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Wincing the month away

The_shins Here's some good news for the record companies: January's just about over! The month was a complete stinker in terms of sales, with each week running 14% to 17% below the same week in 2006. Granted, the industry's numbers are notoriously dependent on a few artists hitting big. So bring on Coldplay! Errr, uh-oh, the singles box isn't due until the end of March.... Anyway, thanks to Coolfer for compiling the sales data, as well as reporting an interesting tidbit about "Wincing the Night Away," the new album from indie-pop  life-changers The Shins. Of the 119,000 copies of the album sold, 30% -- about 36,000 -- were digital downloads. With the CD available at big-box retailers for less than $10, it's not likely that the digital sales were driven by bargain-hunters. Rather, it seems that a huge chunk of Shins fans simply didn't care to own the plastic, the liner notes or the DRM-free tracks. They just wanted the music as soon as possible.
The percentage is high, but it shouldn't be all that surprising. Two years ago, Coldplay sold 62,000 downloadable copies of its album "X&Y" in one week. That was 8% of the total first-week sales -- an unusually large chunk at the time, but much more routine now. It makes me wonder how much faster the ground would be shifting toward digital if DRM wasn't part of the picture. But then, the Shins' sales prove that DRM isn't a deal-breaker for tens of thousands of music fans....

Rootkits Be Gone

SonybmgThe Federal Trade Commission wrote the final chapter in the Sony BMG rootkit saga today, announcing that the record company had agreed to a set of rules for copy-protected music CDs. With any luck, the FTC will also have closed the book on the music industry's efforts to fight piracy by treating CD buyers as if they were all lawbreakers in waiting.

The commission didn't try to stop Sony BMG -- or, by extension, any of its competitors -- from handicapping its products with technologies designed to prevent ripping or copying. In fact, as far as the FTC is concerned, it's perfectly OK to sell a CD that can't be played on a PC unless the buyer agrees to install software that disables some of the PC's functions. Riiiight. Instead, following the lead of the 41 state attorneys general who settled with Sony BMG in December, the FTC simply required the company to put a full description on CD packages of the disc's restrictions and requirements. That's not much of a remedy; fans who want the latest CD from their favorite band will have no choice but to accept whatever mischief comes with it.

But the FTC did crack down on one practice that is a key element of many of today's copy-protection techniques. In its proposed order, the FTC barred Sony BMG from installing software that hid itself from users. Here's why this provision is critical. One of the most effective ways to bar ripping without reducing a disc's compatibility with conventional CD and DVD players is to plant software on the disc that attacks the PC's ability to copy it digitally. If this software isn't hidden on the PC, it will be much easier for hackers to find and defeat it. So by barring software from being cloaked or obscured, the FTC all but guarantees that the protection it provides will be circumvented.

These provisions may be moot for Sony BMG, which gave up on copy protected CDs (at least for now) after the rootkit scandal erupted. For companies developing copy-protection technology, though, the FTC's proposed order poses a significant new hurdle that can't be overcome just by putting a warning label on the CD case. Perhaps that will be enough to make the rest of the industry stop trying to lock down CDs and focus instead on adding value to their products.

Electric Avvenu

Avvenu_logo My colleague Swati Pandey is an Art Brut fan (and who isn't?), and I happen to have the band's latest single. So I emailed her a copy this morning, kinda sorta. Don't go all Mitch Bainwol on me just yet -- I think what I did was legal. And so does Avvenu, the Palo Alto startup whose software lets users listen to their music collections remotely and share it with their pals. The free program enables all sorts of remote-access and file-sharing capabilities; think of it as creating a private Web service that also lets you push content to people, rather than letting them pull it from you.

Avvenu is still running its service by the labels and the music publishers, but in the meantime, you can experience the beta version of the software. In addition to giving you remote access to the files on your PC, the free version enables you to share up to 250 songs from your collection. You do so by creating playlists in iTunes of the songs you want to send, then sending emails with links to the playlists. The songs themselves get uploaded to Avvenu's servers. When your friends click on the links, the tracks stream to a music player that pops up in a browser window. Links expire in a week, and the tracks can be played an unlimited number of times during that period.

Avvenu's software is designed to deter digital copying, so "sharing" doesn't become "giving." Nevertheless, I'd be surprised if the labels and publishers don't demand a piece of whatever action Avvenu generates, as well as insisting that shared songs be limited to a handful of plays (think Microsoft Zune). Right now the company charges monthly fees for a premium service that lets users store files by the gigabyte on Avvenu's servers, giving them access to those files when their own computers are turned off. It also plans to add a "click to buy" button to the music player, and it may throw on targeted advertising as well. It could even deliver songs from bands the labels are promoting to users based on their preferences.

The risk for Avvenu is that industry executives will see it as yet another company trying to build a business around free music. As noted above, the software does a lot more than just stream playlists. And its overall effect, I think, is to increase the value of the music by making it easier to consume (with one important caveat). Avvenu lets me play the MP3s on my home PCs from any Internet-connected computer (or on a cell phone running v. 5 of Microsoft's Windows Mobile software, if I had such a thing), so it makes my collection more useful to me. That's good for the music biz. It also makes it easy for me to expose bands like Art Brut to my music-loving friends. That's good for the industry, too. The caveat is, it works only with songs in your iTunes library that aren't wrapped in DRM, such as the tracks ripped from CDs ... or downloaded from eDonkey. Ouch. That's no Avvenu's choice, though, and with any luck, the major labels will stop insisting on locking up 99-cent downloads. Or maybe Apple will start licensing its DRM to other companies. Either way, that's a topic for another day.

DVD slump: It's not all bad news?

Pali Research made waves last month by predicting that U.S. consumers would spend less on DVDs in 2007 than they had in 2006 -- the first decrease in Hollywood's current home-video motherlode. Pali based its estimate on financial reports from Best Buy and Circuit City, which showed year-over-year declines in DVD sales in five of the eight previous quarters.
Those results seem consistent with numbers released by the Digital Entertainment Group, which showed year-over-year declines in North American DVD shipments in the first three quarters of 2006. The year was salvaged by a big fourth quarter, but the total increase in DVD sales was less than 2% -- the smallest ever. Meanwhile, plummeting VHS revenue caused total consumer spending on home video to drop in the U.S. for the second year in a row, the DEG said.
Against that gloomy backdrop, Adams Media Research is releasing a new study Wednesday (done in conjunction with Screen Digest) that predicts the studios' worldwide revenue will grow from $35 billion in 2006 to nearly $42 billion in 2010. Yes, domestic growth will be minimal in the next two years, Adams says, but growth overseas should offset that. Then, in 2009, significant revenue from high-definition discs will start kicking in, at least in the U.S. Revenue from films delivered via the Net will also grow rapidly in the U.S., Adams predicts, although it will still pale in comparison to ticket sales and discs. The bottom line: a compound annual growth rate of 4.3%.
That's not exactly barn-burning growth, and it may not stem the cost-cutting tide in Tinseltown. And while the sky may not be falling after all, Adams Media's report suggests that the studios can't afford to be too patient with high-def DVD, which has been plagued by the Blu-ray/HD DVD format war and a partial hack of its main copy-protection scheme, or online movies, whose appeal will be limited until there's an easy way to move them from the PC to the TV.

First, a quick reminder: if you're interested in the TV industry's new enthusiasm for the Net as a distribution platform, please attend a free panel discussion that the Times is presenting Monday, Jan. 22, in Culver City. The panel consists of five executives from various parts of this emerging world, including the networks, production companies and online video outlets. For more details or to reserve a seat, visit the Zócalo site. When I say "reserve a seat," I mean that in the same way as most busy restaurants and airlines do. The event is overbooked, but if you show up a little early, you'll get in. And if you stay late, you'll get free food.

As I noted in my last post, a loose confederation of attackers have broken the main copy-protection technology protecting HD DVD discs. At last count, keys have been posted online that supposedly will unlock almost half of the discs in that format. Ummm, not good.

Hollywood has a number of options. First, it could revoke the software that's apparently being used to discover the keys to individual movies. That would slow down the arrival of new keys, but it might simply be a pause in the action; clever engineers will invariably figure out a way to find keys in the new version of the program(s). Second, Universal Studios -- the only major Hollywood studio that's backing the HD DVD format exclusively -- could embrace Blu-ray and its extra layers of security. That, I think, would be a death blow to HD DVD. Third, Hollywood could lose interest in packaged media entirely, shifting their focus to downloadable high-def movies with better security. The market isn't ready for this yet, I don't think, because it's too hard to get a DRM-wrapped movie from the Net to a TV set, but that problem will be solved eventually. Or fourth, the studios could ignore the hack and try to duplicate what they did with conventional DVDs, whose electronic locks also were broken early on: make the HD DVD value proposition attractive enough that most consumers won't bother looking for the bootlegged versions.

I wouldn't bet on option no. 4, but the studios would be wise to make the value proposition of high-def disks better. One important step would be to enable buyers to copy discs onto their computer hard drives, home servers and portable devices. Granted, that feature -- which is built into the AACS copy-protection scheme -- wouldn't eliminate the incentive to attack the copy protection. Muslix, the hacker behind BackupHDDVD says he/she started attacking the locks because his/her computer wouldn't play a new HD DVD disc, despite his/her new HD DVD player and HDTV monitor, because the PC's video card didn't meet the AACS requirements. But it would lower the righteous indignation/fair-use factor. That's important not in stopping hacks, but in reducing the number of people motivated to take advantage of them.

Cracking HD DVD

There's been a great series of posts this past week on Professor Ed Felten's Freedom to Tinker blog regarding a program called BackupHDDVD, which claims to defeat some of the electronic locks on HD DVD discs. Read the posts (and the comments, too) here, here, here and here. What emerges is a picture of how vulnerable the DRM on HD DVD is -- not only because of the ability and incentive of hackers to break the locks, but also because of the disincentives the studios might have to fix them. On the latter point, though, I remain skeptical. The AACS system, which is the rights-management system used on both HD DVD and Blu-ray discs, has two important features that were missing from the DRM on conventional DVDs: it helps identify the disc playing hardware or software that was hacked, and enables the studios to "revoke" said hardware or software. Neither of these features is a perfect answer, but my guess is that they're function better than critics on Felten's blog suggest.

In particular, I doubt that revocation would send thousands of angry customers back to BestBuy with innoperative HD DVD players. Instead, if it works as designed, it will force hardware and software makers to deliver updates with more effectiveness than they have in the past (to wit, have you ever checked to see whether your DVD player has the latest firmware?). Nevertheless, the posts on Freedom to Tinker do a good job suggesting where things are likely to go. With the keys to unlock dozens of movies already posted at sites like the Doom9 Forum, look for some high-def titles to start popping up online, At the very least, the software and keys enable people to make permanent copies of selected HD DVD titles by ripping copies they borrow from friends or rent from Netflix.

In my next post, I'll try to say something worth reading about the impacts of BackupHDDVD on Blu-ray and on managed copy, the feature of AACS that was designed to make BackupHDDVD pointless (at least for legal uses).

By the way, if you're interested in the TV industry's new enthusiasm for the Net as a distribution platform, please attend a free panel discussion that the Times is presenting next Monday, Jan. 22, in Culver City. The panel consists of five executives from various parts of this emerging world, including the networks, production companies and online video outlets. The weakest link in the chain is the moderator, but I'll try not to say much. For more details or to reserve a seat, visit the Zócalo site.

Sinclair's Revenge

Samsung_q1 Sinclair Broadcasting lost the battle over mobile TV in 2000 when the Federal Communications Commission rejected its petition to let broadcasters transmit digital TV signals in a format better suited to moving receivers. But it may yet win the war. At this week's Consumer Electronics Show, Samsung demonstrated a new transmission format, dubbed A-VSB (the current standard is called 8-VSB), that is designed to help local TV stations reach portable sets (or tuner-equipped laptops and other devices) in cars, trains and other moving vehicles. The format inserts extra bits of information in the signal to help receivers lock on to the picture, and lets stations dedicate a portion of their channel to a "turbo-coded" transmission optimized for moving sets.

Just judging by the demo -- done through Sinclair's station in Las Vegas -- the format does a remarkable job rejecting stray bits and filtering out digital noise, improving digital TV reception for stationary as well as mobile sets. What makes the approach most compelling, though, is that it's backward compatible. New sets are needed to lock onto the tracking bits or tune in "turbo-coded" broadcasts, but existing sets can ignore the tracking bits and tune in the main signal without interference. The main compromise is that broadcasters who want to deliver a high-quality "turbo-coded" signal to mobile TVs may not have enough bandwidth left to transmit their main signal in high-definition.

The demonstration appeared to win over FCC Chairman Kevin Martin, who gave it the thumbs up at a session Wednesday with Consumer Electronics Assn. President Gary Shapiro. Samsung lobbyist John Godfrey said the standard-setting committee for digital TV may approve A-VSB this summer. At that point, the fate of the technology will be in the hands of broadcasters, who need new encoding equipment to transmit in A-VSB. Still, the broadcasters could make the switch without requiring new frequencies, towers or transmitters, so the cost is relatively small (in the tens of thousands of dollars, Godfrey said, citing comments from Sinclair). If enough stations embrace the new format, Samsung and its competitors would surely follow with a new generation of portable TVs, automobile screens, USB-based tuners and large-screen sets equipped to take advantage of A-VSB. The investment seems a small price for broadcasters to pay for the chance to disintermediate mobile-phone companies and other middlemen who are just starting to build businesses around mobile TV service. Count on Sinclair to be first in line to make the leap.

Pictured is a Samsung Q1 ultra-mobile PC. It's not a portable TV, at least not yet.

Clip+Sling

Sling_media_logo Sling Media's Slingbox is one of those boundary-pushing consumer-electronics devices that drives Hollywood executives to call their lawyers. So it was quite a surprise yesterday when CBS President Leslie Moonves, in a keynote at the Consumer Electronics Show, touted a new way to copy and share TV clips with the help of the Slingbox and the company's software.

For those who haven't seen one yet, a Slingbox connects your TV source -- i.e., your cable box, satellite TV receiver or digital video recorder -- to your home network and the Internet. When you're on the road, you can link to your Slingbox via a laptop, PDA or cellphone and tell the device to stream through the Internet the TV program you'd like to watch.

The new Clip+Sling feature enables Slingbox users to record and post snippets from TV shows to a special website, then invite friends to view them. The feature, which was unveiled yesterday during Moonves' speech, is slated to be tested this summer.

CBS could just as easily have refused to work with Sling or, worse, threatened to sue the company for encouraging users to violate the network's copyrights. Instead, it seized the opportunity presented here. Unlike YouTube, Sling Media's Clip+Share program intends to make money for copyright holders from its inception. One possibility is to sell advertising around the snippets; another is to let viewers buy entire episodes after they watch the corresponding clip. Whatever Sling Media does, it will be better for CBS than nothing, which is precisely what the network receives from most "user-generated video" sites that host clips posted by the public. At the same time, the clipping feature could promote the network's shows as well as helping to sell Slingboxes. It will be interesting to see whether the other major networks follow CBS' lead and focus on the opportunity presented by shared clips online, not the threat.

Will that Bravia make me look fat?

Bravia_tv_1 I used to think that downloadable Hollywood movies would eventually drive consumers to find ways to connect their computers to their TVs in home entertainment networks. Several announcements at this week's Consumer Electronics Show, however, have me wondering whether user-generated content might be an equally important factor.

The most notable of these came from Sony, which will be offering an add-on module this summer for its Bravia line of high-definition TV sets that will link them directly to selected online video sites. The box hangs on the back of the set and plugs into a home network via Ethernet. The initial content lineup includes Sony Pictures movie trailers, Yahoo, Grouper (a user-generated video site that Sony bought last year) and AOL. The videos will be free, the add-on module less so (price TBA).

There are some obvious v. 1 issues, most notably the limited choice of video sources. Why not let customers go wherever they want online? After all, Internet-enabled TVs have been hard enough to sell without blinders. Some skeptics (read: Microsoft's IPTV crew) also ask why anyone would want to display user-generated Net videos, which tend to be short on pixels and production value, on a big-screen high-def TV. Sony tried to address this issue by designing its Internet Video Link to handle high-definition streams from the Net. That's more a future-proof feature than a current benefit, though; there's not much available online in HD, other than movie trailers and bootlegged TV shows. And until the business-model issues get worked out (and they will, once there are more Internet-connected HDTV sets and HD PC monitors), there's not much incentive for Web sites to swallow the bandwidth costs associated with high-def streams.

So, does anyone really want to watch Web videos on the TV? IMHO, the picture quality issue isn't as important as the entertainment-value issue. Something like Rocketboom won't look as good as CNN on TV, but it's not competing on that front. It's competing on the basis of its writing and imagination. I recently had half a dozen houseguests crowding around the 17" PC monitor in my kitchen, watching a funny YouTube video. It was such a great piece, people replayed it time and again. Still, that would have been a much better experience for everyone had we been in the living room, watching the video on TV -- low res or not.

Another thing to bear in mind: now that high-def has arrived in the TV, PC, video game and DVD markets, camcorders can't be far behind. Sony announced four more consumer-grade high-def video cameras at the show; within a few years, you'll see $500 high-def camcorders at Target. Web sites are going to start catering to that market, increasing the supply of user-generate HD video online.

By the way, it's not just TVs that are starting to tap directly into online video sites. There have been a bunch of announcements this week about a new generation of digital media adapter that can stream online content directly to a TV set; previous generations only streamed audio and video from computers in the home. One example: a new Netgear "digital media receiver" that can connect directly to YouTube and other online content sites.

The Zune killer?

Sandisk_connect The Consumer Electronics Show is my favorite trade show, in part because it's all about potential. The devices announced typically aren't ready for the market, and may never actually get released. So they're in a pure state -- all promise, no reality. Having said that, my favorite item so far at this year’s show is the SanDisk Connect, a device that promises to do several things that the Microsoft Zune should be doing but, inexplicably, isn't.

The 4 GB flash-based Connect is Wi-Fi enabled, like the Zune, but in a much more meaningful way. The Zune uses Wi-Fi to let owners link to each other and (temporarily) share songs (the copies lock up after three days or three plays). The sharing is one-way only: I can send you a song, but you can't search my Zune to find something you might like to copy. The Connect, on the other hand, lets you log into selected online music and photo services to download and play music or photos. You can also send recommendations for songs or photos to your pals.

Fabulous concept! The Connect moves the ball significantly closer to the goal of enabling music fans to hear anything they want from a massive library of songs, wherever they happen to be. Alas, there are some hitches. SanDisk hasn’t announced yet which online music service (or services) its player will support, although it says its technology partner (Zing) works with a variety of Microsoft-based providers. The possibilities include Rhapsody (which already works closely with SanDisk), Napster and Yahoo. If the player (about $250, due in March) doesn’t support your favorite service, well, sorry! More significantly, the company says the service relies on open (i.e., not encrypted) Wi-Fi connections. That rules out Starbucks, most airports and other commercial Internet access points, not to mention home networks run by people who don’t want to be snooped on. The shortage of open Wi-Fi networks is one reason Microsoft says it limited the Zune to device-to-device connections, rather than letting it connect to the Net. I’m hoping this is a version 1.0 issue, and that SanDisk finds a way to let Connect users log into secure Wi-Fi access points. Otherwise, it’s likely to be just another in the long line of products that promise more than they can deliver.

Addendum: I spoke with Jon McCormack, vp of software for Zing, and he said the Connect devices will have to download tracks to play them, rather than just streaming them from an online server -- at least at first. The unit will, however, be able to tune in online radio streams. Not sure what this means for, say, a Napster or Rhapsody playlist, but I'm guessing the answer there is that you'd have to download all the tracks before playing them. McCormack also said Zing is working with Wi-Fi aggregators on deals to give Connect users access to secured Wi-Fi services. But he's bullish -- far more than I am -- on the prospects for the Internet community at large supplying open access points.



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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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