Media 2.0: Online Music should be licensed, '3 strikes' won't work
[Ed - this is a summary of the Media 2.0 session at the 7th Telco 2.0 Executive Brainstorm, held in London on the 4th-5th of November. We'll be further discussing the issues involved at the 8th Telco 2.0 Executive Brainstorm in Orlando on the 9th-10th of December.]
This session covered issues relating to content, the media industries and their relationship with telcos, and the delivery of online video. The presenters were Feargal Sharkey of UK Music, Gerd Leonhard of Mediafuturist.com, and David Touve of the Williams School of Commerce. The panel discussion also featured Francis Keeling of Universal Music, Damian Newton of Sony, Jon James of Virgin Media, Cameron Rejali of BT Wholesale, Rupert Day of GroupM, and Dan Klein of Detica.
Online Music: what's so funny 'bout peace love and understanding?
A major theme in Feargal Sharkey's keynote was the search for a less adversarial relationship between the music industry and the Internet/telco community.
He argued that, notwithstanding what might or might not happen with the proposed anti-filesharing legislation, it was necessary to establish new business models that would encompass the whole value chain. The solution to the piracy problem might eventually be to compete successfully with the pirates.
This would involve offering much better search, discovery, and recommendation functionality, and attractive pricing. Services like Spotify and Amazon's MP3 download store would be part of the solution, but it would also be very important to develop a workable wholesale business model. Unlimited music downloads might eventually be a subscription product that is bundled in the price of Internet access; with the right wholesale model, it would be possible to offer music on terms that look like free to the end user.
This would imply that the wholesale licensing would have to be priced at a level that would permit ISPs to benefit as well - especially as a significant chunk of their traffic costs are made up of music downloads.
Licensing: Online the same as Radio?
Gerd Leonhard argued for a licensing regime similar to that created for radio. He sketched out important strategic trends - everyone has broadband, the cost of reproducing content is near-zero, advertising spending has moved on-line very quickly and is concentrating in the newest fields like social networking and viral video, and p2p is being replaced by direct download sites and streaming services. For this last point, he referred to charts from the Craig Labovitz presentation referred to in this post.
He argued that scarcity creates economic value, and therefore value had accrued to the music industry when the means of reproducing music were scarce. Now, though, this was no longer true, and therefore value was migrating into a variety of other activities - rather than being a "copy economy", we are faced with an "access economy". Again, distribution, search/discovery, recommendation, and aggregation were critical.
Attempts to restore the copy economy, he thought, were either likely to be inefficient - like a traffic jam at a toll booth - or else so restrictive as to stop all activity, leaving the roads empty. The Amazon Kindle was a good idea as far as it went, but this was only likely to work where a hardware device was critical and a major source of differentiation. In an environment where publishing and production were extremely cheap and commoditised, the only important actors were creators and end users. It was necessary for others to facilitate their interaction through a two-sided business model.
In order to achieve this, it's necessary to have a much simplified public license like that used for radio.
Telco 2.0 EMEA Delegates: '3 Strikes' will not work
The delegates were asked to vote on what effect they expected "three strikes" anti-filesharing legislation to have on piracy. The result was somewhat surprising; 80% of the delegates expected it to have no effect whatsoever, although it wasn't clear to what extent this reflected doubts about whether the legislation would ever go into force.
"License the Joyful Noise"
David Touve attempted to analyse the situation in terms of the characteristics of products versus services. He argued that if something is product-like, it's also more likely to be a typical rivalrous good, i.e. that if one person consumes a unit of it, no-one else can; however, media is typically neither a product nor a service, but an experience, perceived in sensory and emotional terms and which has personal, social, and cultural significance. Its commercial value is a small fraction of the total experience.
Rivalrous goods, he said, are rivalrous either because they are scarce or because their enjoyment is exclusive; there's not enough to go around, or it's possible to keep other people from benefiting from the good. Live performances, specifically, are both scarce and exclusive, and so they are both rivalrous and product-like. Recording used to be scarce, but efforts to maintain its exclusivity artificially through things like DRM have failed to do so. Now, it's becoming less and less like a product. Delegates were asked to vote on whether they expected media to be more like a product, or more like a service, in the future; 90% expected it to become more like a service.
DRM is popular with rightsholders precisely because it's a product; similarly, DPI and IMS are popular with vendors because they are products and vendors understand products. But media is no longer a product even if it ever was. Past experience with television and radio, he argued, suggests that a broad platform licensing approach would be optimal for non-rivalrous content.
Drawing attention to the results of the votes held during the session, he pointed out that the overwhelming majority of the delegates strongly supported a policy of tolerance, "licensing the joyful noise" as he put. Delegates had been asked to choose which of two approaches - licensing and filtering - would be best for the media industry, for the telecoms industry, and for the end users. The delegates voted with a large majority - 73%, 75%, and 77% respectively - for licensing and tolerance.
Therefore, he asked, why is the industry so drawn to "three strikes" legislation? Why is it such a powerful strange attractor?
Panel - the end-to-end business model needs to work
The panel discussion centred around the apparent success of so-called "freemium" business models like that of Spotify (where the basic product is free, given away in order to up-sell premium adjacent products). There was little support for DRM technologies, which appeared to be as unpopular with the delegates as they are with everyone else; Damian Newton pointed out that customers dislike the restrictions between devices, regions, time periods, etc, and that they rarely understand how they work.
An important point regarding content delivery that was raised during the panel was that "piracy" or "music" can't be considered as the challenge to ISP business models in their own right; instead, the real bandwidth hog is media in general, as Cameron Rejali of BT Wholesale pointed out. After all, there is nothing piratical about the BBC iPlayer, which took average usage from 30 to 150Kbits per user in real time.
Jon James of Virgin Media pointed out that a few years ago, everyone believed P2P filesharing had won, but now the legal streaming services were growing incredibly fast. It was necessary for the users to experience free, looks-like-free, or cheap legal applications - once they were sensitised to them, uptake was very fast.
Live, Vinyl, CD, Paid Downloads, Free are all still part of the experience
It also emerged that recent research carried out for UK Music suggested that the attraction of physical media - whether in the sense of DVDs, or in the sense of the iPod or Kindle - is still a real phenomemon. This was true even for people who regularly downloaded pirate content. A similar preference for download to streaming was observable.
Francis Keeling of Universal remarked that good adjacent solutions that provided excellent search, discovery, and recommendation features were vital, and that if the telecoms/Internet industry didn't help in creating a value chain, the content industry would partner directly with advertisers and cut out the middleman.
Finally, it was clear that the main issue here was the need for a business model that integrated free, premium, and live.
Delegates' comments through the Mindshare system emphasised that the issue is still highly polarised, but this seems less important in the light of the evident consensus revealed by the votes. Spotify seems to be universally popular, and it was pleasing to see that the delegates were aware that communications, not content, are the industry's core business.
[Ed. At the forthcoming Telco 2.0 Americas Executive Brainstorm, David Touve will be helping us explore some more issues arising from this debate. For example, how does Net Neutrality interrelate with the content question? The proposed rulemaking currently contains references to "lawful" content - will this be used as "three strikes" by the back door? Similarly, if ISPs begin to provide wholesale media, does this mean they have to let their competitors' media store traffic travel on the same terms as their own? And is the migration of media into the cloud now so important that the P2P debate is obsolete?]