No, iTunes And Amazon Downloads Are Not The Answer For The Recording Industry

Predictions

from the not-going-to-happen dept

Over the past few years, you started to hear people in the recording industry claim that they were now “embracing” online music, but they were doing so in the form of iTunes. Even though they hated Apple’s dominance in the market, they still felt that selling downloads was the key to the future. Not so fast. As plenty of folks have been pointing out for years, free downloads have always been the ones really dominating the market. No, it may not be legal, but to ignore that market reality is simply asking for trouble. So, it should come as no surprise that despite whatever “advances” have been made in pay-for-downloads lately, the percentage of music listeners paying to download is shrinking, while the number using file sharing systems (despite all those lawsuits and bogus “education” campaigns) has remained constant or grown. Given that we’re seeing musicians both big and small use free music to make themselves plenty of money, isn’t it time that the industry as a whole started to recognize the opportunities?

Filed Under: business models, downloads, free, music, piracy, recording industry
Companies: amazon, apple

Old Media Industries At Different Stages Of The Grieving Process

Predictions

from the denial-anger-bargaining-depression-acceptance dept

One of the interesting people I met at last week’s Princeton workshop was Douglas Dixon, who points out that almost all 20th-century media companies are going through the five stages of grief, but different media industries are going through the stages at different rates. Back in 2006, we noted that the music recording industry was still in the denial stage. Now, Dixon says that it seems to be “stuck cycling between Anger, Bargaining, and Depression — as it still lashes out by suing its own customers, and grabs on to each next new copy protection scheme while simultaneously going DRM-free in other venues.” And indeed, as we pointed out a couple of weeks ago, Hollywood is still firmly in the denial phase, insisting that effective DRM is just around the corner.

In contrast, the news business has been responding pretty well of late to the disruptive technologies of the Internet. The newspaper folks at last week’s conference seemed to accept that print was a dying business, and many of them declared their committed to making the painful changes necessary to stay competitive. As we’ve noted before, they’ve been dropping their paywalls and aggressively experimenting with new media. It remains to be seen if they’ll be able to change fast enough to avoid large losses in readership, but at least they’ve begun moving decisively in the right direction. In contrast, the recording industry has been taking three steps back for every two steps forward, while Hollywood is still doing little more than shooting itself in the foot.

I don’t think it’s a coincidence that the lowest-bandwidth industry — news reporting, which is largely text-based — is showing the most flexibility, while the most bandwidth-intensive industry — Hollywood — still has its head in the sand. News organizations have faced serious competition from the Internet since the birth of the Web in the mid-1990s. Internet bandwidth was not sufficient to conveniently transfer music until the late 1990s. And there wasn’t enough bandwidth to transmit movie files until recently. Arguably most peoples’ connections still aren’t fast enough to transmit high-def video. So news organizations have been facing serious competition for almost fifteen years, the recording industry for about a decade, and Hollywood for less than five. Industries that have been facing competition the longest are making the most serious changes.

Filed Under: grieving process, industrial change, internet, movie industry, newspapers, recording industry

HMS Britannic Optimistic About Deck-Chair Re-Arrangement

Predictions

from the too-little-too-late dept

Jacob Grier points out the launch of Britannica Webshare, a service that will allow bloggers to access the Encyclopedia Britannica for free, and even to provide links that will allow readers to read individual articles — but not the whole encyclopedia — for free. This is a fine step, as far as it goes. But it’s a comically small step given the challenges Britannica is facing. The site apparently still won’t be available to non-bloggers, and presumably that means it also won’t be available on search engines. And that means they’re throwing away a huge chunk of their potential audience. But the more fundamental problem is that Wikipedia is already a much better encyclopedia, and it continues to improve rapidly. Wikipedia is roughly as accurate and it’s an order of magnitude timelier and more comprehensive. I wouldn’t use Britannica much if it were freely available; I’m certainly not going to waste time applying to be a part of its “Webshare” program.

We write a lot about old-media companies that are struggling to adapt to the Internet. We usually suggest business models that will help these business cope, and maybe even thrive, in the new technological environment. But I think Britannica might be a rare exception where the situation really is hopeless. Most old media companies, including Hollywood, the record labels, newspapers and magazines, and comic book producers, have a ton of content that people want, and that provides a foundation for their business models. In contrast, Britannica doesn’t have any significant advantages over Wikipedia, and in some respects — especially breadth and timeliness — it’s markedly inferior. As a result, it would be unlikely to get significant traffic even if it did everything else right. So I think there’s a good argument to be made for laying off everyone involved in creating new versions of the encyclopedia and just leaving in place a skeleton staff in charge of selling the current edition to the dwindling number of people willing to pay for it.

The last time we wrote about the challenges facing Britannica, a representative from the company suggested a lot of people thought that Britannica hadn’t yet made the transition to the web. But that’s not my point at all. The fundamental problem is simply a matter of manpower. Wikipedia has tens of thousands of volunteer editors who collectively donate millions of hours of labor to the project. There’s simply no way that a commercial encyclopedia edited in a traditional, hierarchical fashion, can compete with that. Britannica has to pay its editors, while Wikipedia gets its editors for free. Britannica likes to emphasize that its articles are written by credentialed experts. But this misses the point in a couple of ways. In the first place, while experts aren’t given formal authority on Wikipedia, there are plenty of subject matter experts contributing to Wikipedia articles. More importantly, Wikipedia’s editing process is based not on the authority of any one expert, but by citing reliable sources that anyone can check to verify the accuracy of the information. This kind of distributed peer review has allowed Wikipedia to produce a lot more content, with roughly the same accuracy, without hiring professional editors. There’s just no way that a traditionally-organized commercial encyclopedia can keep up.

One valuable asset they do still have is their brand name, and I can see a couple of ways they might leverage it. One would be to simply auction it off to a totally different company that could put it to a better use — the same way that the new Napster had no real connection to the old Napster. There might be a company out there with a different business model that would gain increased visibility with the Britannica brand. Another approach would be to turn lemonade into lemons by publishing a paper version of Wikipedia under the Britannica brand. This is one place where the established brand name would still be a big advantage; anyone who still wanted to buy a paper encyclopedia (it’s a mystery to me why anyone would, but I’m sure they’re out there) will probably prefer a Britannica-branded one, even if the content is identical to what you’d find on Wikipedia. Similarly, a lightly-edited, Britannica-branded web version of Wikipedia could generate some nice advertising revenue without requiring a big staff to produce new content. But I don’t think there’s any way a traditionally-produced encyclopedia can compete with Wikipedia, and programs like Webshare are too little, too late. The company needs to take some much more dramatic measures.

Filed Under: business models, encyclopedias, wikipedia
Companies: britannica, wikipedia

Data Ownership Might Not Work for Social Networking Sites

Predictions

from the open-or-closed dept

Chris Saad, head of the DataPortability Project, weighs in on last week’s announcements from MySpace, Facebook, and Google of new data-sharing services. Saad says that while none of these services fully achieve the goals of DataPortability, all are steps in the right direction, and MySpace’s approach is most promising. Saad points out that data-sharing is grounded in a social contract. He gives the good example of an email address book. When someone sends me email, it’s understood that I’m free to put it in my address book, and that I’m mostly free to do as I please with my address book. I can, for example, export my address book to a third party site to see if my friends are using the site. However, I face social pressures not to do something malicious like sell my address book to spammers. If I did that, many of the friends in my address book might not speak to me again.

Now social networking sites are trying to hash out a similar social contract for the use of their customers’ data. When Facebook cut off Google from its Connect service, it was effectively trying to establish a similar, albeit more restrictive, social contract: using information from Facebook is OK, but sharing it with third parties is not. But it’s not clear how well this will work. As Tom pointed out a few months ago, it’s extremely difficult to limit the spread of information once it’s been released online. Also, notice that in the address book example, much of the force of the social contract comes from personal ties to the people in my address book. Companies don’t have personal relationships, and they can’t exert pressure on one another in the same ways individuals can. So when information-sharing is automated, informal social mechanisms may not be sufficient to stop abuse.

There are several ways the social networking world could evolve. One is the totally open approach of email, in which it’s assumed that any information you put online can be widely shared. Another is the walled garden approach that now dominates with instant messaging, in which sites tightly control access to information and offer very little third-party access to it, and people have to sign up for multiple services to reach everyone. A third possible model is a “data ownership” model, in which sites share information while users retain ultimate control over it. But as Ed Felten pointed out back in January, ownership may not be a good way to think about privacy issues. It may not be possible to design contractual mechanisms that make these ownership claim enforcible. And that would mean we’d face a choice between a totally open model and a totally closed one, with very little in between.

Filed Under: data ownership, data portability, social contracts
Companies: facebook, google, myspace

The Big Company Doesn't Always Win

Predictions

from the a-reminder dept

In our debates over the patent system, one message is repeated over and over again by those defending the patent system: that it’s needed to prevent big companies from coming in and stomping out smaller companies. Unfortunately, the evidence just doesn’t support this. Yes, it does happen sometimes, but there are so many examples of smaller companies outrunning bigger companies that the idea that a big company can easily beat a smaller company is just rubbish. In fact, the NY Times now is running an article noting how no large tech company has ever really been able to thrive through multiple generations of technologies. A smaller, more nimble “game changer” comes along and out-innovates the larger company — in many cases because that larger company isn’t just slow to react, but also because they have legacy lines of business that prevent them from fully embracing the cannibalizing nature of disruptive businesses. Once again, this highlights the the importance of the process of innovation, rather than just the idea. The big company with lots of money may get “the idea,” but if it can’t full embrace it, it won’t do a very good job implementing it. So, while big companies do have some advantages, it’s a clear myth that any big company can step in, take a smaller company’s idea, and succeed with it. Microsoft outran IBM. Google outran Microsoft. Netflix outran Blockbuster. YouTube outran Google (and then got bought by it). The list goes on. Being smaller doesn’t mean you can’t win against a larger player if you do a better job providing what customers really want.

Filed Under: big companies, small companies, tech industry
Companies: microsoft

Unbundling The Newspaper Could Be A Good Thing

Predictions

from the future-of-news dept

A lot of the discussion at the Future of News conference has focused on the supposedly dire consequences of the newspaper’s decline. Newspaper readership is falling, and advertising revenues are dropping even faster. A lot of people here (especially folks who work at newspapers) seem to think that newspapers fill a unique niche that will go unfilled if increased competition from the Internet causes newspapers to go out of business. One of the people on the second panel, Eric Alterman, wrote an article for the New Yorker recently making the same argument. He thinks that bloggers have a “parasitic relationship” with the mainstream media, perhaps exemplified by me linking to a New Yorker article as the jumping off point for this post!

What I think this misses is that the current structure of the newspaper industry may not make a lot of sense in the Internet age. Today, every newspaper has its own stable of movie critics, book reviewers, sports reporters, and coverage of science, technology, medicine, foreign affairs, and other topics. This arrangement was largely dictated by the limitations of 20th-century distribution technologies; in the 20th century, there were economies of scale to delivering news, and so it made sense to put all of the day’s news into one big bundle and deliver it to everyone’s door.

Thanks to the Internet, the web, and technologies like RSS, there’s no longer any reason for everyone to get the same bundle of news, and there’s certainly no reason to think that everyone will want to get all their news from the same metropolitan area. There’s no particular reason that I should get my movie reviews or technology coverage from my local paper, the St. Louis Post-Dispatch, rather than specialized publications based elsewhere that cover these topics in great depth. People can assemble their own bundle of news by picking and choosing among the thousands of publications online. And for those who don’t have the time or the knowledge to do that, there are going to be plenty of aggregators that offer a comprehensive summary of the day’s news syndicated from a bunch of different sources.

Treating the metropolitan newspaper as a bellwether for news gathering as a whole is misguided. Newspapers are declining not because there’s no market for good content, but because the 20th-century newspaper probably isn’t the best model for organizing the enterprise of news gathering. There’s a ton of good content on the Internet that doesn’t come from mainstream media outlets, and there’s every reason to expect that a lot more will be created as the online audience continues to grow. But the new outlets aren’t newspapers, and there’s no reason to expect them to have the comprehensive ambitions or monolithic structure of newspapers. People looking for a single institution that will take the place of the newspaper are likely to be disappointed. Rather, the newspaper is likely to be replaced by a swarm of smaller, nimbler and more specialized news outlets, combined with aggregation tools that help people assemble their own bundles of news from these myriad sources.

Filed Under: newspapers, unbundling

Random Scams Won't Take Down Google

Predictions

from the nice-try,-though dept

Three years ago, reporter Tom Foremski tossed out his idea for how Microsoft could kill Google in an underhanded way: offer $100 million to whoever clicked on a random Google ad. The trick would be that no one (other than the person administering the prize at Microsoft) would know what the ad is. Foremski’s theory was that this would lead to massive clickfraud and anger from Google advertisers. Of course, there are a lot of assumptions in there that likely wouldn’t hold up in a real world test (with the biggest being that the whole deal would stop working the second someone “won”). However, now we’ve got Mark Cuban tossing out a suggestion for how to take down Google that seems to come from the same “wishful thinking” playbook. Cuban’s idea is that Microsoft (with Yahoo) should offer to pay the top 100,000 sites in Google to get them to remove themselves from Google, and agree to be “exclusively” in the Yahoo/Microsoft listing. The idea is that the money would serve to pay for the lost traffic from Google — but that’s highly speculative.

If Microsoft actually tried this, it would be quite difficult for the Justice Department not to call an antitrust foul, first of all. But, at a more practical level, it just wouldn’t work. It’s based on the false premise that those top 100k sites are really the only sites that matter. If they all disappeared from Google’s index, another 100k would quickly fill in to replace them. In fact, it would get more and more difficult to convince sites to leave Google’s index, since the competition for clicks would get easier and easier as others did leave. On top of that, if this actually did happen, my guess is Google would continue to index those sites anyway forcing some sort of court battle over whether or not a site can actually block a search engine from spidering it entirely. These sorts of ideas are fun to think about, but once you think past the basic idea, it’s not hard to recognize why the scams would never work. Beating Google is never going to be about a scam.

Now, I should add that I started writing up this post last night. This morning, the news came out that Cuban is included on the board slate that Carl Icahn has put up to try to force Yahoo to sell to Microsoft. The timing, obviously, is no coincidence. Cuban’s blog post went up just hours before he was revealed to be a potential board member. However, just because this could, conceivably, put Cuban in a position to actually push Microsoft/Yahoo to implement such a plan, it doesn’t make it any more viable. In fact, it makes it that much more questionable.

Filed Under: advertising, competing, mark cuban, search engines
Companies: google, microsoft, yahoo

Can A Print Magazine Compete With Internet By Being Slower… But More Analytical?

Predictions

from the depends-on-the-execution dept

The press is happily covering the news that some journalists are launching a new (paper) magazine called “Dispatches” by focusing on the supposed “contrarian” nature of the operation: it’s focused on print, rather than the internet (though it will have an internet presence), and it’s only going to publish once per quarter. The folks behind the magazine say they’re trying to slow things down a little, and will focus on providing better analysis than the rapidfire approach of internet reporting. That makes sense — but it’s hardly new. Plenty of other press outlets have done the same thing — and, realistically, the analyst business is based on this same premise (just with the idea that the content is paid for by companies receiving it rather than advertisers). Either way, even if the concept isn’t particularly new, at the very least it’s nice to see a magazine launch with a plan as to how to differentiate. That said, the differentiation is meaningless if it can’t execute well and get people interested in the sort of in-depth content it hopes to provide.

Filed Under: competing, internet, journalism, news, print magazine

Social Networking Sites Turn Outward

Predictions

from the privacy-challenges dept

The New York Times reports on MySpace’s new Data Availability project, which will allow third-party websites to automatically import information from a user’s profile, saving the user the hassle of re-entering it on a bunch of different sites. As the Bits blog says, this is a smart move and could be the start of an important trend toward making MySpace a more outward-focused platform. Facebook wasted no time in announcing a program of its own called Facebook Connect that will have similar functionality. And now it looks like Google will rolling out an extension for Open Social that will provide some of the same features. We’ve said before that the achilles heel of social networking sites is that they’re so inwardly-focused. In the long run, it’s going to be difficult for any site?even one as large and technically savvy as Facebook or MySpace, to get users to stay inside of a walled garden. The site that figures out how to be a platform that other sites use for identity management will have a huge advantage in the long run. MySpace and Facebook appear to regard this kind of outwardly-focused platform as the next frontier in social networking.

They’re going to face some serious challenges in the privacy department, though. We discussed the privacy dilemma with Facebook apps back in January, and both Facebook and MySpace are going to have to grapple with the same set of issues with their new strategies. On the one hand, they need to lock things down sufficiently that one bad (or compromised) application can’t suck down a ton of private user data and do bad things with it. On the other hand, if they are too restrictive, it will limit the usefulness of their platforms and discourage third-party websites from using them at all. Striking this balance, and coming up with security mechanisms that give sites the information they need without giving away the store, will be crucial to these initiatives’ success.

I think it’s possible that these problems will prove intractable. Ordinarily, when we talk about an “open API,” we mean an API that anybody can use without any kind of pre-approval, and that doesn’t constrain how data received through the API is used. Obviously, MySpace and Facebook aren’t going to want to offer an API that’s open in this sense; there’s too much potential for mischief if an application can trick a user into authorizing a malicious application. So unless they can come up with a really elegant mechanism for limiting the spread of information, there’s going to have to be a vetting process, which will mean extra overhead that limits how quickly the platform can grow. It’s going to take a lot of ingenuity to make these platforms open enough that a lot of potential partners can participate while keeping them closed enough that they don’t become vehicles for the bad guys to cause problems.

Filed Under: apis, data portability, openness, social networks