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Sony connects with Microsoft's DRM

Sony_connect_logo_2 Two months after Sony Connect's first reported death rattle, Sony made it official: it's phasing out the overlooked and handicapped music outlet (along with its overlooked and handicapped video service) next year, as early as March. Instead of trying to provide its own storefront, Sony is belatedly equipping its Walkman line of portable music players to work with the vast majority of stores and subscription-music services operated by other companies. That means dumping Sony's DRM technology, OpenMG, in favor of Microsoft's PlaysForSure DRM.

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NFL goes online, down and out

Nfl_logo The NFL, having done its best to limit the attention paid to its teams online, is now trying to attract as small an audience as it can for games streamed over the Internet. While other pro leagues have been webcasting their games for several years, for free or for a fee, the NFL is just now starting to offer live video feeds online to U.S. fans. But the announcement earlier this month by DirecTV shows just how little enthusiasm the footballers have for new media. The feeds will be available only to fans who sign up for the high-definition version of DirecTV's NFL Sunday Ticket, which in itself is an expensive package of televised games. The total cost for the season, according to Ars Technica, is $368.

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Home networks get a boost

Dtcpdtla_logo I noted a few months ago that a group of tech and consumer-electronics companies had complained to the FCC that the cable industry was stonewalling a technology that the CE industry had embraced for home networking and was already building into its products. They shelved that complaint this week, though, and the cable operators agreed to support the disputed technology, DTCP-IP.

The deal hastens the day that consumers are able to transfer cable programs over Ethernet or Wi-Fi networks. DTCP-IP is an anti-piracy technique that guards against unauthorized copying and preserves usage restrictions as data travels from one device to another (say, from a cable set-top box to a DVR, or from a DVR in one room to an HDTV in another). It's already been adopted by the Digital Living Network Alliance, a group drawing up home-networking specifications to promote compatibility among different manufacturers' products. That kind of security is critical to persuading Hollywood to embrace home networking and let consumer gear transmit movies from room to room. Not surprisingly, the three major Hollywood studios that have signed on as DTCP-IP licensees are the ones most willing to support new distribution technologies: Warner Bros., Sony Pictures and Disney.

Cable operators persuaded the licensing agency behind DTCP-IP to give them a say over changes in the technology that could affect the level of security it provides. According to Multichannel News, Hollywood studios also won assurances that cable operators would send and DTCP-IP compliant devices would respond to a particular type of anti-piracy message embedded in programming. Such System Renewability Messages, which can revoke a specified device or devices' ability to receive programs, could be used to prevent movies from reaching a DVR or storage unit whose anti-piracy controls had been hacked.

Ice firming under webcasters

Soundexchange Does this sound familiar? SoundExchange, an agency for labels and performers that collects royalties from digital broadcasters, and the Digital Media Assn. just announced that they've reached a deal capping the "minimum fees" webcasters must pay annually for each channel they broadcast. The cap is the same as the one discussed back in July -- $50,000 per year. That time, a tentative agreement fell through when SoundExchange insisted that webcasters stop listeners from recording streams, if technically feasible. In particular, SoundExchange was promoting technology from Media Rights Technologies of Santa Cruz.

The deal announced today leaves more wiggle room on the streamripping issue. According to a press release issued by DiMA, "SoundExchange and DiMA will form a committee to evaluate the issue of streamripping and potential technological solutions to it." In other words, that's a battle for another day. The other condition won by SoundExchange, which has far more practical significance to artists and labels, is that webcasters will have to start reporting every song played, around the clock, beginning in six months. It's more work for webcasters, but the payoff is that the royalties will reflect actual airplay (err, um, webplay), not estimates based on other measures of popularity.

While settling the minimum-fee issue is critical for webcasters that offer hundreds or thousands of customized playlists (think Pandora and LAUNCHcast), there's still the issue of sharply higher royalty rates for mid-size and large webcasters. SoundExchange announced Tuesday that it has offered webcasters with less than $1.25 million in annual revenue (and who meet undisclosed usage limits) the same discount they've had for several years -- instead of paying fees per song streamed, they can pay a royalty equal to 10% to 12% of their annual revenue. Larger webcasters, however, are on the hook for steadily increasing per-song fees that, by 2010, will be more than double what they were last year. Mid-size webcasters complain that they can't sell enough advertising to cover those fees. Those talks are continuing. Stay tuned.

Rhapsody, MTV and the iRiver clix

Rhapsody_logo The future of Rhapsody America, the joint venture between RealNetworks and MTV, depends to some degree on MTV's marketing prowess -- not what it once was, but better than nothing. And when it comes to marketing Rhapsody, "nothing" is a pretty good description of what Real has done. CEO Rob Glaser just doesn't like to spend money the way Steve Jobs or even Chris Gorog does.

More important, though, is for Rhapsody to show the benefits of subscribing to a service instead of collecting music. It's not clear what, if anything, MTV can do for the joint venture on that front. Subscription music services are easy to demonize -- music "rentals" that leave you empty-handed when you stop paying the monthly fee -- because the value proposition is complex when compared to the iTunes Store. The best way to convey that value is by saying that Rhapsody lets you hear anything you want to hear, anywhere you are. Unfortunately, neither part of that statement is quite true, not just yet.

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Bigger TVs and high-def DVDs.

Pioneer_kuro_50inch_plasma I grew up at a time when a TV screen covered about half as much area as the wood in which it was encased. (Insert your own joke here about the thrill of watching pictures in color for the first time.) The advent of HDTV, however, has led to a steady increase in screen sizes in the home. According to the Consumer Electronics Assn., about 42% of all TVs had screens at least 36" in diagonal by the end of 2006; within five years, more than half of all TVs will be at least that big. The trend has been spurred by rapidly dropping prices for large sets; according to the CEA, the average price of a digital TV is expected to drop to $901 this year, down from $1,540 in 2002. The biggest drop has been in plasma sets, which fell from nearly $5,000 on average in 2002 to about $1,500 this year.

Already, the most popular size of plasma screen is 50"-59", according to a new report by  Quixel Research, a market research firm that focuses on flat-panel TV sets. (Plasmas make up about 20% of the market.) More than 55% of the plasma sets sold in the second quarter of this year were in that size range, and about two-thirds were that size or larger, Quixel found. That's just stunning to me, although my colleague David Colker suggests it has more to do with LCD TVs' growing dominance in the sub-50" range than anything else.

At any rate, consumers' appetite for ever-larger flat panels is good news for Hollywood and the consumer electronics industry as they struggle to establish a high-def beachhead in home video. The bigger the screen, the greater the difference between standard-def pictures and high-def ones. A standard-def DVD looks great on a 36" or 42" screen, which means there's not much incentive for the owner to invest in a pricey Blu-ray or HD DVD player. On 50" and above, however, the extra details and color depth are more apparent. Now if the studios and set-makers can just figure a way out of the format war between Blu-ray and HD DVD, maybe consumers with new big-screen TVs will get off the sidelines and buy a high-def disc player, increasing sales volumes, driving down prices and feeding the kind of virtuous cycle that turned DVD players into a juggernaut.

The image is of a Pioneer Kuro 50" plasma TV, courtesy of Pioneer Corp.

Personal identifiers in music

Universal_music_group_logo Wired's Eliot van Buskirk raised a red flag last week about Universal Music Group's new DRM-free tracks, saying they would contain watermarks that could potentially be traced back to the original buyer if the songs ended up on peer-to-peer networks. Yesterday he backstepped a bit, saying the watermarks wouldn't vary from buyer to buyer. So while a watermark could tell Universal that a track found online came from a DRM-free download instead of, say, a ripped CD, it couldn't reveal who bought the track in question.

Having ripped into UMG in my last post for some misguided aspects of its MP3 experiment, let me now backstep a bit myself. It's a good idea to use watermarks to see whether purchased MP3s fuel online piracy more than songs from CDs and other sources. It's hard to imagine how adding MP3s to the mix could make the industry's piracy problem any worse; after all, file sharing and CD swapping have thrived despite the widespread use of DRM on downloadable media. Nor does it seem likely that people who buy MP3s will be more apt to pass them around to friends and strangers than those who buy songs with electronic locks. After all, it's not rocket science to convert a DRM-wrapped 99-cent download from iTunes into an MP3 -- it's just a matter of burning the song onto a CD, then ripping the disc (or, in a less legal approach, using circumvention software).

Another reason that some label executives cite for sticking with DRM is that they don't want to undermine the wireless phone companies' mobile-music offerings, which rely on DRM to deter phone-to-phone copying (among other reasons). That's not persuasive, IMHO. In the long run, the only thing that will lead mobile users to pay premium prices for downloadable tracks is the lure of anywhere, anytime purchasing. In other words, the essential value is the mobile nature of the buying opportunity. DRM doesn't change that, although it may reduce the perceived value of the available music (a problem that exists today, regardless of whether the labels make MP3s available through other outlets).

Ultimately, the issue for UMG is whether putting songs out in MP3 increases piracy more than it boosts sales. Here's hoping that the company measures the incidence of watermarked tracks on file-sharing networks against all other versions of its songs there, and that it compares the piracy rates before and after it started offering unlocked downloads.

Universal, universally compatible

Universal_music_group_logo I'll confess, I'm freakishly interested in all things DRM. So I've been eagerly waiting for Universal Music Group to announce that it would try selling DRM-free tracks -- something that's been rumored for a while, but only became official today. And while the actual tracks haven't shown up yet, I can't help but feel ... disappointed. The more I thought about it, the less important it seemed, at least in terms of music sales.

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Movielink's first Blockbuster

Blockbuster Here's a couple of dueling milestones to ponder. Late yesterday afternoon, Blockbuster announced that it had purchased Movielink, a downloadable movie site co-founded by five Hollywood studios in August 2001. With the acquisition, most Hollywood studios are now out of the business of selling downloadable movies directly to consumers. The exceptions are News Corp.'s 20th Century Fox and NBC Universal, which had their own announcement yesterday: they sold a 10% stake in their new online video venture to Providence Equity Partners for $100 million. That venture will offer the pair's movies and TV shows to online viewers through a limited number of websites, including one that they will own and operate.

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AT&T drops Pearl Jam's call

Pearl_jam In a prominent nod to one of the festival's lead sponsors, the logo for this year's Lollapalooza concerts in Chicago includes the tag line, "delivered by AT&T." But Sunday's headliner Pearl Jam complained that AT&T delivered less than the band's full performance during its Lollapalooza webcast. The powerhouse telco turned off the audio during the song "Daughter" while singer Eddie Vedder was railing against President George Bush. That bit of censorship -- which AT&T says was a mistake -- gave a bit of fuel to the forces arguing for "Net neutrality" regulations.

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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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