Month: January 2006

and then she backpedals

After the DMCA was passed, rumors were abound that the entertainment and media industry heavily lobbied Congress to get the law passed, but those rumors were never substantiated. In a recent blog post, former RIAA head Hilary Rosen admitted that she expected influence and votes in return for her contributions. In her words:

"Damn straight when I gave a $1,000 or $2,000 to a lawmaker I wanted him to listen to my business proposition.  And when I helped organized an event that raised $50,000 or $100,000 you bet I expected their vote.  Why else do it?  Now you can argue that the Member of Congress already took that position and my colleagues and I were just showing our support for their position.  But how can the public really be sure of that?"

Wow. She broke the first rule of lobbying: Never admit you’re buying votes. And in her defense, I can’t be sure of the context of these comments. Was she speaking as a former RIAA head, as a US citizen and individual contributor, as a member of GLBT rights supporter Human Rights Campaign, or any other role she’s taken over the years.

All the same, these are damning comments coming from a former lobbyist. After talking about her role influencing laws, she turns a hard corner and makes the case for public financing of elections:

"Members of Congress are CONSUMED with raising money for their re-elections.  It has become a burden.  And no matter how cavalier they are about it in public, their hand wringing in private is certain.   And anyone, including lobbyists, who lessen that anxiety, is considered a better friend than those that don’t.  It is just a fact.  No lobbying reforms will change that fact.

…

The ONLY answer to all of this is public financing of elections.  Then lobbying becomes genuine “education” and relationships are built on respect and constituent interest.  It seems so obvious."

I’ve been a fan of campaign finance reform for years, but I know the reality of that happening is grim. And if you’re not convinced about the need for campaign finance reform, candidates raised around $4 billion in the 2004 election cycle — all that money for seats in public office. I can think of many great ways to spend $4 billion…

Despite her former job, I’m proud of Hilary’s admission and hope that other lobbyists admit the need for greater reform than what’s currently being proposed in Congress. I especially hope that some day Hilary will come clean about her role in the creation of the DMCA and other RIAA-friendly policies, and that will come in the form of an interview with me exclusive to my web site.

One thing at a time though… Keep an eye out for more Lobbyist Stories during the Abramoff fallout.

It’s probably in your living room right now

I’ve wanted to opine on the state of digital video sales on the Internet for some time, and thanks to a chat with a friend today I feel inspired to follow through with it. But before we get to video, you need to understand the state of music first.

No surprise here — Apple is the digital music industry. They’re over 80% of the market (Apple’s numbers, but I believe them), but not even that stat can capture Apple’s power. The rest of the digital content sales industry bases everything they do — pricing, marketing, new technologies — on Apple’s moves. For instance, we’re stuck with $0.99 songs and $2 videos until Apple changes their pricing — that’s how much power Apple has in the industry. (You can argue that Apple is at the whim of big media who set that pricing, but that doesn’t matter. The rest of the digital content industry won’t budge until Apple does.)

Video seemed like a natural progression from digital music sales. However, the experience of music listening versus video watching is very different. Music can be (and usually is) enjoyed alone — a pair of headphones and you can tune out the world to your Walkman, iPod, or digital media device of choice.

Video has two major differences. In most cases, people seek out collective watching experiences like at movie theaters or sports bars; there’s something about being part of an audience — sharing the experience. For all video, people like to enjoy movies, TV, sports, and other video content in the comfort of their homes on a big TV with big stereo.

And thus begins the rush to video on portable devices. Apple lagged behind other portable video offerings but had a store to go with the device when they launched. However, Apple did not have a TV offering that matched the bad-assness of the iTunes Music Store. Apple has Front Row and that’s about it. Therefore Apple didn’t immediately corner the video market, and so it’s still up for grabs.

For the reasons I just mentioned, portable devices are not the platform that will drive the future of digital video. Video is a living room or movie theater, big screen experience. Any video killer app has to start there. That’s why I say the killer video app is in the cable box. You can watch hundreds of channels from around the world, in multiple languages, and across every imaginable genre. Many boxes are DVRs and record on hard drives so you can watch them at any time. And On Demand shows and movies mean we can watch whatever we want right at that moment.

And so if Comcast, Time Warner, and the like can get their shit together, they can corner the digital video sales market in one fell swoop. Make videos purchasable and downloadable onto your DVR via the cable box, let people then download them onto a computer or iPod, and reap the profits. Besides Apple, cable companies are the only companies that have the infrastructure to do video right and do it right now. (Note Google was not in that sentence — they’re still behind Apple like everyone else). And remember, Apple has Front Row. I’ll bet it won’t be long until you can buy an Apple set top box either from Apple or your local cable company.

On a related note, TiVo has been ahead of the video curve for some time — recording shows, new advertising models, downloading to computers and iPods and PSPs, even will let users swap shows over the Internet (to the anger of every TV and movie company). TiVo has Live365 support (Internet streaming radio), and I don’t think it will end there. I’m willing to bet that TiVo incorporates a video store in their next version (or version following — I don’t keep up with TiVo version numbers). Kudos to them if they make that deal with Apple to integrate iTunes sales into TiVo. If TiVo dies (and sadly I believe that’s the most likely outcome) it will be because they didn’t make enough deals with the cable and satellite services. Why buy a TiVo and pay $10 a month when you can pay the cable company $5 a month for the same thing? How the mighty have fallen.

Because of TiVo and the dominance of cable and satellite DVRs, I think Apple doesn’t want to get into the set top box game right now. The only things that can bring Apple into the set top market are 1) a viable iTunes Movies Store (note Movies, more than just Video) and 2) CableCARD support so that anyone can use an Apple box with encrypted HDTV cable offerings. TiVo and Microsoft Media Center are planning CableCARD support soon too. If the cable companies can’t capitalize on digital video offerings, expect Microsoft, TiVo, Apple and others to jump on it and fast. The first computer CableCARD offerings should start appearing this year. I should add that the cable companies are tied to the big networks — Viacom, GE (NBC), and so on — making an already complicated landscape more complex… (Think of how the RIAA (may have) influenced Apple in their pricing, DRM, etc.)

The next two years will be highly transformative in the digital content business because of video. Video sales will not scale up for at least a year or two, and companies are only now getting the infrastructure in place to handle video. Any company that doesn’t migrate towards video will find themselves obsolete; the customers and the content will go elsewhere. Also the cost of building this video capability is very high, so companies are going to start pouring money into video. In either case, some companies will go bankrupt. The shakedown starts now.

How many companies will survive this? Dunno, but Napster looks like they might go soon . Despite the positive PR spin of their 500,000 users, I’m betting against them. By comparison, Rhapsody’s music subscription has around 1.3 million users and is making deals with high speed Internet providers to increase their subscription base. There’s Yahoo! too. Yahoo! is trying to undercut all the subscription services — well, tried to and then jacked their prices up . I don’t know how many users Yahoo has, but they’re using the music service as a loss leader — undercutting the competition and hoping that either the music subscription market grows or that competitors will close up shop.

Let’s talk mobile video too. Nobody wants mobile video. I love this study from the UK — 36% of people who have mobile TV watched it at home. Why? Because they wanted to compare the TV on their phone to a real TV set. I’m amazed they couldn’t figure that one out. Mobile TV is dead until the cost of that service and the phones that support it plummets. The kicker is that if everyone who could buy mobile data and video plans subscribed to them and used them, the cellular networks would overload. Can you hear me now?

Good.

Everyone — and I mean EVERYONE — wants a piece of the pie. Even the good old telephone companies are making deals with content providers to ensure rapid and high quality delivery of goods, at a cost of course. In short, a two-tiered Internet. Decent service for most, great service for those who pay — ‘those’ being consumers, companies, or anyone who will pay for it. While some folks argue that we really need this, others think it may bring about the demise of the Internet (no links here — I won’t give these Chicken Littles any cred). This is what happens when your Internet is regulated by market forces. These moves are especially relevant because… *drum roll* — phone companies want to start offering cable TV service too. Broadcast over IP. Like I said, everyone wants a piece of the pie. Everyone.

It’s a turbulent time to be in the digital content business. I’m sure there will be more fun stories to come, but at the least you’re now a little more informed about this complicated landscape. Keep an eye on video. What happens with video will single-handedly transform the Internet.

but nobody thought to ask why…

Usually I’m not so fast with responses to current events, but this one has me pissed off. Really pissed off.

A Chinese blogger’s site was taken down — a blogger living in China who wrote in Chinese about highly political Chinese events. What makes this newsworthy is that apparently the takedown was done by Microsoft. The blog was hosted on MSN Spaces. One day, it’s there. The next, "This space is temporarily unavailable."

Most folks are complaining about Microsoft . Apparently it was MS, not the Chinese government, that shut down this blog.

That, however, is not why I’m angry.

I’m angry because of the huge jump-to-conclusions attitude of the blog world. I’ll offer two points that explain why MS did what they did:

First, read the MSN Spaces Code of Conduct. In there, it clearly states (my emphasis):

Violations of the MSN Spaces Code of Conduct may result in the termination of access to MSN Spaces services or deletion of content without notice.

You will not upload, post, transmit, transfer, disseminate, distribute, or facilitate distribution of any content, including text, images, sound, data, information, or software, that:

… is illegal or violates any local and national laws that apply to your location; including but not limited to child pornography, illegal drugs, copyright material and intellectual property not belonging to you.

Like I said, this blogger is from China. While I’m no expert on Chinese laws, I imagine the Chinese government would find that blog or its content illegal. I also imagine Microsoft is not super savvy about Chinese laws but they’re not looking to get in trouble either. If the Chinese government has an issue with that individual blog, they’re more likely to stop traffic to MSN Spaces altogether rather than stop traffic to that one blog.

MS plays it safe, decides it would rather let all the other Chinese blogs stay up, and pulls the one offending blog instead. That way when the Chinese government goes to MS and asks why they shouldn’t block all access to MS Spaces, MS can say they would much rather do this on a blog-by-blog case.

The other reason why MS did this is because they’re trying very, very hard right now to make business inroads in China. The US Government is trying to get China to do more to enforce their intellectual property laws; MS is probably losing a bundle to counterfeit software overseas, and China is a huge offender in software, movie, and music bootlegs. To win China’s favor, MS is watching China’s back too. MS already censors Chinese ‘net searching (so does Google), so censoring an individual blog is a far cry from the worst that MS could have done.

Let me be clear — I am not defending MS’s decision. In fact, I think that the smart folks in Redmond had several other options they could have chosen instead:

• Block China IP addresses from accessing that blog
• Remove individual offending posts
• Change phrases, words, or sentences to make the content acceptable

And for each of those, inform the blogger and the readers about why. I’m sure most bloggers out there will take offense to these ideas. "How could you even suggest that a company censors the posts of its bloggers?" Well, MS offers this service with terms, and it’s up to MS and NOT YOU to determine how they’re enforced. (Don’t like their terms? Take your blog somewhere else.) Second, it’s better that MS does it than the Chinese government who use much harsher tactics than MS would (say, by blocking all MSN Spaces access in China).

For all of you complaining about MS, calling them complicit in the Chinese government’s censoring — yeah, they are. That’s the price of doing business in China. I say MS made the right call this time; not even MS can make a stand against the Chinese government, no matter how high the ideal is.

This is just one small part about how the international nature of the ‘net is going to cause many, many more problems in the upcoming years. We’ve already seen the US resist turning over ICANN — a wise move in my opinion. What you see China right now is a small example of what could happen worldwide if other countries are given control over portions of the Internet. However, this is the only reason why the US should resist turning over ICANN.

But the international issues are not over. Remember that France said Yahoo can’t sell Nazi goods to French net users; those sales are banned by French law. The US court said Yahoo doesn’t have to listen to France. ICANN, MSN Spaces, search censoring — these are isolated examples of a terrible dilemma. Governments should work together to make these decisions. Unilateral action, like the actions of MS or the Great Firewall of China, just piss off the bloggers. Take a chill pill, go curl up with your favorite international relations book, and think about this a little bit more before you give MS the verbal smackdown.

UPDATE:  Maybe MS read my post.  This link goes to a nice summary of the MS response. Quote the MSN PR folks:

"MSN is committed to ensuring that products and services comply with global and local laws, norms and industry practices. Most countries have laws and practices that require companies providing online services to make the Internet safe for local users. Occasionally, as in China, local laws and practices require consideration of unique elements."

"Microsoft is a multinational business and, as such, needs to manage the reality of operating in countries around the world."

I also recommend this post from the MSN Spaces product manager.  Maybe even the Scobilizer has come to his senses:

"I have been talking to lots of people today, though, inside and outside of Microsoft. In every instance they asked me to keep those conversations confidential. Why? Cause we’re talking about international relations here and the lives of employees." (emphasis mine)

I couldn’t have said it better myself.