Tim Oren's Due Diligence

The Roving Eye: Email Hypoxia, Content Hubris, DARPA For The Wounded

Google Mail Hacks. Not only is GMail free, but there are hidden features that make it more valuable. Your account can actually be reached two different domains, and you can tweak the address and still have it delivered. These tricks can further improve spam filitering, or give you a handle on content organization or figuring out the 'social spread' of your contact information.

Is Email Causing Hypoxia? Old Friend Linda Stone notices she holds her breath while the e-mail is downloading and takes off from there on the potential physiological impacts of electronic communications. There's a nice discussion of various breath control disciplines in the comments. I'm pretty sure I don't do this - having started with e-mail back in the '80s with a stylin' 300 baud modem, I'd probably have fallen over unconscious long since. And considering some of the messages that arrive in e-mail, one might want to consider disciplines like tactical breathing along with the fluffy bunny versions. HT: Clive Thompson.

Why Is It That Content And Hubris Go Together? Jeff Nolan catches the video-on-demand providers repeating the RIAA's mistake - crippling the customer's experience. With more and more entertainment options available every year, self-sabotaging a competitive position makes no sense. Maybe the ABC folks should call up Sony and ask how it's been working for them?

Taking on Hollywood, The Silicon Valley Way

Marc Andreessen has taken the occasion of the Hollywood writers' strike to meditate on the folly of the entertainment industry, and the odds for revamping it in the image of Silicon Valley. When he says 'entertainment' he's really talking about the flix, both the big screen and the small screen. (For today we'll ignore the recorded music industry, over there in the corner being nibbled to death by ducks.)

If you're not in the Valley scene, the provocative nature of Marc's assertion that we can rebuild Hollywood may not be clear. In normal times, the Valley (that nebulous aggregate of entrepreneurs, funders, engineers and management) hates 'content' of all kinds. Pick your reason: We're notoriously bad at forecasting consumer tastes. We don't have the experience base. We've lost money every time we tried it. It just feels wrong. They're all partially correct over time, and collectively they mean that anyone touting the current generation's version of 'Sillywood' is going to suffer with a lot of people rolling their eyes behind his or her back.

And yet. We are all about disruption, and it's in the air. The advent of YouTube and its clones heralds that the 'visual arts' are within reach of assault, just as the coming of MP3 did for the music biz. And besides, those folks down South are more or less leaning over with a sign on their backs that says 'Kick Me'. So maybe it's time to risk the eye-rolling and have a go.

Intellectual Property Run Amok

The RIAA? The MPAA? No, believe it or not, it's the military hardware vendors that are about to casually destroy an industry:

For over half a century, kits have been sold that enable military history buffs to assemble scale models of military ships, aircraft and vehicles. But that era is coming to an end, as the manufacturers of the original equipment, especially aircraft, are demanding high royalties (up to $40 per kit) from the kit makers. Since most of these kits sell in small quantities (10-20,000) and are priced at $15-30 (for plastic kits, wooden ones are about twice as much), tacking on the royalty just prices the kit out of the market. Popular land vehicles, which would sell a lot of kits, are missing as well. The new U.S. Army Stryker armored vehicles are not available because of royalty requirements. Even World War II aircraft kits are being hit with royalty demands. This move grew out of the idea that corporations should maximize "intellectual property" income. Models of a companys products are considered the intellectual property of the owner of a vehicle design. In the past, the model kits were considered free advertising, and good public relations, by the defense firms. The kit manufacturers comprise a small industry, and the aircraft manufacturers will probably not even notice if they put many of the model vendors out of business. Some model companies will survive by only selling models of older (like World War I), or otherwise "no royalty" items (Nazi German aircraft) and ships. But the aircraft were always the bulk of sales, and their loss will cripple many of the kit makers.

From the invaluable Strategy Page. Too bad about the kids who'll miss their toys, or the folks tossed out of work, but at least those fulminating about war toys will be happy. Now, just who was it paid for the designs these guys think they own, anyway?

Update: Chuqui writes to point out this issue has existed with model trains for some time. While agreeing that it's a dopey move to alienate your biggest fans, it's not quite the same. The RR trademarks really are private property; I find it hard to argue the same for designs paid for by US taxpayers, not to mention hallowed by some of their blood.

Well, this will all become academic when 3D printers reach consumer price points. A generation of kids will miss the joys of polystyrene model cement, but instead get a quick education in open sourced CAD files.

DRM as Business Diagnostic

Mike over at Techdirt cites a rant about the effects of digital rights management (DRM) at The Inquirer and opines "...these systems do absolutely nothing for end users.... It's a shortsighted plan, aimed at holding on to an obsolete business model."

I agree, and it's interesting that he puts it that way. This past weekend I was doing a short consulting gig to help out a friend, and the circumstances forced me to clearly articulate some personal rules of thumb regarding DRM - diagnostics that I had been enacting for some time without a verbal description, as sometimes happens.

First, a definition: It's necessary to distinguish between two goals that can be implemented with the technology of DRM. Permissive DRM used for auditing purposes can be reasonably innocuous to the user and could enable some interesting value chain models. I'm talking about restrictive DRM, which Mike succinctly calls 'copy protection'. To me that conjures up memories of funky floppy disk formatting tricks from the Apple II and IBM PC days, so I'll use the acronym, with the latter meaning. Here's my second pass attempt to formulate DRM as Business Diagnostic.

• Copy protection DRM always destroys end user value, in both convenience and robustness. When you see DRM in a business plan or analysis, it is always there to benefit someone other than the end user. Find out who, it will indicate where power lies in a content value chain.


• The mere presence of DRM indicates a failure to deliver end user value. If the information object were to lose value when extracted from the bundle or service from which it was derived, DRM would not be felt necessary. Therefore the presence of DRM suggests a vendor that is behind the curve, failing to find a new value to deliver as their chokepoint disappears in the digital world.


• DRM almost always means there is trouble afoot for aggregators ('infomediaries'). If it's an aggregator inserting the DRM, their value added is in question. If it's information originators mandating DRM, then they feel they can damage the aggregator's value with impunity, and will likely try to drive end users' attention to themselves.

Examples are easy to find in consumer level media. It's my experience that these diagnostics are just as relevant in vertical or industrial information situations. While they originated from venture capital, they ought to be relevant in any analysis of information value chains.

The Charlie Demerjian article that inspired this post consists of a number of very specific examples (with invective) of the disvalues of the DRM in consumer media. But his subhead nails the conclusion: "It's not good for capitalism." Taking value from the customer seldom is, in the long run.

Update: TVHarmony blog links with an example.

This Land is Your Song - or - We Can Fact-Check Your Ass

In a hilarious and poetically just turnaround, Ludlow Music - which threatened legal action against the creators of the hilarious "This Land is Your Land" election year parody that's been making the rounds - has had the invalidity of its claimed copyright over Woody Guthrie classic demonstrated by EFF and other researchers. So now they not only lose against the JibJab guys, but I'm sure they will soon hear from the attorneys of anyone who has paid licensing fees of late. I believe the appropriate word is 'misrepresentation'.

Hat tip: Cory

Elephant Twitches, Out of Rhythm

Mike at Techdirt describes a fumbling attempt by Warner to engage with music blogs. Good news: Someone is awake there. Bad news: Clumsy tactics that don't relate to any visible market strategy.

"Electronic termites are chomping out the support beams of our music culture"

From the East Bay regional paper Contra Costa Times comes a well written and provocative take on the MP3 scene, by music critic Tony Hicks. It starts out with a short but clear summary of the technology and impacts so far, a good primer for any readers who are still in the CD world. Things heat up when he turns to an interview of several music industry experts, culminating in the following exchange:

Q: Record companies are acknowledging they didn't react to digital music quickly enough. Can they survive?

[Tracks magazine editor Alan] Light: They're in a corner. For too long, their approach was how to stop (online music), rather than how to exploit it. The record industry is going to look very different five years from now. What's tricky about (digital music) is, if the labels work together, they're accused of collusion. But they need to work together. Big labels will continue making big singles for the radio; like in Hollywood, you need the big studios to do the big Tom Cruise movies. But most of the interesting stuff comes from independent labels.

[Rochester Institute of Technology professor Stephen] Jacobs: It's evolve or die. Will the business adapt? No, it's unlikely. The business model has been beyond corrupt for years, perhaps just one moral step ahead of sharecroppers. Young acts sign away their rights, the royalties are bad, (people) get cheated out of their publishing. Digital delivery is doing extremely damaging things to the old business models. It'll be like Kodak losing 80 to 90 percent of their profits on plastic film (since the advent of digital cameras). The record companies had a choice to be proactive a few years ago, or hang on to their death-hold on the business.

There's a lot more, and all on point for those following the thread of digital music postings here by Kevin Laws and myself. RTWT.

Hat tip: Casper Bass.

TiVo: The Canary in the Coal Mine

The MPAA is working to block a TiVo feature allowing customers to easily move video among platforms. This is a clear indication that Kevin Law's forecast that the MPAA will follow the RIAA straight into meltdown is accurate.

In the music domain, the iPod and iTunes show what could have been done with a usable, legitimate but minimalist protection scheme, introduced early. How many billions have the labels left on the table by going to war with their customers?

Sadly, the TiVo affair shows the video content business on the same road. Here's a chance to add some value for appreciative customers, and get a minimalist scheme of protection out there before things like BitTorrent and DivX get large audiences. Instead, we hear the crackle of legal and lobbying small arms fire preceding another war with customers.

Dumb, but not surprising. I've long had a source - who will remain forever nameless - close to the ongoing movie, CE and computer industry negotiations regarding content protection. This person's characterization of the content side can be reasonably summarized as 'lawyers all the way down.' Risk aversion and contract nitpicking have that industry focused on avoiding slippage, while the audience begins to eye the exits. Sic transit gloria Hollywood.

How To Save Hollywood

(By guest blogger Kevin Laws, former entertainment industry consultant and current venture investor)

It's not too late for the motion picture industry to avoid the music industry's fate

Several months ago, I predicted that the motion picture industry would learn from the mistakes of the RIAA and not go down the same path. I was wrong.

The Motion Picture Association of America released a study recently that highlights two facts:

• Broadband is leading to a huge growth in downloading of movies and TV shows




• The MPAA has learned nothing from the RIAA and is following the same failed path

My prediction turned out to be wrong because video reached the tipping point sooner than expected. Enough of the pieces have become "good enough" that video downloading is taking off, leading people to accelerate their efforts to get it from good enough to mass market.

So the MPAA has been startled into action. So far they appear to be going down the same failed path as the RIAA. It's not too late for the MPAA, though - there is still a chance to save Hollywood.

The Four Horsemen: DivX, BitTorrent, Broadband, and Gateway

There were four impediments to easy transport of digital entertainment. While not yet there, all four are falling simultaneously.

1. DivX is quickly becoming the video standard. Initially, there were many formats for digital video - Quicktime, MPEG, MPEG2, WMA, H.263 to name a few. For online transport of video, however, two formats are emerging as dominant: DivX and XviD (basically freeware DivX). Currently, there are still too many options for a normal user: resolution, bitrate, framerate, and a bunch of others. However, MP3 was no less complex at first. Packages emerged that simplified it for the average user, and the same is happening in the online video world.




2. BitTorrent clients allow reliable downloading of very large files. For small files like MP3s, it is easy to download the whole file from Joe, the college student running a computer in his dorm room. It doesn't matter that he was only on the net for a few hours that Thursday. A movie might take a few days to download, however, so when Joe shuts down his computer, you're stuck with only a tiny portion of the movie you were downloading from him. BitTorrent solves this problem cleverly. Since you need to be connected to it while downloading a large file, it allows others to download pieces from you while you download. Once files are available online, if they are sufficiently popular, they never disappear even if the original server goes down. Web sites then list the files available for download.




3. Broadband is entering the average home. Though slow, MP3s could still be downloaded through a modem. Video is far too large, but broadband is now becoming so mainstream that most homes will soon have a high speed connection. Comcast just ran fiber optic cable through my neighborhood and the local phone company is upping the speed of their connection as well.




4. Manufacturers are providing the devices needed to view digital video. As long as digital video could only be watched on your computer screen, Hollywood didn't need to worry. How many normal people will sit at their computer for 2 hours just to watch a movie? Now that DivX and XviD are becoming standards, devices that accept those formats are proliferating. I have a Gateway Connected DVD player - a media center that can pull video off my computer and show it on my TV. My Archos AV340 is a portable MP3 player that can also play DivX video.

Each component is good enough that a moderately sophisticated user can figure them out. As sales take off, some product will bring the pieces together as Apple did with iPod/iTunes, taking digital video to the mass market. If the MPAA hasn't figured out how to compete with free services by then, they will suffer as the music industry has.

Learning From the RIAA: Perfect As The Enemy Of The Good

As history has shown, the RIAA did not react appropriately to the problem it faced. In part, their reaction was slow because they were being held back by their own retailers. While the movie industry doesn't have that to the same degree, it just means they are making the same mistakes faster.

Specifically, they are letting the search for perfection prevent them from going with the "good enough" solution. The music industry tried to come up with a DRM-enabled encryption solution that couldn't be cracked. The Secure Digital Music Initiative (SDMI) failed rather spectacularly when it was cracked by a group of students. The movie industry has now done the precise same thing by financing AACS, a proprietary standard for distributing video. Given that the standard is not out yet, it is even later in the game than SDMI was compared to MP3.

The music industry failed to recognize that perfect encryption wasn't necessary and going against an established standard wouldn't work. CDs could already be ripped and put online, so worrying about copying of downloadable tracks was irrelevant. Instead, they just need to get to the market fast with a "good enough" solution. Put simply, if iTunes existed in 1994, my parents would not be using MP3s today.

After all, the primary reason to download episodes of The Simpsons isn't so you can get them for free. They were free the first time they were broadcast on TV. It's because downloading is the only way to watch them on your portable video player. I'd pay for an appropriately priced service that let me download them, but there isn't one.

The genie of perfect digital copies is already out of the bottle. You can download many free (if illegal) software packages to turn DVDs into DivX or XviD format. Worrying about whether the format picked by Hollywood prevents perfect copies seems silly in that light, since the act of releasing a DVD makes perfect copies available to anybody.

Competing With Free: How To Save Hollywood

It's clear from the report the MPAA released that Hollywood needs to move fast to save itself. The solution is obvious given the RIAA's experience. Guaranteed quality, complete catalog, and ease of use will make it possible for the studios to compete with free.

1. Work with DivX to incorporate digital rights management in the standard, no matter how imperfect. AACS is the movie industry's equivalent of SDMI, a consortium of entertainment companies creating a proprietary standard for sharing video. AACS is DOA because it is too late, just as SDMI came too late. It was supposedly announced July 14th, but the web site still says "coming soon" and if you have images off, it still says "coming July 14th". Instead, work with DivX. Allow it to continue to support any movie ripped freely, but with an optional simple encryption with a separately provided key tied to a specific device. Users register "allowed" devices with a third party service and when they pay, it automatically downloads and installs keys that allow the device to play any specific video. It is important for the industry that this become part of the already winning DivX and XviD standards, rather than a proprietary solution.

   
   

   Free copies of the exact same movies will still be available for download because people will rip the DVDs, just like MP3s are available for almost any song downloaded from iTunes. People still download from iTunes, because as a mass market experience it is better. For those that value their time more than a few dollars, it will be the obvious choice. For the students who don't have the money, they wouldn't have shelled out $50 for a season of the Simpsons anyway.




2. Release everything. If I can't get the Simpsons legally, I have that much more incentive to learn how to use illegal file-sharing services. Rather than staging things individually, just make the entire catalog available. It's still OK to wait until the theater or TV season ends, but it better be available online soon afterwards.




3. Support the infrastructure. Once DivX supports some form of moderate DRM, Hollywood needs an iTunes-like experience for video. They should instantly make their entire catalog available to any service that wants to provide it on the same terms as DVD releases (minus the costs of physical distribution), spurring the same sort of innovation in that area as we've seen in music.

So far, the MPAA has shown weak leadership by not aggressively moving this direction. It's not too late to save Hollywood, but only if it learns its lessons from the RIAA's failure.

Hollywood Survives Intact

by guest blogger Kevin Laws (former entertainment industry strategy consultant)

While it may be too late for the music industry to save itself from filesharing, the movie industry is making all the right moves.

The music industry is finally embracing online distribution, but retailers held them back until it was too late. Though some predict the same fate for the Hollywood studios, they will likely fare much better than the music companies. The structure of the industry is such that they will not be held back from supporting early experiments in online distribution, and they will be able to learn from the music industry's mistakes.

Online video formats still evolving

As the MP3 format was still catching on, the music industry tried to set up the Secure Digital Music Initiative (theoretically still going) to create the "perfect" technology. Of course, "perfect" to the music industry meant that it couldn't be copied or hacked under any circumstances. Not only did they fail (rather publicly), but consumer electronics companies wisely realized that supporting just that format would be meaningless.

The result is that the world is locked in to MP3. If you want the same file to play on your computer, your portable MP3 player, your media appliance (like Tivo), and your cell phone (yes, the new Treo has an MP3 player), then you need the one format they all support: MP3. Anybody trying to promote a new format trips over the MP3 standard every time. iTunes is great -- for iPod users. But if I want it on my Tivo, oh well.

In the video world, the equivalent of MP3 is DivX (named after the failed Circuit City/Blockbuster project). It fits a movie in less than a gigabyte -- still too large for easy download given today's speeds, but within reach. Everybody knows that better compression and better bandwidth mean that movies will eventually be traded like music is today.

However, the movie industry has been more focused than the RIAA. After all, the music industry and iTunes aren't the only losers to come from the dominance of the MP3 format. As a consumer, I lose because I can't easily buy music and have it available on all my digital devices. Rather than insisting on perfect copy protection, the movie industry is taking an approach more like software industry: use the same format as everybody else, and know that somebody will crack your DVD and distribute illegally. However, just like iTunes today, for a guarantee of easy, legal access I want the DivX format to support (though not require) simplistic copy protection.

The HDMI connection and broadcast flag are similar. The formats support, but do not require, copy protection. It's not perfect protection, and can be circumvented -- but it's enough that the typical consumer (as opposed to the power user) will find it easier to just pay to get the fully supported experience.

This approach stands in sharp contrast to the music industry's insistence on perfect copy protection at all times which has hobbled the growth of online distribution. The MP3 standard doesn't even support the possibility of copy protection, so devices like the iPod are intentionally crippled to prevent copying. It can play MP3s, but try using it as the backup for your collection and you'll find you can't -- it won't let you read the MP3's you write.

Come Through My Window

Finally, unlike the music industry, the movie industry is quite used to releasing the same content through different distribution channels -- some of which may even cannibalize its own sales. Each movie comes out in theaters, then airlines & pay per view, then VHS & DVD, and finally broadcast. Or not. It all depends on the release -- Hollywood is quite sophisticated about calculating the profit-maximizing way of working a particular piece of content through the channel. Given that mass digital distribution has characteristics most like broadcast (it can be shared more widely), it will probably come at the end of the chain most of the time.

The movie industry, unlike the music industry, went through the pains of adjusting to more easily copied formats when VCR came out. After fighting them (and losing) initially, it turned into a major revenue source for the studios. They even borrowed a page from the music industry, and promoted the DVD format -- just like the CD format, it can be copied imperfectly to tape, but people prefer the higher quality. Digital distribution just fits into the framework they've already developed for releasing content.

Hollywood Saves Itself

Of course the MPAA will follow the legal path followed by the RIAA (suing the prevent the copying technologies), and they will do many things that will anger the same people who hate the RIAA. However, they will be more successful at defending the long term health of their industry than the RIAA.

They have been much savvier than the RIAA about approaching digital distribution. By working with the new format rather than trying to replace it, and fitting digital distribution into their existing system for releasing content, the movie industry will avoid the same fate as the music distributors.