of those wacky concept pieces, something that might blow your mind but too often ends up totally overblown.  With its four songs all intentionally recorded to fit on one side of an LP each (four 20+ min songs), much of it seems unnaturally stretched.  But it also has many redeemable moments.  So, my step-father carved out some of the excess, just enough to fit it on one CD and to make the album much more listenable.

First, I think this is a neat example of what would be even easier using what Ernest’s talking about.  Second, note that it couldn’t be done under even iTunes’ relatively permissive DRM. (Oh, wait, you can’t find Tales in their catalog anyway, but that’s for another post).  Third, to those who trumpet artistic integrity as demanding incredibly restrictive derivatives rights, I hope this makes the issue a little tougher.  Here’s a fan of the artist – yes, he’s mucking with the “purity” of the album as it was made, but he’s also enjoying interacting with one of his fave bands.  Is that an experience we really want to stifle?

(P.S. – he also gave me a copy of the original album, so with first sale and fair use, this might even have been legal. Maybe.)

Filed by Derek Slater at 11:59 pm under General news
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There’s been some nice commentary out there about the EFF VCL proposal.  I largely agree with these criticisms/suggestions.   Unless it sacrifices some flexibility (e.g., licensing to particular services rather than to individuals) then compliance is going to be a more tricky issue.  Compliance will be a key issue in general, for, at bottom, the model assumes (hopes?) that this offering can ensure compliance by being an appealing option for consumers.

The current online music stores hope for the same thing – why can’t they be enough without shifting to this licensing solution?  They certainly could be enough, but there are reasons to believe that this solution is more likely to sustain and stabilize the industries. There would be greater cost savings from reducing storage servers and credit card transactions.  Because licensing would be consolidated and simpler, it too would be less costly. These savings could then lead to the lower price that the EFF suggests.  The plan would more easily support the creation of a deep catalog and the convenience consumers have come to expect.  Indeed, by working within consumers preferred downloading environments, convincing them to pay will be easier.

Will that be enough?  One could argue that it isn’t.  I’m optimistic.

A tangent: The EFF points out that this plan will aid independents; similar sentiments were expressed at the Digital Music Forum.  I certainly agree, but I think that the current online music stores will also help indies.

In brick-and-mortar stores, indies are often forced to back-racks, if placed at all.  Through “cooperative advertising agreements,” labels pay to ensure that record stores prominently featured certain artists.  The need for radio promotion – and thus forms of payola – harms those with lesser marketing budgets.

P2P can help level the playing field.  As distribution becomes much cheaper, indie artists will be able to reach far greater audiences.   Their songs can now be found on P2P alongside major label recordings.  Shared folders can lead people to serendipitously find indie artists in their file searches.

But many similar things can be said of the Internet generally and the current online music stores. The limits of server space are much smaller than the limits of a physical store. Apple has already offered all indie labels the exact same deal it has with the majors.  Recommendation systems can help users find artists they normally would not.  Such systems could be run by the stores, but they could also be bottom-up collaborative filters.  Webcasting and other similar promotional avenues will aid P2P distribution as much as distribution through the store.

The online stores certainly could mimic the physical ones’ promotion of major label artists over indies.  But, first, I’m not sure why it’d necessarily be to their advantage to do so – it costs them hardly anything to add another aritst to their server, while, given users demonstrated interest to buy broadly (see note on Apple here), the upside is quite large.  Second, the same could be true of P2P systems – see KaZaA putting Altnet artists at the top of search requests.

Again, I’m not arguing against the EFF’s assessment of how VCLs would help indies, nor their implied assessment that this would be superior to any help the stores will provide – having this revenue stream open will probably be superior to selling copies through the online stores.  Just saying that the online music stores can aid indies, too.

Filed by Derek Slater at 1:15 am under General news
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In December, the Berkman Center held a conference on ACSs.  In a few short weeks, they’ll be holding a similar conference on the Speed Bumps scenario.  I unfortunately will not be there, but hopefully you’ll hear about it here or here.  (Some earlier comments on this approach.)

Filed by Derek Slater at 12:49 am under General news
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Again, please go to the blogroll – much has been happening lately.  Critical pieces:

1.  EFF and others sue FCC over broadcast flag.   I remember back in Summer 2002, when the sense was that Rep. Tauzin was not going to carry the flag forward, at least not for awhile, because it would be too complicated and messy.  We had won.  About a week later, everything changed – Tauzin and cronies slipped it over to the FCC.  You know the story from there.  If the Congressmen have basically abdicated authority (at least for the moment), and the FCC doesn’t have authority … what’s going to happen?  Needless to say, this is going to get very, very interesting. 

2.  Frank has all the links on the unnecessary, unfortunate EU IP Enforcement Directive.

3.  Ernest has been a posting machine. In particular, he’s strung together some nice posts on the EFF VCL proposal.

Filed by Derek Slater at 11:14 pm under General news
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According to the RIAA, the losses were higher than reported elsewhere.  I had read about CDs dropping 2% with overall sales down 3.6%.  The RIAA reports 7.1% and 7.2% respectively.  I wonder where the discrepency is coming from – it can’t all be from the fact that digital downloads are not included.  If you take the RIAA at its word, the industry’s down over 1.3 billion dollars net (assuming labels take about 54% of gross). 

Filed by Derek Slater at 5:00 pm under General news
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The Digital Music Forum featured many people who “get it.”  It also featured many who clearly do not. (For a good discussion of the conference, see this radio program.)

There were online music vendors who understand that they must meet many different consumer types and provide a variety of options.   While the vendors debated the merits of a la carte v. download subscription services, they made the more general point that they should not try to squeeze people into narrow options.  All vendors also commented on the interoperability problems caused by competing DRM standards and expressed doubts that the problem would be solved this year. 

But some still hadn’t internalized  this problem.  What was most amazing to me was hearing RealNetwork’s Sean Ryan talk about how awful the standards fragmentation is while Real implements its own Helix DRM standard.  The subscription services are also all waiting for the next step of increased portability, with services capable of delivering files direct to any digital media device – but what about the flexibility of consumers getting to port and manipulate files as they wish? And when is this next step going to occur?

I also was surprised that several vendors consider the size of the services’ catalogs only a minor stumbling block.  DiMA’s Jonathan Potter was the only one to really focus on that, giving an insightful speech about the challenges of mechanical licensing and “double–dipping” for mechanical and performance licenses for online music.  The services still cannot provide whatever you want whenever you want it, and Potter argued that any gap in the catalog will detract from the entire service’s value, because it will frustrate consumers.

In general, the vendors were optimistic in a somewhat realistic way. The legitimate music market certainly is going to grow, and some of these services are going to make some money.  At the same time, many are going to fail – there’s not enough volume right now to support them all.  Each individual was hyping his/her own service, but they all at least implicitly realized that this market could squeeze them out.

Unfortunately, no record industry execs were involved in the panels with the vendors.  The market might grow, the vendors might do well, and the industry might still be losing money – the vendors might succeed simply as some people switch from the CD to the online market, without actually shifting P2P downloaders over to legit services.  So, in this sense, the conference’s overall tone of optimism about the current online music market offerings was a little misleading.

When the music industry execs were involved in the panels, they showed me that, to a large extent, they still don’t get it.  I didn’t understand why the third panel “The Death of the CD?” had a question mark in its title – isn’t it somewhat obvious that physical media will die?  Yes, some people will still buy physical goods, and estimates do vary as to when digital downloads will supplant CDs.  But, I thought, no one really looks at the growth of P2P and the online music services; the great cost savings possible online; and digital media and technology’s flexibility, and thinks that CDs are here to stay for a long while, right?

Apparently some do.  From time to time, the BMG representative said that the CD would eventually fade, but he said it almost as a joke, adding that it was so far off that it wasn’t really too important to discuss.  He talked about how people don’t want hard drives full of music, they want CD cases that they can display in their living room.  And, if you can’t give an MP3 as a gift like you can a CD, then how can you deny the CD’s viability?  The ASCAP rep said that he saw the online market as complementing the physical market, but not really replacing it in a meaningful way for awhile.

Maybe I should have expected such sheer illogic.  After all, the music industry’s backwards-thinking, pretending that P2P would just go away or would be sued out of existence or reduced through DRM, has been ever present.  But I thought that, with the new music services, that thinking was starting to abate.  And, I had never heard their thinking in-person.  Until the forum, it had always been in a third-party’s criticism, but on Monday it was there right in front of me.

It was scary and funny at the same time.  If this panel was at all representative of the industry as a whole, they are still a long, long way off from adjusting to the online market.

Similar backwards-thinking occurred on the ringtones panel.  Here’s what I don’t get about the ringtones market: when phones can also have the hard drive space of an iPod, why won’t people simply put their own MP3s on the phone instead of “truetones”?  Why wouldn’t they use some software to convert the song into a ringtone themselves?  Really, where is the long term sustainable market for this?  The people on the panel mentioned these issues at the very beginning, but quickly moved on to hyping their services and the market as a whole.

My favorite part of the conference was the luncheon sponsored by the DCIA.  Apparently, they’re not just Sharman and Altnet – they are myriad DRM and secure payment vendors hocking magic pixie dust and hornless unicorns.  One company selling ever-updatable, totally secure, fully portable (fits in your briefcase) DRM said, don’t worry, we’re no SDMI – I hope no one took his word for it, because all they had was a bunch of flow charts and nothing of substance that set them apart from any current DRM offerings.

The other top DCIA moment was on the second panel on deriving revenue from P2P.  Altnet’s Derek Broes turned to P2P United’s Adam Eisgrau and reminded him that the DCIA came first.  It’s too bad that these two groups are in competition with each other. It’s even worse that the DCIA seems to have such relatively impractical ideas, and that they are often taken just as seriously as P2P United.

Adam Eisgrau was quite well-spoken and had some good things to say about compulsory licensing.  Indeed, the whole panel on P2P was great – it by far had the most people who get it.  Jim Griffin also talked about collective licensing, while Eric Garland and a representative from Berklee Shares discussed how P2P can be a promotional tool for selling copies.  Garland discussed how people most often downloaded singles but would buy the album.  I’m not so sure it’s that simple, particularly given that Apple is selling so many singles relative to albums.  On broadband, it’s really not too inconvenient to download 11 songs instead of one single.  But it was an interesting point.

Filed by Derek Slater at 12:37 am under General news
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Sorry for my absence – bit a bit busy with work and planning my spring travels.  I also went to the Digital Music Forum yesterday – hope to have info on that and much more soon.  In the meantime, there’ve been many great posts in the blogosphere, so head to the blogroll.

Filed by Derek Slater at 10:48 pm under General news
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Sorry for the slowdown recently – lots of work happening amidst planning my spring travels.  I also attended the Digital Music Forum yesterday – I’ll hopefully be able to post on that and many other issues soon.  There’ve been many great posts, so keep watching the blogroll.

Filed by Derek Slater at 7:54 pm under General news
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With the EFF releasing its P2P white paper on voluntary collective licensing, I think it’s time we started talking terminology. There are a lot of acronyms associated with various copyright policy solutions, many of which are distinct but used interchangeably.  So let’s try to sort them out together.  Here’re some that I’ve picked up on – let me know what I’m missing and what I’ve got wrong.

Compulsory licensing refers to any situation in which, by statute or other governmentally mandated means, a copyright holder must license a particular right to anyone at a given rate.  Current examples include the covers and webcasting license.  Proposed examples for the online downloads market include mandated versions of the terms below, as well as the non-discriminatory licensing provisions in Rep. Boucher’s MOCA.  The latter is similar to aspects of Professor Fisher’s “public utility” model.

Collective licensing, if taken at its broadest meaning, can mean any time one agency is designated to setup and manage licensing arrangements, and then collect royalties for any copyright holders who want to become members.  It is most often used in relation to blanket licensing, where the agency licenses all the rights it has been assigned as one package.  For instance, ASCAP, BMI, and SESAC license the right to publicly perform for all artists in their catalogs.  They may license to anyone willing to pay at a given rate, and they can be forced to do so (e.g., ASCAP and BMI’s consent decree).
Variations on that theme: It could license to absolutely anyone (individuals, P2P providers, ISPs, etc.), but one could conceive of blanket licenses that are only offered to certain entities.  The payment for the license can vary – it could be a percentage of revenue or a flat fee.  As far as the pay-out, ASCAP and BMI count the frequency of use, but one could conceivably pay out in some other manner.
The EFF’s plan is collective, blanket licensing in a fairly conventional sense – one agency licenses to anyone and pays out by frequency.

Alternative Compensation System implements a manner of collective licensing, with some differences, particularly in the mandatory model. It is connected most directly with the models presented by Professor Fisher. In the voluntary version, an artist/copyright holder co-op would offer individuals a subscription to license certain rights – as presented by Professor Fisher, this is the entire bundle of rights, for non-commercial or commercial use, though one can imagine variations with less rights.  Content distributors, like webcasters or download sites, participate without having to pay fees so long as they counted and reported frequency of use/downloading; rather, individuals would pay the fees and thus the services would be authorized to let them download.
The mandatory model would differ in the following ways. First, rather than a co-op, the government would create or designate a particular agency.  Second, the revenue would be generated through taxes, not through licensing fees.

What smells like these but does not actually fit the categories?  P2P service Wippit and Napster 2.0’s deal with Penn State.  In both cases, people are getting all-you-can-eat access to a catalog, so the practical result is similar to some extent.  But the licensing arrangements are negotiated with each copyright holder individually, and those terms only apply to that negotiation.  Like in the EFF’s voluntary collective licensing or Fisher’s voluntary co-op, you have to sign up with a single entity to get access; however, that does not buy you licenses to perform certain activities on any P2P or downloading site of your choice.

Filed by Derek Slater at 11:36 pm under General news
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About 5 months ago, Donna wrote “I’ve had thoughts brewing on [how to resolve the P2P wars peacably] for some time. While I cannot yet share details, I am working on something that I hope will serve to 1.) further the collective problem solving and 2.) help clarify various positions within the debate.” That came in response to some discussion of the EFF’s P2P policy solution and strategy.

I don’t know if this is what Donna meant, but it sure seems like part of the puzzle. The white paper is clear, concise, very well thought out – one of the best bullet-points arguments on this complex topic.

I’ll likely have more to say on this, among other things, in the next few days.

Filed by Derek Slater at 11:09 pm under General news
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Ernest has a nice follow-up to my post yesterday.  From a public policy perspective, I generally agree with him.  I also agree that there are significant practical problems – it will be incredibly difficult and will require more adverse effects (and legislative change) than people often concede.  But I’m still not totally sure I can call it futile yet.  The window doesn’t have to be gigantic – many movies derive their revenue substantially from first week or two of sales, and the same is true to a slightly lesssr extent in music.  The industries could shift even more in that direction.  It won’t be helpful for all artists all of the time, but it could make a difference.  But, like I said, I’m not totally convinced that it’s practically feasible in a way that won’t be substantially harmful on balance.

Filed by Derek Slater at 10:45 pm under General news
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You might want to acquaint yourself with PaidContent.org – in particular, check out the great notes on the Midem conference.  Forrester presented some research there that got a lot of press – in sum: the online music market will grow and the music industry will recover from recent losses, but this year, many online music services are going to go bust.

And why shouldn’t they?  The a la carte services are not making much if anything right now.  They can make it up in volume, but the market isn’t big enough for that now, particularly with so many services in the market.  Apple has already gobbled up most of it (70% domestic, 30% world), and they can afford to run it as a loss leader because of the iPod.  For the leftovers, Walmart is undercutting everyone else, running it as a loss leader as well.  Meanwhile, the subscription services are off to a slow start; they should come on eventually, but problems involving portability and customers being accustomed to owning discrete units will continue to hold things up for awhile.

These services’ dying doesn’t necessarily mean that the market can’t work, just that it can’t support this many services at this time.  But will it negatively impact the long term market in any way?

Looking just at the prices and catalogs, there doesn’t seem to be a significant effect.  Given the thin margins on the a la carte download services, price doesn’t seem like it’s going to be a major point of competition and differentiation in the near term.  At this point, the catalogs also don’t differ too much in size and scope.  So, after the fall out, there will be less stores, but not necessarily a worse or different situation for the consumer.

Things might be worse because there will be less variety in ancillary services (recommendation systems, discussion boards, music store magazines, et. al). These do differ among the stores, and, moreover, they’re part of how the stores are trying to set themselves apart from P2P.  Because the market cannot support all these stores, it will ultimately not support this variety of services.  Variety is attractive and can help boost the market, but it’s not an end in itself, so this might not be major.

A larger dampening effect will be with subscription services if they go out of business, particularly Napster 2.0 (which lost a 15 million last year).  Napster 2.0 users can’t burn songs to CD, but they can port them to a device, so it feels less like a tethered download and more like actual ownership. If all of a sudden, consumers don’t have access to a collection they’ve built up for a few months, there’s going to be serous frustration. Correction (3/10) – Napster users actually cannot port to a device.  I remember reading it in the terms and conditions when it launched, but the terms have been updated, and this press release makes it pretty clear that porting can’t happen.

But the biggest problem will most certainly come from the balkanization of DRM formats and associated players.  Real is following Apple’s lead with close tying of the DRM to portable players; so might Sony.  People will build up collections from one store.  As if incompatibility with other players wasn’t enough, it’s going to be horrible when someone basically has a defunct format when a store goes belly up.

Many people in the music industry and in the stores consider this format balkanization the biggest obstacle to a growing market.  I’m not sure if it’s the biggest, but it certainly is an important one.

Another is the catalog.  They have to get the hold-out artists on board, as well as deepen the catalog with live performances and other obscure recordings.  According to Phil Leigh citing a Webnoize study, catalog and convenience were generally above price as a key reason why people preferred Napster.

But price is still important – it’s obviously been a key to the initial interest in Apple. Prices won’t change in the near term unless the record companies take a lower cut – I wonder how well Walmart will even do at 88 cents.  Rhapsody’s experimentation gives reason to believe that a lower price can be made up with much higher volume, but right now the record industry isn’t changing their strategy. 

Even if it does, and prices do change, this music bubble will probably still burst. But it might burst differently, and that could have longer term consequences for this nascent industry if it is to survive (if it even can).  Short term gains will matter – how long can the record industry losses continue before it’s basically too little too late?

Filed by Derek Slater at 9:53 pm under General news
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One key barrier for the legitimate music services is the size of their catalog.  Among many issues:  the legitimate services can’t convince many artists to offer their music, and P2P has numerous live recordings that you cannot buy anywhere legitimately.  The former will take a little time, as artists adjust – and they certainly will. The latter seems a bit harder.

Nugs.net provides a glimpse of the future.  They’re making high quality recordings of live performances and placing  them online for purchase within 48 hours.

Filed by Derek Slater at 12:13 am under General news
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Billboard reports that the music industry is pushing Apple and MS to solve their DRM interop problems, and even suggests that there have been private talks between the relevant parties.  The solution: “transcoding” – being able to securely turn a FairPlay-AAC file into a Secure WMA file.  So Apple won’t sell you an actual WMA file, but it will provide you the means to turn their files into WMA.

Huh?

Maybe the RIAA is serious about pursuing a business model that would take advantage of DRM as described below.  But, in the current environment, DRM is not playing that role.  It is dragging down the market and providing no real benefit. Given that, all the compatibility problems can be solved with three letters: M-P-3.

Filed by Derek Slater at 11:57 pm under General news
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