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Monthly Archives: February 2011

Apple’s subscriptions: The price of not controlling your business’ fate

Apple announced its subscription feature to iPhones and iPads last week. The fallout has ranged from excitement to launching antitrust lawsuits.

The controversy is over Apple’s requirement that any subscription service must use Apple’s subscription feature in addition to their own web alternatives.  Any in-app purchases would earn Apple 30 percent.  So while Amazon and Pandora Radio can still sell products and subscriptions on their website, where they keep 100 percent, they must offer iOS users the same options in the app.  Because of the convenience of the in-app purchase, it is likely many users will use Apple’s offerings.  There is significant ambiguity in the rules: Netflix, for example, has already received a special exception, likely because it adds so much value to Apple products.

Music subscriptions are rightfully angry about this.  The iPhone and other portable devices have made music subscription services useful.  Record labels squeeze any business built on their music for every possible penny.  Pandora Radio reports 45 percent of its revenue went to SoundExchange in 9 months of 2010, and that doesn’t count the licensing dispute its still having with the ASCAP. Take 30 percent off the top for Apple and music subscription doesn’t look very viable.

But this is part of the problem with relying on others for your business.  Apple loves to control its business, and it’s within its rights to (Claims of antitrust on Apple are completely unfounded. Apple does not have a monopoly. It has significant competition in all areas of its business.). But newspaper, magazine, and music publishers have all been looking to iTunes or the iPad to save them or fix their problems (such as people paying for content). This is a poor way to grow a business. If Apple decides to alter course or Google changes its search algorithm, it could hurt or destroy your business.

Newspapers and magazines eager to charge users for content have linked their fates to the iPad.  The Daily, while impressive solely for its exclusivity to the iPad, does nothing that couldn’t have been done in a web browser.   As a web app, the Daily would have sacrificed some hype and sleekness compared to an iPad app. But it also could have had full control over its fate.

This is not to say building iOS apps are bad for business. Just like you never want only one revenue stream, you never want your business beholden to just one company, whether it be Google, Apple, Microsoft, or another.  The web opens up these options and the more inventive and innovates your business is, the more control and freedom you will have.


How Shakespeare shows copyright’s irrelevance

The newest salvo against piracy and copyright infringement comes from the Authors Guild’s executive director Paul Aiken and board member James Shapiro, two people who should have a better understand of Shakespeare.

The two, in their New York Times op-ed, claim Shakespeare would not have survived the internet because of piracy.  Shakespeare benefits from “cultural paywalls” they claim.

By the time Shakespeare turned to writing, these “cultural paywalls” were abundant in London: workers holding moneyboxes (bearing the distinctive knobs found by the archaeologists) stood at the entrances of a growing number of outdoor playhouses, collecting a penny for admission.

These cultural paywalls sound like theater tickets.

Aiken and Shapiro try to claim cultural paywalls and copyright are the same thing.  Let’s remember Shakespeare predated copyright law by almost 150 years.  Shakespeare himself pirated and copied from others extensively to write his famous plays. It’s rather copyright that would have prevented Shakespeare from writing Hamlet, Merchant of Venice, and Romeo and Juliet, all of which were adaptations of other works. King Lear was compiled from about half a dozen sources according to Groklaw.

Also, Shakespeare made sure to sell scarce goods – theater tickets – rather than relying on artificial scarcity to sell infinite goods – the script itself.

Though as I’ve shown before, Shakespeare does pretty well in the internet age.  Shakespeare is the most filmed writer with more than 420 films and more than 5,500 publications in 2010 alone.  Yet all of Shakespeare’s works can be found free online (legally) and as free ebooks. Yet many still pay to see his plays, watch his movies, and read his plays. There are more than 90,000 YouTube videos related to Shakespeare which yes, includes copyrighted movies, but also plays, remixes, and unique interpretations of that Bard the could not have been shared as easily and as widely if not for the internet.  MIT even held a forum on remixing Shakespeare in 2007.

Because Shakespeare’s work is in the public domain, anyone can do anything with it.  Shakespeare made a good living in the 16th century on his plays – he did not need copyright to incentives his prolific works – he found a business model that works, selling theater tickets, and found that to be more than enough incentive.  Copyright would have impeded his creations, almost all of which were copied and innovated upon by Shakespeare. That’s how creation works. It’s a constant give and take.  Cultural paywalls prevent this – not enable it. I think the better question is, could Shakespeare have survived having the Authors Guild representing him with such a flawed understanding of economics and history?


Wrong conclusions: Study does not show music piracy is disappearing

Several media outlets are reporting on a new study from Envisional claiming that it shows music piracy is subsiding. But no, music piracy is not dying. If one reads past the first few pages of Envisional’s study, they’ll see music piracy is just as rampant – and even see real ways to deal with it.

The graph everyone is latching onto is below, showing that music only accounts for 2.9% of the top 10,000 torrents on PublicBT’s tracker.  Let’s ignore for the moment that PublicBT is a small sample of the many torrent trackers out there; this still is likely somewhat representative.  But how are these 10,000 torrents ranked? By leechers. Leechers are people who are still downloading the torrent file.  Seeders have completed the file. When a leecher completes the file, they become a seeder.

Music torrents are often only several megabytes. The complete Beatles catalogue can be found for under 2GB, a bit larger than a movie file. TorrentFreak found that the average video torrent is 1.73GB while the average music torrent is only 214MB.  A single album can be downloaded within minutes meaning there will usually be very few leechers on the average music torrent.  Just reading on a single page, for total number of downloaders, music jumps ahead of PC games and software by more than 100,000 downloaders (pg 14).

48336443-Envisional-Internet-Usage-Jan2011.pdf - Adobe Reader

Let’s also consider that BitTorrent is not the sole file-sharing tool.  Cyberlockers like Rapidshare and Megaupload, music accounted for 10.1% of links found, slightly ahead of software and games, behind TV shows, films, and pornography, same as BitTorrent. So again, we see music is not disappearing.

But how can we track interest of file-sharers.  Thankfully, on page 25 of this same study, Envisional charts search queries on the Gnutella network.  Music accounted for almost 55% of all search queries.

Maybe, based on these numbers, other media have just gotten more popular on piracy networks.  As bandwidth increases and more learn about piracy, thanks to generous campaigns from the media industry telling every about it, larger files can be shared more easily.  So larger video files are growing as all file-sharing grows.

BPI (England’s version of the RIAA) claimed 1.2 billion songs were downloaded in 2010 in the UK alone.  So the music industry still sees music piracy as pretty significant.

So iTunes, streaming sites, and other legal music options still aren’t quelling music piracy as much as music execs would like to think.  Maybe embracing BitTorrent, like so many music artists have, they can increase the value of scarce goods and make more money. The selling of songs and plastic discs just isn’t a significant market anymore.


The Rise and Fall of Hulu

Hulu should have been Netflix. The major networks and movie studios had ownership of the upstart video platform and provided the site with excellent content in a pleasing interface – exactly what the market seemed to be demanding. Sure it took them almost a decade to get to this first step, but it exceeded expectations with its content, technology, and success.

But as to be expected with legacy businesses, they are more interesting in protecting their legacy revenue then investing in future returns.

For the past year, Hulu has been devoting time and resources to blocking media centers, phones, and specialized web browsers, all at the behest of their media company owners. Certainly Hulu has a right to do this, but how does it make business sense to actively block people from using your product?

Now Hulu, with impressive revenue, traffic, and highly effective ads (estimated at being twice as effective as TV ads), the media company overlords don’t see Hulu as a success, but as a threat to their still highly lucrative advertising deals and licensing payments from cable companies.  Rumor has it that media companies now want to turn Hulu into more of a cable-like platform for live content and get larger upfront payments from Netflix and other streaming sites (so they can bleed Netflix dry, but that’s another blog post).

What’s really unfortunate is how blind the media companies are in regards to the potential benefits of letting Hulu drive innovation forward.  Hulu CEO Jason Kilar wrote an excellent blog post on the future of Hulu and television which really challenges the status quo. Anonymous media executives responded in the Financial Times (paid registration required) saying:

“If I were given billions of dollars worth of programming, I too could probably build a business,” the person said. “But I know that in order to build a long-term, viable business I would have to do so in a way that works for everybody.”

and

“These are clearly the musings of an elitist who is obviously disconnected from how the majority of America watches television.”

Except in both cases, these execs missed the point of Kilar’s article and his goal.  The first quote, believing that if you just offer the content, you can build a business, ignores that Hulu still has a tiny amount of content compared to any piracy site on the web – and there are many. Hulu and Netflix have been successful by offering an excellent user experience, making it easier and more convenient to watch content than trolling BitTorrent sites.

The second quote might even be true, that Kilar doesn’t understand the TV viewing audience, but he understands what the next generation of potential TV watchers want, and sitting through long commercial breaks is a pretty obvious trend.  It’s rather TV executives who are dreaming of the old days when viewers were beholden to set schedules. From DVR to iPads, TV viewers are demanding more control over their TV viewing habits. And if these media companies don’t catch up to the future, then someone else will leap frog them and reap all the benefits for themselves.


The Daily: Lessons on how to build a business

The hype around Rupert Murdoch’s newest pet project, The Daily, is a big strength. Few general interest publications could gain mass media attention.  But any dot com survivor can tell you, hype alone does not build a business.

Murdoch and his News Corp. empire do not lack for funds, but the $30 million outlay for the iPad only newspaper is a shocking number. Not to mention the estimated weekly $500,000 operating budget, The Daily is no boot-strapping start up.  And this is the first flaw.

The dream of Murdoch and other publishers is The Daily will somehow return users to paying for news content.  So Murdoch is spending the amount he would spend on a paid publication.  And this is the flaw in his economics.

It’s not simply will people pay for news, but how much is that worth?  For math fun, several have tried to estimate how many readers The Daily needs to make money, saying, oh, they only need X many or they only need X% of iPad users.  Hoping a certain number of people give you money is incredible limiting and not how you build a growth business.

Yes The Daily gets hype from being iPad only, but what is the gain? What can you do on an iPad but not on the web (even if the website is paid for) unless someone shares it, and even then its missing the multimedia?  You can’t even get The Daily on the iPhone or iPod Touch. How is this maximizing your earning potential?

Hype is The Daily’s only unique element. None of the content is revolutionary thus far – and for all the money spent, they still include AP articles, just like every other free news website.

When I and others claim news and content want to be free, it isn’t because we’re cheap (most of us did shell out a lot of money for iPads and smartphones).  Rather, we see the economics at work. There is more competition. Competition pushes prices down.

This also means costs must come down. No printing or delivery trucks cut huge costs, but many ambitious start-ups run on a few million over their first few years. This allows you to be nimble and respond with dollars and time in accordance to the marketplace. By investing so much money upfront, The Daily is already locked into technology and likely methodology that if ineffective, will be expensive to replace. That and it requires a lot more readers at the start rather than letting growth happen naturally. Just another example of the legacy publishing mentality rather than finding more efficient ways to deliver news.

But people pay for the Wall Street Journal and Financial Times, you say.  Well both of those are not general internet, but specialized business papers that cater to a need-to-know first crowd. Plus, both have decades of history and credibility built up to prove their value.  How does The Daily plan to convince people to read it instead of the New York Times or CNN or the USA Today? Hype is not enough of a reason.

Of course, if you really want to read The Daily for free, there’s http://thedailyindexed.tumblr.com/. Sorry Murdoch, you can’t uninvent the internet.