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Let's start by stating the obvious: SpiralFrog needs a new name. The company, which struck a groundbreaking deal with Universal Music Group (read the story by the Times' Charles Duhigg and Dawn Chmielewski here), plans an online music service that will let people download the record companies' songs for free, legally and in unlimited quantities. The catch is, each time a user downloaded a track, he/she would be shown a 90-second commercial. If all goes according to plan, the service will attract so many youthful (say, 18- to 34-year-old) users that advertising revenues will come pouring in, generating more than enough cash to satisfy the labels' and music publishers' demands for royalties (something between $4 and $9 per user each month). Strikes me as a long shot, but it's worth a try. After all, it would be the first free service to provide on-demand music with portability, something that other companies charge $11 to $15 a month for.
Now for the non-obvious point: SpiralFrog's service is made possible by digital rights management technology, and that's a good thing. I know, I know, there's a lot hatred for DRM, fueled by such things as "copy managed" music CDs, DVDs with ads that can't be skipped, and downloadable songs that can't be resold, loaned or given away. But when it's used the right way, DRM enables companies such as the unfortunately named SpiralFrog to offer new ways to consume media. In other words, it can expand consumers' abilities as well as reining them in.
Too bad there aren't more examples of DRM as an enabler instead of a limiter. When I say that to Hollywood executives, though, they invariably say, "What about the DVD?" The studios would never have agreed to sell high-quality digital versions of their movies if it weren't for a DRM that deterred copying. Of course, the locks were picked not long after DVDs debuted, but the system (backed forcefully by the 1998 Digital Millennium Copyright Act) still stops most third parties from making products that exploit the breach - for good or for bad. Just as 321 Studios.
Much of the early criticism of SpiralFrog's plans has focused on what Microsoft's DRM will disable. The songs won't play on an iPod. Your downloads will stop working after a few weeks unless you watch more ads on the SpiralFrog site. You won't be able to burn the tracks to a CD. Those are real issues that will affect SpiralFrog's chances, and yet such complaints seem to miss the big picture. This is about enabling people to enjoy music for free while still generating a recurring stream of revenue.
Personally, I think it's great that SpiralFrog is trying another business model that's closer to the information-wants-to-be-free mentality of the Web, just as Napster and Rhapsody are doing (and Kazaa and Qtrax plan to do, p2p-style). In the long term, a service that requires users to download music may not make as much sense as one that streams songs from an online jukebox. After all, don't we all expect wireless Internet access to be ubiquitous within a decade? In the interim, though, SpiralFrog stands as the only company (so far) trying to offer free music that you can take with you wherever you go. It doesn't have to succeed to have an impact; in fact, its most important contribution (assuming it gets off the ground) may be in adjusting the labels' expectations for what their music is worth online. Here's hoping the company's deals with the labels won't lead it to burden the service with more commercials than music fans can bear. Not working with Everyone's Favorite Portable Device is handicap enough.
The photo of Universal Music (and, someday, SpiralFrog) artist Kanye West was taken by Leif R. Jansson for EPA.
Angelenos with a craving (and budget) for new TV gadgetry have been snapping up Blu-ray high-definition disc players, according to a story today by the Times' Rachel Abramowitz. That's welcome news to Hollywood, which has been alarmed by the flattening sales of conventional DVDs. But early adopters will buy anything in small quantities; the real question is how long the format war between Blu-ray and a competing high-def format, HD DVD, keeps the masses on the sidelines. So far, the signs aren't good.
The first problem is the limited penetration of large digital sets capable of displaying HDTV. Unlike VCRs and DVDs, whose benefits could be appreciated by consumers with any type of TV, it's hard to see the brilliance of Blu-ray and HD DVD unless you have a big set with full HDTV resolution. Although sales of digital TV products have been strong for the past few years (more than 35 million sold since 1998 -- 3.4 million in the first three months of this year), and the plummeting price of flat-panel digital TVs has led consumers to indulge in bigger displays, many of these sets aren't able to show a high-def picture. In fact, in the popular 42" plasma category, "enhanced definition" sets capable only of a DVD-quality picture outsold high-def sets globally until this summer. So we're talking about a subset of the subset of U.S. homes having any reason to be interested in high-def discs.
The format war dims those buyers' interest by threatening to make the new disc player they buy obsolete. How can people not be confused? The formats have virtually identical specs! For all intents and purposes, they deliver the same picture. Some early adopters are avoiding the problem by buying both types of player, but that's not exactly mainstream behavior when prices start at $500 (for HD DVD) to $1,000 (for Blu-ray). There seems to be no real hope of a compromise between the two camps of manufacturers, especially with the Blu-ray side still clinging to the hope that Sony will deliver an early knock-out punch with the new, Blu-ray equipped PlayStation 3. That punch has been delayed -- the PS3 is now due in November, and some skepticism remains about Sony hitting that target -- and its force has been weakened a bit by the higher-than-fantasized-for selling price ($500 for the entry-level model). Meanwhile, the HD DVD camp is counting on Microsoft to parry Sony's blow with a comparatively cheap HD DVD add-on drive for the XBox 360.
There are some analysts predicting both formats will survive, despite the strong desire by studios and retailers for a single winner. As long as much of the public stays on the sidelines, there's no reason for either side to give up the fight. My hunch, though, is that Sony's PS3 will drive so much Blu-ray volume -- the company expects to make and sell 6 million units globally in the first five or six months, or six times the number of standalone high-def disc players projected to be sold in the U.S. in all of 2007 -- that it will eat into HD DVD's one advantage, which is lower manufacturing costs. At the same price, Blu-ray kills HD DVD. It has more manufacturers (including Dell and Apple, who could drive more sales in the early years than most consumer-electronics brands) and, critically, more studios (Sony, Fox, Disney, MGM and Lions Gate have all signed up for just Blu-ray at this point, with Warner Bros. in both camps and Universal lined up with HD DVD initially). But if the price gap remains wide, consumers are likely to hold onto their money.
If you'd like something close to play-by-play commentary on the competition between the formats, check out this site, which monitors the availability of high-def titles and players at Amazon.com.
Culver City announced recently that it will use filtering technology from Audible Magic to block "illegal and problematic" content on the free wireless Internet service it offers in Town Plaza. The filters are designed to stop copyrighted music and movies from being downloaded through file-sharing networks, as well as barring users from partaking of the Web's bounty of porn. Predictably, the announcement drew a variety of protests from folks who bristle at any effort to stop copyright infringement online, such as this entry from Techdirt, which lambasted the city for engaging in a fool's errand at the MPAA's behest.
What troubles me about the announcement is that when government restricts access to information, it's censorship. One analogy might be a city yanking from its library all material purporting to show that the Holocaust was a myth. Such a move might be well-intentioned, but it's still censorship. And it begs the question, which disfavored content or activity will be next?
There's a critical difference here, however. Downloading copyrighted works without authorization is illegal (unless it's not a fair use, and it's hard to imagine the fair use in most file-sharing). And while porn isn't illegal unless it meets the Supreme Court's test for obscenity, California's "harmful matters" statute makes it unlawful to display porn in areas accessible to minors -- a definition that arguably could apply to Culver City's Internet service. Trying to prevent illegal activity isn't exactly outrageous behavior by a taxpayer-funded operation.
No question, file-sharing filters won't stop people who are determined to download bootlegged goods. People in the warez scene spend an incredible amount of energy maintaining the wellspring of free booty, and there's way more of them than there are engineers at companies like Audible Magic. But filters will slow down the masses of casual downloaders, as well as delivering an important message: if you're using the network to get free copies of a movie, game or CD that you'd otherwise have to pay for, you're doing something wrong. Culver City may be more willing than most places to make that point, given how many people in town work for the studios. But fact that movie studios are a big employer in Culver City doesn't make downloading a copy of "The Illusionist" any less illegal.
Culver City isn't shutting off peer-to-peer traffic, nor is it slapping NetNanny onto its network. Instead, it's taking a very targeted approach, using Audible Magic to try to stop people from copying works that are known to be copyrighted or pornographic. The city isn't telling anyone what to do with their home or business Internet accounts. It's simply overseeing a service it provides. That's what city officials are paid to do. If residents don't like the policy, they can lobby City Hall for unencumbered access to porn and bootlegs.
The entertainment industry has been slow to adopt new technologies to deliver products, but quick to embrace them for promotion. The latest to push the edge of the envelope is CBS, which announced this week that it would put five interactive billboards in New York's Grand Central Station next month to promote prime-time shows. The technique is pure "Minority Report": the billboards will spew video clips from the shows wirelessly to passers-by with Bluetooth-enabled cellphones and PDAs.
Some folks recoil at the idea of commercials being inserted into their pockets or purses, and this technique would be too intrusive if it, like conventional TV advertising, spammed everybody in range. But Bluetooth devices let users tune out all unsolicited pitches, if they wish. And even people who use the most permissive Bluetooth setting still have to agree to download something being offered to them wirelessly. Folks who have their phones or PDAs set to accept all Bluetooth connections will get a message when they walk past one of the CBS billboards, asking if they want to learn more about CBS. If they agree, they'll get a short clip from the show featured on that billboard.
This strikes me as a smart way to reach people who a) are interested in TV, and b) have time to kill, and thus may actually want to watch a clip from a new show. The ads can be passed from user to user, too, enabling viral marketing. The main drawback here is that people who like what they see can't download a whole episode or schedule a recording with a single click, raising the chances that they'll miss the show anyway. But then, CBS will be making them available online for free shortly after they air, so that's not as much of a problem as it used to be.
It also seems inevitable that the digital airwaves will be filled with marketing messages eager to reach whatever screen we happen to be carrying. It's already happening overseas, where Bluetooth devices are widespread and advertisers have been working for several years to ping them. If they're smart, advertisers will take Bluetooth's crude permission-based system and add the ability for users to declare preferences, so people who don't like action movies or cosmetics won't be bothered by those pitches. Check out this post from MoCo News for one view of this. As inviting as cell phones may be as a marketing vehicle, they're still phones, and as the wildly popular "Do Not Call" list shows, people aren't very receptive to unsolicited marketing on their phones. If Bluetooth users feel overwhelmed or insulted, they'll unplug themselves from the marketing and the system will fail.
The photo is a still from "Jericho," one of the shows CBS will be promoting on its billboards.
Sumner Redstone's timing is perfect: just when every drop had been wrung out of the Mel Gibson story, Redstone gives us an excuse to replay all the Tom Cruise nuttiness from the last couple of years. Thanks, Sumner! And to think Viacom doesn't even own a cable news channel....
Anyway, check out this analysis from the Times' Charles Duhigg, Chris Gaither and Kim Christensen. But wait, there's more! Here's our editorial, a nice follow-up interview with Redstone, and a piece on candor in Hollywood (surprisingly, it's not short).
My personal favorite interpretation of the episode came from a publicist who has worked with several studios: it was all about spinning Wall Street. Viacom stock had been in a long slump, despite the spin-off of CBS and Infinity that was supposed to excite investors. With other studios across town jettisoning production contracts, Paramount was under pressure to bring its deal with Cruise and his partner, Paula Wagner, down to more reasonable terms. But Cruise/Wagner balked at Paramount's offer and started shopping around for another backer inside and outside Hollywood. This put Viacom in an awkward spot as its contract with Cruise/Wagner neared its end: if Cruise announced a deal with someone else, Wall Street analysts would say that Paramount had just lost its biggest star, and the stock would take another hit. So Redstone moved first, saying (to the Wall Street Journal, mind you, not Variety or the Hollywood Reporter) that he was casting Cruise off because the guy's weird effusions had cost Paramount $100 million to $150 million in lost receipts on "Mission Impossible: III." In other words, Cruise had become a liability, not an asset.
The affair reminds me of Lakers owner Jerry Buss dumping Shaq in 2004. The calculation was about the same: huge paycheck, increasing risks, declining returns. But if Shaq is the model, Tom Cruise has at least a few blockbusters left in him. Stay in shape, Tom, and find a co-star who can put up even bigger numbers than you do.
The photo of Redstone and Cruise at a "Mission: Impossible III" screening was taken by Lester Cohen of WireImage.
Check out Chris Gaither and Dawn Chmielewski's piece in today's LA Times about Sony Pictures Entertainment buying Grouper. Much has changed about Grouper since, oh, YouTube and MySpace became hugely popular. The company originally distributed peer-to-peer software that let users share music, pictures and videos with up to 30 of their closest pals. In the past year, though, it stapled on a Web-based community-video application that looks a lot like YouTube. Voila, the company is worth $65 million. Nice exit strategy! You don't see many file-sharing companies selling for that kind of money. In fact, they tend to be paying that kind of money to get out from under entertainment-industry lawsuits.
As much as this deal looks like a poor man's version of News Corp.-MySpace, Grouper's peer-to-peer features add an intriguing twist. You've got to wonder whether Sony, which has a mixed record with community-based software online (Everquest on the one hand, Screenblast on the other), will be able to harness their power for viral distribution. But the p2p software is a double-edged sword (as is Grouper's reliance on user-supplied videos): the more popular the software becomes, the more copyright-infringement headaches it will bring. The quick-and-easy aspirin fix is for Sony to phase out the file-sharing capabilities, but that would sap some of Grouper's potential as a distribution platform.
There's also a strategic element for Sony Corp., most of whose revenues still come from the electronics side of the business. Grouper is part of a growing horde of broadband video applications that cry out for an easy route to TV sets. The content moving online may be spotty, but it includes programming from all the major networks. Increasingly, that content is time-shifted TV -- in the past few days, Fox and ABC announced plans to make hit shows available online for free shortly after they air, as ABC did for a few months earlier this year and CBS has said it will do this fall. All this activity is stoking the market for a new breed of Sony TV that can display video from the Net as easily as it does from the nets.
Set manufacturers have tried to peddle "smart TVs" before, on the mistaken assumption that more than a few people wanted to surf the Web and write e-mails on their TV sets. More recently, the PC industry has tried to sell digital media adapters that enable TVs to play audio and video files stored on a computer elsewhere in the house. And both Microsoft and Apple have offered software that can turn a computer into an advanced set-top box, if you're willing to put the computer next to a TV set. None of these approaches, though, seems fit for the mass market.
Sony, Panasonic and other Japanese TV manufacturers are reportedly working on a standard way to make Internet-enabled TVs. Rather than relying on a set-top box, these models would simply plug into a home network and rely on their own computing power to browse the Web. (A natural offshoot would be to make enhanced TV receivers that could bring the Net to existing digital TV monitors.) Of course, it won't be easy. Perhaps the most popular outlet for TV programs online has been Apple's iTunes Music Store. Apple relies on a DRM that it (so far) refuses to license to any other company. Still, the new sets could cover much of what's available by working with Microsoft and Google's DRMs, as well as such would-be universal systems as the Coral Consortium's. Here's hoping set manufacturers find a way to handle a wide range of video options online, both free and paid, even if a rapprochement between Apple and competing DRMs seems like an impossible dream.
Talk about a split personality. Emmis Communications de-twanged one of its two FM stations in Los Angeles County, KZLA-FM, without warning last week, switching to "rhythmic pop" (read: Black Eyed Peas, Madonna, Gnarls Barkley). The move added to the profusion of hits- and dance-oriented stations in the market, but left LA with no country radio stations at all -- in analog. (OK, OK, there are a few in surrounding counties that might be within tuning range, but still.)
Digital is a different story. Emmis continues to stream commercial-free country music at KZLA's Web site, which, as if trapped in a time bubble, looks pretty much the way it did before the format change. It also broadcasts country music on its digital over-the-air channel, for those few fans who happen to own an HD radio. Los Angeles is a big town, so I'm guessing there are 10 or 12 listeners in that category. Of course, none of them have HD radios in their trucks.
KZLA's schizophrenia is one of the more extreme examples of commercial radio's strategy for HD radio. Typically, stations don't use their digital transmissions to replicate their analog broadcasts . Instead, they offer a variation that tries to expand on their core demo. (Ooops -- that's wrong. They offer a simulcast and, in many cases, a second or third channel with different programming. Thanks to iBiquity's Vicki Stearn for the correction.) Look at Clear Channel: KBIG-FM is an adult contemporary station that spins disco on weekends. The HD version is all disco, all the time. Top-40 station KIIS-FM and oldies R&B station KHHT-FM's HD versions are retooled for Latino audiences. And at CBS Radio, rock dinosaur KROQ's HD station offers "extreme active rock," and talk station KLSX-FM provides ... female talk.
These experiments have little consequence, given how few people listen to HD Radio. That market won't take off until car manufacturers get behind it in a big way. So KZLA's digital offerings are cold comfort for country fans. Given how popular country-music CDs are in Los Angeles -- more sell in LA than any other market -- you'd think that another station would leap at the chance to fill the void, especially one owned by a group with multiple stations in the market. After all, advocates of local radio consolidation say the more stations a company owns in a market, the more formats it will play.
That's certainly been true for CBS' So Cal stations, which offer talk, adult contemporary, rock, oldies and Jack, a melange of well-known songs from multiple genres and decades. CBS even does (gasp) country at a trio of stations simulcasting in and around the Inland Empire. But for other groups, the strategy has been much like the variations-on-a-theme approach to HD radio. Clear Channel's FM stations in the region are all adult-contemporary or urban formats (plus KIIS, with a hits playlist that overlaps those two formats). Emmis' move with KZLA brings its format closer to that of its other station, KPWR-FM, one of the market's top urban stations. According to Jenny Toomey of the Future of Music Coalition, the goal is to make sure that when listeners tire of one of your stations, they move to another one of your stations. And someone who tired of KPWR's hip-hop wasn't likely to switch to a country station.
Ranked 20th in the most recent Arbitron survey, KZLA's country station drew about a third of the audience as the two market-leading outlets, Spanish contemporary stations KLVE-FM and news/talker KFI-AM. Emmis blamed the format; perhaps one of the lower-drawing urban, adult contemporary or talk stations will find the high lonesome ground more inviting. That category includes stations owned by big groups as well as local independents. Any bets on who's more likely to move first?
TiVo -- "God's machine," in the words of former FCC Chairman Michael Powell -- could get a substantial boost from two federal court decisions last week. The first came Thursday, when a federal judge in Texas ordered EchoStar to pay the company nearly $90 million and shut down its DVR service, which a jury had found to infringe willfully on TiVo's patents. The second came Friday, when the U.S. Court of Appeals for the DC Circuit upheld the FCC's order that cable operators stop providing converter boxes with built-in security.
The EchoStar ruling helps TiVo more directly. Although an appeals court stayed the injunction on Friday, providing immediate relief to EchoStar's time-shifting customers, the pressure on EchoStar to cut a licensing deal with TiVo has grown significantly. Yes, a recent Supreme Court ruling (in the eBay-Merc Exchange case) removed the presumption in favor of injunctions in infringement cases. Nevertheless, EchoStar knows that its DVR-addicted customers won't wait patiently for a fix if the injunction is restored.
Even if EchoStar licenses TiVo's technology, though, the satellite company is likely to do the same thing as TiVo's ally-turned-competitor DirecTV: find a non-infringing way to cut TiVo out of the subscriber fees. That's why TiVo -- which had 4.4 million subscribers as of April 30, 2.9 million of them through DirecTV -- has put such an emphasis on selling standalone set-top boxes. Most consumers, however, want a single box that can receive and record cable or satellite TV. That's why the FCC ruling is so important to TiVo, whose only significant cable partnership is its still-nascent relationship with Comcast. The ruling makes it much more feasible for TiVo to develop and sell cable-ready DVRs without needing to woo (or split proceeds with) the cable operators. The same can be said for computer manufacturers and anyone else who wants to innovate in the field of TV receivers.
Continue reading Fair Winds for TiVo »
Are TV networks starting to move at Internet speed? Mere months after braving its affiliates' wrath by putting college basketball playoff games online, CBS is jumping to the next level. The Eye Network (blog groundrule: use Variety and NY Post jargon wherever possible, conveying impression that studio execs take my calls) said today its evening news program would be broadcast online as well as over the air, starting Sept. 5 (the day Katie Couric takes over as anchor). It also announced plans this week to put primetime hits (and a few also-rans) online for free the morning after they're broadcast, and to leave them on the Web for at least four weeks. These are significant moves, and a firm rejection of the affiliates argument (baseless, in my mind) that online reruns cannibalize over-the-air broadcasts.
More interesting, though, is the statement by CBS Digital Media President Larry Kramer that the network may target the commercials that air with the online programs. Yes, it's hard for viewers to fast-forward past commercials in a streamed video from the Web, in sharp contrast to what viewers routinely do with TiVo and other time-shifting tools. But forcing people to watch commercials isn't the long-term solution to the ad-skipping challenge; matching ads to viewers' preferences is. The interactive advertising field is brimming with activity these days because the Internet and, increasingly, cable TV make it possible not only to direct ads to the viewers most likely to be interested, but also to measure their response. Several cable systems are deploying technologies by companies such as Visible World that insert different versions of a commercial for different zip-codes or blocks, modifying the pitch to match demographic data about the recipient. That way, a neighborhood bustling with children would get a different message than one shown to a downtown artists' enclave or a retirement community. Other techniques use input from the viewers themselves to shape what they see.
Online ads have been targeted almost since the Web came into being, and Google's technique for showing ads based on what a user searches for has basically allowed the company to print money. Companies like Lightningcast have been doing targeted ad insertion into audio and video streams for years, just not with programming as popular as "CSI: Crime Scene Investigation" or "Survivor." So it's about time that TV networks start exploring with advertisers how to put the commercials in front of right set of viewers. There a plenty of non-trivial issues to be worked out, starting with how to develop a broad inventory of advertisements and what mechanism to use to determine viewer preferences. CBS suggests that it will use information gleaned from viewers when they register, which could provide an elegant opt-in mechanism if it's not as bluntly intrusive, say, as the LA Times' online registration form. It's worth pondering, though, whether CBS' over-the-air partners will give it the flexibility needed to make ad targeting really successful. If GM wants to be seen with "CSI" online and off, does that mean people who really don't want to see car ads will have to watch car ads? Will the system for gauging preferences be that granular, and if so, will major advertisers play ball? Tim Hanlon, a senior vice president and new-media advertising guru at Publicis Groupe's Starcom MediaVest Group, thinks they will. Instead of paying for exclusive use of an ad slot seen by a huge, Nielsen-defined block of viewers (say, males 18-49), advertisers would rather share the slot and put their message in front of a smaller, better targeted group, Hanlon says. And ultimately, advertisers would like to buy the same targeted group across all delivery platforms -- broadcast, online, iPod, cell phone, whatever. There's a lot of work to be done to understand how TV programs fit into this model, but CBS, at least, is starting to do it.
When Shawn Fanning released the original Napster software in 1999, he didn't invent file-sharing. He just made it easier than ever before to swap songs online. That ease of use, combined with the allure of free music (and the joy of sticking it to the music industry), led tens of millions of people to install Napster before it ran afoul of the 9th Circuit.
A similar watershed moment may be coming for the BitTorrent peer-to-peer protocol, whose efficiency and speed make it more suited to share large files than earlier applications like Napster and Kazaa. AllPeers, a UK-based company that uses coders in Prague, is completing work on software that will build BitTorrent file-sharing into the Firefox browser. Users will be able to share files of any kind with people on their AllPeers buddy list simply by dragging and dropping icons from one folder to another.
That's a huge leap forward not just in usability, but also concealment -- all communications on AllPeers are private and encrypted. As a consequence, it's hard to see how the entertainment industry could attack bootlegging through AllPeers; there don't seem to be any central servers, and the only users who could be monitored, IMHO, are the ones who make a public appeal for buddies and blindly accept all comers.
There's another way to look at this development, though. Unless AllPeers goes the Aimster route and conjures up a way to search for files broadly across the user base, the sharing will be on a much more limited scale. Some intellectual-property lawyers might also argue that sharing copyrighted material with a few close friends or family members is a fair use, although the music and movie industries would certainly disagree. More important, if AllPeers catches on (and works as advertised, which may not be the case), it would provide a powerful legitimate distribution channel, too. Imagine people sharing promotional songs, games with try-before-you-buy DRMs, trailers, TV pilots or movies with DRMs that allow viewers to watch the first 20 minutes for free. Communicating with buddies is already well ingrained among Internet users, as is sharing files through instant-message programs. Latching such a tool onto a browser would make it much easier for people to share the things that catch their fancy online, accelerating the viral distribution of hot properties and increasing the reach of products that appeal to niche tastes.
So much for the speculation. The creators of AllPeers, who are backed by the two of Skype's VC funders, said they would invite 50,000 more users in the next few days to test the software, roughly doubling the number of people with access to the software. The comments those users are sure to post online will give a much better idea about the software's potential -- for good or otherwise.