#utsmw15 Infographic: How Digital (& Social) Drive TV Viewing

From Google Insights, How Digital Drives Viewers to New Shows,

Music licensing @CES2014

I attended what turned into a fun session on music licensing policy at CES in Las Vegas.  The paneL included a music industry rep from RIAA, the head of a public interest group, and two former musicians.

It started off on focus - acknowledging the mess that is music licensing in the US today, and some ideas for improvement.  The RIAA rep, Steven Marks, said one problem was that there was no comprehensive database of songs and performances, which could make it difficult to know whether a license was needed when using a recording, and who to contact to get it. 

[Which reminded me of a recent story that one of the nastiest of the licensers (for 'Happy Birthday to You') may actually have never filed for a legal copyright for the piece, and thus may have been illegally collecting licensing fees for decades.]

But he's right that having a central listing of licensed works would be helpful - particularly if they verify that pre-1976 works were actually copyrighted.  (Post- 1976 creations are automatically granted copyrights). He also suggested creating a basic licensing center for 'small' users.  Making things easier would arguably help those who want to be legal to do so.

Mark Weinberg, acting Co-President of Public Knowledge - a public interest group promoting wider diffusion of knowledge and content, concurred that making it easier for music users to know what licenses may or may not be needed, and making them easier to obtain would be useful - but was concerned that the industry would try to limit fair use exemptions and collect fees from those who shouldn't have to pay.  He also expressed a desire to see the industry become more flexible in dealing with new media and applications, to support innovations and the exploration of potential new music outlets.  He noted that there was a wide range of music licensing strategies (and different rates) being applied to the wide variety of digital music distribution options - and that applying a single consistent standard, regardless of what technological backend was used for delivery, would be helpful.

Next came Dave Allen, former Gang of Four member.  He made a strong point about the changes in the music industry.  Vastly more listened to radio or streaming sources today. He noted that the prime source for music with today's youth is YouTube (the RIAA guy agreed), but since most of the music content there is in the form of promotional videos, they don't pay royalties.  That led to a claim that the record industry is making deals with streamers that bypass licensing fees and cheat musicians, joined by Hank Shocklee (founder of Public Enemy), and prompting predictable objections from Steve Marks (Chief, Digital Business and General Counsel for RIAA).  The discussion of that generated a great deal of fun back and forth between the artists on the panel and the RIAA rep.

But the key point, which Dave Allen came back to later when things calmed down, was that digital and streaming music sources had the potential to scale much higher than the old record industry, again something the RIAA rep and other panel members acknowledged. Marks, from RIAA, noted that the scale of the physical recordings industry was always fairly small - people, on average, bought only 2-3 records a year, and acknowledged that the potential of digital to be significantly higher. Someone made the point that in the heyday of the old records industry, hit records were sales in the hundreds of thousands in the U.S.  Today, Spotify's paid subscribership in the U.S. is around 6 million, and Beyonce's recent digital album sales were in the millions in the first month alone. Allen suggested the digital market could easily explode - if the right model and pricing develops.

One problem delaying the scale-up is the fact that today's rights fee scales are derived from the payment schedule for vinyl records and that scale of sales.  Revising rights fees (lower) to the higher scale levels could encourage more listening, scale up music use, and benefit artists even more than the current system.  Of course, the RIAA guy wasn't about to support reducing licensing fees, but the head of Public Knowledge encouraged the idea, as a way of  encouraging exploration and development of new delivery options. 

I've been thinking about licensing fees and pricing strategies a lot lately (particularly focused on the bundling vs. a la carte debate on cable), and had a couple of proposals to offer - but the session ran out of time.  I wanted to support the notion of thinking of rescaling rights fees to the potential scale of digital systems - while it might initially reduce short-term revenue generation, it would accelerate the growth of those systems and in the long term had the potential in the long term to generate much higher revenues for the industry and the artists.  The other idea I wanted to raise was the notion of exploiting versioning.

Versioning is a strategy in marketing information goods where different versions of the product are offered at different prices, or to different market segments.  Versioning, based on sound quality, seems to have a natural potential for music.  It's already in regular use - Spotify offers free access to lower-quality streams, and lets subscribers also upgrade their subscriptions to higher-quality.  However, the current licensing system applies the same fees for all quality versions.  If the licensing fee rate schedules would similarly differentiate between quality versions, this could address many of the Public Knowledge's concerns about providing a mechanism for exploration and development of new music distribution systems.  It could also facilitate a better music promotion and sampling system - letting people to listen to low-rez versions of whole songs rather than the current method of allowing very short snippets from the start of songs.

Certainly, all the panelists, and most everyone in the audience, agreed that the current music rights and licensing scheme is massively screwed up, and the inevitable "strong debates" over major record labels handling of rights and fee reimbursements to artists just acts to delay any efforts towards solutions.  There are very reasonable proposals out there, some expressed by panelists, and multiple others being offered by academics, professionals, and policy types (including my own not-so-humble ideas).  It's time, as the panel title suggests, to "Stop Fighting and Fix It."

Sources -

Video of the Stop Fighting and Fix It music licensing session at the CEA Innovative Policy Summit, CES2014, can be found here.

Free vs Pirates

There's no question that online content piracy is a problem.  There's some question about how big a problem (in terms of impact on content sales), and growing problems with regard to how to best combat it (copyright enforcement becoming increasingly problematic).

The growing problem with enforcement is that making and distributing digital copies is easy and dirt cheap - and the solutions being offered in policy debates increasingly degrade both digital systems, network security, and individual privacy.  Perhaps its time for a different approach.

A new paper (and forthcoming book chapter) for the National Bureau of Economic Research suggests that a more effective anti-piracy strategy might be to reduce the economic incentives for pirates.  Using new online data sources, and tracking the impacts of natural experiments when large amounts of content were either removed from online markets or made available to them, the study found that having content online significantly reduces online piracy.  Making content widely (and inexpensively) available online can reduce piracy by 10-20%; removing content, or making it significantly more expensive, can increase piracy by a similar margin.  Making distribution of pirated content more difficult and expensive (in this case by shutting down Megaupload.com) increased online content sales by 5-10%.

These results are of a piece with a number of studies that link pricing and marketing strategies with the prevalence of online piracy.  A study for the WIPO found that while online piracy of broadcast signals was rampant, it occurred overwhelmingly under two circumstances: when the content was not legally distributed in the area, or when pricing was set at Western levels (making it unaffordable in poorer areas).  Similarly, a wide range of marketing studies have found that having free or minimal price options minimizes incentives to search out illegal versions.  Those studies also found that content creators can maintain sales and profit levels through the increased volume of legal access, and by engaging in content versioning. 

   Versioning refers to the ability to market different versions of the core content,  For example, music can be made available free online in a low-resolution option, with standard (CD-quality) resolution for a modest price, and in a higher-fidelity version (perhaps with some affiliated goodies) for a higher price.  Versioning has a long tradition in book publishing (hardcover vs. paperback), records (45s vs LPs vs CDs vs DVD-As, etc.), and online radio & video (lower quality streaming for free, but high quality streams requiring subscriptions).

What this suggests is that content creators have an alternative to trying to force digital distribution systems to follow the analog copyright metaphor - particularly when those efforts criminalize their potential audience and markets.  Instead of trying to regulate digital markets to fit traditional business models, they can explore the potential that digital offers for new and increasingly lucrative business models.

Source -  Want to Fight Off Content Pirates? Just Stream Your Show for Free, BloombergBusinessweek
Understanding Media Markets in the Digital Age: Economics and Methodology, NBER Working Paper No. 19634
Monetizing digital media: Creating value consumers will buy, EY.com

Billboard Incorporates More Digital Info

Earlier this year, Billboard started including data on digital sales and information about a song's online streaming in its Hot 100 singles charts (all genres).  Originally, Billboard relied primarily on radio station air play to measure a song's popularity - and for music genre charts like Country-Western, Latin, and Hip-Hop, it limited its data to radio stations whose exclusive program focus was that genre.  Thus, the genre charts failed to incorporate digital plays and sales, or the success that cross-over artists achieved in other genres.
  Last week, Billboard announced the creation of a new chart for R&B music, to better distinguish that genre from Hip-Hop.  More importantly, though, Billboard changing how it calculated its top singles charts for various genres.  First, it will expand the number of stations included in determining airplay counts.  Then, it will use the hybrid formula developed for the Hot 100 chart to reflect digital online sales of singles, and airplay counts from major streaming services.  This should provide a more inclusive basis for measuring artist and song popularity.
  The recording industry welcomed the change.  Jim Donio, president of the National Association of Recording Merchandisers (NARM), released the following statement.

"With digital downloads hitting record highs and streaming services such as Spotify, Muve, Slacker, Rhapsody, Rdio, MOG, Sony Music Unlimited and Xbox Music continuing to grow, the impact of digital music is growing more and more pronounced... We are happy to see that Billboard recognizes this trend and is taking steps to ensure that its charts will continue to serve as the industry standard well into the future."

 Source - Billboard shakes up charts to include digital, streaming data, CEN Audio blog

Media CEOs embrace digital future

A new report suggests media CEOs are optimistic about the digital future, and think that digital provides them an opportunity to significantly grow revenues and profits in the near term.  The Ernst & Young study is based on interview with 34 CEOs from a range of global media and entertainment companies.  The companies span many geographic areas and media and entertainment product markets, with combined revenues above $300 billion.

  Half of the CEOs they talked to predicted that digital would drive up revenue growth and profit margins by double digits within the next three years.  But what's more interesting is which digital technologies and services they felt would drive that growth. 
  When asked what would be the biggest driver in terms of increasing content consumption over the near term, the CEOs unanimously named mobile devices.  In contrast, 53% cited improved broadband and mobile infrastructure, 41% cited social media and other emerging networks, and 24% indicated that increases in online content availability would be a primary factor increasing online content consumption.  Looking a bit deeper, the CEOs talked about mobile as creating expansive new markets and demand.

“The integration of media content, devices and networks creates self-sustaining digital ecosystems. The more users interact with content, the easier it is to learn about their habits and for content, advertising, and services within these ecosystems to evolve and grow,” said Howard Bass, Senior Partner, Global Media & Entertainment Advisory Services, Ernst & Young LLP.

  Mobile also led the list of digital technologies that would have the biggest overall impact on the Media & Entertainment industry - 79% of the CEOs said tablets would have a significant impact, and 62% thought smartphones would.  Cloud technology was cited by 59%, Apps (as means of providing content and services) was identified by 56%, and 53% thought mobile broadband would have a big impact.  Interesting, social media was the least mentioned of the technologies included in the survey, with 44% of the CEOs thinking that social media would have a big impact on the media and entertainment industry.
  It wasn't that the CEOs didn't see the value of social media to the industry - it was more how they thought social media would be useful and potentially having an impact.  The CEOs saw social media having an important role in terms of audience relations - 84% said social media's value and importance came with it's ability to connect with customers; 69% saw value in building audiences; and 63% thought social media would be helpful in building brands.  Only half thought that social media might become an important distribution channel or revenue source.
  It's important to note that the CEO's also recognized the challenges of the digital future for their firms.  As might be expected, uncertainty about the future was at the core of many of their concerns - global economic uncertainty was the top concern given.  In addition, CEOs felt that concerns about capturing the fair value of digital content was a critical concern.  Some also identified structural and regulatory uncertainty, uncertainty about how marketing budgets would be allocated across media and platforms, and the viability of disintermediation efforts (i.e., could they eliminate the middleman and link content producers and consumers directly).
  Most of the CEOs (56%) planned to focus short term efforts on pushing and expanding digital and online distribution efforts - putting themselves in a position to be able to take advantage of whatever specific opportunities emerge from the fog of digital market evolution.  Another strategy might be to become more involved with social media and interactive media - 59% of the CEOs thought that companies in those areas were the best position to thrive in the future.  I'm a little surprised that only 44% of the CEOs said that creatively differentiating content would be a priority.  Repurposing existing content can create added value, and is a cheaper way to enter new markets than creating all-new content.
But I guess CEOs aren't omniscient.

Source - CEOs See Digital As The Driver,  Research Brief blog
News release on the study (full reports can be requested)

Fox to offer movies online before stores

Movie studio and distributor 20th Century-Fox has announced that it will offer digital copies of both new releases some three weeks before DVD and Blu-Ray versions are available, and at prices that undercut typical list prices for home videos.  And it will do so on a global basis.
  Called Digital HD, the initiative is slated to launch Sept. 18 with Ridley Scott's Prometheus.  The initiative will also make some 600 older titles from its movie library available at the same time.  Fox chairman and CEO Jim Gianopulos indicated that the initiative was intended to take advantage of the explosion of digital devices, and help redefine digital ownership.  He indicated that the move wasn't likely to affect theatrical release, as availability will occur well outside the theatrical release window, or Blu-Ray sales, as the hard disk versions offered extras and improved resolutions.

  It also shouldn't hurt that Fox will likely make more per sale as the sole player in the distribution net (even at below list prices) than it will off of sales of physical DVDs and Blu0Ray discs.  The physical media not only have production costs that digital versions don't, they also don't have to account for substantial wholesale and retail markups that can account for half (or more) of retail list prices.  The movie industry in the U.S. has been taking small steps in this direction for the last few years (see posts on UltraViolet and Miramax's trial) but this is the first large-scale direct digital sales initiative.  Expect more.

Update: I forgot to discuss another important aspect of the Fox Digital HD initiative - the plans for Digital HD to not only open in the US, but in 49 other countries as well.  It's likely that Fox sees that not only as expanding into those markets directly, but as a move to combat online piracy.  Studies suggest that one of the prime attractions of pirated films outside the U.S. is the fact that US movies typically are not made available in those markets until much later.  Making films available simultaneously across the major international markets - legally, and at reasonable prices - could well blunt the demand for pirated versions.

Source - Fox Shakes Up Home Entertainment Market, Will Offer Movies Early Online for $15,  Hollywood Reporter.

New royalty deals for digital music

Music industry groups, digital music services and mobile telecomm operators have reached an "historic" deal on mechanical royalties (dealing with the reproduction of recorded material).  For the most part, the agreement continues the existing royalty structure and rates in existing markets, but establishes new rate formulas for newer digital music business models such as Cloud storage, some interactive streaming services, and digital music bundled with other services or content.
Tights for the newer services run about 12% of total revenue, 21% of the total costs of digital music, or 17-18 cents per subscriber (whichever is greater.  RIAA Chairman Cary Sherman hailed the deal -

"This is a historic agreement that reflects our mission to make it easier for digital music services to launch cutting-edge business models and streamline the licensing process ... This is a major win for consumers, the music community, and entrepreneurs and investors in new music services."

Another music business association leader, Jim Donio of NARM, proc;aimed that "the standardizing of rates and terms encourages innovation and fosters growth of new digital and physical products and services in the marketplace, giving consumers more choices around the music they love."

Certainly it's good for the music industry, and having a settled rate structure is helpful for digital music services as they will know what costs they face.  The downside will be for the consumer - who if they use a cloud service to hold music they've already bought and paid for, or in the case of digital music bundled with CDs, will be paying again for accessing and using his or her legally owned music online.  And as online music services aren't likely to just absorb the cost of royalties, the music consumer is looking at price increases of 10-25%..
  Then there's the secondary impacts of establishing an economic threshold for digital music services.  Fixing rates imposes known costs independent of any inherent value in either the music or the service. This discourages experimentation, innovation, and sampling of new artists and music, particularly when commercial value is low or uncertain.  It rewards content owners and services with proven high commercial value, to everyone else's detriment.  It imposes a burden on possible noncommercial options, or in situations where the production or distribution of digital music or digital music content is motivated by factors other than direct commercial gain.  As happened when rights fees were first imposed on online audio (radio) streams, experimental, noncommercial, and educational services will disappear, leaving only increasingly commercialized options,
  Further, as prices rise to incorporate new rights fees, consumers be less willing to purchase, and demand will fall.  As the music industry and commercial music services seek the short term stability and revenues they see excessive rights fees generating, they're continuing to alienate consumers and shrink demand, and hampering true innovation that they fear will challenge their market share,   In looking back, they're failing to consider the huge potential of the digital market economy.

Sources - Music Industry Groups, Digital and Cellular Interests Reach Royalty Deal,  AllAccess
Music Industry, Online Services Strike Deal,  Wall Street Journal

Joining the Cloud - GooglePlay

There's several ways you can look at the recently announced GooglePlay - as an amalgamation and re branding of Google's various media sites, as a move try to tap into the growing digital media content market and the success of iTunes and Amazon, or as a harbinger of the final shift in content from physical to virtual.  Wired.com's Mike Isaac argues for the latter - that with Google's size and reach, GooglePlay may provide the critical mass for the Cloud.
  Specifically, GooglePlay combined the content and infrastructure of Google Music, Google eBookstore, and the Android Market (which recently also started serving as an access point for video streaming.  However, the integrated GooglePlay site is entirely cloud-based, so that all of the content is always available on any device that is Internet-connected.  As the press release touted:

“Google Play is entirely cloud-based so all your music, movies, books and apps are stored online, always available to you, and you never have to worry about losing them or moving them again,”

As with Apple's iCloud, a key feature of GooglePlay is the ability to not only have digital content available across your devices, but to automatically sync that content.  Early reports suggest that in terms of cloud storage space - free "storage" for digital content acquired from them (they don't actually have to put whole files in a separate area for you - just keep track of what you've paid for and let you access their main storage to stream or download), a limited amount of "free" storage for other files you choose to put in the Cloud, and opportunity to rent larger storage lockers.

Sources - With GooglePlay, the Cloud Goes Prime Time,  Wired.com Cloudline blog