Bill sez: DRM s*cks

Well, of course he didn’t. But he meant it. Or how would you explain an advice like this, while meeting the politburo of the US blogosphere: People should just buy a CD and rip it. You are legal then. As Techcrunch’s Michael Arrington notes.

Now, what is this all about. DRM is a well loathed acronym of the digital entertainment world. Depending on your point of view, it either stands for Digital Rights Management. Meaning, as a publisher you can remotely control the access to digital data. Or Digital Restriction Management. Meaning, it’s a stupid/devious scheme to extend a business model of the 15th century (Johannes Gutenberg invents European movable type printing, thereby enabling mass media production) into the 21st century, which causes immense collateral damage.

To be honest, I understand both positions. Probably the most important digital media topic right now is the question of the content value chain. It’s a nice thing, that now everybody can get worldwide distribution. It would be even nicer, if this distribution could be monetized. In the current setup, producing user generated content means you become an active member of the attention economy. Attention economy always means, that all your efforts will pay out, if you get enough attention of a player with a more tradtional economic approach. It’s the American Idol model. Lots of people give their heart and soul, accept the possibility of public humiliation, to finally get an intern job at a global whatever conglomerate.

I theory, DRMing digital content would transform an infinitesimaly copyable digital file into ressource of virtual scarcity. Transforming it into a sellable good. Sounds good. Unfortunately, this just theory. In it’s current setup, DRMed content is cumbersome for consumers and adds layers of cost and complexity for copyright owners: choosing a DRM, licensing a DRM, paying for DRM – and paying for 1st level customer support, because the consumer does neither understand the tech nor the legal licensing stuff involved. And it can get worse. Just ask Sony BMG about its brilliant idea to infect consumer computers with black-hat-hacker-style root kits.

Of course, DRM is about Digital Restriction Management. Take a freely accessible set of data. Shrinkwrap it using DRM. And whoosh, you’ve restricted the total accessabiliy, and made those restrictions manageable, too. The concept is of course highly attractive. Let’s say, if you put some sensitive data on an intranet. In mass media, there a two different proponents. Traditional media companies, wanting to protect their traditional business model. And governements from überdemocratic countries like China and Iran. And that’s where the collateral damage starts. Because unfortunately, if you really want to shrinkwrap some media into a closed shop, you have to include pretty much all devices which potentially might be used to play such a file.

Which translates into: for protecting a nice old business model we put everything in place to jumpstart a dystopian surveillance society, modeled after Orwell’s 1984 and the East-German Stasi.

But I think, it really stands for Does it Really Matter. Correct me if I’m wrong. But even in a totally shrinkwrapped media world, you will have to leave some space for consumer produced media. Uncle Umpty will have to be able to make his dreadful birthday movies and post them somewhere in the digital realm. The next Robbie Williams will have to put some first moves and shakes onto a web site of his choice. And let’s not forget consumers. Yes, DRMed music downloads are picking up and the iPod saved the Apple. But the digital format of choice is still yer good olde MP3, no strings attached. When the Bill says: People should just buy a CD and rip it, he’s just stating the obvious. Guess where all the music is coming from, filling all those iPods. And the gazillion other MP3 devices out there in the wild, wild consumer world.

But let’s come back to the digital value chain. Is DRM evil? Nope. But it can be used for mighty evil things. So better be careful of the collateral damage. In its current implementation, DRM ist mostly stupid. Interoperability is a word consumers should not have to learn to hate (as it per se does not exist). DRM can be a nice thing in a confined setup. But it’s not a silver bullet. As a value chain of one chain link is a pretty feeble excuse for not being able to adapt to the brave new world of networked entertainment.

Pipe classic, Pipe lite

Yes, I like the virtual pipe (thanks, Bertram, for the pointing me to Andy Kessler). But, uhm, what exactly is a virtual pipe? As opposed to a real pipe, virtual pipes try to emulate a lock-in situation. To understand what he’s talking about, we have to remind ourselves that Andy is a) American and b) a VC. His real media pipe looks like a typical cable walled garden to me. Here’s the media, there’s the pipe, that’s your home. In the US, it’s a billion Dollar market. Break up this lock in situation, and you’ll be offering what VCs are looking for.
pipe1.jpg

A virtual pipe is just trying to emulate this lock-in situation. His prime example is convincing. The business model of console games is about a technologywise totally closed shop, built upon the razor model. The more boxes you sell (in the beginning even at a loss), the bigger your reach. And if everything goes well, you make a killing from the software licenses. BTW, brought into perfection by Microsoft. Not with Xbox, but yer olde Windows. As they outsourced the risk of shipping hardware, just keeping the increasing returns business of peddling software.
As it happens, it’s one of the oldest business ecosystems, in regards of media and technology. Edison and Berliner sold their hardware (OK, I doubt the grammophone was ever a loss leader). And started successful software subsidiaries, whose leftovers are now known as the music industry majors.

Apple’s iTunes takes this model topsy-turvy. The software a.k.a. music is the bait (a loss leader? I doubt that. Maybe micro business). The hardware is the game, and usability, design, and branding the driving forces. The virtual lock-in into the iPodsphere by DRM is actually pretty much non-existent. You won’t see too many poeple filling up their umpteen Gig hard drives with music bought in the iTunes store (S. Jobs could afford that. But could you?). And even then: you still have your desktop application which allows you to unlock the DRMed file. It’s a minor hurdle. But if you bought into the Applespace because of superior usabilty and convenience, this might be the virtual virtual lock in.
pipe2.jpg

Let’s take another step back. Media is a software business. Traditionally, the content is tied to a physical thingy. The model behind is milking a scarce ressource. Spectrum (if you’re a broadcaster), right of way (if you do cable), advertising (hold on – now it’s getting mushy).

Because for some strange reason, capital puts the telco, media, and, entertainment eggs into a single basket. Which only makes sense, if you never worked with a telco AND a media company. Telcos think infrastructure, decadelong depreciations. TV is about yesterdays ratings. And even if there’s sometimes a symbiosis going on, they are as much related to each other as a lactobazillus to my family. Can’t live without both of them, but that doesn’t make me the grand uncle of little acidophilus.

Of course, sometimes the strategic interests of telco and/or hardware companies led them to gobbling up some media properties (what’s content, compared to cash flow?). And, with the notable exception of Time Warner, you won’t see too many fully integrated telco-media-companies. Usually, the telcos wield the stick (Vodafones EBIT dwarfes the combined revenues of the whole music industry). John Malone used to play hardball with his media “partners”, or, remember the Japanes-led invasion of Hollywood? Ted Turner might have been the only media player, who successfully quenched his telco partners for the monies he needed.
In this concert, media plays the second fiddle. And content is as much king as the Green Giant the duke of Broccoli.
Yer olde media equation looks like this:

– raise lots of capital
– hook up with a large entity which controls a scarce ressource (governement, if it’s spectrum or just a license you need, a telco, if it’s cable bandwith, a game console company, if … and so on)
– aggregate/produce and distribute content
– make some money by either selling eyeballs or selling the goods (discs, cable subscriptions, paper …)
pipe3.jpg

With networked media and entertainment, this equation starts to change. The gridlock onto scarce ressources is weakening. Anybody gets global distribution by pressing an upload button. Which might make life kinda complicated for traditional media outfits. But, on the other hand: obviusoly, this new environment seems to serve new media companies Google pretty well.

And so we’re coming back to last posts final question: Is content now really king? Looking out of the window leads to the following idea. Olde media used to pay for content. Google’s positions itself more like an intelligent remote control (at least you do not have to pay for integration, like in the yellow pages). To Google, all content is created equal and just piece of data store in the indices of Google’s server farms. (The YouTube-deal might chance this comfortable postion; suddenyl, it’s all about licensing and copyrights.)

Does this mean, content will be demoted fiscally from lackey to lactobacillus? OK, this might be the logical path from the intern-executed media production style of the early 21st century. But, fair enough. More likely, that’s what happens if you look out of the window and outside everything’s greyish, wet and fall.

Mostly, the de-piping of media pomme1.jpgmeans:
– As abundance replaces scarcity as a driving factor, media’s distributional power is reduced to the power of being a brand. Which, in an environment of abundance, ain’t that bad a position.
– Network neutrality assumed, the media’s gatekeeper position won’t be taken over by the telcos. Or, at least, you’ll have a choice which gated (or open) commuinty you’re going to visit today.
– Meta-media like plain search engines, dedicated search engines plus hosting (ASPs like YouTube, Flickr), social networks et al drives the audience to the content. Old media mostly picks up what’s already on their screens.

But what’s the effect on content? The medium is the package. Which, by it’s commercial needs and restrictions, defines the content. TV shows are produced around commercial breaks. A pop album is defined by the capacity of vinyl records and CDs. Which, after this little excuriosn, leads us back again to last next stop: the content value chain ….

A Road Map to Moving Images

Lately, I was having a talk with Ibo on all things digital (tv), trying to outline the future of audio visual media (being humble is not always a virtue). Let’s put it like that: the whole apparatus is changing. Question is: where to?

It always makes sense to start with a user centric approach. How are people accessing their AV-media? Basically, we’re either talking about receiving broadcasts or on demand access. Do we have to define linear broadcasting? Probably not. TV channels are aggregating content and deliver it to your home, using a scarce ressource called available spectrum/bandwith.

IPTV, broadband TVOn demand might need a bit more explaining. As on demand isn’t just a technological nirwana to be reached in the near time future, but accessing an archive to choose something to watch. Which might happen to be a part of your own VHS-collection, a DVD rented in a store, or a download or stream coming via any broadband pipe.
If you think I’m overdoing this, get this: New York Times – Microsoft Moves Into Video Download Fray.

(Let’s not get into details. While users will be able to keep television shows, movies can only be rented for a 24-hour period. The videos will not be playable on other devices and cannot be burned onto DVDs, but the online service will keep track of purchases so users can log in to watch their videos on a friend’s Xbox, does a bit sound like a sure recipe for disaster to me – if you do not restrict your target group to paralegals working for IP lawyers).

In the end, IPTV sits smack in the middle. As IP is the telco-equivalent of the Blob. The end user/consumer/viewer couldn’t care less. In a perfect world, he plugs, he plays. And doesn’t have to think about walled gardens, net neutrality or even the device he’s using (do you care about the specs of your VHF tuner? Do you switch between VHF and UHF? Only if your tv set is 500 years old and still black and white).

The only thing he cares about is a moving image. It’s the emotion, stupid. That’s why content finally could be king. As the bottleneck of aggregation and distribution is vanishing. Could be, because: only in fairy tales, kings do not have to earn their living.
OK. Next stop: the content value chain.

A Google Job

TV Engineering Project Manager – Mountain View

This position is based in Mountain View, CA.

Television remains the single most important source of information and entertainment for billions of people around the world. Google is looking for a talented Project Manager to be the driving force in managing our cross-functional launch team and stay on task and target. In this role, you will work with Engineering, Product Management, QA, Partner Services, and Business Development to ensure a smooth and seamless release of software products to the market. You will also be responsible for special projects within the Engineering area, driving projects to completion and helping to document decisions and progress.

Hm-Hmmm. The single most important source of information and entertainment for billions of people around the world.

Circle Vision

It’s one of those rare occasions, where I could imagine it might be fun to work in the legal department of big olde media. One day you’re writing the TOS for a YouTube-look-alike (how to distance yourself from all this user uploaded content, whilst still being able to monetize the whole load). Next day, you have to ponder how to sue YouTube (how to transfer Google-riches into our pockets because of copyright infringement of user uploaded content).

Seriously. That’s the German situation. RTL Group, Europe’s largest broadcaster, is running Clipfish. Haim Saban’s ProSiebenSat.1 acquired MyVideo.de. And, not too surprisingly, both sites are virtually pornfree – but laden with copyrighted material. MyVideo hosts a large collection of RTL’s German Idol-version Deutschland sucht den Superstar. Clipfish sports a nice collection of TV Total excerpts, one of Pro 7 main shows. Which might be business as usual. If especially RTL wouldn’t usually fight for (or, better: against) every digital bit and byte. Online video recorder, PVRs, ad blocker, you name it. Seems like web based videosharing will be OK.

Is Google run by morons?

Mark Cuban did put it on the map. Only a moron would buy YouTube. Well, here comes Mr. Google, allegedly offering some 1.6 Billion USD. Whoo-hoo, here we go. Is Google run by morons? Probably not. But they have to cater to analysts (which might be even worse).

I still think: as a business, YouTube is worth a nickel and a dime.
As a buying-growth-scenario, the deal might save Google’s mega valuation for a couple of months. Just look at the latest comScore stats.

TRAFFIC DATA
__________________________________________________________
Select Online Video Sites (Note: Not an official ranking)
Total Unique Visitors (000)
August 2006
Total U.S. – Home/Work/University Locations
Source: comScore Media Metrix

Total Unique Visitors (000)
Select Sites Aug-06
———————-

Yahoo! Video 21,141
MySpace Videos 19,406
YouTube 19,089
MSN Video 15,414
Google Video Search 11,891

Google Video + YT would guarantee the number 1 spot for at least 6 months. But obviously the people aggregators like MySpace, Yahoo and the like beat Google’s dried up services approach.

Which probably means, they shouldn’t buy YT, but Facebook. But Google buying traffic to save a valuable property? That would be a scary thought. Well anyway. On a mid term perspective, it could always be argumented that it will help solidify Google’s entry as the video ad engine of choice.

YouTubed, YouDoomed?

Is Mark Cuban right? In his post The Coming Dramatic Decline of Youtube. Mark is making a gazillion valid points. Yes, YouTube’s “business” is based upon inciting copy right infringements on a massive scale. Yes, the other part is the Come to our website and use our video hosting services, we can party like its 1999 all over again ! And yes, the whole model is fairly easy to copy. Even for the most obtuse copyright owner (at least the technology).

But his obituary for might be a bit premature. Think about it. Mark is wondering, why it is that until Universal Music Group apparently started to put the pressure on them, no one had sued them. Considering the RIAA will sue your grandma or a 12 year old at the drop of a hat, the fact that Youtube is building a traffic juggernaut around copyrighted audio and video without being sued is like…. well Napster at the beginning as the labels were trying t written to figure out what it meant to them. With the MGM vs Grokster ruling, its just a question of when Youtube will be hit with a charge of inducing millions of people to break copyright laws , not if.

Thing is: the YouTube model might have 1999 written all over. But there are some things copyrights holder presumably learned in the past seven years.

– killing Napster didn’t do a thing. Instead of one single (and thereby controllable) place, the darknet became just a little darker.

– offering legit spaces isn’t a sure path to success. Defunct download portals are littering the way back engine and the balance sheets of quite some formidable companies. Sony Connect, anybody?

– a virtual monopoly by Napster would have been nice: take the law stick, and beat them into submission. Try this with Steve Jobs.

Sure, you could build an online radio out of YouTube songs. Sure, you could download everything, too (if you insist). But why bother, as a copyright holder? Make them clean up their act (finger printing for background music, blanket licensing deals), make them bleed, let them do your marketing, and let them foot the bill.

At least, that would be true for the whole music industry. If you’re a nobody, YouTube might make you a star. If you’re a soso-somebody, YouTube put’s your videos On Air (whilst MTV is even rejecting your emails). If you’re a big act, you make YouTube pay. So everyone’s a winner.
With video content, it’s a bit more difficult. The basic difference: if you like a song, you’ll listen to it over and over (until your next door neighbor threatens to call the cops). Moving images is different. Watching the same movie over and over again is all you need if you’re in the three to nine age bracket. Otherwise it’s pretty straightforward: you watch it, you dump it (or collect it, and never watch it again).

Videos are like jokes: you heard the punch line, and that’s it. And don’t try any reruns on me (heard/watched this one before). That makes the video sharing ecosphere a bit more complicated. Let’s try to structure it a bit. It’s mostly about one time events vs serialized entertainment. For serialized stuff, the YouTube are a sure winner. People take out snippets they like. The best ones get traction and multiply by themselves. With one time events, it depends on your goals.

Just some ideas thrown in: Most theatrical releases need the big screen anyway. Maybe a director’s cut on DVD would be fine, too. But a pixelated Flash movie on a PC screen? Movies can gain a lot. Look at Borat – The Movie. Ali G.’s everywhere, from MySpace to vSocial to veoh. Legit posts mixed with user uploads. Hey, makes me want to watch the real thing.
Shorts can make you famous. Film and people aggregators like YouTube can’t make you rich, but make you famous. But if your business depends on selling just this one film, you’re dead.

But what’s that supposed to YouTube? The rumors of its death are slightly exaggerated. But if they don’t get a hold on a whole lot of stupid money pretty soon, they might just wish those rumors would have been true. Because dredging along is a rather exhausting exit.