In lean times like these, it's getting tougher to get funding for science and technology research, especially for innovative but high-risk ideas. It's no surprise that both the government and the private sector seem to feel more comfortable investing their money in more conservative "sure thing" efforts these days. While the scientific funding system is far from perfect, some of the attempts to "fix" it are making it even worse. Here are just a few (good and bad) examples.
A few folks have pointed us to this odd article at the UK's Telegraph, in which it claims that Google is "in discussions with payment companies" to stop funding to "illegal download websites." There are a bunch of problems with this, with the first one being, huh? It's not clear what Google has to do with any of this. The article claims that Google is talking to Visa, Mastercard and PayPal, but why should that be any of Google's concern in the first place. All three of those payment providers are already quite well known for cutting off payments to sites they don't like, including sites accused of being involved in copyright infringement. So what good would further discussions do?
And, of course, really this sounds exactly like Google's response to SOPA. When quizzed about what should be done, Google supported what was called the "follow the money" approach, which was all about getting companies, like Visa, Mastercard and Paypal, to cut off funding to sites deemed to be "illegal." And, that was a component of SOPA -- which Google had hinted would be acceptable (which is yet another point that disproves the whole "SOPA only died because of Google" narrative, since Google would have been perfectly fine with a bill that was just "follow the money.")
If it's true that Google is looking to partner up with these payment processors under some sort of "voluntary" agreement, that's still confusing (what is Google's role here again?), but also quite troubling. The problem, as always, is how do you define "illegal" or sites "dedicated to copyright infringement." Once again, nearly every important technological breakthrough that later became a central piece to how we distribute, promote, consume and monetize content was initially decried for its "infringing" uses. The radio, cable TV, the VCR, the MP3 player, the DVR, YouTube and much much more were all declared "dedicated to infringing uses" by the industry who sought to make them all illegal. Imagine where YouTube would be if such a rule was in place, and their ability to make any revenue was completely barred by such a "voluntary" agreement? Imagine where the VCR would be if no one could sell them since payment processors would refuse to process them?
If this move goes through, it won't be good for the entertainment companies, though it could be good for Google, since it would effectively lock in players like YouTube, and really limit the ability of anyone else to jump into that market. The bizarre part is, of course, that this would be a result of the entertainment industry really pushing Google to do this sort of thing, even though it clearly works to their disadvantage. The end result would be fewer platforms and less competition in the space, giving the few dominant players today much more leverage.
Even so, such a move would still likely come back to bite Google too, because Google benefits from others pushing the innovation envelope as well, creating new markets and services that are good for Google. Cutting off innovative startups by declaring them "illegal" is likely to kill a bunch of good ideas that would have helped the entertainment industry, while still doing nothing of any significance to actually stop infringement.
Either way, if this report is accurate, like with Google caving to Hollywood's demands over search rankings, it won't satisfy Hollywood (nothing will), it won't stop infringement, but it likely will make consumers worse off by killing off important innovations. That's a shame. Furthermore, it would be yet another example of SOPA happening anyway, despite the protests against the law.
Hopefully the rumors (as confusing as they are) are just rumors and Google execs are smart enough not to bow down to such ridiculous pressure.
This is cool to see. An absolutely awesome group of folks have set up a project called the Freedom of the Press Foundation, which is raising money to donate to various online projects that (you guessed it) help create a more free and open press. Part of the idea is that by funneling money through a foundation like this one, projects like Wikileaks can more easily get funded, without risk of being cut off individually (a la Wikileaks being cut off from most funding sources). Of course, it's not just Wikileaks, but sites like Muckrock, which we've used for a while to help with our Freedom of Information Act requests and some other "citizen journalism" sites.
Among the high profile folks behind the site are Daniel Ellsberg, of the Pentagon Papers fame, some EFFers, including founder John Perry Barlow and activists Trevor Timm (who's the executive director of this new project) and Rainey Reitman. Then there are people like journalists Glenn Greenwald, Josh Stearns and Xeni Jardin, and filmmaker Laura Poitras (who is working on a film about Wikileaks and internet freedom, and has been "detained and interrogated about her work at the U.S. border over 40 times.") And also actor John Cusack -- whose name appears a bit out of place, but he's been active in these kinds of issues.
I hope the project works out well. It's something that is clearly needed.
In just three years the revenue generated by the anti-piracy outfit reduced from $92.8 million to $49.6 million. The decreased budget is a direct result of the major Hollywood studios cutting back on their MPAA funding. In the same period membership dues dropped from $84.7 million to $41.5 million, more than a 50% decline.
The filing (embedded below) includes some interesting tidbits. It's not at all surprising to see that the MPAA funds the Copyright Alliance, but I had not seen before that it funds ITIF. ITIF was the think tank who was the major "intellectual backer" of SOPA/PIPA. They had published the first paper that more or less suggested the approach found in SOPA/PIPA, and when the MPAA was absolutely desperate for technology "experts" who could argue that SOPA wouldn't break DNS, the only people they rolled out were ITIF staff members. It's not surprising that the MPAA funded them, but I don't recall that being disclosed anywhere previously.
Also, as with the RIAA's salaries, it's pretty ridiculous to see the MPAA complaining about being rich as proof that someone must be breaking the law, when its top execs are all making pretty large salaries. Nearly every person listed in their list of key employees/highest compensated employees is clearly way far north into the 1% of most highly compensated Americans.
And all that while its budget keeps getting slashed. Perhaps the studios are recognizing that they're better off no longer throwing good money after bad. Of course, it's noteworthy that a number of people on the list ended up leaving the MPAA. Former CEO Dan Glickman left earlier than expected, apparently due to dissatisfaction from the studio heads, and a number of others left as well. So it will be interesting when the 2011 report finally comes out to see if they studios fed money back into the MPAA once Chris Dodd was brought in.
Just a few days ago, in mocking the MPAA/RIAA filing with the US's IP Enforcement Coordinator, we noted that they mocked Kim Dotcom as being arrogant and wealthy, but ignored the fact that their own execs made a ton of money. We specifically called out RIAA boss Cary Sherman's 2009 salary. At the time, I realized it was odd that we hadn't seen any update on salaries, since they have to file these things publicly. Well, it turns out that the RIAA was just dragging its heels, and Torrentfreak highlighted the latest filing, noting mainly that the RIAA's budget is shrinking drastically, as members are paying less (in part due to massive consolidation from the major labels).
That said, it doesn't seem to have dampened the salaries the RIAA is paying its top execs. This report covers 2010, so it's out of date. Mitch Bainwol is still there and Cary Sherman is the number two guy, rather than top dog as he is now. Still, if being rich and arrogant is evidence of someone up to no good, the RIAA's top brass may have some explaining to do:
It certainly looks like nearly all of the RIAA's top brass are either deeply embedded in the top 1% of earners or very close to the borderline (about $380k per year). Mitch Bainwol and Cary Sherman each made over $1 million. Neil Turkewitz, Mitch Glazier and Steve Marks all made over $600k. Considering how phenomenally unsuccessful the RIAA has been over the past decade, you'd think that its members could find cheaper execs to keep driving the organization into the ground. As TorrentFreak points out, membership dues dropped from $49.76 million in 2008 down to just $27.88 million in 2010. You'd think that money could be spent somewhat more effectively, rather than pining for a past where they were gatekeepers in control of the market.
Hadopi, the French 3-strikes program that was "the model" for what the recording industry to push around the world -- trying to get countries to force ISPs to kick people offline after three accusations (not convictions) of unauthorized file sharing -- was one of Nicolas' Sarkozy's key programs. During the recent elections, his competitors certainly hinted that they were less impressed by Hadopi, and now that the Francois Hollande administration is in control, it seems that drastically cutting back Hadopi is in the cards. The new culture minister, Aurelie Filippetti, has made it clear that she is not impressed by Hadopi, arguing that it's a huge waste of money for the government, and is on the chopping block as far as funding goes. Furthermore, she thinks the basis of the program, kicking people offline, goes way too far.
“In financial terms, 12 million euros a year and 60 officers, it’s an expensive way to send a million e-mails.... As part of budgetary efforts, I will ask that funding of Hadopi is greatly reduced.”
Furthermore, she noted that kicking people offline seems "a disproportionate sanction," with little evidence that it supports "the end goal." What's that goal? To increase legal access. As we've noted in the past, while Hadopi tried to declare success, the data shows no increase in sales, which certainly suggests a failure.
What happens next will be worth watching. Some suspect that the government won't actually kill off Hadopi, because it's dependent on support from the local entertainment industry. But that may be the least of its concerns. If France actually scales back or scraps Hadopi, expect the legacy US entertainment industry to go absolutely crazy, followed by "diplomatic pressure" from the US, and ridiculous claims that France "doesn't respect" culture and the like. We've seen it before in places like Spain, Sweden, Canada and Israel when those countries put in place copyright regimes that the legacy players didn't like, and it wouldn't be surprising to see the same thing happen in France.
According to rumors reported by Business Insider, music streaming service Spotify is currently working on raising another round of funding at a valuation of about $3.5 billion—a figure that is making some major investment firms skeptical, despite the service's considerable success at growing its customer base. Over at TechCrunch, Josh Constine points out the most likely reason investors are reluctant: they know that the recording industry uses its copyright monopoly to exact a "tax on success" from innovative music startups.
Unfortunately, this is why investing in Spotify may not be wise and why firms like Andreessen-Horowitz may have passed. It’s a great service with a big lead on other music streamers. But as it scales and gains traction, the record labels will increase their tax. There’s no way Spotify will pay the same fees if it hits 15 million subscribers as it does now. That will make it harder for Spotify to return the multiple most investors want any time soon.
In most industries, if a partner charges you too high a licensing fee you can go to one of their competitors. That’s not how it works in music. You can’t get a cheaper equivalent to Michael Jackson or Lady Gaga like you could for enterprise software. If you want “Thriller” you have to pay whatever the labels ask. And even if it does, Spotify isn’t getting exclusive access to that content.
Though the specifics of the deals between record labels and music streaming services are secret, many details have been leaked over time, and it's long been known that they are onerous and one-sided. Last year, Michael Robertson of MP3tunes explained how the general structure of the deals make growth and innovation extremely difficult, while collusion among the labels eliminates any last shred of competition and ensures that a service like Spotify can never negotiate better terms. Investors know that music startups essentially live or die at the behest of the legacy industry, and investors are smart—they aren't about to bet millions on record labels making good decisions.
Economically speaking, none of this is surprising, because copyright is a monopoly and this is what monopolies do. They distort the free market and allow the monopolists to control the competition. Adding insult to injury, recording industry defenders like to tout streaming services as examples of how the industry embraces innovation, and RIAA CEO Cary Sherman recently said he was surprised that Spotify wasn't generating more revenue for the labels. To anyone who understands how difficult the labels have made life for these startups, claims like these don't pass the laugh test—and Spotify's difficulty securing funding is just more evidence of this fact. Its numbers would make it a hot investment property if it operated in any space other than music, but because it is shackled to a dying industry with a long history of technophobia, investors take their money elsewhere. Who can blame them?
Over the last couple of weeks, there has been growing buzz about Matter, a startup that is proposing a new business model for long-form science journalism and is raising funds on Kickstarter. Their approach is fairly straightforward: each week, they will produce one piece of ultra-high-quality journalism on a science or tech issue, and sell it for 99 cents on as many platforms as possible. It's less a paywall around a publication, and more an attempt to commoditize articles as discrete, sellable objects.
Will it work? The big debate has been between Felix Salmon (who likes the idea, and has been quite sanguine on paid content ever since the moderate success of the New York Times paywall) and Stephen Morse (who called Matter a "scam" and its creators "snake oil salesmen"—though he later said those terms were intentional hyperbole). Yesterday, they took to YouTube to hash it out in person:
There are a lot of good points both for and against Matter. For one thing, they've already doubled their $50,000 funding goal on Kickstarter, which at least demonstrates that people are willing to part with their money for something like this—but Kickstarter backers aren't necessarily representative of the broader consumer crowds they will need to court with the actual product. One of Salmon's key points is that since they are raising funds there, instead of going to venture capitalists, their business goals are less daunting: they just need to build something sustainable, not something that will make millions of dollars. The creators have said they don't plan to pull salaries unless the company is a massive hit. They've put a lot of focus on keeping their costs down, so, overall, their financial goals are very different, and a lot more attainable, than the average startup.
On the other hand, as Morse points out, there is plenty of great content out there for free. He doesn't believe there is truly an untapped demand for this kind of content, so Matter won't be able to compete. Salmon thinks the Kickstarter numbers say otherwise. Either way, the question is the same: can Matter produce content that is so good and so unique that people will want to pay for it?
I'm reminded of News Corp.'s iPad-only product The Daily, which launched last year to a lot of hype but quickly began losing engagement and talent. People were asking the same question: could The Daily manage to include such great content that people will need to read it in order to stay in the loop? Obviously, it couldn't.
Matter is more focused than The Daily and is targeting an entirely different audience with a higher standard of journalism, which gives it a leg up in that regard—but I still doubt its potential for one key reason that isn't getting much attention: the sharing barrier. The problem with putting a price tag on online content is that it actually reduces the appeal of that content, because one of the things people value most about good content is the ability to share and discuss it with their social circle. Exclusivity is a minus, not a plus, with most kinds of content (financial news being an exception, which is why most of the more successful paywalls online are on financial sites). Some people will be willing to pay 99 cents for an article, but a lot of them won't be willing to ask their friends to pay too by posting a link on Facebook, Twitter or their blog. Those who do are sure to get a lot of confused replies asking "wait, I have to pay?" Moreover, with a pay-per-article model instead of a subscription model, readers are going to have to decide each week if they want to keep paying. The mental transaction cost of 99 cents may be extremely low, but it adds up when you multiply it like that. These factors are going to make it very difficult to grow and retain their readership.
If Matter streamlines their costs enough, and their content is good enough, it's entirely possible that they can build a small core group of readers that keeps the one-article-a-week model afloat—but if that's the best possible outcome, is this really the best possible approach? Journalism online needs more than small-scale sustainable models, it needs ways to grow and expand, and that is never going to happen without advertising dollars. As Salmon says, Matter is trying to do "something which has historically been extremely rare, in the world of journalism: selling stories to readers, as opposed to selling readers to advertisers", and that means they are tackling the wrong problem. They still plan to include some advertising in the articles, but they should be putting a lot more focus on that side of the equation. There are companies out there that want to support this kind of content, and Matter's low-cost, VC-free model puts them in the perfect position to experiment with innovative sponsorship models—an approach that would be bolstered by opening up the content instead of locking it down, ultimately creating much bigger opportunities to fund quality journalism and turn a profit.
An interesting point made by Carl Franzen, looking at the continued growth of Kickstarter raising funds for content creators, is that the site is expected to surpass the amount of funding provided by the National Endowment for the Arts this year. They're expecting to break $150 million (this past year it was closer to $80 million), while the NEA has $146 million to give out. Obviously, there are all sorts of differences between the two, but as a milestone, it seems interesting and noteworthy. Also, of course, $150 million may pale in comparison to what some of the big entertainment companies spend, but watch the trend lines and remember your innovator's dilemma lessons, and you'll begin to recognize that new opportunities and new business models have tremendous potential. The old ones? They're losing steam...
Whoa. After dinner, I did a quick look around the web to see if anything interesting was going on, and saw someone mention that the Double Fine Adventure project on Kickstarter had raised over $100,000 in just a few hours. I clicked to open the page, but then went off to do some other things, take my dog for a walk, tuck my son into sleep, chat with my wife, etc. Then I came back to my computer, and someone else mentioned that it had now raised over $200,000. And as I write this, it's getting mighty close to $300,000. Who knows where it'll be by the time you read this. Either way, the basic story is that popular game development shop Double Fine wants to create a new point-and-click adventure game, but says that no publisher will pay for such a thing (even though they have Ron Gilbert -- the creator of the original Monkey Island games on staff).
So they decided to go to Kickstarter. And, as a part of that project, they're also planning to create a documentary film about the making of the game... using the same filmmaking team, 2 Player Productions, who have also been working on a documentary about video game maker Notch (who you hopefully know already). But they wanted to raise $400,000. $300,000 for the game, and $100,000 for the documentary. That's still a significant chunk to raise over Kickstarter... but clearly the public thinks it's worth it. You should check out the awesome video that Tim Schafer, Double Fine's boss, put together, embedded here:
The video is quite awesome.
Separately, Double Fine wanted to offer some super premium tiers which were simply too rich for Kickstarter to handle, so they had to post them to their own website. These include the following:
Pledge $15,000 or more:
Dinner with Tim Schafer and key members of the dev team.
Pledge $20,000 or more:
Dinner and BOWLING with Tim Schafer and key members of the dev team.
Pledge $30,000 or more:
Picture of Ron Gilbert smiling.
Pledge $35,000 or more:
Undoctored picture of Ron Gilbert smiling.
Pledge $50,000 or more:
Become an actual character in the game.
Pledge $150,000 or more:
Tim Schafer (that’s me) will give last four remaining Triangle Boxed Day of the Tentacles, in original shrink-wrap.” (Limit of 1) (Holy crap, what am I thinking? I only have four of those!)
There are plenty of interesting things to discuss about all of this, but one of the key points is that this shows how content creators sometimes can read a market much better than the traditional gatekeepers. Double Fine knows that no publisher would give them money for this game because the "experts" at those publishers (gatekeepers) don't think there's a real market for them. But there clearly is, and it's all coming out thanks to the Kickstarter campaign, and this massive rush to fund the game.
I also find this amusing, coming just hours after someone was telling me on Twitter that Kickstarter was no way to fund serious development, because people just aren't willing to pay for creating new things. It appears that plenty of people disagree. Anyway, we've embedded the pledge widget below, because at the rate people are pledging, I'm sure the numbers we talk about above are likely to be out of date pretty quickly, and it seems likely that this game will far surpass its $400k goal. I'm just wondering if Ron Gilbert will ever actually smile.
Rikuo: to be more accurate, he was named in the comments, not the video itself dennis deems: Jay, thanks for that reminder Christopher Best: Andrew Stack was not a member of the Tea Party movement. He was a disturbed individual, and a disgruntled software developer. There's explicit tax law that treats software developers very unfairly if they try to work as independent contractors... yaga: that's very true CB Alana: AJ Seriously just compared arguments against copyright infringment to rape. ... Yeah, nobody should take him seriously at this point. err, against copyright* silverscarcat: seriously? Jay: Glenn Beck asking for a 9/12 movement isn't the least bit suspicious? Along with all of the other issues with the IRS right now? Ninja: I am honestly amused that the community is marking the comments of that "horse" guy as funny silverscarcat: Who takes Glenn Beck seriously? Jeff: did the 'new' comment color bars go away? dennis deems: ya I hadn't noticed until you said that. I don't recall seeing them the last couple days. Mike Masnick: new color bars ran into some big technical problems. :) we took them down while we fix them. fix is currently going through testing and should be back (and better than before) soon. dennis deems: yay! the color bars rule! Jeff: whew! Thought I was going... wait for it... "Color Blind" thanks! I'll be here all day... :-) Jay: @ssc I'm talking more in 2011 at the peak of TP hysteria TheResidentSkeptic: @mike - mod for your business model - CwF+RtB+DoP..too many miss the "Deliver On Promises"