compulsory reading, intellectual property rights, media, web 2.0

Blogs are really different.

To those who haven’t yet had the opportunity to read about Loic LeMeur’s efforts in bringing together the loose ends of the Germanic blogosphere, I say – do so.

When I went to meet him and some other bloggers I had never seen or even heard of before, I was not too sure what to expect beyond a pint of wheat beer. But what developed were indeed very intristing debates about the future -as we develop it.
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compulsory reading, Economics, intellectual property rights, music industry

They’ll get the pricing wrong.

For at least five years. If you search my blog you will find that I have repeatedly said that all attempts to sell musical downloads will suffer from problematic price policy. Apple’s new itunes download service is no exception. True, it is probably closer than anything previously seen to actually enhancing the user experience with digital music. According to wired news,

„… opening day downloads equaled the number of songs legally downloaded over a six-month period last year.“

But it is nonetheless bereft with a pricing dilemma. A dollar a tune is not always a justifiable price, even though NY Times columnist David Pogue is ridiculing criticism of this pricing policy.

In fact, for most downloads it is clearly too much, even though things are cheaper when an entire Album is downloaded – for 10 dollars. While a tenner a disk makes downloading for some albums cheaper than your local record store, it is, on the other hand, probably a prohibitive price for DRM protected material, and, moreover, a price justifiable only due to the channel conflict with the non-digital distribution universe, which still makes it necessary to spend millions on marketing songs to people who are not interested in them anyway. It is a price only justified if the advantages of the internet, especially in the realm of marketing to a smaller, but more appropriate audience, are not exploited.

Thus, a dollar a buck can just be the beginning. People will continue to negotiate this price by using KaZaa and Grokster. Record companies will continue to try to scare unwitting conservative politicians about „the end of property“ as well as send cease-and-desist letters to people sharing songs.

The big unknown variable is the political one. Will politicians be willing to understand the conventional definitions of property are just not appropriate in the digital age? Or will they allow the record industry to gain a windfall from perpetuating the economic structures of previous times for an unknown amount of time? I firmly believe that eventually, the social and economic institutions will adjust to a new reality.

But again, it is a matter of pricing. This time, a matter of the price that our information societies will be willing to pay for patrolling people’s hard drives and digitally fingreprinting their lives. Maybe US Sen. Santorum’s intervention telling homosexuals that they do not have a right to privacy came at the right time. I don’t know. But it is more important now than ever to tell people that digital privacy is an important issue. Something, many people were concerned about when it wasn’t a real issue yet, back in the 1980s.

Now that it is one, people don’t seem to realise that the same mechanism that allows to reduce the prices of individual songs could be the reason for the end of civil liberties as we know it. [ author off to pay to see a film in a real movie theatre…]

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intellectual property rights, Iraq, music industry, oddly enough, quicklink

They take no chances.

If this report by Telepolis is right, then Hillary Rose, the former chief RIAA lobbyist, is currently rewriting the copyright laws of Iraq. Just in case the Iraqi ideas about intellectual property rights should differ from the Digital Millenium Copyright Act (DMCA).

Actually, the journalist Gregory Palast is not unjustifiedly wondering whether the combination of sharia and the DMCA would result in hands being chopped off for filesharing. Hmm, I guess I am favoring a kinder, gentler version – just chop off the index-finger. After all, isn’t it always that bad guy that clicks on ‚download‘?

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compulsory reading, intellectual property rights, media, Political Theory, web 2.0

De-Merging Patriotism

Last year, Michael Wolf, a director in McKinsey�s New York office, published an article in the WSJ (here via McKinseyQuarterly) explaing that market forces – especially a sluggish advertising market and the general trend to digital distribution – would continue to pressure media companies to merge into ever larger entities. Mr Wolf’s article was triggered by a US appeals court decision to allow media companies to own both cable systems and local broadcasters in the same market, a decision which he seemingly supported on grounds of value creating synergies, while knowing very well that the media are not just one business among others –

„Critics of media concentration will now wonder how much more wheeling and dealing can go on before there are but one or two juggernauts controlling every image, syllable, and sound of information and entertainment.“

He also explained why he believed that more hierarchy would not yet pose a problem for the world –

„Actually, the industry has a long way to go yet before it reaches that point. There are more than 100 media companies worldwide, with more than $1 billion in revenues; and entertainment and media are still fragmented compared with other industries such as pharmaceuticals or aerospace.“

That was last year. Just when the whole Iraq thing started. And last year, I think I agreed with Mr. Wolf’s efficiency conclusion and pharmaceuticals analogy, arguing like he that

„[w]hile the media mogul archetype may be Charles Foster Kane, the better analogy is Jack Welch in his early GE days, in pursuit of strategic fit and maximum returns…“ –

or, to make the argument more fun, along the lines of Michael Kinsley’s brilliant article „Six Degrees of America Online“ (which is now premium, how surprising…).

Kinsley’s still rather useful point was that hierarchical control of today’s media conglomerates is probably not as dangerous as many may think because, well, it’s incestous and competitive at the same time. AOL owns a chunk of this parent of that joint venture with Microsoft who are in bed with Murdoch in Asia and cooperate with the state run television in Bulgaria. And never forget the promiscous EMI. Kinsley had a point. Upstream or downstream, the convergence value chain does look like a conglomerate soap opera. Or, if you prefer the same conclusion in McKinsey-speech –

For a German example of this just look at some of the people who are going to be on the ProSiebenSat1 Media oversight board once Haim Saban will have finalised his purchase of roughly 25% of the German eyeballs in early June this year. His Malibu neighbour Thomas Gottschalk, who’s a host on ZDF television, and Helmut Thoma, former CEO of RTL+, part of the Bertelsmann owned RTL group, for which he is still apparently still consulting.

But now, after seeing the enourmous power the media had in establishing what behavior is right or wrong on both sides of the transatlantic media rift, I no longer agree. Of course, it is not hierarchical control of large chunks of access to people’s brains per se that is problematic. But I’d say, it does become a huge problem if some big players succeed in setting the agenda for everyone else. Think of the American „WarNow!LetsGoAndKickSomeAss“, or its European antithesis, „NoWarEverBushIsSaddamInDisguise“.

There comes a point when deescalation is just no longer possible, when myths of reality established by the media become an imperative for themselves. When whatever could be true becomes true by pure repetition. And having more, and more smaller, media entitites will allow for a slowdown of this process.

Media is a content business where there are economies of scale primarily in the realm of risk structuring and distribution. Economics of scope primarily exist in cross-media publishing and promotion. So there are reasons for integration. But having witnessed the consequences of the described mechanism on a previously unintelligible scale, I believe efficiency considerations for media corpoations have to be looked at from a different angle if a merger is considered the appropriate therapy.

I am not proposing any policy here. But I’d say media concentration control has become more important now than ever. I am not proposing state interventionism per se – that would probably cause as many problems as it would be trying to solve – but there must be other ways to ease the economic pressures than merging. Less taxes for tv? I don’t know. But I think this is an issue that should be put on the public agenda here, there, and everywhere rather sooner than later.

Having just written this, I can already hear people scream – yeah, but what about the end of the bandwidth restriction, what about the internet, what about those amazing new context filtering technology, blogging – isn’t that offsetting the Murdochs of this world?

Hmm, well. As much as I like doing this, I’d have to say ‚blogging-schmogging‚. The internet is not as decentralised as one would believe (how many internet booksellers do you know off-hand?), and for the time being – despite all the blog-bubble-induced discussion how it is changing the face of journalism on this planent – much of blogging is predominantly a different, extremely useful, qualitative (ie, non statistical) kind of collaborative filtering (like the amazon recommendations), bringing together people – „Other people who looked at this blog also read this article in the NYTimes.“ I’m not saying it can’t work.

But it cannot offset the reality shaping power of conventional publishing. At least not yet.

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intellectual property rights, quicklink, USA

Digital timeshifting.

Update

Please note that the legal situation regarding file sharing in Germany has changed since and is likely to change again.

Now that , a US court has denied the forced closure of P2P services like KaZaa (from heise online), as they are also used for legitimate purposes, look forward to intensified attempts to target individual users, in the US (from Salon), as well as over here (from heise online). BUT: private downloads of songs are in all likelyhood not illegal in Germany (as even the European president of BMG accepted in 2002).

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almost a diary, intellectual property rights, music industry

Champagne Blogging

this is my first attempt at live-blogging, so give me some credit here… i am writing this on a public terminal in the museum fuer kommunikation in frankfurt, typing with only one hand, as i am holding a glass of champagne in the other. it is the „long night of museums“ here and on of the special exhibitions in this museum for communication puzzled me – it’s an exhibition about mp3 and the digital music revolution, including terminals running the popular „kazaa.com“ filesharing software.

did i miss something? i thought the revolution was still very much going on? what is this supposed to mean? is p2p filesharing already a part of history? could that be the reason no major label objected to this exhibition and it was even sponsored by Steinberg GmbH, maker of the well known studio software „cubase“.

i don’t know, but now is not the time to answer question of historic importance, so i will return to the party and leave you probably as puzzled as i am – albeit without champagne.

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German Politics, intellectual property rights

The Other War

One of the real problems of the Iraq induced congestion of the media is that there is so much more important stuff going on that no body hears about – well, at least, that a lot less people hear about than should hear about it.

One of the big issues which currently receive a lot less attention than they deserve is the war concerning intellectual property rights. Yesterday, Berkeley’s Bradford DeLong posteda list of what he believes are the five most important questions facing the world economy today. Number three reads as follows –

„3. How will the current intellectual property wars be resolved? Will they be resolved in a way that greatly increases the profits of CD and movie companies and that slows the adoption of broadband and other advanced information technologies? Or will they be resolved in a way that implicitly or explicitly confiscates a bunch of the intellectual property of CD and movie companies, but that gives consumers and other users enormous incentives to adopt broadband and other advanced information technologies? It is clear to me that the second would be better for economic growth, but that the first is more likely.“

He’s right. Ttwo weeks ago, the US Supreme Court ruled in the case Eldred vs. Ashcroft that it was legal for the US Congress to extend the copyright protection, the „Sonny Bono Copyright Term Extension Act“, which extended by 20 years both existing copyrights and future copyrights, for the law does not extend the protection forever. For Disney (and the like), it was a case about cash flow from exploiting the Mickey Mouse’s of this world. For everybody else (immediately only for those living in the US, of course), it was a case about the balance of private vs. public interests – in the economic realm but also far beyond. The plaintiff’s case had been supported by an amazing amount of intellectual capacity, including various Nobel Price laureates.

But private interests prevailed. It really looks as if owners of intellectual property are able to use their current economic clout and and a socialised narrow, conventional definition of property to put their short term interests above the social long term ones.

The next big battle in the IP war is probably the EU directive 2001/29/EG, which is an attempt to harmonize European copyright regimes with respect to the digital age. While theoretically maintaining the right to a limited amount of personal digital copies of copyrighted work one owns, the directive also contains a clause prohibiting the circumvention of any technical copyright device in order to exercise the right to a personal copy. Thus the private copy clause will in all likelihood be useless following the implementation of the EU directive into the member states‘ national legal frameworks.

But resistance is not futile. So far, the directive has only become national law in Greece and Denmark. All other nations let the deadline pass. Debate and opposition are growing, and there are even legal doubts about the directive’s validity. It may be late, but not too late. Click here for a summary of the state of the national legislative processes of all EU member states.

The site also features the web addresses of online petitions in most European countries. It is not too late to sign.

To sign the German petition, just click here.

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Economics, intellectual property rights, music industry

The Future Of The Music Industry. It’s so simple.

Sometimes it really does take ages for people to understand things have changed (and sometimes I have to include myself here). The Music Business will be a wonderful case study to illustrated the argument – in ten years. Right now, the industry is still struggling to come to terms with its new economics.

Yesterday Wired News informed about a policy conference held by the Future of Music Coalition in Washington, DC this week. The predominant idea was apparently that everybody involved in the business – musicians, independent and major labels, politicians, consumer electroncis and computer manufacturers as well as consumers should try to seek a compromise regarding the alleged problem of unpaid digital downloads. Jenny Toomey, exectuive director of the organising committee summerised the general approach as follows – „I think we’re looking for a kinder, gentler, more equitable model where more people can make a living off of this stuff.“

Sweet. Lovely. But I don’t get just why so many people in the industry can’t seem to see the wood for trees. There’s no real need to sit down and hold hands for all these groups with seriously conflicting interests. This is one of the instances where the market is actually going to solve the problem (in the longer run).

Sitting down and holding hands will only serve the interests of those who are trying to extend the cash flows of times past into the digital age while they are transforming their business to become less dependent on record sales – there’s a reason why vertically integrated media conglomerates are flooding our screens with instant-star shows. Teenagers (still one of the industry’s most important target group) may buy (~15%) less records these days than they did before Napster, but now they watch more advertisments.

Information goods are tricky when it comes to economic analysis. This even more true in the case of music. As opposed to most other products, economics have a hard time telling us about „the optimal level“ of music production and consumption. What’s even more important – most models don’t take the intrinsic musical motivation into account. Given that most people create music without ever even intending to make money with it, those models are not exactly representing reality.

The new digital distribution model allows to target smaller audiences and make more money than before – if you do it correctly. However, while a lot of musicians who have not been able to live off of their art in the past will increasingly be able to do so in the future, it will be much more difficult to get into the average Madonna income range by performing music. The current winner-take-all market structure will likely disappear.

I find it startling that artists like John Flansburgh of They Might Be Giants say that they would prefer the semiotic control of a major label’s product manager to the control exercised by an audience/market. Wired cites Flansburgh saying that „it’s ironic that we’ll miss the majors when they are gone.“ Madonna might. You probably won’t.

While electronic markets for music are still in their infancy, things are already changing with the advent of useful machine listening software. Just think about a catalogue of all the music that matches your style preferences, whoever wrote it, whoever performed it.

According to the article, The Hooter’s Eric Bazilian stipulated that „[t]here’s an incredible amount of mediocrity,“ due to the reduced costs to produce songs and put them on the web. That is very true. But there are also so many gifted, struggling musicians who never had a chance to create a market for their music because of the Major label’s gate keeper function. Now they are able to reach an audience and transform their cultural achievements into a product. I don’t understand why a musician would believe that it is a good thing to keep music from being published?

There will be new sources of information, like trustworthy journalists reviewing new songs, online fora. People providing valuable services, possibly for money. Or, as I believe, there will be quality settings in the machine listening software allowing the customer to get exactly the recording quality she wants.

Don’t tell me people would not want to pay for such a search engine which, in turn, would be able to pay for the creativity. Not the amount BMG pays Withney Houston, obviously.

But there will be a whole new middle class of artists. And they don’t need to sit down with anyone. They just let the technological development work in their favour. And in ten years, they will teach the music industry case study. If the latter should not be able to use its political clout to perpetuate its current powerful structure into the digital age.

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intellectual property rights, music industry

The widening perception-realtiy gap.

I was just about to tell you about the following press statement by Forrester Research – eloquently titled „Downloads Did Not Cause The Music Slump, But They Can Cure It“ – concerning their understanding of the whining record industry’s situation when I went to the kitchen to get some coffee. While waiting for the coffee getting ready, I switched on the tv and witnessed something I was not prepared to see tonight: The real reason for the record industry slump. Bad artists, lack of creative impulses. Short term product/cash flow orientation. Here’s what I am talking about. A semi-rap song which features the chorus of Glenn Madeiros’s 1987 one-hit-wonder „Nothing’s gonna kill my love for you“ – sung by a female singer who is not the artist being marketed.

The guy is a former semi-popular soap opera actor. And he has had a hit in 1998 with yet another cover version. All that sounds favourably to the account managers of the banking industry labels havbe become today.

Now I don’t think that starring in a soap opera automatically disqualifies people to call themselves musical artists, as the Kylie experiment clearly demonstrates. But it doesn’t reduce the burden of proof. For Oli P that burden is clearly too much to bear.

But back to the press statement referred to above. It’s announcing yet another study regarding the once famed and now bashed market for digital music. Forrester is basically agreeing with me and the record industry manager Argumention below that things will get better once the industry finally comes to terms with reduced excludability and concentrates on improving the customer value of its product. This is the core of the statement (note: The music bill of rights is a set of features designed to enhance the musical expericence defined by Forrester):

In the next two years, labels will struggle to deliver on the promise of digital music, but their services will fall short because they fail to match the Music Bill of Rights. But by 2005, labels will endorse a standard download contract that supports burning and a greater range of devices. Downloading will start to soar in 2005 as finding content becomes effortless and impulse buys easy. Labels will make content available on equal terms to all distributors, while online retailers become hubs for downloading. By 2007, the new business model will generate $2.1 billion, or 17 percent of the music business. Big hits will spark traffic, as people download music directly to their cell phones, portable players, or PCs.

We’ll see if they will still need semi-singing semi-popular soap opera semi-heros by then.

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compulsory reading, intellectual property rights, music industry

They’ll fuck up the pricing for at least five years!

This article in the Economist – about virtual Christman shopping and AOL TimeWarner’s hopes to get their by creating a new e-commerce platform – prompts me to tell you three things:

Firstly, my spacebar justbroke for no obvious reason (but being sick of being hit several thousand times a day).

Secondly, AOLTW is a tad bit late to establish a general shopping platform. It will cost them a fortune to get the critical mass anytime soon which limits their ability to lower prices as the competitors can and do (and is important especially in these economically troublesome days). This leads me to the last� – only somewhat related point:

Thirdly, I wanted to let you know the one quote that will make you relax about everything digital-good-commerce-profitbility related for at least three years to come. It is from some now likely fired e-record-company executive who mentioned back in 1999 that Ecommerce companies (especially those companies trading digital goods) „… will fuck up the pricing for at least five years.“ Very true. But they haven’t quite understood yet that negotiating tougher measures on Capitol Hill and its equivalents, coming up with yet more international regulation will not solve the fundamental problem of creating value for the customer. Scientifically put, you can find the argument in this article from ! 1988 –

Pethig, Rüdiger, Copyright and copying costs, Journal of Institutional and Theoretical Economics/Zeitschrift für die gesamte Staatswissenschaft, 144 (1988), 462-495

The same point has been made a little more eloquently by some Microsoft employees who last week published this paper. Here’s a useful quote:

Consider an MP3 file sold on a web site: this costs money, but the purchased object is as useful as a version acquired from the darknet. However, a securely DRM [aka Digital-Rights-Management -the system in your computer that is supposed to stop you from copying from a CD, for ecample] wrapped song is strictly less attractive: although the industry is striving for flexible licensing rules, customers will be restricted in their actions if the system is to provide meaningful security. This means that a vendor will probably make more money by selling unprotected objects than protected objects.

Interesting, isn’t it? Well, legality can increase utility for a customer. Virus-proof downloading can do the same. A whole series of other stuff can, too. There’s a lot of variables to be worked on.

But as long as the relevant people don’t understand that they need to make buying a download more valuable than getting it at the p2p-service of the day, as long as they don’t understand that hackers are negotiating the prices for the rest of the digital community, the will continue to fuck up their pricing.

That record company executive said five years backin 1999. Actually, I think he was an optimist.

But time will tell.

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