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Digital music - how did we get here?

Matt Burrows, one of my co-fellows here at CIS, gave a good talk today about how we ended up where we are today in the world of digital media. These are my notes from his talk:

Some initial caveats:
-these are his personal comments, not those of apple
-he's not an engineer -
-can't comment on litigation at apple etc.
-his background is from the music business, and transactions. not a litigator. his background is with music and entertainment deal-making.

The key elements/events that have lead to our current situation:

  • Mid-1980s shifting from analog to digital. Vinyl, cassettes, beta max, vhs, etc. shifted some what subtley to the CD and DVD over time.
  • We went from a medium that could not be easily copied and transferred, to one where you could easily copy them.
  • With the CD, we started to listen to individual tracks instead of listening to an entire album. This put wheels in motion for people to think in terms of interacting with the music differently - with the individual tracks.
  • DRM: DVDs have all along contained DRM. But on the CD side, there has been no continuity. At one point DRM was added, but today there mostly isn't DRM, which has occurred as a reaction to consumers.
  • Creation and growth of the internet. Without the internet, we'd not be here today. Broadband and compression technology have been key.
  • The 1998 DMCA - two key provisions: (1) anti-circumvention sections, and (2) webcasting became a viable business.
  • Peer to peer model - Peer to peer was essential b/c it allowed people to transfer their files to each other. (Napster, Grokster, Kazaa, of course.) Although mostly struck down as illegal as relating to music, it's still going forward today in a commercial sense through Limewire and Bittorrent.
  • The roll out of the iPod. The interface improved on what came before it (the walkman etc.), and significantly changed what people did with their music. Apple just announced it's 100 millionth sale.
  • In the world of video, the Apple TV creation will be impacting.
  • Digital revolution - RIAA's litigation model
  • In the past year, we've seen Tower Records' demise. Going from the #1 source in aggregate for physical goods (CDs), to being completely gone in less than a decade.
    (Amoeba records - perhaps an exception?) To some extent the real world issue of shelf space that existed for selling CDs of music, is analogous to what appears on the four corners of your computer screen on an on-line store.
  • So, from Apple's point of view, the market leader for digital downloads of music, but it's still a relatively small share of the music market.

    How should digital media companies respond to growing the market, and increasing their market share.

    Acknowledge that this is a Free vs. Paid world. Music can come from other sources - limewire, current CD collections, etc. - and those are lost sales for the digital music company and lost revenue to the rights holder. One question to ask is: how can Apple respond to this? If the goal is to incentivise artists to create more music, we need to convince listeners to move from free to paid world.

    Examples of solutions:

  • provide higher audio quality product (like EMI's no DRM + higher quality product; film quality improved with paid films; HDTV video products)
  • Provide better ease of use: easy to find the artist quickly, get what they are looking for quickly
  • Provide special features that are not available on a P2P service -- like bundling a special interview, an extra song, etc. with the downloaded song.
  • Provide something that the subscription model can't: ownership and control over content paid for, forever.
  • Responding to model of some record labels to sign an artist and then give the music away, so that they can develop fans to sell tickets to shows, and merchandising.
  • Key rights issues going forward as either impediments or areas for growth for the digital media business:

  • Some content is not available on download services. Sometimes b/c the artist has a blocking right (b/c the artist's agreements are so old they didn't contemplate the digital media world, just analog).
  • Some record contracts had "anti coupling" provisions. Keep RC from coupling a single song from being sold together with another artist's song.
  • In video -- right of communications to the public laws in the EU; this is similar to the public performance right in the US, but it's also the author's right to allow for the actual transmission. So, when it comes time to clear content for exploitation to a particular market, it's an issue for the rightsholders to clear. The content then either doesn't go up or the songs are taken out.
  • On the motion picture and TV side, we're talking about works made for hire. Typically, the work is owned by the producer. That content may include other content that is licensed in, so not controlled by the producer, but licensed in. When this happens, typically programming from the 1960/70s the rights coming in are not cleared today for the internet. The solutions are that the work stays on the shelf and never get's out, or the distributor will try to indemnify the distribution channels.
  • Marybeth Peters has spoken of disbanding portions of the copyright act to provide a "one-stop shopping" option, so you don't need to license separate rights (distribution, public performance) from separate resources (HFA, PROs).
  • There's an ongoing battle between the HFAs and the PROs about whether the download of a song is a performance. Users already pay the DPD royalty, and the requirement for a performance payment appears to most as not making sense.
  • The YouTube suit.
  • Rick Boucher has proposed the FAIR USE act - hopefully we'll hear more of this. He thinks the right should be an affirmative right but not a defensive right.
  • Rates for webcasters have just been increased, which will significantly effect the sorts of music that is available through webcating stations
  • Bringing out compelling new products and compelling new content. Selling season passes to television shows. Narrowing the time between theatrical releases and DVD releases of new films. This is also resulting in the form of podcasting and viewing new content on devices like iPhone.
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