July, 2009

Red flag for Blu-ray

This can’t be good news for Blu-ray: Singulus Technologies, a leading manufacturer of Blu-ray replication equipment, said Friday that sales of complete Blu-ray production lines fell sharply in the first half of 2009 and show no signs of improving over the second half.

“[T]he optical disc market shows little impulses for the remaining months of the business year 2009,” the company said in a press release announcing its first-half earnings. “The orders usually placed by major customers towards the end of the 2nd quarter have failed to appear so far. The expected total number of Blu-ray disc production machines in the business year 2009 will therefore remain below the sales realized in 2008. A recovery in the entire business activities has not yet materialized and we also expect a difficult 2nd half of 2009.”

blu-ray-eyeLast year Singulus sold 31 Blu-ray lines, according to Bloomberg News, but sales have fallen by roughly two-thirds this year. If the current trend continues, Singulus would end up selling about 12 lines this year.

That doesn’t augur well for Blu-ray replication demand, despite industry efforts to sound bullish about the format.

It’s also not good news for Blu-ray IP owners Sony, Panasonic and Philips, who have been gearing up a licesning program to start collecting Blu-ray royalties from replicators. The three companies recently created a one-stop shop for device makers to license essential Blu-ray technology, and are planning to start knocking on replicators’ doors later this year, The Media Wonk hears.

Replicators in general are facing a difficult year. DVD sales are falling sharply, which is hurting revenues. Gearing up for Blu-ray production, meanwhile, is expensive. Blu-ray machines from Singulus go for about $1.8 million a piece. Putting in any significant Blu-ray capacity represents a significant captial investment, which is tough to justify when demand is uncertain and revenues are falling.

Many replicators are are likely to try to get by for now with racks of less expensive Blu-ray burners, using finished discs, and defer the larger capital investment in Blu-ray molding and production equipment until greater demand is locked in.

When that demand eventually materializes, of course, perhaps sometime in 2010, the capacity to handle it likely won’t be in place, which will create a whole new set of problems for the industry, but I suppose a problem in meeting demand is better than no demand.

The Taking of Section 1201

I managed to catch an uncut version of the original Taking of Pelham One, Two, Three on cable the other night and stayed up to watch it despite having seen it upteen times. It’s still one of the all-time great New York movies, especially for anyone who lived in the city around that time (the less said about the 2009 version the better).

One of my favorite bits of cynically comic dialog comes about half-way through, when Walter Mathau’s transit police lieutenant character reminds Dick O’Neill’s harassed and short-tempered train master that if they don’t get all the track signals cleared soon, as the hostage takers were demanding, they would start killing the passengers on the hijacked subway car.

“Screw the passengers,” O’Neill’s character barks. “What do they expect for their lousy 35 cents–to live forever?”

taking_of_pelham_one_two_three_the_1974_685x385

I couldn’t help thinking of that classic exchange as I was reading through the responses to the Copyright Office’s written questions to participants in its DMCA section 1201 exemption proceeding, particularly those submitted by Steven Metalitz of Mitchell Silberburg and Knupp on behalf of the MPAA, RIAA and other copyright owner groups. Rejecting the Office’s proposed language for an exemption to allow circumvention of DRM used in connection with authentication servers in the event those servers are ever turned off (e.g. Wal-Mart’s music service), Metalitz practically channels O’Neill’s train master: Read More »

Finally singing the right tune

For those with a deterministic view of digital technology’s impact on information economies, Brad Stone’s piece in the NYTimes this morning is a good read. Stone reports on the efforts of Polyphonic Music, the new venture formed by Radiohead manager Brian Message to invest directly in the careers of budding musicians.

recording-studioPolyphonic typically invests a few hundred thousand dollars in unsigned artists and then helps them create direct links to their audience, mostly over the Internet. Each act then functions as its own small business, funding its own recordings and using outside contractors to handle promotion, merchandising and touring. The musicians and investors then share in all revenue from sales and touring.

It’s essentially a complete reversal of the traditional music-industry arrangement, in which an artist is signed exclusively to a record company, which handles all sales, promotion and merchandising while paying the artist a royalty on record sales.

In an even more critical reversal of the traditional model, the artists Polyphonic invests in retain ownership of their own copyrights and master recording, rather than assigning those to the record company for up to 35 years, as is standard industry practice now. Read More »

Missing data points in the IIPA copyright study

A couple of data points I would have liked to have seen but could not find in the study released Monday by the International Intellectual Property Alliance on the copyright industries’ $1.5 trillion contribution to U.S. GDP:

1)  What portion of the economic activity in what the report classify as “non-core” copyright industries is being counted toward that $1.5 trillion? Following classifications established by the World Intellectual Property Organization in 2004, the report divides Copyright-symbolthe copyright industries into four categories: Core industries (movies, TV, books, newspapers, recorded music, computer software); Partial copyright industries (industries in which a portion of their output is eligible for copyright protection, e.g. fabric, jewelry, furniture); Non-Dedicated Support industries (transportation, telecommunications, etc.); and Interdependent industries (CE manufacturers, wholesalers and retailers, blank media etc.). Together, the four make up the report’s “total copyright industries.”

According to the report the core industries contributed $889 billion to U.S. GDP in 2007, the last year for which data are available, while the non-core industries contributed $636 billion. Not all economic activity in those related industries is related to copyrighted works, however, as the authors of the report acknowledge. So how much are they assigning to the copyright category? “A portion,” according the report. How big a portion? The report doesn’t say. Read More »

Toshiba climbs aboard the Blu-ray lifeboat

Now we know why Toshiba is apparently ready to swallow its corporate pride and begin selling Blu-ray players: According to new projections by the Consumer Electronics Assn., sales of CE products are expected to drop 7.7% in 2009, to $165 billion, as the recession continues to grind away consumer spending.

The one CE product category expected to show positive growth this year? Blu-ray Disc players. Unit shipments of stand-alone (i.e. non-PlayStation 23) Blu-ray players are expected to grow by 112% this year, to nearly 6 million, while revenue is expected to grow by 48%, even in the face of price cuts, to top $1 billion.

Any port in a storm. Even in formerly enemy territory.

Pandora's memory hole

By now, even Amazon would acknowledge mishandling the remote deletion of George Orwell’s 1984 and Animal Farm from hundreds of unsuspecting Kindles last week in response to a dispute over the rights to the works in the U.S. Apart from the near criminal lack of irony required to send 1984 — of all books — down the memory hole, Amazon had never bothered to disclose in its terms of service that such a capability existed, or that it retained the right to use it without warning.

big-brotherBut as Glenn Fleishman points out in his excllent overview of the case for TidBITS, Amazon was trying to avoid any and all liability for distributing unauthorized copies of the two books, and thus took every step available to it to disassociate itself from the infringing copies — including un-distributing them — apparently without thinking through the PR implications of the move.

My question is: Why would Amazon want that capability in the first place?  The Media Wonk is not an attorney, so I may be wrong on any or all of these points (I would certainly welcome feedback from actual attorneys). But it seems to  me that Amazon is asking for a trouble on a number of possible fronts: Read More »

Early Stones

The Media Wonk was away from this post recently while pursuing actual paid employment. But now that that’s behind me, it’s time to clear out the folder of stuff-I-meant-to-get-to-when-I-have-the-time. Here’s one item:

Last month, a group of archaeologists announced the discovery, made last fall, of a 35-40,000 year old, five-hole flute made from a vulture bone, along with  fragments of two ivory flutes in a cave in southern Germany. The find pushed back the date for the earliest confirmed evidence of instrumental music-making by humans by at least 5,000 years.

stone-venusAs it happens, the instruments were discovered a few feet away from where a carved figurine of a nude, and extremely busty woman was previously found, and which was also about 5,000 years older than the earliest known stone venus.

What can these finds tell us about music today? For one thing, they tell that as far back as 40,000 years ago, guys were already thinking about girls and making music–more or less the same instinct we see at work today when a guy takes up the guitar and starts a band. Music, in other words, has been an integral and consistent aspect of human society and culture for as long as we can see evidence of human society and culture.

The difference is that for the first 39,900 years of that span, people made music despite having no hope of landing a record contract. They just did it: to have something to dance to, as part of religious ceremonies, to get girls, or simply for the shared experience of making and listening to it. It’s only in the last 100 years or so, since the invention of mechanical recording, that those things have become heavily commercialized, and that making music and listening to it became distinct activities mediated by record companies.

So the next time you hear a record company executive warn that the loss of profits from recordings threatens to stop the music and impoverish the culture, it’s worth remembering that nearly 40,000 years of cultural history suggests the groove is a little deeper than that.

Lipstick on a pig

The Digital Entertainment Group takes the Sarah Palin Rouge-Lipped Hockey Mom Prize this week for slathering lipstick on the runtish snout of the home video market. The industry spinmeisters reported that total consumer home entertainment spending for the first half of 2009 was down a mere 3.9% compared to last year. Not bad, you say, in the depths of the Great Recession.

From the perspective of the Hollywood studios, however, things aren’t looking quite so “not bad.”

blu_ray_300pxMost of the good news, such as it was, came from DVD and Blu-ray rentals, which surged 8.3% through June, raking in $3.4 billion for the likes of Netflix, Blockbuster and Redbox’ dollar-a-night kiosks. The studios see a much smaller slice of the consumer rental dollar, however, than they get from DVD and Blu-ray sales, which fell a painful 13.5%. In a break from past practices, DEG didn’t break out DVD and Blu-ray sales this times. But Video Business calculated that DVD sales were down a whopping 17%, partially made up for by 91% growth (from a much smaller base) in Blu-ray sales.

The other “good news” came from digital sales and rentals (movie downloads) and cable and satellite video-on-demand, which combined grew 21% for the half, to $968 million. It’s not clearly exactly how DEG is counting things, but if that total includes Netflix’s subscription streaming business, that’s not really helping the studios much, either, since they see an even smaller percentage of that than of traditional rentals.

Bottom line: Consumer spending has shifted massively away from the studios’ most profitable channels into less profitable channels. And Blu-ray has done nothing to stem that tide.

While VOD is a good business for the studios, it remains tiny compared to other high-margin channels, to say noting of low-margin channels like DVD rentals and subscription streaming.

Sony Pictures Home Entertainment president David Bishop was at least honest about where things stand. “People are trying to save money, and there is strong evidence that consumers are trading down. They are renting instead of buying,” Bishop told Video Business. “That is the growth category now in DVD.”

Selling the news

The most depressing, if least surprising aspect to the flap over the Washington Post’s now-abandoned plan to sell access to public officials and its own editorial staffers in the form of big-money “salons” for lobbyists was the Post’s naked fetishizing of “those powerful few” who “actually get it done” on Capitol Hill.

newspapersI live and work in Washington, so I know how it goes here. But for an organization at least institutionally committed to free and open debate it’s just sad that the Post would see its salvation in burrowing ever-deeper into its Beltway barrens by promising a “select” guest list–“typically…of “20 or less”–and trumpeting  it’s “off-the-record” solicitude.

It’s no answer to argue, as Media Memo’s Peter Kafka tries to do, that these are desperate times for newspapers calling for desperate measures:

This certainly wouldn’t be the first time that the Post has been at the nexus of power, money and influence. In fact, Weymouth’s grandmother, Katharine Graham, was famous for hosting gatherings much like these at her house. And publications of all stripes, including this one, as well as Dow Jones, which owns this site, frequently charge fees to attend networking events where their editorial staffs participate.

And you’re likely to see more of this stuff, not less, as publishers search for revenue streams besides advertising to stay afloat. Any tempest you see about this today is going to look quaint in a couple of years.

That’s taking a dive for the short-end money. If newspapers want to be contenders in the future, they should be looking for ways to bring more voices into the conversation, not fewer. They should be building applications to equip readers with their own tools for gathering and disseminating information, not looking for ways to exclude them with promises of “intimate” and “off-the-record” assignations.

Exclusivity is a one-way ticket to palooka-ville in the digital age. If that’s all the Post has got it might as well take the express and get their sooner. — TMW

Owning more of the news

gridlock-economyIn thinking some more about Judge Richard Posner’s controversial suggestion the other day that Congress might need to expand copyright law to prohibit linking and paraphrasing news stories without permission in order to “save” newspapers from the ravages of bloggers and aggregators, I was reminded of a talk given last month at the World Copyright Summit by Columbia University law professor Michael Heller. Heller is the author of The Gridlock Economy, which describes a phenomenon he calls the tragedy of the anti-commons.

The coinage is a twist on the classic problem in economics known as the tragedy of the commons, in which resources held in common are notoriously over-used and under-developed economically because everyone has an incentive to use as much of the common resource as possible and no one has incentive to invest in its long-term preservation and development.

The solution, in classic economic theory, is property rights. Allow individuals to have private property rights in the resources — i.e. the right to exclude others from using it — they will have incentive to invest and develop the resource, ultimately making the fruits of that development available to others at a profit through the market. In theory, everyone wins.

The idea has formed the intellectual foundation for much of Western, and in particular American, economic policy, which has been heavily biased in favor of extending private property rights wherever possible as a mechanism for promoting the general welfare. In general, more property rights have been viewed as essential to increasing private investment and ultimately wealth creation.

Intellectual property policy has been no exception to the rule, as Congress’s repeated extension of term of copyright protection makes clear.

.Heller argues, however, that there is obverse to the classic problem, and it arises when too many individuals claim property rights in the same thing, or where rights are highly fragmented. If 100 individuals each has a property right in a resource, and any one can prevent its use by withholding consent (or demanding too high a payment) the resource does not get used and wealth is not created. This is the tragedy of the anti-commons.

rheinmapIn his book, Heller recounts the history of shipping along the Rhine River at the time of the Holy Roman Empire. During the Middle Ages, merchant ships could travel the 90-mile length of the Rhine from Bonn to Bingen safely by paying a single modest toll to the emperor for protection. By the 13th Century, however, as the empire weakened, freelancing barons — the original “robber barons” — began building their own castles along the river and imposing their own tolls on passing ships. Eventually, the tolls got so high and so burdensome that boatmen stopped using the Rhine to transport goods and commerce along the spine of the old empire collapsed.

A surfeit of property claims, Heller argues, can destroy markets and lead to a net decrease in wealth.

It can also act to prevent the development of new markets. Heller relates the story of a major pharmaceutical company that developed a compound its researchers were convinced would be highly effective against Alzheimer’s Disease. Before they could begin testing it in earnest, however, the company needed to secure the rights to dozens of separate biotech patents owned by dozens of individuals or entities. Unable to secure them all on reasonable terms the company eventually gave up and reallocated its research budget to developing spin-offs of existing drugs for which it already controlled the intellectual property rights. The Alzheimer’s drug was never brought to market.

Anyone who has ever tried to license music for novel or innovative uses will be familiar with such rights “gridlock,” as Heller terms it. With rights highly fragmented among composers, publishers, recording companies and artists, securing the necessary cooperation from each on reasonable terms has daunted even such formidable innovators as YouTube, which remains in litigation with music publishers over the use of recorded music in home-made videos uploaded to the Web site.

Heller’s analysis is not completely on point for Judge Posner’s plan for saving newspapers. Posner is not suggesting fragmenting rights, or creating a new class of rights holder but investing existing copyright owners with additional rights. But it serves as a useful cautionary tale about the potential unintended consequences of blindly (ideologically) ratcheting up property rights to spur wealth creation. Especially at a time when wealth creation is less dependent on the accumulation of market power and production efficiencies and more on innovation and the transformation of industries.

As I argue in my previous post on the subject, the fundamental problem facing newspapers today is not insufficient property rights, it is the structure of the industry and an (probably) irreversible shift in reader behavior.

Simply investing publishers with additional intellectual property rights –by itself– will do little to address the industry’s underlying problems, let alone advance any reasonable public policy goal. You could jail every blogger tomorrow and outlaw every search engine and newspaper publishers would be no better off than they are today.

Their problems are the loss of monopoly rents from advertising and the legacy cost structure those rents used to pay for. Those problems weren’t caused by linking (or paraphrasing), and they won’t be solved by turning the linked structure of the Internet into a an anti-commons.