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Taking a break for SxSW

Sxsw I'll be headed down to the music festival at South by Southwest next week -- as a fanboy, not a reporter -- and probably won't lengthen this blog while I'm there. Still, the pending trip to Texas' capital gives me an excuse to bash Verizon Wireless for clinging to a service strategy that should have died in the 1980s.

Given that my wardrobe is likely to land me on the wrong side of the velvet ropes, I decided to create a ringtone that would certify me as one of the 10,000 coolest people in Austin. So I flipped through my collection of warping vinyl until I found "Texas Fever," an EP by the great Scottish band Orange Juice. Soon, I had ripped and truncated the song "The Day I Went Down to Texas," focusing on the portion that waxes rhapsodic about drinking and riding Cadillacs in the Lone Star state.

Texas_feverorange_juice Then I tried to load this most perfect of ringtones onto my LG VX8100, a phone ostensibly built for playing music. As it turns out, it could play the snippet -- just not as a ringtone. Verizon had done its best to force subscribers to buy ringtones from a limited selection of partners, rather than creating and loading them on their own. My rational response was to comb the Web for a work-around, and there may be one from bitpim.org. We'll see what happens when my new data cable arrives (from a store not affiliated with Verizon).

Regardless of how that works out, though, I'm counting the months until my Verizon Wireless contract expires. I don't mind the contract -- it's an acceptable exchange for getting a free phone. But I do mind being trapped in a walled garden, with so many features of my phone being disabled (including much of its Bluetooth capability). By trying to extract all of my business, Verizon will wind up with none of it. It's a lesson the entertainment industry needs to bear in mind as it tries to build businesses around products derived from items they're already selling. Better to offer things consumers can't make themselves than try to deny them the ones they can.

Two views of Google-YouTube

Anyone intrigued by the legal dilemma facing Google and its YouTube subsidiary (as in, the potential for massive copyright-infringement judgments) should read this post from Mark Cuban's blog. In it, Cuban explains why Magnolia Pictures, the movie studio he co-owns, sent subpoenas to Google to find the names of the YouTube users who had posted clips from Magnolia movies. Not to pretend to be a lawyer here, but the heart of YouTube's defense is that it qualifies for the safe harbor that the 1998 Digital Millennium Act provides for Web hosting companies. Read Cuban's blog and you'll see how an irritated copyright holder might attack that defense. (For his part, Cuban says he has no plans to sue the folks who posted the clips -- but he didn't say anything about not suing Google.) And after you've finished that, check out Henry Blodget's argument for why the YouTube purchase should still be considered a good move by Google -- an argument that ignores Google's newfound copyright liabilities. To read the NY Times story that apparently sent Blodget's blood boiling, click here -- he didn't bother to provide the link, but I will 'cause I know how badly the other Times needs the traffic.

Microsoft's new DRM domain

Microsoft_logo_2 The TechDirt community frequently gets into a lather over DRM, with the site's writers and numerous readers contending that such technologies don't add value and don't enable new business models. My own belief is that DRM is like most other technologies in that it's capable of good and bad uses; the former category includes enabling online music and video jukeboxes (the so-called "rental" model, which I think is a misnomer), while the latter category includes just about everything else we've seen so far.

Anyway, part of the problem for DRM has been technological: software like Microsoft's widely used "PlaysForSure" DRM is designed to bind content to devices, rather than to customers. Ideally, the DRM on, say, a movie would let buyers move it freely within their personal domain of devices, raising its ugly head only when they tried to send a copy to someone else's PC or portable. Apple's FairPlay DRM takes this kind of personal domain-based approach, but it only works on Apple gear. The Marlin DRM developed by Intertrust, Panasonic, Philips, Samsung and Sony is designed to be interoperable, but it's hard to find anyone actually using it.

Recently, Microsoft unveiled its own domain-based system, called PlayReady. The software represents a notable break from three longtime Microsoft practices: it runs on competitors' operating systems, not just Windows; it works with competitors' formats, not just Windows Media; and it will be able to interoperate with other DRMs. Wow. It won't be released until later this year, but Microsoft has already lined up several leading mobile-phone companies, including Verizon Wireless and AT&T. Assuming it works as billed, the software will let someone who buys a song on their mobile phone move it seamlessly to all the other devices they use, provided that those devices have the PlayReady software. The caveats: the devices have to be registered electronically to that user, and the copyright holder gets to limit the total number of devices customers may register.

It remains to be seen whether Microsoft can do all of this, but it has already demonstrated the DRM working with AAC and MPEG4 files on a smartphone running the market-leading Symbian operating system. It also has shown off support for superdistribution -- that is, the ability to beam a file from one user to another with the DRM intact, enabling people to buy content from each other without having to download it again. That's an intriguing capability, even though lack of a single standard for phones and mobile networks in the U.S. could curtail the use of superdistribution on cellphones here. It will be interesting to see what Verizon Wireless and AT&T do with PlayReady; with luck, the domain-based DRM won't simply be an excuse for them to charge more for downloadable songs.

Payola: can the indies ever win?

Payolagerry_cagle The FCC has all but concluded its investigation of payola, with four leading radio chains agreeing to pay $12.5 million to make the commission go away. Read the LA Times' story by Jim Puzzanghera here. They also have agreed to submit themselves to greater oversight by the feds, with new limits on the gifts they receive from labels and promoters. And in a separate deal with the American Association of Independent Music, they pledged to give equal access to indie-music promoters and to reserve about 8,400 half-hour segments of airtime for indie artists.

The action may put an end to the most brazen pay-for-play deals, and that would be a very good thing. But it may not have much impact on radio playlists. For starters, the four chains in question -- Clear Channel, CBS Radio, Entercom and Citadel -- own and operate more than 1,650 radio stations across the country, so the 4,200 hours will be spread pretty thin (although many of those stations are talk radio outlets not affected by the deal). That hardly seems enough to build an audience for indie artists. Second, even if radio stations give equal treatment to promoters for all kinds of labels, the indies will never be on the same footing as the majors. Record stations gravitate naturally to major-label artists because they come with their own marketing budgets to help their songs become hits. A well-hyped new record is much more likely to get airtime than a disc with no advance buzz, no matter how great the Pitchfork Media review is. Similarly, radio stations tend to play the heck out of artists who've agreed to perform at the shows the stations sponsor. If you were trying to sell tickets for a concert, who would you rather have on your bill: Korn or Bikeride?

I don't mean to sound cynical about this. Who knows, the promises of access for indie-label promoters might result in more gifted but overlooked artists winning mass audiences (although TV/film exposure and sheer genius are doing some of that already). Nevertheless, I think indie labels are better off focusing on emerging music platforms that aren't so influenced by the majors' marketing muscle. These include online subscription services and satellite channels. The most promising has been Web radio, where the programming is far more diverse than it is over the air. (Unfortunately, online stations face a steep increase in royalty payments, so some of that diversity may soon be lost in a wave of consolidation.) As indie label exec Peter Gordon told the Chicago Tribune, more than a third of the music heard on these emerging platforms comes from indie artists -- a far, far greater percentage than what's played by local stations. It seems the indies would be better off focusing on those fast-growing platforms than fighting for the occasional half-hour of airtime.

The image comes from the cover of "Payola," a 1988 novel by Gerry Cagle, a journalist and former radio programmer.

Bad news for Web radio

Soundexchange An overlooked ruling by a trio of arbiters last week has cast a pall over Web radio. According to Kurt Hanson's Radio and Internet Newsletter, the copyright royalty board set rates at $0.0011 cents per listener per song this year, rising to $0.0019 in 2010. (It also retroactively set the rates at $0.0008 cents for 2006.) That's up from $0.00076 cents for large commercial stations and $0.0002 for non-commercial ones, a rate that was in effect from 1998 to 2005.

The rate poses severe problems for a number of groups. The board apparently had two main rationales for more than doubling the rate by 2010: there had been no increases since 1998, and advertising sales were burgeoning online. But the result is stunning for non-commercial stations that do not sell ads, particularly ones such as KCRW whose previous royalties were paid by the Corporation for Public Broadcasting. A spokesman for SoundExchange (the collection agency for labels and performers) argued that a song is worth what a song is worth, regardless of who's playing it online. But that ignores the realities of the radio world. Commercial stations use music to build profits. Non-commercial stations use music to attract the subscribers needed to break even. If the rate remains the same, that's akin to saying that public stations shouldn't play music online.

Not that commercial webcasters will like the increase. Hanson argues that even the 2006 rate is too rich for most online stations, given how few ads they sell. The smallest webcasters -- those who stream fewer than about 160,000 hours of music a month -- face a flat annual fee of $500 per channel, which isn't too bad (assuming they're not offering multiple stations). But for those above the cut-off, the new rate means a shift from paying a percentage of their revenue (about 12%) to a per-song fee. That's going to hurt, particularly if Hanson's calculations are correct. Finally, the pain will even be felt by advertising-rich over-the-air broadcasters who simulcast online. Online ad sales are growing, but some analysts say they're coming at the expense of over-the-air ads.

Attorney David Oxenford, who has represented some webcasting firms, offers a good analysis of the ruling here.  The question facing the music industry and performing artists, who split the receipts from webcasters, is whether they would be better off if the higher royalties lead to greater consolidation among online broadcasters. Maybe they would be; it's easy to argue that too many broadcasters (online and off) have gotten away with paying too little for music. And shuttering many online stations that weren't generating much revenue could promote subscription services such as Rhapsody and Napster, turning the latter into a richer source of royalties. On the other hand, the music industry has watched over-the-air broadcasters consolidate, leading to even narrower playlists. Does the industry really want to see the same thing happen online?

Home networks, cable-TV style

Dtcpdtla_logo The cable TV and consumer-electronics industries are battling again, this time over home-networking technologies. Intel Corp. and four giant consumer-electronics manufacturers -- Sony, Matsushita (Panasonic's parent), Toshiba and Hitachi -- complained to the FCC last month that cable TV operators were refusing to approve a content-protection technology they developed, DTCP-IP. The technology has been widely adopted by manufacturers and inter-industry groups, including the Digital Living Network Alliance (a group developing interoperability standards for entertainment-oriented home networks). The problem isn't DTCP-IP's ability to deter piracy; instead, it's the cable industry's insistence on preserving the cable "ecosystem" in a connected home.

At issue is the ability of products to work on a home network with digital-cable-ready TV sets and related devices. The FCC's "plug and play" rules from 2003 required TV sets, digital video recorders and other devices linked together in the home to meet certain anti-piracy requirements. The rules also let CableLabs, the cable industry's research arm, decide which technologies met those requirements, with the FCC resolving any disputes. As a result, a digital-cable-ready TV or TiVo will have to put electronic locks on cable programming before piping it from, say, the living room to the bedroom.

The cable industry argued for the anti-piracy provisions ostensibly to satisfy Hollywood and other content providers. And true enough, the studios have pushed home-entertainment and high-tech gear makers to provide piracy-resistant connections between their products, rather than just enabling them to connect. But here's the disconnect: while Hollywood has endorsed DTCP-IP (which stands for Digital Transmission Content Protection over Internet Protocol), CableLabs has said it's not good enough. As consumer-electronics and high-tech manufacturers coalesce around standards such as those from the Digital Living Network Alliance, they're building products that rely on DTCP-IP for secure input and output. That puts them at odds with CableLabs, which has approved DRM-based approaches from Microsoft and RealNetworks.

The issue is technical and, well, geeky, but the fundamental issue here is similar to that faced by the telephone industry in the 1950s and 1960s. Innovation in phones skyrocketed after the FCC allowed manufacturers other than Ma Bell to make them, provided that the new products didn't harm the network. Innovation in cable TV has been hamstrung, too, by the cable operators' control over equipment; just ask someone who switched from a cable operator's DVR to a TiVo (or -- shudder -- vice versa). CableLabs argues that technologies such as DTCP-IP must insure that all programming supplied by a cable operator -- including local broadcasters and public-access channels -- is given special treatment on a home network. That includes such considerations as picture quality and closed-caption information. But copy-protection technology should be judged solely on its ability to recognize and preserve the rules that content providers place on their programs. Those are objective measurements. Otherwise, CableLabs can favor technologies used by the cable industry's traditional vendors and exclude those used by their competitors.

The goal for everyone here -- cable operators, programmers and gear-makers -- should be to get more devices connected to the network. That not only will promote innovation in cable, which has been notoriously slow on that front, but also will increase cable's value to its customers. For its own good, cable should embrace DTCP-IP and take advantage of the home-networking momentum being generated by the DLNA.

The studios play it cool on BackupHDDVD

The Internet has been buzzing for a couple of months about BackupHDDVD and related efforts to pick the electronic locks on high-definition discs, but the reaction from Hollywood has been muted. That's because studio executives saw it coming (although perhaps not so soon after HD DVD and Blu-ray discs hit the market), and they don't think their copy-protection strategy has been defeated. At least not yet. I wrote a column about this for latimes.com today, and you can read it here.



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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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