ratpie

Category: technology

  • Floating on a Sea of Demand for Music

    Tin Cheuk Leung at the Chinese University of Hong Kong published in 2009 a paper entitled, ‘Should the Music Industry Sue Its Own Customers? Impacts of Music Piracy and Policy Suggestions.’ The updated version is available here.

    Parts of Leung’s paper need special training to understand (which I do not have) but some of it is easy to grasp. Lots of music makes an iPod more valuable to its owner. People want much more music than they can buy. Demand moves between channels as the cost per track changes, but being a simple pirate is quite rare – most of us buy, beg, and borrow in differing proportions.

    I am pulling out just one of many interesting sets of numbers where Professor Leung tries to model worlds with either no piracy, or free music. Killing piracy he suggests would reduce overall consumption of tracks by 68%, where making music essentially free would increase consumption by 527%.

    More music translates into more iPod owners, and demonstrates how the cost of a transitioning market falls on content creators, through leakage as well as through the need to get the new means of consumption into as many hands as possible.

    Knowledge of the shape of the music industry however highlights another aspect to the complex picture of music demand. Diversity and opportunity in music would seem to come from a middle class market, with hardware manufacturers benefitting from the explosion in consumption free music would bring, and the biggest music companies benefitting from total anti-piracy.

    Somewhere between what we have now and making music free there is a sweet spot which can deliver more good music to more people, while at the same time sustaining the skills and infrastructure which will create opportunities for the musicians coming into the market in the future. We owe it to music makers and music lovers to try to work towards that destination.

     

  • What Happened to Vint Cerf?

    This August, 2012, on FT.com Vint Cerf was quoted in an article about the upcoming UN discussions over Internet governance.

    But Mr Cerf says that pricing structures are antithetical to the internet as they could stifle innovation. “When Larry Page and Sergey Brin started Google, they didn’t have to go and cut a deal with every ISP in the world. It’s a gun-to-the-head model to say: ‘You’re making a lot of money, give us some.’ An alternative would be to compete – improve your own value-added services.”

    What a concentrated and irresponsible little bundle of words this is! Cerf has many public roles – as a scientist, and as an honoured innovator, and as an expert on set of technologies that are important for many aspects of the improvement of the human condition. How disappointing to find that his role as a paid evangelist – a faith based persuader for money – overrides all of these honours and achievements.

    He starts with a half-lie. As a startup, Google did not have to negotiate with every ISP because they were able to buy connectivity in the market, like every other internet business, and piggy-back on the deals ISPs had done with each other. Today’s new businesses can follow the same path, and can also take advantage of a much more developed infrastructure market that puts massive processing and connectivity within reach of almost anyone. In fact Google preferred to move away from the wholesale hosting market in favour of public and private peering, where in effect it did cut a deal with many many more ISPs, in order to get preferential treatment and lower costs for its traffic.

    What Google demonstrated conclusively was that when you generate a little traffic it’s your problem, but when you generate a lot it’s everybody else’s. Peering was not supposed to be quite so asymmetric, so a market was never fully developed. Now Cerf is lobbying to prevent a market being created and to preserve privileges that Google enjoys over newer startups; the original gun was Google’s when it bought YouTube, and Cerf wants to make sure the other side remains unarmed.

    Having positioned Google as a startup at the mercy of arbitrary behaviour in wholesale connectivity markets Cerf goes on to deploy all the sophistication of the teenage sneer. While for an online advertising business Google owns a lot of infrastructure, compared with the investment it requires from other network providers to keep its platform connected it is still well on the right side of the deal. The excitement surrounding a very limited trial of Google fibre internet access seems to have died down a bit since the limits and the price, as well as the behind doors politics, have emerged. And no ISP is more upfront than Google about preferential treatment for its own value added services.

    And yet the answer is almost certainly not to attempt to regulate paid peering, or paid for QoS at peering points. Content and services gain in value the more they localise, and while it’s Cerf’s employer who is as he says ‘making a lot of money’ at this point, competing on thousands of local exchanges is not the same as competing on dozens or hundreds. Regulators would do well to preserve the mostly unpaid and informal peering model, not because Google does so well out of it now, but because it is more likely to deliver a platform for Google’s competitors in the future.

    Preserving the openness of Internet Exchanges in the future from crowding out and from anti-competitive contracts will be a far more important regulatory challenge than defending Google from pricing of traffic exchange is now.

  • How Art Changes the Architecture of the Internet

    Reading Neelie Kroes’ recent blog post on net neutrality (link updated Dec 2017) reminded me of a startling presentation that was given to Nanog in 2009 (I was not there so was thankful that the slides were made available here) which brought into focus some vague ideas I have been thinking about for the last few years.

    That 2009 report was one of those ‘everything you thought you knew about x is wrong’ moments. Because by 2009 the open, public, internet, with a predictable hierarchical cascade from core to access, was over. Instead we had arrived at a world of private connections between big content and service platforms where IP protocols carried private bits over private networks. And what drove the change was, bizarrely, art – or rather content if you want to avoid aesthetics. More specifically, Google’s YouTube acquisition could create so much traffic for ISPs that it was uneconomic to carry it via IP transit, bought from upstream providers. Google had to be let into the peering points, and the biggest ISPs choose to peer privately with large partners to avoid overloading the public switches and getting into complicated recharge discussions.

    Earlier in the evolution of the internet CDNs had been let into the exchanges, to some grumbling, but as wholesale suppliers of connectivity they sit behind the consumer services so arguably were similar in their role to the wholesale transit providers. Having a consumer service in the networks club was a new experience.

    Now here’s some conjecture and speculation. Carpathia, a Dulles, Virginia blue chip hosting business, joined a select club when it accepted a new customer, MegaUpload, in November 2008. Almost instantly it was generating 1/20th of all internet traffic. If Carpathia did not manage to use that leverage to move into the internet exchanges and form some private peering agreements it should have. Private traffic is cheaper and inherently less visible than public. And some more speculation on a historical matter – the apparent drop in internet traffic resulting from Sweden’s introduction of IPRED laws could at least partly have been the effect of some publicly peered traffic going private for similar reasons.

    A minor version of this happened very recently when customers of UK ISP Virgin Media were reporting severe difficulty using Spotify. The Register extracted a comment from Virgin Media to the effect that they had been suffering from poorly configured peering with one of Spotify’s data centres. To fix it they will have either turned up the public peering, or gone private. Either way the shape of the internet changed in response to demand for music.

    I suspect it would be possible now to avoid the internet entirely and just use private networks if your access comes from a major consumer ISP. And it is art/content that has driven this change. How much the content creators and their industrial representatives have been party to the changes is anyone’s guess, but I suspect not very much. That looks like an opportunity to me.

  • Music v. Tech – How to Stop Fighting Yesterday’s Wars

    Google recently released some startlingly large numbers relating to the number of copyright infringement takedown requests it receives and continues to act upon. Almost at the same time (it can’t entirely be a coincidence) the UK book publishers’ trade association chief unleashed a broadside which looked calculated to prevent dialogue between content and tech for some time. For context, the Publishers’ Association chief used to be the lobbyist for the BPI, the UK record business body that appears in Google’s top ten complainants.

    Round table discussions brokered by the UK Government are supposed to be finding constructive ways forward, but appear to have stalled. UK ISPs are far from engaging at a commercial level with music, apart from a half-hearted affiliate deal here and there.

    Maybe the wrong people are in the room. Certainly more discussions happen between lawyers, trade associations, Government, and liability or anti-piracy staff than between the people who could actually do something to create new value. Does anyone really think a civil servant can invent the next decade of music industry infrastructure? No, thought not.

    Even the diehard digital rights activists that I talk to are aware of many positive uses of copyright (the integrity of open source licences depends on it) and would be excited by a genuine collaboration between music and technology. And analysts in tech and telcos are sweating over spreadsheets constantly trying to justify a business case for investing in new and innovative services. Innovators and engineers have no shortage of ideas. That much is obvious.

    So here’s a call. Skills, music, and distribution – let’s sideline the ranters, lobbyists, blowhards, politicians, and anyone else who thinks that they have a right to get in the way of progress. Music and technology are natural partners that should be bigging each other up, not trying to shame and hobble each other, and neither needs to go whining to Government for help. None of us want to end up being told how to live our lives by politicians. We can and must work together.

  • The Relative Incompetence of the Music Industry

    Perhaps in the days of paper forms and typing pools it was excusable that the music industry shied away from line by line accounting in favour of statistical sampling and pro rata share outs of royalty pools. An additional copyright in those days meant a collective investment in administration that could be disproportionate. Now however the source of the largest imposition of cost is maladministration by copyright owners, leading to disputes and disambiguation. Yet it is still common for businesses and societies or other collective organisations to cry about burdensome complexity as they plead an increasingly feeble case against complete transparency in copyright administration.

    Here’s Nic Garnett, in a report to WIPO about proposals for an International Music Registry:

    To a degree a key question in rights management has changed. Before, RMOs needed to ask: “Is this data worth collecting and processing?”. In the digital environment the question can become: “Is there a legitimate reason for not processing all the relevant data?”

    (RMOs are Rights Management Organisations)

    This would have been a farsighted question to have asked in 1995, and right on the money for industry leaders to be asking in 2000. The fact that Nic, a highly experienced and knowledgeable copyright lawyer and consultant, is asking it in 2012 is strong evidence for the miserable failure of the music industry to make itself fit for business. Nic should know why this is so as he was CEO of IFPI during much of the 1990s, but he’s also enough of a diplomat not to point any fingers.

    I can’t fault Nic’s list of music industry failings:

    • The necessary data systems are lacking
    • Music industry priorities are still, to a degree, shaped by out-dated structures designed for out-dated business models
    • There is insufficient interoperability between systems in different sectors of the music industry
    • There is even less interoperability with corresponding data systems outside the music industry’s core functions
    • There is little or no rights management infrastructure in emerging markets and what there is, is incompatible with systems in other markets

    At this point the average music executive’s eyes start wandering, as though they have found themselves locked in a cupboard with a nutter. But imagine if other industries were afflicted with the same lax and stupid attitude to their basic infrastructure. What if car companies couldn’t manage to provide a set of standard wheel sizes to tyre companies? What if shoe lace manufacturers couldn’t or wouldn’t sell b2b to shoe makers or shoe shops, so you had to visit two shops to get a functional pair of shoes? What if a new and fabulous plane required an extra 100m of runway but the manufacturer couldn’t be bothered to tell the airports? Imagine if eBay decided it was far too much trouble to process any transactions under $10, so it would roll them up and divide the pool pro rata?

    The music industry as a whole probably looks much like a failed state, such as Somalia, Chad, or Sudan, but thankfully with fewer guns. Reform is proving just as intractable as we move into the second decade of systemic incompetence. Nic’s handwringing at WIPO is a chronicle of failure, not a hopeful sign of reconstruction and recovery.

  • Some Numbers In The Digital Music Industry

    There are now very few barriers to entry in the digital music industry, if you are lucky enough to be middle class in a developed economy. Production tools are essentially free if you have a computer; broadband connects you to a number of service providers that can put you on sale. Even if you have no musical skills there is a growing public domain of sound recordings that can be repackaged and sold. Low costs and no gatekeepering are driving a continuing expansion in the number of tracks in the market, with 2012 seeing perhaps 15 million already on sale and probably at least another million or two arriving each year.

    I have gathered a few numbers from around the industry, which I shall present rounded off and anonymised or generalised to respect confidence and commercial sensitivity where they have not been widely published elsewhere. Some of them might well be wildly wrong, due to mis-remembered conversations or just poor data management.

    One of the many music services that includes on demand streaming has delivered at least one listen for each of 720,000 tracks over a year, out of a catalogue of approximately 5 million tracks. A similar service, aimed at families, finds that each  account expands by 15 tracks the diversity of the music that gets listened to. A European neighbouring rights society knows about approximately 5 million tracks of which somewhere between 5 and 6% get payments allocated over a year.

    ASCAP, the American organisation that collects and distributes royalties for the performances of compositions, shares the money it collects between the 200 highest grossing tours or concerts. It also makes discretionary awards to about 4000 applicants each year who would be entitled to be paid under a scheme that simply allocated royalties to reported performances. College webcast radio in the USA can pay an additional $100 on top of the $500 minimum fee to avoid reporting up to 825,000 performances of sound recordings per month, (9,900,000 performances per year).

    The global digital music industry brought in $5.2b for record labels in 2011 according to the IFPI. If that were evenly distributed across the sound recordings in the market that would mean each earned approximately $350. Markets don’t tend to work like this; if the revenue followed one of the most likely distributions, 70% of the revenue would be generated by 1% of the tracks. Each of those 150,000 tracks in the top 1% would therefore earn a little more than $24,000 on average. Assuming the same distribution the top 150 tracks would average about $8.66m each. Just sharing that money out between performers registered in the International Performers Database, a joint project between neighbouring rights societies, would net each performer about $10,000.

    Digital music is full of strangeness and contradiction, and as these numbers show, as a business its existence on its current scale is a triumph of either ignorance or hope over expectation. If any more interesting numbers pop up I shall update this article.

     

     

  • A Simple Suggestion for Copyright Policymakers

    This simple suggestion is offered to copyright policymakers around the world.

    Copyright economies are complex. So complex that your most carefully designed reforms are likely to have consequences you could not foresee, and may even damage the sectors or people you intended to help. But this does not mean that policymakers are powerless to effect changes that have, over time, a strong positive influence on the creators and businesses that rely on the regulation and oversight of copyright markets.

    One area of copyright regulation suffers none of these uncertainties, however, and has an important additional benefit. That area is the shared technical standards by which copyrights are identified and traded. Improvements and regulation there makes future copyright market reform much less controversial by creating a platform of reliable market information on which new proposals can be designed and measured. Get the shared technical standards right and new copyright laws can be future-proofed.

    Technical standards help markets by identifying the rights that are being offered and traded, the works in which they are embodied, and the interested parties. They offer tools for efficient and reliable exchange of data about deals and terms, and used honestly they create trust by making copyright industries transparent and auditable. For such a technology driven sector the copyright industries have been surprisingly patchy and slow to adopt electronic trading systems. It’s clear that they need help.

    Policymakers do not need to employ teams of experts to design systems, nor attempt to impose technology on the market. Instead, like they do in many other areas of life, their role is to set minimum standards and ensure compliance. Standards will help industry cope with the massive increase in opportunities brought about by digital technology without resorting to radical interventions such as compulsory collective licensing.

    Let’s look at how this would work in practice. Take as an example a web site that allows people to upload music tracks and offer them for listening or downloading. In addition to the usual terms and conditions the site would add a requirement that each copyright is identified under an approved scheme, and that uploaders identify themselves. The site would keep proper records of who uploaded what, and would in return get the assurance that they were in compliance with copyright law. Anonymous and unidentified services would not be affected, but could not continue to rely on click-through warrants to provide legal safe-harbours.

    Any business that takes assignments, licences, or buys copyrights for onward sale or licensing would be subject to the same requirements. A robust regulatory framework will assume an unbroken chain from each creator to each user of each copyright, and will make that chain accessible on demand to each interested party. Taking this approach will join up today’s jigsaw of data, and will find all the missing pieces, defending creators and users from unwitting infringement or wilful copyright blindness.

    This simple suggestion is offered as a least bad choice for policymakers, who are rightly cautious about interfering in the complexities of copyright markets. It avoids completely such vexed issues as extended collective licensing, instead making it clear to all users which copyrights should be considered ‘in the market’ and which remain outside. As a private person perhaps sharing photos with family and friends you would remain unaffected and with your copyright intact; to enter the market you would simply ensure that you and your work become clearly identified.

    Many copyrights today are hidden behind layers of assignments and locked in private databases. This is an impediment to trade, as well as making enforcement against counterfeiting and infringement much more difficult. Policymakers should choose to set the rules for the market and let industry do the rest.

  • Sony’s Gatfield Shows Mutual Misunderstanding Between Music & ISPs As Deep As Ever

    Nick Gatfield, recently appointed CEO of Sony Music UK, took the opportunity of an interview with the Guardian newspaper to do a bit of grandstanding on behalf of the music industry. Broadband businesses he said “are being built on the back of illegal filesharing”, and went on to call ISPs liars if they claim they can’t block web sites.

    If the conversations I have been having recently are anything to go by he will find plenty of people in the music industry to throw him a herring for balancing that particular ball on his nose. But sadly just as few able to able to explain the economics of broadband businesses, or the technical and legal implications of site blocking, as there were five or six years ago, when the real conversation about the music and broadband business should have started in earnest.

    And that is a shame. Having worked with ISPs for many years I know how much they can learn from the music industry, and how much music can learn from them. The cultures might be poles apart, but complementary rather than antagonistic. Even at a very facile level a business with huge and expensive infrastructure and a 24/7 service ethic, where customer satisfaction – or lack of it – is the most important metric, is where some parts of music already are, and some think they ought to be. And from the other side, even a modicum of emotional engagement, which is the only wallet opener music companies have, could transform a telecoms utility into a much deeper connectivity business.

    So what a pity that music, instead of saying “we want to learn about your business so that together we can make more of both of our assets”, instead has dug in for a war of attrition on ISPs’ core technology, their customer relationships, and the fundamental legal protections that manage the risk of investing in public communications infrastructure. And what an opportunity for someone on the music side to reach across the divide.

  • Lessons for Music from the Steam Age

    If you go to London’s Science Museum and look at some of the early commercial steam engines you might notice a ‘pump counter’ which ticked up with every pump of the piston. Boulton and Watt’s original business model was to charge a build fee, and then a usage fee, on the basis that their engine was capable of doing more work more cheaply than the alternatives, within the constraints of the mines and factories in which it was installed.

    So, every month I imagine a man with a clipboard doing the rounds, and then a bill arriving which represented the work done – the value added by the engine. It wasn’t cheap, but it made things possible that had not been. And the benefit of their patent was to allow them to sell the work, not the engine.

    There seem to be two conventional opinions about this – the first that it was enough that B&W delivered power to kick start the revolution in productivity that changed the world. American industrialist Carnegie was a fan and proponent of this line. The other is that B&W’s overly aggressive use of their patents (they got a legal bill once for £30,000 – which in today’s money is multiples of what EMI is spending to annoy Michael Robertson) delayed the widespread adoption of the technology, and the revolution happened a few years later when the patents expired.

    I don’t quite buy either of these, though I am sure each holds some truth. For a start, manufacturing engines was difficult and risky, with many accidents and imperfections. B&W hugely improved manufacturing techniques during their patent period so that robust high performance engines could be made in much larger numbers during the first 2 decades of the C19th than the last 2 of the C18th. One might see a parallel in the electrification of the music industry here – no amount of interesting business model innovation could fill up a pipeline that lacks basic supply chain infrastructure and reporting.

    The second point is about the innovator’s investment dilemma, faced with the prospect of losing a constant portion of the value created. The benefit is there enough for B&W to make and sell hundreds of their engines over a few decades. But the mine or factory owner couldn’t run the engine 24/7 without paying more, and nor could they double the output by adding their own innovation. The incentive therefore was very strongly to keep up with the market, because engines did more at less cost, but not to get ahead of the market, because you ended up working for B&W and not yourself.

    In fact the greater incentive was to try to deny access to B&W’s engines to your competitors, either by tolerating a higher price than was really justified (in which you might have found B&W to be tacit colluders), or through more devious means.

    The parallels with our own rather less industrial music industry are so striking to me that I bothered to do a bit of reading about the subject. They have also led me to think that the digital music industry won’t achieve scale or commercial penetration until the rights owners are prepared to set a price, allow anyone to buy, and then stay out of their customers’ business. Nor do I think that the market will work with a price set on an abstract such as ‘access’ – that would be like selling thermodynamics without cylinders and pistons.

  • Amazon, GaGa, & UITS

    Amazon’s inability to ship Lady GaGa album downloads is getting a bit of attention currently. I doubt they under-estimated demand – if anyone knows about demand it’s Amazon.

    It was unlikely to be a basic scaling problem either. Just about anyone with a hardware budget and a few decent systems/network guys can manage to get a few million music downloads out the door these days. Of course Amazon could handle the load, if it were as simple as transactions and file serving.

    However it could be that Amazon have been forced to do transactional tagging, which would increase the cost and risk of high volume music delivery many times over.

    UITS is a likely culprit.

    I can’t see how transactional tagging adds value for Amazon, and in this case it looks, if I am right, like it might have destroyed value on a large scale. I also doubt it adds value for Lady GaGa, and I have yet to see any explanation of how it adds value for anyone else.

    Is someone somewhere keeping a ‘leaky service index’ and gearing up to punish retailers on that basis? The presence of a transactional tag shows at least that the file was bought so it surely cannot be that record labels intend to start targeting the relatively few people who actually buy music, can it?