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Monthly Archives: February 2009

Amazon caves to made-up law; makes Kindle 2 less valuable

The Author’s Guild, made up of many brilliant fiction writers, made up some fiction of its own and have pressured Amazon to remove a key feature of its eBook reader upgrade.  The Kindle 2 included a text-to-speech feature like many computer programs do.  The Author’s Guild president, Roy Blount, claimed turning text-to-speech in this fashion was copyright infringement, undermining the billion dollar audio book industry.

Um, no. Reading text out loud is not copyright infringement.  Blount has been pushing this issue, most recently in an op-ed in the New York Times, offering no legitimate argument for why text-to-speech is bad or illegal.  He says Amazon is not paying for audio rights, but there’s no need.  Michael Masnick points out the text-to-speech feature is not a fixed work, which is a requirement for copyrightable material. It’s the same as someone reading the book out loud, as much as Blount wants to pretend it isn’t.  Masnick says the only way this violates copyrights is if someone records the computerized voice, and then tries to sell it. Blount says he doesn’t want this to prevent parents reading to their children or the blind, but for no other reason than doing so would sound bad.

As for Amazon, shame on you. You come out with this innovative and successful product that makes people want to read more books, helping these very authors. But instead, without any legal basis, you cave.  It makes the product less valuable to consumers and even ebooks lose some value.  This is a lose-lose-lose situation (the third being consumers) where authors are decreasing the value of their books, Amazon is decreasing the value of Kindle, and consumers have less valuable products to buy – for the same price.  It’s sad Amazon was scared away from this legal fight. Instead it sets a scary precedent that groups can raise a little hell and make this retail giant fall.

Economic stimulus for winners, not losers: The new risk-takers

Thomas Friedman this weekend wrote a column asking for more stimulus money to go to start-ups rather than bailout failing car companies and banks (again).  Originally I was just go to praise and agree with Friedman until some bloggers came out criticizing his position.  So now I actually have to be persuasive.

Friedman’s argument is we need to stop giving public money to companies that screwed themselves up.  GM and Ford and begging for another $20 billion.  Friedman says let them fail and rightfully so. GM and Ford spent billions lobbying Congress to avoid fuel regulation and letting Toyoda out-innovate them.  After laying of 50,000 employees, these companies want more public money (on top of the $15 billion they already got) for no other reason that avoid economic catastrophe in Michigan.  But why are we rewarding companies that were run so badly?

Silicon Alley Insider says most start-ups are bad and investing them will lead to misallocation of resources.  My question – how much worse than GM and Ford can than these start-ups be?  These massive firms are laying off tens of thousands with little plan on how to fix themselves.  Start-ups, even likely to fail, provide widespread job creation, at least short term,  and creativity and experimentation leading to long term benefits in technology, innovation, and new business models.  Friedman points out, Intel and Google both grew out of recessions – harder economic times make start-ups more grateful for the opportunity and aggressive to succeed.  There’s less a flood of new companies, allowing the cream to truly rise to the top.

Stimulus money shouldn’t hand out money to just anybody.  It should function just like a venture capital firm (with the ability to offer tax credits on top of grants and subsidies).  Money rewards smart business plans that serve the public good – by creating jobs and long term benefits, and even failures can be learned from.  And just like any venture firm, we’re banking on one or two companies actually taking off and paying back the taxpayers with equity.  When do we expect GM, Ford, and all the banks to pay us back?

Risk alone should never be a reason not to do something.  Even failure has benefits; failure is also why we diversify so no loss alone is catastrophic. This means still helping larger companies that provide a tangible plan for how to succeed.  Fixing 10-20 years of bad management can be just as hard as starting a business from scratch – just think about how many start-ups could be built with $20 billion.  This is what risk-benefit analysis is all about.  We are not comparing our risk to benefit.  Rewarding smart and innovative businesses sounds like a good risk to make.

Your wireless network could be spying on you

I’m excited to write such a scary headline. The irony is the person spying on you is – You.  A new bill making its way through Congress will require any operator of a wireless network to maintain records of IP addresses for up to two years.  This means every cafe, park, and homemaker would suddenly have massive data requirements.

Of course, this is all done, really, to protect the child.  Senator John Cornyn summarized the importance of the bill:

While the Internet has generated many positive changes in the way we communicate and do business, its limitless nature offers anonymity that has opened the door to criminals looking to harm innocent children. Keeping our children safe requires cooperation on the local, state, federal, and family level.

The bill is even titled the Internet Stopping Adults Facilitating the Exploitation of Today’s Youth Act or Internet Safety Act. Creative. A similar bill was introduced three years ago.

Of course, this bill will do nothing to protect children. Instead, it will put an undue burden on businesses and individuals to maintain huge records of unneeded data.  Jonathan Zittrain wrote about the inefficiency of data retention laws back in 2002.  Forcing so much data retention makes it harder to find the information you need.  Michael Masnick puts it, we need better data, not more data.

Newspapers the only ones in love with micropayments

The newspaper industry has been buzzing about building their own iTunes, offering a pay-per-article model with everyone’s favorite buzz word, micropayments.  After a cover article in Time Magazine promoting the model, the idea has joined a larger debate of people who just don’t understand the new economics of news.

Walter Isaacson’s article for Time builds on this misconception that newspapers made the mistake of posting their content online for free, making customers get used to the idea and now unwilling to pay. Alan Mutter even calls this the Original Sin.  So all newspapers have to do to save their ailing industry is agree to charge for every article.

The crux of the micropayment argument is people should pay for news simply because that’s the way it’s been. But economics change. The internet makes sharing news articles incredibly cheap.  With hundreds of thousands of online news sites and blogs spreading news for free, no amount of conglomeration will convince the market to pay for news again.

Let’s look at what happened already. The New York Times tried to charge online subscriptions to its archives. Instead of paying for subscriptions (or per article), customers went to the Huffington Post and blogs to get the same information for free.  Isaacson says newspapers need to prevent others from sharing the content they read, but how does he think this will happen? Mind wipe after reading? Information and news can’t be copyrighted. Once you read a news article, you can tell anyone and everyone what you read.  The value is in being the source material, but if people can’t read the source material, they’re happy to find a secondary source.  Marshall W. Van Alstyne, associate professor at Boston University, likened iTunes for news as putting toll booths in the ocean.  Any barrier to user entry online is easily avoided.

The further problem with iTunes for news is news is not music.  Alstyne elaborates:

News is not like an iTunes song; it’s perishable. Today’s front page is tomorrow’s fish wrap, and we don’t need to replay it. If anything, a reader benefits more from a second source than repetition from the first. Facts are delivered; songs and movies are created. Facts also can’t be owned, so when the Internet places geographically dispersed media in direct competition, the price of facts falls to marginal cost. In digital markets, that’s zero.

With micropayments, suddenly users have to question is each article worth reading.  This is the problem with micropayments in any industry.  Customer willingness to jump from free to $0.01 is much larger than $0.01 to $1. For every article, I have to decide, is it worth $0.01 to me; is it worth taking out my credit card; is it worth typing it in.  And how will article pricing be decided? Will the more important articles be more expensive?  Customers do not want to guess which articles are worth paying for.

News is free now. It has been free for a while – how much do you pay for TV news? Most arguing for pay models for news articles just want things as they were, pretending the economics haven’t changed.   Saving the newspaper industry relies on giving customers more value, not charging more for less (the most popular trend in newspapers has been reducing size but raising prices – less for more).  The key is to recognize the business’ main value – providing news – rather than the method – paper.

50 percent of most newspapers’ budget goes to printing and distribution costs.  With the internet, those expenses disappear. To be profitable, an online newspaper can make half the money it made offline because distribution is so cheap. MediaView posted a list of 14 models being tested for journalism, many with quantifiable success.  Each successful model (not micropayments, included on the list) looks to raise the value for customers.  Micropayments offer nothing valuable for the customer.

For all newspapers’ grandstanding, there are several viable models already working.  Several big cities have free, tabloid dailies handed out to people on their morning commute.  These quick reads offer the greatest hits of the day’s news, focusing on the need to know and leaving you to fill in the blanks online when you get to work. Online news providers are already offering original reporting, from Slate to Salon supported by advertising.

News reporting won’t disappear because there’s always a market demand for good journalism.  But the old guard isn’t offering the market what it wants – the market wants free, up-to-date news. Many want a community to discuss the respond to the news, asking questions or sharing opinions.  The old guard doesn’t understand how this changes their old mentality.  Newspapers are no longer the only purveyors of news, controlling what we see and when.  They need to be part of the communication process. That requires giving customers what they want, not making things like they once were.

More money grabs for doing nothing

brutal_legend I missed posting about the Watchmen fiasco. Basically, Fox once owned the rights to the Watchmen movie and actively decided not to make the film. So a few months before Warner Bros. releases their version, Fox sues saying it still owned the rights.  To keep its release date, Warner Bros. settled, paying off Fox for doing nothing. Copyright doing its duty, right?

Activision, likely giddy at the prospect of being its own Fox, is threatening to sue EA for publishing a game Activision gave up on.  Activision merged with Vivendi Games and in the merger, Activision dropped several titles including Brutal Legend, which EA picked up. Now that Brutal Legend is getting hype and an anticipated release, Activision is claiming EA is infringing on their rights on a game Activision said they don’t want to release – they want money for doing nothing.  I particularly love EA’s response.

We doubt that Activision would try to sue. That would be like a husband abandoning his family and then suing after his wife meets a better looking guy.

Give customers more, not less, on TV

Fox made headlines announcing several of its new series would be part of “Remote-Free TV”.  The experiment began with Fringe, featuring only 10 minutes of commercials, often minute long breaks, for an hour long show, rather than the average 20 minutes.  Silicon Alley Insider crunched the numbers and found the experiment seems to be a financial success. Nicholas Carlson writes:

Fox has only been able to charge a 40 percent to 50 percent premium on “Fringe” spots — about $343,000 according to an AdAge study.

Figure then that Fox makes $6.86 million off 10 minutes of 30-second ads — 20 ads — during each “Fringe” episode.

If, like it normally would, Fox showed 32 ads at a 45% markdown from that premium, Fringe would pull about $7.6 million per episode.

Jon Nesvig, president of sales for Fox Broadcasting, thinks with more time, Remote-Free TV ads can be sold for an even higher premium.  What’s uncertain is how Remote-Free TV affect ratings.  Fox premiered Dollhouse last Friday with Remote-Free TV with modest ratings (though Friday nights have notoriously low viewership).

What it does show is more money can be made showing fewer ads, maybe even to fewer people.  Fox realizes viewers hate commercials and are buying DVRs and time-shifting technology with the purpose of skipping their main source of revenue.  Instead of fighting viewers, Fox is providing customers what they want – more TV, less commercials.  This encourages viewers to watch the show without waiting and even sit through a few short commercial breaks (sometimes even with higher quality commercials).

Instead of guilting viewers to watch, using DRM, or just packing shows with more commercials to offset lower revenue from time-shifting, Fox is trying to attract customers with more value.

Stimulus takes odd turn to dismantle net neutrality

Senator Diane Feinstein added an odd amendment to the stimulus package aimed at forcing ISPs to regulate copyright infringement (and child pornography) on their networks.  The content filtering amendment has been pushed off the stimulus bill, but more for procedural issues than merits making it likely we’ll see it again.

Feinstein’s amendment is a dream for copyright holders with little regard for consumers and service providers (ironic Feinstein’s from California, right?). Her amendment calls “for reasonable network management practices such as deterring unlawful activity, including child pornography and copyright infringement.” These being the most heinous things one can do online.  Congress almost regularly puts up these “stop child pornography” bills that chill free speech and are struck down by the courts, but no members of Congress are likely to vote against protecting our children.

Content filtering, for all the grandstanding done by copyright holders (and attorney generals against child pornography), are wholly ineffective.  No technology has been shown to know what’s copyrighted material or even pornography, legal or otherwise.  So this reasonable network management is pie in the sky meant to put the responsibility of policing everyone on ISPs who are protected under various safe harbor provisions.  The only way they could even attempt this is with deep packet inspections which lead to serious privacy concerns.  Public Knowledge brought great attention to the issue, which is quiet for now, but likely to return again.

Piracy, the Kindle, and market demands

The Guardian posts an interesting theory that for Amazon’s Kindle to be more successful, it needs more widespread piracy.  Unlike Apple’s iPod, Kindle users can’t transfer their book collections onto the hardware like CD-to-MP3s.  Every book must be purchased or downloaded. And while book piracy does exist, it relies on devoted fans copying every page – not as easy as an automated CD ripper.

The Kindle is selling quite well for Amazon, but hardly on the road to travel dominance like the iPod. This might show the market is not as ready for the iPod of books as it is for the iPod of music.  As I’ve (and others) have written, piracy shows what the market wants and at this point, digital books are not in high demand.

Book and content producers need to understand why this is the case. Right now, books are more valuable to consumers for any variety of reasons, like convenience, habit, and collecting.  We know reading online/on the computer is a preference for many for short features, like news articles, but books are still preferred in tangible form.  The Kindle isn’t going to change the habits of consumers, but it’s a forward looking option that knows paper’s days are numbered.

Unfortunately, the book industry is leaving clues they are more likely to follow the close-minded music industry approach.  Paul Aiken, the executive director of the Author’s Guild claimed the Kindle’s new text-to-speech feature was an act of copyright infringement by allowing any book to be read aloud saying literally: “They don’t have the right to read a book out loud…That’s an audio right, which is derivative under copyright law”. According to his logic, reading any book out loud, even a bedtime story for your kids, is a derivative work and thus copyright infringement.  Or, maybe, this feature is just a way to make the Kindle, and thus digital downloads, more valuable to consumers. It’s unlikely a computerized voice is going to replace emotional actors on audio tapes.

For book publishers, they need to plan for a future where books are digital and readily pirated. It’s already happening on a very small scale.  Instead of fighting the inevitable future, book publishers can embrace the change and profit from it. First, embrace the cheap distribution of digital goods and include digital downloads of books with the purchase of a hard copy. Even spread full, free downloads online – several examples of free eBooks show huge increases in tangible book sales.  These sales come because the hard copy is more valuable than the digital copy.  Book publishers need to increase the quality of the published books, recognizing why people buy them.  Small, soft cover travel copies are perfect for convenience customers (and should be cheap, impulse buys). For collectors, like everyone I know with huge bookshelves to fill, increase the value of hard covers with gorgeous art, author’s notes (the paper form of commentary tracks), and high-end binding.

These features give customers a reason to buy the hard copy.  This way, when book piracy explodes, book publishers are already offering compelling alternatives that give customers a reason to spend their money.

National broadband a little further away

As the stimulus package meandering its way through Congress, the good parts seem to get lost on the way.  $2 billion for rural broadband development has been removed showing its not as much of a priority as more tax cuts. This may not be a bad thing.

I have issue with broadband being mashed up in the stimulus (I have problems with the stimulus itself, but that’s another post). President Obama claims the money is meant to create jobs more than expand broadband, but why one and not the other?  Especially when the jobs research he’s basing this on is out-of-date?  The stimulus version of broadband looks more like a payoff to the current telecommunications players who’ve been unmotivated to spread broadband themselves (some even actively preventing it).

The United States is ranked 15th in broadband adoption with significantly slower speeds for more money. We need a real, long term broadband strategy, like Japan, where money is offered to companies who produce results.  I’d say this should apply to all government money (it doesn’t), but one step at a time. The government should offer low-interest loans and grants for broadband rollout proposals. Companies need to compete for this money and know they only get paid with results. We can even use the contractor rules – a third to start, a third in the middle, and a third at the end. This way the money isn’t just given to incumbent players with a history of not doing anything (hence why we’re 15th in broadband).

With government money tied to actual results, companies have to produce results – and those results are likely more jobs and a better standard of living for those with new broadband connections. And because of the government assistance, the price of the broadband will (should) be cheaper. Further, by not relying on tax breaks, like Obama’s proposal, grants and low-interest loans provide capital to encourage new players in the industry.  The lack of competition leads to more problems than obsolete technology.

Promising huge payouts to companies isn’t stimulus and it isn’t strategy. Let’s do broadband strategy better than we’re fixing our banks.

AP suddenly wants to protect its photo copyright

Shepard Fairey A popular example of the power of remix culture and transformative uses of artwork has been the popular image of President Barack Obama. The Obama “HOPE” portrait by Shepard Fairey has been become a popular symbol of the president, splashed on everything from t-shirts to books by dozens of different groups, all without Fairey demanding compensation.

Fairey based the Obama picture of an image he found on Google Image Search in November of 2008 and printed a bunch of posters. It took the internet army to find the inspiration.  The picture was traced to an Associated Press photo by Manny Garcia (with some debate, one website thinks the picture is from Reuters).

Just yesterday, the Associated Press announced it was looking into legal action against the artist.  It took three months for the news wire to even recognize the art was based on their photo and likely based their response on the conclusion of internet researchers doing their work for them.  Fairey claims his artwork is a fair use exception to the AP’s copyright. This isn’t the first time AP has abuse copyright.

The “HOPE’” portrait is an obvious transformative work, so transformative the AP didn’t recognize it until other people pointed it out. Transformative works are recognized fair use under the law.  What transformative means is up for debate, though, leaving the picture in legal limbo until the courts hash it out. The Supreme Court helped define transformative in Campbell v. Acuff-Rose Music, Inc. as:

The enquiry focuses on whether the new work merely supersedes the objects of the original creation, or whether and to what extent it is “transformative,” altering the original with new expression, meaning, or message. The more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.

The “HOPE” poster completely transformed the expression, meaning, and message of the original press conference photo. That’s fair use and hopefully the AP gets told so by the courts.

Shockingly, the AP is taking legal action after the artist has been getting tons of press and attention because of his own freedom with copyright, allowing others to repurpose this image for causes. He even went on the Colbert Report talking about how he’s embracing remix culture, letting others make money on the poster while he gets the name recognition to sell other art (he did get on Colbert, one of my dreams).  AP’s attempt to control the copyright would limit the creative potential of the photo – potential AP obviously never saw but Fairey did.  How’s that for transformative.

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