Bit Shift

When discussing the new Amazon AutoRip feature with friends, I was excited. I’ve been shopping at Amazon since 1998 or so and I have spent quite a bit of money there. I’ve also been ripping my own CDs since that time, but getting more content in the cloud without any work on my part is always welcome.

But when Amazon sent me the email that I had new content in the cloud via AutoRip, there were only 4 albums added. And 2 of them were gifts I had bought for other people.

So, I had only purchased 4 physical CDs (at least that qualified for AutoRip) via Amazon in the last 15 years. I must not be the audience that Amazon is going for. Why then even bother making this feature?

Amazon’s entrance into the digital market has been a cautious one, and the path is littered with value-adds such as this where they provided relatively little value in absolute terms. But the overall arc is much more important. Amazon provides reassurance: “This is your home.” “This is where your interests are protected.”

Look at iTunes versus Amazon several years ago. Apple negotiated the big deal with labels and Apple took all of the spoils for the first year or so. Amazon came along with less than all of the labels, but they had a value-add in the form of DRM-free. Even Apple couldn’t get that. In fact, Apple had to develop FairPlay just to get the deal.

What Amazon did was compete with Apple on an entirely different playing ground: “You can purchase here with the assurance that you can take your music anywhere.” And Apple eventually got that working for them as well, but most iTunes customers have no idea that their music is DRM-free. I know because they tell me.

Whether most of Amazon’s customers understand DRM is not as relevant as the fact that Amazon benefits from playing nice with the ecosystem.

Take Steam and PC gaming as another example. Long before digital distributions, disc-based games were saddled with horrific copy-protection on CDs that did some combination of prevent legitimate back ups of your game’s media and restrict installing the game on more than one PC at a time. While all the game publishers were busy finding new ways to prevent leakage, Steam started the process of deeply discounting digital video games. “Deeply discounting” is really understating it. But Valve was essentially building monetary leakage into the distribution process. 

That’s useful because if customers believe they are getting more value than they are paying, they will come back. “This is your home and all of your stuff is already here.” That’s the most important aspect of the cloud computing movement for any company. People have to feel that they have persistence in your environment. If you can buy that by writing off your 30% distribution cut and talking your publisher/developer into lopping off another 30% temporarily, then you are building momentum and furthering your relationship.

Amazon gets this. Which is why they price match digital sales. Which is why they sell gamers Steam-activated games… and Origin-activated games… and DRM-free games… The only common-denominator is that you can buy all of these through Amazon. So no matter who loses the next digital platform battle, Amazon can win the war… Or maybe be the arms dealer?

But for now, AutoRip and me don’t really need each other. I stopped buying physical CDs a while ago. But somewhere, there’s a little old lady who has no idea how much she should be loving AutoRip, right now.

I always liked the “put your money where your mouth is” (known now as PYMWYMI [pim-wim-ee], because I said so) approach to culture. If you can do it right, you can increase buy in (literally and figuratively) where it seems more likely to further distance yourself from your customers. An extension of the Eventful model, Bring the Gig is attempting to add the PYMWYMI into the concert and live event space. Lots of fingers are being aimed squarely at live events as the penultimate salvation from the inevitable digital race to the bottom. I don’t believe it’s ever going to be fully that, but live events are typically much better than the digital thing they are resting upon (Barry Manilow’s touring concert notwithstanding). 

The premise is that you and 39 of your peers will buy a ticket for a concert that you wish to attend, and if you manage to bring 159 of your closest friends instead of 39, then the original 40 buyers get their tickets for free.

For some reason, this sounds better than the Living Social model, but the math is the same (3:1 pay-to-free ratio). You just need to do it at a larger scale to make it worth the local venue’s while. 

Historically, the traction generated by live event tools is mediocre at best. Which is odd, given that everybody seems to hate hate hate Ticketmaster. But somehow ticket hopeful StubHub has managed to quadruple the cost of a TicketMaster ticket for the same event whenever I check. 

Jonathan Coulton, being willing to try much of what is new and experimental in the world, was the first performer to clue me into this with his Salt Lake City show. Coincidentally, Coulton had also introduced Eventful to me, which seems to have died off in the years following. As I said above, it’s one thing to say, “Yeah, I’ll see that person” and a different thing entirely to plop down the ticket price and actually pre-buy the ticket. So, the Kickstarter + Eventful model is a formula I can get behind. Whether it has enough staying power to outlast its own startup costs is another question.

Read/Write Web manages to stay off my “To Unsubscribe” list once more with a gem titled “The Flipside of BitTorrent - Why Some Musicians Still Hate It.” In it, David Lowery pops up again (you may remember him from such rants as the Emily White Thing) to debunk the supposed rosiness of not-paying-for creative works. Just a few thoughts about his response and a link to some more debunked myths follow:

“You really think there are no lost sales in BitTorrent activity? Can I have some of what you are smoking? Why would you search for a song called ‘Take the Skinheads Bowling’ unless you heard the song?”

A common misconception of old-time publishers is that every download represents a lost sale, and to contest that premise is akin to denying the holocaust. But, just as radio plays did more for selling songs than not-radio ever did, piracy doesn’t always mean someone had $1.29 in hand for a single, then pirated it and bought an ice cream cone instead.

While songs cost less now than ever before, the audience for a given format is spread exponentially thinner than it was 10 years ago. That is, it seems the cultural zeitgeist is much less specific. This is a good thing, because it means that the artists that could rise to the top today tend to be more niche-y than 20 years ago. And if there is too much sameness, discovery becomes a far larger problem for you because your audience is not telling your story.

Lowery had previously praised the RIAA’s corporate members as a valuable selection process that elevates the best music above the rest. That’s probably somewhat true, but the overhead they introduce into the process now looks really wasteful as the margins tighten. The artists still have to spend quite a bit of time building their brand and differentiating themselves. After all those publisher loans are paid off and management/production costs are accounted for, it’s really the rare artist that comes out ahead.

“I’ve not met one [middle class artist] that is honestly cool with people sharing files instead of buying them.”

This is a hard one to tackle. Collectively, we have put ourselves in this position where we have permitted limited monopolies based upon intellectual property to grow and grow. Along with that, we’ve developed ways of easily circumventing those monopolies. And we’ve made it nigh unto impossible to detect and enforce the breaches of those monopolies. It’s not entirely the fault of the Constitution’s copyright clause, as I mostly disagree with much of the interpretation of “limited times.”

The reason why it’s hard to grasp this is that, we have come to accept that the US Constitution represents what are really just natural rights to personal liberty that everyone in any country should have. I tend to look at intellectual property laws as unnatural laws, which is why I favor more limitation than most probably do.

But does it matter what I or the middle class artists think? Imagine you are setting out to make great music today and you have no legal pretense, but you’re savvy enough to know about the internet’s realities. Would you price your music album at $18 right away? $15? $12? Remember that at the beginning of this millenium, $18 albums were the norm. This was uncoincidentally when Napster was invented.

I firmly believe that any artist can ask for whatever amount they want for their work. But my prerogative as a customer must be that I can choose to not buy it for that amount. I can buy nothing at all or I can buy something else. Without piracy even entering into the picture, you lost a sale of your $18 album.

Now, returning to the internet realities argument for a moment: if YouTube exists in this reality, how much value relative to the upper quadrant of YouTube music do you need to add in order to have me give you attention (not even money, yet) for your work? I’d say that it’s very high (even subtracting VEVO videos).

So those YouTube folks are getting attention that you don’t get because you’re obscuring your product behind a pay wall. Probably a pretty reasonable pay wall, but it’s still one that keeps that 14 year old with $5 from hearing your stuff. Did YouTube just lose you a sale? Yes, just as much as piracy does (and we’re still not talking about piracy yet).

OK, fast forward a year and you’ve managed to convince some teenagers to purchase your album. And one of them liked it so much that they bought a physical disc of it (hypothetically… just go with it). This customer of yours has played the CD every day for two months straight, and this week he’s finally lent the disc out to his friend who he thinks would like it. His friend listens to the album on repeat over and over and over again. He really likes it! Great! Another sale, right? Nope. Not as we measure lost sales in RIAA world, it’s not.

That was just shy of piracy, actually. Were it not for the fact that the physical piece of plastic exchanged hands, this would have been an illegal transaction (what with all those 1s and 0s flying around inside of both’s music players). In fact, who knows how long that music player caches the data… might be illegal anyway.

As ridiculous as this sounds, it’s this type of specious argument that prevents the artists of the world from moving past the roller coaster of what is a lost sale and into the real business of building a tribe.

As I was writing this post, the always excellent TorrentFreak blog posted a fantastic article titled “It’s Time To Debunk The Myth That Copyright Is Needed To Make Money – Or That It Even Makes Money.” It’s a great companion to this post, so go read it!

Since the reports a few weeks ago about Ubisoft’s 93-95% claimed piracy numbers, Ubi has continued sending ambassadors out discussing how they are reducing their DRM away from the always-on requirements type to the just-activate-it-on-your-machine type. Tying a game to a machine (or even 5 machines) is still dumb, but not nearly as reviled as requiring one to always be online when server downtime or sunsetting is always a possibility. I guess that if we go from the fire back to the frying pan, we are supposed to be grateful.

It saddens me when I see video game publishers still wrestling over simple customer-satisfaction items like this that are pretty-well solved in the minds of average customers. I look at the video game world as a precursor to the inevitable digital mainlining of most media (mainly the PC gaming world, because the consoles are still acting anti-competitively).

Downloadable music still has a ways to go there, but it’s farther along than TV shows and somewhat movies. But most MP3 customers don’t understand DRM and really shouldn’t have to. Because of the early rifts in digital music rights, there remains a lot of misinformation about where you can play a song you buy on iTunes (the answer is anywhere, now, but at first it was not so) or what to do with music bought from Amazon (drop it into your music device, or import it into iTunes if you roll that way).

It’s odd to me, looking back, that Apple was content to throw away the Fairplay DRM that it developed and move into DRM-free music as soon as it could get the labels to agree to it. Contrast that behavior to Ubisoft’s cattiness when asked by RPS if their DRM had been a mistake. RPS thinks they’re protecting their shareholder’s perspective, but Apple saw a resurgence in its stock following the removal of DRM from iTunes songs.

In fairness, Apple wasn’t producing the music they sold, but their profits were still tied to sales. And, surprise, the world didn’t come down. And people still buy music on iTunes even at their relatively high prices. I suspect that Ubisoft still kind of believes that DRM works, despite all of the evidence to the contrary. And, even if it doesn’t work, as least they’re doing something. If that something alienates the people waving money at you instead of serving them, that something you did was wrong.

The notion of optical discs as a predominant storage medium of the future was dead before I wrote my first post on this blog. So it may seem a little obvious to everyone that companies would be throwing in the towel for their optical disc computer drives. But when Sony is the first major company to withdraw from the PC optical drive market (as of November), all of our eyebrows should raise. Why?

Sony was one of the first compact disc technology developers (the other being Philips) back in the 1970s, when everyone was still rocking 8-tracks or cassette tapes if you were modern. It also worked tirelessly in the subsequent 3 decades to replace its own technologies with more optical formats, such as DVD, minidisc, Super Audio CD, UMD, and finally Blu-Ray. The point is, you’d be hard pressed to find another player more invested in optical discs as a major business strategy for the last 35 years.

To be fair, Sony isn’t abandoning Blu-Ray or consumer devices. This is all about the PC drive division. But, it’s significant still because Sony is admitting that the optical platform isn’t going to expand outside of the consumer relationships it has now. That means, nobody is at home writing out DVDs and certainly not Blu-Rays for family video shows; it’s simply easier to publish it to Facebook or YouTube.

Naturally, Apple told everybody years ago that we didn’t really want optical drives and sold lots of folks on the Macbook Air and the iPad. The laptops that we’re seeing come out since then are going for lighter, slimmer profiles and that means cutting out clunky mechanisms like optical drives.

This all may seem troubling to physical disc collectors and especially the folks who replaced their VHSes with DVDs and hence their DVDs with Blu-Rays (hopefully you skipped HD DVDs). However, it’s actually going to be a good thing when the market shifts away from physical discs.

If you look at the PC video game industry in 2008, retailers were not willing to give shelf space to the small-market PC games when there were console games to be sold. Luckily, Steam was already in a position to sell lots of different PC games at that point with no shelf space concerns to worry about. The PC game market reinvented itself without much trouble at all, and now there is a huge variety of choice and price points.

After the physical disc sector burns off, there will hopefully be a much more interesting digital distribution phoenix that will arise (if it looks like Ultraviolet, something went wrong). And in the mean time, get the content you want on physical disc for cheap and store it on a cheap digital platform like Plex for your own use.

This is part 2 of a 2 part post. See part 1.

So, what is changing for the benefit of the customer? At the beginning of July, the European Court ruled that software licenses can be resold in certain cases. Valve (and Steam) said they they are aware of the ruling, but aren’t planning on changing anything just yet. That might seem odd, but remember the ruling wasn’t about games, so it may be a canary in the digital distribution coal mine, but that doesn’t mean anybody needs to change strategies just yet.

Current Impulse-owner Gamestop hints that they are considering pre-owned digital sales, which fits with their brand’s trade-in legacy perfectly. That could be a great way to distinguish themselves from the rest of the pack and link back to the core principles of Impulse founder Stardock’s and its Gamers Bill of Rights. I first thought that this might be a possibility after seeing the Steam Wallet/Gamestop tie in. It seems much more evolutionary in that context. 

But is transferring ownership always going to be a good thing for the customer? I tend to think that the current set up is more of a two-way street. While customers cannot transfer ownership, we also are enjoying a lower initial cost of ownership for many games. This is especially true as you contrast cost of development against retail pricing both today and 15 years ago. Right now, it doesn’t cost much at all to be able to get a game straight from Steam. If a used digital game market sprung up overnight, lots of things could happen as the market attempts to adjust for that. Those games can have second, third, or fourth lives as people trade them around. There’s less demand for the Steam’s copy, so the temptation might be strong to create some scarcity. 

I’m speculating, but I don’t believe it would happen for very long for most games. But a high-demand market might be able to support a $150 price for a few AAA games if they had resale. But other factors would influence that, too, such as multiplayer or co-op integration (it’s no fun to be the only one of your gaming circle with a copy of a heavy multiplayer game) and subscription services (who cares about initial cost, if sustained cost is so high?).

I’d suppose that one of the most appealing solutions for most parties that might come out is one where the resale is overseen and managed by the platform. If the split is 70/20/10 to the player/publisher/platform, then even the pre-owned sale nets the company unforeseen revenue and makes it worthwhile to encourage the act. I suspect gamers will want a little more than that cut, and some publishers will demand significantly more, which means I’m probably pretty close.

Soothsaying is exhausting. But, no matter how right or wrong I am, I do think this digital economic landscape is being completely redefined over the next 5 years. And I would be surprised if the complications surrounding intellectual property law don’t spur the international economies to collude towards a more consistent approach to how we do business.

For the prelude to this amazing post about digital ownership, see part 1. 

This is part 1 of a 2 part post. See part 2.

The holy grail of digital ownership is the first sale doctrine. Though it’s something very innocuous in analog life, consumers generally wish for a way to have a real flow-through for our digital goods. This week comes news that there is a good chance that we’ll soon see a more customer-advantaged digital world where we can take advantage of our licensed (read “owned”) items.

If you don’t know what I’m talking about, when you pay for a digital thing, you are obtaining a copy of that thing along with a license that dictates under which terms you may use it. Well, many of the laws that we built our commerce upon were written with the assumption that any copy of an artistic or intellectual work would also be tied to a physical good. So, even though the act of copying works was cheap, it still was somewhat cost prohibitive and it required some amount of the copier’s time to do.

That’s why the Supreme Court ruled against the publisher who tried to enforce a notice in its books that any sale of the book under $1.00 constituted infringement of its copyright.

Of course, digital copying makes all of those assumptions about the physical nature of copies irrelevant. Since it’s so trivial to make a copy of a digital item and preserve its entire quality, the first sale doctrine has been consistently unapplied to digital works. Instead, software makers have taken to fastening end user license agreements (EULAs) to the front-end of the software and requiring your full agreement to the practically illegible document before you begin your use. It’s these EULAs that have replaced physical ownership for software like games. In the music, book, and video world, there really are no EULAs for the content, but you still do not own the work; you merely possess a copy of it.

And that copy is likely the most valuable copy of a work yet. Vinyl records, magnetic tapes, even optical discs have been wearing out, deteriorating, or cracking for decades. Any of those are legal to resell. Yet a flawless copy of a new song which was recorded digitally, edited digitally, and perhaps sold losslessly is legally confined to your own collection forever.

The reason is that when you resell your digital good, you retain the copy of it. So you would be violating both distribution and reproduction rights. This is the reason that my article “Hoarding’s Rightful Place is in the Cloud” falters in its argument, somewhat. One consistent trait of hoarders is that they maintain a significant belief that their hoarding is actually a series of small investments and they likely will have some significant value that is difficult to see amongst the glut of it. While that assertion of value is generally fallacious, there is at least a minimal amount of value for some of these items as at least scrap, if not real value to the right person at the right time.

Digital goods, generally, currently have none of these aspects. If resale is legally prohibited, your license generally stops with you and even a good faith effort to dispose of your extra copies does not make your act legal.

For the conclusion of this amazing post about digital ownership, see part 2. 

One of the most compelling arguments in favor of using record labels and their associated networks is the function of the gatekeeper that they provide. David Lowery even used it as a justification for their existence in the future music world. By filtering out the cruft, the reasoning goes, the public is saved from having to endure their shoddy work.

If that’s a fair enough representation of the logic behind the label’s existence, then we should ask ourselves some questions to test whether they should play a role in the future of the industry.

First, is our taste in music something we obtain at birth or learned by culture? This is important if we’re going to measure how often the label brings us what we want to hear. It’s probably a mixture of both; the rhythm and chord progressions are innate, but culture determines much more of how we think about music in general. And for most advanced cultures, those past influences were probably implanted by labels. Therefore, much of our taste is circular: we like what we know and we know what the labels have preselected us or our parents to know.

Second, is music able to be quantitatively better than other music. Again, outside of consistent meter and melodic progression, this is going to be a qualitative and subjective comparison. Not to be all hipsterer than thou, but A&R folks don’t necessarily have this part down, either. They are often making bets that don’t pay off for them. That’s one reason that YouTube and other digital venues have paid off for labels. Just like common folk, A&R can more quickly and cheaply find the talent that they like so they can get started on the rest of the deal.

Finally, does the filtering process need to happen anymore? If the quantity of new music continues to increase (because of reduced production costs) and there’s a lot more relative noise than signal from a subjective standpoint, the centralized, manual filtering process doesn’t scale well. Most journalists seem to bite that social networks will make up the difference in scale but that’s not proven to be very with music explicitly. From my data point of 1, social networks tend to push by virality first, pop second. Neither of those are very helpful to individuals. The best scaling will be because of smarter algorithms and maybe permission-based marketing by artists saying, “If you like me, then you’ll like this person.”

The net result is that there are fewer reasons for independent artists to conform and more reasons to perform. Ignore the A&Rs. Find and connect with an audience that resonates and never stop finding new ways to amaze and delight them.

Apparently, over the weekend, Tom Cruise and Katie Holmes split up. I don’t care about that, but Jonathan Coulton tweeted to let everyone know he won’t be rewriting Tom Cruise Crazy to accommodate their status. “Songs are not Wikipedia articles! (yet)” He also has not changed “Mandelbrot Set” to accommodate Benoit Mandelbrot’s recent passing, nor has he addressed his own inaccuracy in the song, as he actually is citing the Julia Set.

Nobody expects songs to change. But, should they? After all, we’ve allowed some movies to be changed from how they were originally viewed. Traditionally, the Director’s Cut accomplished this, but George Lucas infamously has successfully turned his movies inside out a few times over. That’s quite something, particularly because Lucas seems to be looking for fights with his most dedicated fans.

However dumb the reasons, there are more than a few established ways to alter released movies. Books have second or third editions or even errata pages. Video games have online updates (if their developers are still around post-release). 

Music, it seems, has been free from much significant updating. Or has it? Setting aside third-party covers or remixing (which make up a significant portion of music updates and create new value, IMO), songs get updated by an occasional remastering or, every once in a while, the original artist will perform the same song again with a different arrangement. I’m not mad about that, I just don’t see anybody doing what George Lucas has done. 

One huge exception where music is reborn anew is live performance. In fact, I’ve heard musicians talk in interviews how they really learned to play their song only after being on tour with it for a while. This is akin to how stand up comedy works: material is stretched and adjusted while timing and structure is experimented with. And, like Louis CK has become known for, one of the final performances is recorded and sold. Vaudeville and old-school Broadway operated like that, and it is a lot of work, but it’s a great product at the other end.

Jonathan Coulton himself actually did this with his latest album, Artificial Heart. He toured for about a year before recording the thing with live musicians. And even then, he was playing with the texture of the song as the accompanists suggested. The performance was recorded very nearly in its prime.

I think that the notion of continual value may be a part of the bereft artist’s bleak future. Maybe in the future, if the price of studio recording is lessened, your digital albums are so ubiquitous that you will not be tied to just one copy of a recorded song. Maybe the recording artist takes more money from you at the outset for the promise of legitimate new copies of any song updates that he records.

Or maybe music just wants to be recorded once and frozen in time, mistakes and all. And that alone creates the scarcity to bring your audience to see you live to get the real experience.

Last year, comedian Louis CK became even more notable than he already was for pioneering an inexpensive, DRM-free release of his annual comedy special for his fans. $5 was a lot less than he could ask, and DRM-free was a lot more than comedy fans would expect. It’s no surprise in hindsight that the special sold like fried bananas and made $1m within the year. 

Fast forward to now. Today, Louis CK is announcing the start of his new tour. That happens pretty often. But the real news is that it’s $45 flat for all tickets (tax is included). Louis has chosen to circumvent Ticketmaster to make the show more affordable for fans and he’s built some language into the ticket contract to disallow “scalping” to keep the tickets at that price. 

In his announcement, it’s pretty clear that there was not a financial incentive to do this; Louis makes more money from Ticketmaster, even though they charge more, and he’s had to invest into the ticketing system (and probably the scalping enforcement, too).

Louis seems practical, but I also think he doesn’t care much about capitalism. Scalping in theory never really bothered me. I’d always rather pay less for my tickets, but scalpers (in a vacuum) are a reaction to the gap between value and the price of a performance multiplied by scarcity of the item. The only reason scalping seems bad is that there is money on each ticket not being received by the original seller. That sounds a lot like the David Lowery’s disdain for Google and other ad purveyors scalping off of the top of file sharing activities.

But scalping enforcement aside, this is such a good disruption of the existing ticket sales effective monopoly that it can’t be ignored. I have to think that this would be very close to how the crops of musicians would do business if there were less governmental protections for their songs. Comedy is a very different beast than music: it’s longer form, less memorizable, and can get stagnant. Louis is even more unique than the average comedian, because he does a fresh hour of material every year that he works out by doing lots of little shows.

Some musicians do it this way, but the vast majority have done recording first, touring with that set second. David Lowery even mentioned how ridiculous it was that musicians are coming to this point:

The vast majority of artists do not make significant money on the road. Until recently, most touring activity was a money losing operation. The idea was the artists would make up the loss through recorded music sales. This has been reversed by the financial logic of file-sharing and streaming. You now tour to support making albums if you are very, very lucky. Otherwise, you pay for making albums out of your own pocket. Only the very top tier of musicians make ANY money on the road.

This logic wouldn’t need to be reversed if it hadn’t been implanted by the last 60 years of the recording industry. As David says, all of your album costs have to be covered first from the album sales, and even then you are booking your tour through your record company, who gets a cut after Ticketmaster and the venue get theirs.

One last point: Seth Godin just wrote a short article about the price of making media falling that is extremely relevant along these lines. One excerpt:

What happens to the market leaders when there’s no restriction on what gets “on the air” and when the competitors have a cost basis that’s 10% of yours? … That’s not a cost-efficiency. That’s a totally different industry. But the if the viewer/reader doesn’t treat the two products as fundamentally different, if reading or watching one is a replacement for the other, then a crisis is right around the corner.

Bingo. Musicians and comedians of the future won’t be fighting piracy, because the pirates aren’t customers. They are fighting for attention against the deluge of inexpensive competitors.