Mike McGuire

By refusing to back content companies drive to block Cablevision from deploying a network DVR capability, the U.S. Supreme Court has, to my way of thinking (skewed though it maybe), done the content companies a favor.

By declining to hear the content companies appeal from a lower court ruling which held that Cablevision’s planned deployment of a network-based DVR service – allowing customers who don’t have a physical DVR in their living room to record broadcast programs stored on their provider’s network storage systems – SCOTUS essentially told the content companies: “Kids, at some point you have to be able to ride the bike without the training wheels.”

By that I mean instead of relying on the courts – again – to protect what they perceive to be an existential business-model threat, content companies should maybe take THIS lesson to heart and start developing, with the cable providers, to fashion some sort of advertising-supported or even subscription-based model for network DVR services.

Now, content companies and TV service providers have to get it together and figure out some compelling ways to monetize or leverage the capabilities that a network-DVR-approach promises.

Can a network-DVR service become a billable offering to consumers? It will be interesting to see.  One of the key decision points for a provider would be whether or not users would be able to skip advertising.  Or would the cached programs, as stored at the request of user, be served up to consumers with a whole different set of advertising, highly targeted ads for example, that would be dynamically inserted when the user is watching the content? If there are going to be advertisements inserted at playback, or the ads that came with the original broadcast or included, it might be hard to convince consumers that they should be paying any incremental addition to their cable bill.

Either way, the issue of ad-skipping will shape how these services are offered.  I wonder what my colleague, Andrew Frank (http://blogs.gartner.com/andrew_frank), thinks about the decision, especially in light of CANOE Ventures’ cancellation of its first community addressable cable TV advertising deployments? 

Ultimately, it’s the DVR hardware becomes superfluous and, therefore, vendors in that space will feel the pinch as the services roll out.  Much of the promise of the great content jukebox in the sky – a favored metaphor of proponents of cloud-based content services that aren’t bound by a broadcast schedule – is that the actual nuts-and-bolts of how accessing any program at any time are not visible to consumers.  As awesome as a lot of consumers believe TiVO and physical DVRs to be, at some point, the user has “manage” the DVR. You know, do things like delete really old programs, free up storage space etc.

If one considers that a cable TV network’s primary link to a consumer isn’t the cable streaming content into their living rooms but rather the monthly bill, one might be convinced that’s these service providers need to figure out how to get a virtual-DVR line-item on their bills. 

In other news…Pirate Bay’s assets purchased by Swedish Software Co.?

Gee, I think I’ve seen this movie before.  Have you?  Here’s the plotline: globally popular file-sharing technology provider becomes darlings of free-content-movement, taps into a growing cultural meme that stems from consumers who have tired of the constraints of copyright law (and who also really like free content). Copyright owners take purveyors of said file-sharing technology and purveyors are convicted. Four of the leaders of the Pirates Bay were convicted and sentenced to a year in jail and fined 30 million kronor. Their case is on appeal.  

And now, a bunch of investors have purchased the assets of the company that developed and supported the file-sharing technology for just under $8 million (US$).

So now, Global Gaming Factory X AB is apparently claiming to want to embark on a journey that hasn’t been successfully managed to-date: turning a haven of unlicensed, consumer-driven content redistribution (file-trading) into a haven of users who will actually pay for content – despite all the evidence showing that the most important factor in driving people to use file-sharing technology is free content.  (“What P2P Means to Online Consumers in the U.S., the U.K. and Italy,” by Mike McGuire, 11 June 2009 | ID:G00168579.)

It certainly is going to be a challenge, especially when the founders of the Pirates Bay are issuing statements (as noted in the WSJ link) to their existing “customer base” that the service won’t change for them.

It appears that Universal Music and Virgin Media – a UK ISP – are going to deploy an online music service, the description of which makes it sound as if it came from one of the white papers I worked on with the Berkman Center for Internet and Society at Harvard Law School, back in the gray mists of the early part of this decade. (Here’s a link to one of the papers.)

The as-yet-unnamed service will allow subscribers – available only to UK residents — to either stream or download as much content as they want and the downloads are going to be open MP3s. Or at least that’s what I’m guessing based on the very chipper and very vague press release issued by Universal and Virgin Media (a so-called “quad play” service provider of mobile and fixed-line communications, broadband and pay-TV service). The service will be launched sometime before the end of the year.  (According to the AP story link, Universal is working to get the other three major labels and the independents to join in.) Notable info: Universal is the largest label, by revenue, and Virgin claims to be the largest residential broadband provider in the UK.

Yes, I agree, it sounds just too good to be true, doesn’t it?

Here’s the catch: Virgin Media is going to keep an eye on things by monitoring users to make sure they’re not taking those open files and putting them up on P2P networks.  According to the release, Virgin is considering temporary disconnects of subscribers who persistently engage in file trading.  Nothing draconian, according to press reports, just a temporary disconnection. According to the release, it’s all about “educating” users about the perils of using file-trading technology.

Perhaps Virgin Media ISP customers won’t mind their online usage being monitored. Perhaps UK citizens have grown accustomed to being monitored, what with all the CCTVs deployed around England etc.

But more than anything, a whole class of tech-savvy users is going to wonder why they’re bothering with the monitoring at all. After all, if the files aren’t DRM’d and the user is paying a monthly access fee—and I presume the download-to-own version will be more expensive than the streaming-only option, what’s the point? Being able to have a “teaching moment” online when somebody is allegedly using P2P software? And if the disconnections are merely temporary, wouldn’t a clever user merely build that into their operating mode?  And according to this news story, there might be some EU legislators who will argue that any disconnect by an ISP has to be accompanied by a court order.

Yet, here I am dwelling on the negative, so let me say this: it looks like a grand plan on paper.  It would appear to map to how consumers want to acquire content and by providing a monthly subscription service without the DRM entanglements that have bogged down previous efforts, the service might actually be able give iTunes and other legitimate services a run for their money in the UK.

Then again, for it to really shine and to really provide competition to iTunes, the monthly fee’s going to have to be very reasonable, the catalog of content will have to be equal to or better than iTunes and the experience is going to have to be pretty compelling.

Nostalgia is death.

So, far be it from me to wax nostalgic about just about anything, but letting the 10-year anniversary of Shawn Fanning’s single-handed destabilization of the media industry go by without mention doesn’t seem right.

In short, my feeling about Napster requires me to paraphrase TV critic Tim Goodman of the SF Chronicle: Everything we know today about the music industry, we owe to Fanning and Napster.  Some shout-outs:

To Shawn Fanning I say, “thanks.” Never have so many media industry analysts owed so much to a single individual.  If it weren’t for Napster, we’d all be writing reports about the battle between SACD and DVD-A’s for market supremacy as replacements for the Redbook-based CD.  

To Hank Berry (and to some extent the Bertelsmann AG and BMG Entertainment groups), I bestow the You-Were-Dead-Right-Award for actually seeing the commercial possibilities of online music/content distribution. Too bad the music labels, movie studios and others couldn’t get in agreement faster to create a paid version/alternative.

To Apple and Steve Jobs, you know you owe a nod of the hat to Napster and Fanning, right? Without Napster, and ultimately Hank Berry’s undoing by the courts and the content companies, you might not have the market dominance you have now because, frankly, the tethered download options and subscription services might have been the ONLY online alternatives supported by the labels.  But most of all, if it weren’t for Napster, the labels would probably have had little if any reason to license any alternative to the CD. 

Second, my personal observations and about Napster and history:

• It wasn’t just Napster and file-sharing that brought the media sectors to the point where they are now. Consumer expectations regarding portability and being able to control the programming of their media experiences were taking shape the minute the first set of non-techies figured out how to program the VCR and how to rip a music CD.
• Why did SDMI and all attempts at encrypted DRM have to be the alternative? I know the literal answer – the labels wanted a level of control over the content they had with CDs and wanted a way to block consumer redistribution of the content once it was digitized.  However, straight-up monetization of P2P, as Hank Berry and countless others argued at the time of Napster’s court cases in 2001 and 2002, seems so obvious eight or nine years later.
• Besides underscoring an obvious fact – people like free stuff – Napster’s popularity clearly pointed to other important benefits that took several years to catch on: there was a perception that a much wider variety of content was available at Napster than was available in music stores or other online offerings (of which there were essentially none).  This benefit took several years to manifest itself in technology and services such as iMeem and Pandora, and recommendation engines such as EchoNest an Media Unbound. 
• As for the “legal” version of Napster now owned by CE retailer BestBuy, Chris Allen and crew have been able to keep the legitimate version of Napster up and running in the shadow of Apple and the iTunes’ success. There new offering which has offers consumers a month of free streaming if they buy a certain number of DRM-free MP3 downloads is probably the closest thing to a real challenge to iTunes that the market’s seen in quite awhile. The music discovery opportunities enabled by the free streaming capability (of Napster’s entire catalog) with a simple payment capability might seem like a bit of a throwback but it’s actually quite a powerful alternative to the iPod and iTunes.

Napster, MGM v. Grokster and now the Pirate Bay. Three court cases brought against defendants accused of building and/or deploying file-trading technology utilized by millions to redistribute content without the rightsholders permission. 

Nobody can honestly believe that this conviction will have any more deterrent effect than the others, do they? Not sure how you could argue that this case will as it appears there’s no corresponding order to shut down the Pirate Bay.

The Swedish court announced the guilty verdicts Friday and immediately sentenced the group to a year in jail, and to pay 30 million kronor ($3.6 million US) in damages to the copyright holders. According to press reports, the defendants are planning to appeal the decision. As in U.S. courts, the appeals process could drag this case on for years.

So, another court case that will wend its way through its process, all while the online music market moves …where, exactly??? Let’s hope the experimentation we’ve seen in the industry for the past year or so – licensing agreements with social media sites, online stores agreeing with the labels to try tiered pricing – remain at the hallmark of the industry’s strategic efforts.

It’s special in the sense of “separate” or apart from the crowd, so to speak. The crowd in question being all the regular old channels on YouTube which contain music videos. Essentially, this story describes a meeting of minds (Doug Morris and Eric Schmidt) and motivation (online revenue) between Universal Music and Google’s YouTube video portal.

Sigh. This old story line again. This would appear to be the latest version of a music label trying to brand a piece of online property and claim it as theirs. Or rather, find an aggregated audience online and try to co-opt to a site of their own. A few years ago, one would wander the halls at music conferences and hear a discussion or a rumor about the labels considering the idea of building destination site. The operating notion in that construct being that the label or labels could get online fans to come directly to sites they control.

So while Universal’s channel on YouTube is quite popular, Universal executives, at least the CEO Doug Morris who is quoted in the Billboard story, wants to set up a separate channel. Morris’ statements in the article indicate that the belief is higher value advertising inventory would be created because the site would be tightly controlled. (To be completely clear, many important details about have not been released and nor has any real date for the service’s debut.)

So why create a separate channel – and Morris is apparently responsible for getting the other three labels to eventually sign on – for the labels? Money, obviously.  But why push a new channel when Universal, at least, is getting money from the existing online video channels?

Here’s a possible reason: one of the signature strategic reaction of the Internet-traumatized music labels is the 360-degree-deal. In these deals, a band agrees to cut the label in on a almost all revenue streams a band or artist generates. In the past, revenues from things like tours or merchandise generally were kept by the band or artist. It is natural to think that the label, having started these 360-degree deals would be on the hook to show that their ability to discover, groom and promote artists – because that’s pretty much all they have left as value-adds – is so strong that it would be worth it to the band or artist

What would the label have to show to convince any farsighted musician or artist manager to continue such an arrangement, let alone sign one in the first place?

I would think they would have to show the ability to aggregate large monetize-able audiences on the label’s property or a property over which the label has a significant amount of control. Think about it. Because if it’s YouTube, or iTunes, or somebody’s MySpace page, aside from making content or information available, the label has very little to do with driving an audience.  Why would a band or artist hand over what is potentially a significant amount of revenue, and control, to an entity which can exert very little control, hence have almost no ability to deliver any measurable performance or value?

Thus, we have Universal Music and Google’s special music video channel.

That’s my theory.

Yahoo! Music has been revamped – again – and this one announced (more or less) on April 7 – is clearly inspired by the company’s strategic imperatives of “open” and being the "starting point” for any Internet activity. In this case, online music. 

With the revamp, Yahoo! Music is looking to become the Internet’s mass aggregator of music information (like lyrics), free streaming music services (like Pandora and Last.FM), links to online music stores (like iTunes and Amazon’s MP3 store) and, well, gosh you name it. If it’s got something to do with music and online music, it might be there on the Yahoo! Music pages.  Besides serving ads, Yahoo! Music will also generate revenue by getting bounties (“affiliate fees”) for driving customers to iTunes and Amazon’s download stores.

A key feature of the new revamp, user customized artist pages, is by no means complete and isn’t real easy to find, at least for me. One types in an artist or band name and what appears to be a conventional set of Yahoo!Music search results pops up. Only when one hits the link to, say, “Stephen Malkmus” that one gets to the revamped artist page.  To my way of thinking, if I type in Stephen Malkmus, why wouldn’t I be taken straight to his homepage? Disambiguation? I think not. Granted, he’s played in Pavement and the Silver Jews, but if the searcher’s spelling is close enough why present the user with a generic search-result page? Same with searches done on Neil Young or Johnette Napolitano. 

In the past three years, we’ve seen multiple iterations of Yahoo! Music from the LAUNCH days where one could watch music videos online, to the Yahoo! online music subscription service. While the subscription service fell victim to the dominance of iTunes and subscription-model DRM challenges (as in Microsoft decided to launch its proprietary Zune music service and device family soon after hardware OEMs started building portable devices based on Microsoft DRM for service providers such as Yahoo!), Yahoo! Music persevered.

Yahoo! Music’s managers are essentially following the company’s strategic mantra’s of “open” and making any Yahoo! property an important “starting point” for online consumers. And that’s probably not a bad move.  Given that Yahoo! averages somewhere around 280 million visitors a month, and that the company’s primary revenue stream comes from advertising, becoming the “starting point” for some percentage of those 280 million monthly visitors, while getting some bucks from driving sales to Amazon or iTunes is probably not a bad deal for a Yahoo! property.

Well, this certainly is one possible solution to the problem facing small, typically local newspapers: a Maryland senator has submitted a bill that would allow struggling newspapers to become tax-exempt non-profits.

Possible benefits? Ad and subscription revenue would be tax exempt. Downside? Non-profit papers could not make political endorsements or recommendations.

While it’s unlikely the New York Times would ever take advantage of the provisions of the bill introduced by Sen. Benjamin Cardin, D-Maryland, smaller independent papers could. And maybe should.

Is the endorsement of political candidates and ballot measures as important (to the readers and the newspaper) as the coverage of those campaigns which would still be allowed if the papers became non-profits? I don’t think so.  I believe the endorsements by newspapers are/were largely a by-product of the publisher’s ego. None of the newspapers I worked for solicited input from the rank-and-file reporters or editors for any of the endorsements. (And they shouldn’t have if objectivity was desired.) The endorsements are/were done by a paper’s “editorial board” which was typically packed with the publisher’s cronies.

Thoughts?

With its preview Tuesday of the iPhone 3.0 (OS and SDK), Apple ratcheted up the pressure on not only its competitors in the smartphone business,  but I believe, in a weird backwards sort of way, that the preview will put pressure on a few folks in the media industry.

In particular, publishers, especially newspaper and magazine publishers, if you aren’t already developing or at least understanding, in detail, what the iPhone means to your sector, you will be feeling the pressure soon. (For details on the new functionality, head over to Apple’s website.)

I’m thinking this because among the 1,000-plus new APIs being released in the new SDK for iPhone 3.0 are an in-app purchase capability that will enable a publisher’s developers, for example, to offer subscription content, or sell new content or sell upgrades of features to their iPhone (or iPod Touch) applications and have payments processed by the iTunes Store. For example, a magazine or newspaper could offer an iPhone application as a paid-subscription offering; a book publisher could sell a generic “reader” application and sell multiple titles; a game developer could sell new levels to her game.

Another important potential enabled by iPhone 3.0 is that developers will be able to support HTTP audio and video streaming in their apps, making for an interesting capability for newspaper, magazine or book publishers looking to extend video and audio content capabilities in iPhone applications. 

Now, I know what you’re thinking, “But Mike, it’s the iPhone – not all of our readership has one and not all want to deal with the paper on a mobile phone at all.” To which I reply, yes, it’s the iPhone and that’s exactly why you should be working it (not everyone has one) and pretty soon big chunks of what you think should be your readers will only read news content on a mobile phone. As much as anything, I think newspaper and magazine publishers should be researching and testing their future mobile offerings on the iPhone SDK is that my discussions with developers of many kinds of apps is that it’s fairly easy to deal with. Now, for some developers “easy to deal with” means not comprehensive. But for newspaper magazine publishers, I think the iPhone and Touch platforms are setting the bar for content interactivity on mobile devices. As important: working on the iPhone and 3.0 can get you entre into the App Store (assuming Apple approves it…)

About the AppStore … A colleague of mine, who shall remain nameless, was somewhat taken aback by the the fact that Apple keeps 30 percent of the take from each application sold on the AppStore.  Apple argues that for that 30 percent, a developer gets into a crowded store (25,000 applications) that has generated 800 million downloads since it launched in July. Apple does cover credit card costs and bandwidth and all that. And they pay out to developers monthly. So, yeah, it’s 30 percent but maybe when you balance that against what the cost-of-sales would be for having to sell it through your own website or a distributor, it might not be that bad.

Other key feaures for 3.0:

• For consumers, iPhone 3.0 will finally deliver cut, copy and paste which will work across iPhone’s standard applications like e-mail, the notes applications as well as web content.  (Looks to be a series of double taps on the screen to manipulate. Oh, and because they’re Apple, one can “undo” a cut and paste by just shaking the phone, which is cool but probably not the main justification for the accelerometer.)
• Peer-to-peer device discovery: app developers and game developers can create new modes of application sharing and game play by enabling Touch or iPhone users to link their devices via Bluetooth (but without requiring the pairing mode).
• Landscape mode for all standard iPhone applications: finally. With 3.0, the iPhone’s e-mail, SMS and notes applications will be able to operate in landscape mode. Like I said, finally. For me personally, this was more of a drag than not having cut and paste. 
• Push notifications: Apple execs claimed that utilizing “push notification” – which is when a communications application or connected application has new information for updating – is the most power-efficient way to handle updates be they e-mail or web content updates.  ESPN also demo’d their beta apps using the beta SDK and were able to show how they would integrate the notification feature into their scores-update service. Interesting data point: ESPN sounds out 50 million alerts a month. Also, ESPN will be taking advantage 3.0’s HTTP streaming functionality for its application.
• MMS support: will enable iPhone users – if their carriers have enabled it – to take advantage of the multimedia sibling of SMS. So consumers could send pictures, video clips, audio files, contact info (iPhone supports V-card)s via MMS messages instead of e-mail.
• Spotlight search on iPhone 3.0’s home screen: In addition to some enhanced search functions within apps like mail, the iPod player and the notes application, 3.0 will come with Spotlight  search to let users search all key apps by typing a key word or phrase into the new Spotlight search.

We all know them.

I speak of these people who studiously observe the screen of their iPod. Or iPhone. Or Zune. Whatever. The end of each song is an excuse to pick up the device and stare at the screen. Then there are those who pick up their device, hit “play” and live for the randomness of “shuffle.”

The new iPod shuffle? It’s definitely for the latter, not the former.  Just when I thought it would be near impossible to make something smaller than the last shuffle, Apple manages to do just that with this announcement of the new 4GB version. The only button on the device is the power switch/lock button. Like the previous shuffle, it comes clip-equipped for attaching to clothing, hats etc.

As with everything iPod, the hardware might get your attention first, but it’s the software that makes it distinct. 

In the case of the new shuffle, Apple’s tight control over iTunes (store/software) and iPods means that they can create a UI experience that speaks to the user. Literally. The iTunes software scans the shuffle’s folder of content in iTunes and creates the text-to-speech tags which are loaded onto the device with the song files. Thus, the shuffle’s contents can be read aloud — song title, artist name, playlist title, etc.

The user manipulates this trick-mode-plus interface by mastering a couple of simple pushes on the one control button which is now integrated into the headphones. As with all smaller devices, and redesigns of familiar products, manipulating the headphone-mounted controls takes some getting used to.  A colleague, Van Baker, and I had a few minutes with the new Shuffle and were able to mostly figure it out despite our advanced age.

That isn’t important, however. Check it out yourself. Here’s what matters:

• The new Shuffle is a $79 iPod with 4GB of storage
• It has no screen but incorporates a clever text-to-speech navigation tool that appears to work (we only had a short time with it)
• It comes with a clip that you can clip to your clothes or your nose
• And it could also be a very interesting audio-book consumption device as well

Can the popularity of Rock Band franchise translate and extend the timeless — but let’s face it, musically archaic — Beatles catalog to a generation of folks who grew up disconnected from the album, AOR radio but have come of age in a time when music is effectively a public good? And speaking of “public goods,” can music videos ever be more than a promotional tool? 

Short answers: Perhaps and unlikely.

This tells us the Beatles, MTV and Rock band are going to punch parts of the Beatles storied catalog into the digital age via video games. MTV’s RockBand unit, including Harmonix (which makes the actual gear) are going to release “The Beatles: Rock Band” on 9/9/09. (I can only guess that this is a play on “Revolution 9” from The White Album.) The new game will be available on Xbox 360, PLAYSTATION 3 and Wii consoles. 

When I was a kid in the late ‘60s and early ‘70s (that’s 1960s and 1970s), one of the adolescent litmus tests for any new set of social engagements was were you a Beatles person or a Stones person. (Queen vs. Rush? Please.) I suppose now the litmus test will be “what’d you score on ‘Across the Universe?’ “

In other news here (WSJ, subscription required), Universal Music and YouTube are apparently hammering out a deal, or trying to anyhow, to create a channel for premium music videos.  The hope is that premium video from rightsholders like Universal could mean premium ad dollars. Perhaps.  In the WSJ story, Google CEO Eric Schmidt muses that something like an “iTunes” for music videos is needed. I dunno. Music videos started out as promotional fodder; accounted for in the same cost lines as travel, hotel-room damages and “flowers and favors” and it seems as if consumers value them about at about the same level.

To be sure, I think Schmidt was invoking iTunes’ “experience” value to consumers, not as a pure transaction storefront.