I will be speaking at the Flow Conference in Austin, Texas on October 9th at a round table about music and copy protection.  I’m posting here my position paper, though regular readers should be familiar with my opinion on the subject.  If anyone’s heading to the conference, please contact me in the comments, email or Twitter.

The other panelists will be (links go to panelist’s position papers).

Patrick Burkart, Texas A&M University (convener)

Danny Kimball, University of Wisconsin-Madison

Ali McMillan, University of Western Ontario

Moderators: Marnie Binfield and David Uskovich

This is the question the roundtable will be discussing:

More and more music fans, artists, and labels are rejecting DRMed file formats in favor of more lenient digital music sharing policies than what are available through most commercial music service providers. Under what conditions do music fans resist copy protections? When have music labels dropped copy protections? What is the disposition of digital music distributors towards DRMed formats?

My response

Thanks to technology, more people are creating and listening to music than ever before. With computers and the internet, it is cheaper and easier to produce and distribute music. Instead of embracing technology, music companies are using technology like DRM to stifle innovation and user value, trying to control their evolving industry.

DRM gives record companies the feeling of control over their music – control they no longer have. But the economics of music are changing. The cost of distributing music has dropped to almost nothing, making music infinitely reproducible by anyone. Music companies used to decades of controlling distribution need to adjust to a new marketplace where plastic discs don’t matter. This means radically changing music’s business models.

Musicians and publishers feared the first digital music device, the player piano, more than a century ago. In 1906, John Phillips Sousa and music publishers asked Congress to ban the player. Instead, Congress instituted the compulsory license system still used today. This took away control from publishers, but helped everyone make more money by embracing the benefits of the technology, selling piano rolls to make songs more popular and performers more valuable.

Computers and the internet can be just as profitable when embraced. Musicians like Trent Reznor, Radiohead, Jill Sobule, Kristin Hersh, and Maria Schneider are experimenting with new business models using infinite goods to sell scarce goods. Reznor posted his own music on file-sharing networks while selling premium editions of his album with a Blu-Ray slideshow, vinyl version, and signature. Reznor grossed $1.6 million in the first week even though his music was freely available online. Sobule and Hersh let fans support the creation of their albums by selling private performances, chances to sing on the album, or executive producer credits. Music companies study file-sharing networks to target advertising and decide tour locations based on the popularity of artists.

Most music companies treat new technology like the enemy, using DRM to limit what technology can do. DRM aims to prevent file-sharing, helping music companies control distribution of an infinite good, while taking away value from paying customers. Music companies expect customers to pay more dollars for less value.

But DRM does not stop file-sharing. Only one MP3 file is needed to spread to thousands of freeloading fans. Almost every form of DRM gets circumvented within days meaning one file always makes it onto file-sharing networks. EMI began selling DRM-free files on iTunes partly because DRM has no effect on piracy.

While DRM fails at its only purpose, it succeeds in making music less valuable, treating paying customers like criminals, and causing technical and public relations nightmares from installing malware (Sony rootkit) to failing devices (Blu-Ray players that don’t play all Blu-Ray discs). DRM-free stores like Amazon and Wal-Mart evolved out of necessity. Music companies forced Apple to lock iTunes with DRM limiting files to only play on iPods. As Apple sold more music, it sold more iPods. When Amazon and Wal-Mart launched their music stores, they had to offer them DRM-free so songs could play on iPods. The music industry handed Apple control over its digital future, from pricing to marketing, because of DRM.

Some DRM validation services get canceled, leaving companies with expensive public embarrassments and unhappy customers with useless music. Yahoo, Google, and Microsoft all canceled support for their DRM. Yahoo and Google offered refunds or DRM-free alternatives to all customers while Microsoft, due to public outcry, reinstated its DRM.

It’s up to the music industry to develop business models that embrace the promotional value of its music to sell more valuable scarce goods. Entertainment has used this model for decades: Television provides free shows supported by advertising and music uses the promotion of radio to increase album sales. There is more money to be made embracing technology rather than fighting it. People can listen to and share music, becoming bigger music fans, and increasing demand for scarce goods like concert tickets and collectibles. Thanks to computers and the internet, every MP3 is a promotional tool.

The music industry needs to adapt to the changing marketplace. Use technology to give customers more value: give people a reason to spend their money. DRM takes away value from customers, causes public relations nightmares, and provides no benefit except a false sense of control. Instead of fighting file-sharing, embrace it as a competitor and offer a more valuable customer experience, not try to control the experience. More value means more money. And that’s good business.

Work Cited

Doctorow, Cory. “Microsoft Research DRM talk.” Microsoft offices, Redmond. 17 June 2004. 1 Sept. 2008 <http://www.craphound.com/msftdrm.txt>.

Masnick, Mike. Techdirt. 1 Sept. 2008 <http://www.techdirt.com>.

You read that headline right. TorrentFreak reveals MediaDefender, the infamous anti-piracy firm working on behalf of Big Content, has been moonlighting as a porn pusher.

To disrupt online P2P networks, MediaDefender often floods searches with false files, many of which redirect users to these porn sites.  The redirects have been extremely effective, converting 1 in 2000 LimeWire users.  MediaDefender’s Ben Grodsky wrote in an email:

One of the theories I’ve had about why the LimeWire redirects sell so many porn subscriptions is because one basically can’t get porn on old versions of LimeWire because our popups and spoofs overwhelm the user.

MediaDefender makes $4,000 to protect an album, $2,000 for a single song, and almost a million dollars for a movie. Basically, MediaDefender is paid by these media companies to promote its other efforts.  That’s a pretty healthy business model, as long as morals aren’t an issue.

Seriously, MediaDefender is doing more to show P2P is a viable business model, something Big Content isn’t looking to admit.  Their tactics are mostly spam and obviously frustrate users, but work. Just think if a caring, responsible company used P2P for promotion, helping users find the content they were looking for or selling related scarce goods for the content users do find.

EA released the long-in-development Spore this weekend, packed with repressive DRM.  Gamers have responded by flooding Spore’s Amazon with one star reviews (more than 650).  EA limits Spore to only three installations.  Uninstalling the game does not increase that number, leaving paying customers to prove they legally purchased the game to EA for permission to play the game.

All this happens in the name of preventing piracy. But Spore has been available on Bittorrent sites for almost a week sans DRM. This leaves paying customers to deal with restrictive DRM.

EA knew a public relations nightmare was brewing when it announced the DRM back in the spring.  After public outcry, EA removed part of the DRM requiring a validation check every 10 days, but EA kept the three installs limit that is frustrating gamers.

So piracy is running free and paying customers are pissed off.  How is DRM supposed to work again?

I’m starting graduate school and the horror of textbook prices are draining valuable video game money (and playtime). Several stories have commented on the digital future of textbooks which looks bleak.  Publishers have a loyal clientele in students who must buy overpriced books to keep up in class. Universities and professors are complacent, keeping this archaic system going instead of looking for alternatives.

Wired Campus writes about surveyed students demands for digital textbooks, from costing less than the printed versions and allowing them to be printed.  Many digital textbooks cost the same as their print versions, but limit what you can print and expire after 180 days (with no resale value like the book).

The problem is textbook publishers have little incentive to innovate.  Students spend the money, but only universities and professors can sway what books get assigned (and thus sold).  As long as universities keep assigning expensive textbooks, publishers will continue to gouge students without consequence.

Piracy is starting to nip at the textbook market, but students, like me, who like printed versions find piracy a last resort. Pirate Bay and Textbook Torrents offer surprisingly large supplies of required texts that have only recently caught the eye of publishers.  Instead of recognizing an opportunity, textbook publishers are pushing digital supplements to their textbooks, requiring expensive subscriptions to supplement “losses” to piracy.

Textbooks could thrive in the digital space. Some writers and professors are experimenting with free, open-source e-textbooks to letting students write their own textbook on Wikibooks.  To encourage publishers to conduct their own experiments, professors and universities must unite to represent their students. Students can’t do anything (except file-share) as long as professors assign expensive textbooks.  Schools should screen books for pricing and reward publishers that sell books at fair prices.

Information Week’s Mitch Wagner posts an excellent question to the internet community. Are there any examples of a company fighting piracy and launching lawsuits as a successful business strategy?

Wagner has several examples of the opposite; where lawsuits only alienate customers. He begins with Hasbro’s recent takedown of the popular Scrabulous game on Facebook to launched its own unpopular Scrabble game, coving the music industry and Garfield.  Matt Mason’s “The Pirate’s Dilemma” is a book length list of examples of lawsuits hurting businesses.

There are even examples of companies embracing piracy to improve their businesses.

So does anyone have an example of lawsuits helping companies?

[Via Techdirt]

NBC is planning to saturate August will more hours of Olympics coverage than all Olympics TV before combined. 2,000 hours will be featured online and the rest spread across NBC and its assortment of cable stations. But the big numbers cloud NBC’s flawed new media strategy that still focuses on limited, controlled content, missing the perfect opportunity to build new business models.

NBC is limited the popular events to its networks and leaving fencing and kayaking online along will lots of behind the scenes footages only the most die-hard will watch. Other news organizations are banned from using any videos of the events and even have to take down footage of the Olympic trials once the games start.  NBC is also hyping its anti-piracy efforts to keep footage off other video sites with China promising to “attack” websites hosting unlicensed footage.

Ironically, with all this effort, NBC plans to loose money on the Olympics.  Spending $800 million to air the games lets the network publicize its own shows and fall line-up.  If the Olympics are all about promotion, then why doesn’t NBC want it promoted?

By limiting how and when and where people can watch the games only means people won’t watch them or will go behind NBC’s back to get what they want.  If pirated copies of the games meet consumers needs, then that’s what consumers will find.

NBC had a gold mine here where they could flood the web with all the Olympics footage possible.  Provide some embedding code and let the steaming video spread. People could then watch the videos where they want when they want with streamed ads in tacked.  Providing the same content on demand brings more people to Olympics websites, where they can be exposed to more information on events, merchandise, and shows, even if the video isn’t found on an NBC affiliated site.

The fact that NBC already plans on taking a loss should encourage them to take risks with their online strategy.  Instead NBC is pushing leftovers on the internet and keeping the fresh meat for the networks. If its online strategy fails to meet expectations, NBC will unlikely consider the poor choice in content.  If it successful, whatever that means, then I’ll wonder how much better it could have done with real, shareable content.

The Dark Knight hit theaters two weeks ago to monumental hype, an unmatched marketing budget, and rave reviews from critics and fans. But according to Warner Bros., the Dark Knight’s record $158 million opening weekend came all thanks to the movie company’s anti-piracy efforts.

The LA Times decided to regurgitate corporate spin profiling Warner Bros. “painstaking care to thwart pirates” preventing the movie from hitting file-sharing networks.  The six month anti-piracy bonanza kept camcorder versions of the film off the web for a whole 38 hours, by Friday night.

Warner Bros. is once again missing the point.  Dark Knight did this well because it’s an amazing movie people wanted to see.  That’s why IMAX theaters were sold out into August before the movie opened.  A theater experience, especially IMAX, is a different experience than a person can get at home, whether its a social outing or better quality facilities with surround sound and bigger screens. Word-of-mouth likely helped Dark Knight break the record for second weekend gross, a week after pirated copies surfaced.

The LA Times tries to support Warner Bros. theory, but ends up proving otherwise.  It cites Ang Lee’s 2003 Hulk got leaked two weeks before the movie opened leading to terrible reviews from fans.  The movie wasn’t that good, though it still made $62 million its opening weekend, even with pirated DVDs having a two week head start.

The LA Times also points out Star Wars: Episode III Revenge of the Sith had DVD-quality screeners leaked online days before the movie opened.  But good reviews and word of mouth led the movie to gross $380 million domestically.

What the LA Times left out was how much money and man power Warner Bros. wasted on its anti-piracy efforts and how much of that could have been shifted to marketing or merchandising or just saved.  Pirates will get copies of movies and they will share them.  Movies succeed when they are quality pictures offered in compelling ways so people want to see them.  Maybe Warner Bros. should lessen its six month anti-piracy efforts and think up ways to make the movie experience even more compelling.

The Economist has two articles showing the lighter side of piracy, reveal how media and software companies are using file-sharing systems to help their businesses.

Music companies find out which bands are popular using file-sharing statistics tracked by companies like BigChampagne.  These statistics help decide tour locations and target advertising dollars.

Movie and TV companies are using file-sharing statistics from BigChampagne to set advertising rates for online video sites like Hulu.

Software also benefits, as Bill Gates says “It’s easier for our software to compete with Linux when there’s piracy than when there’s not.”  90 percent of PCs in China use Windows from mostly pirated sources. Gates recognizes long term revenue increases from loyal Microsoft users than if the company fought piracy, pushing companies to free alternatives.

While admitting piracy helps their businesses, these companies continue to fight file-sharing in every possible way.  Piracy needs to stop being scapegoated, but rather embraced as a competitor - something to learn from and beat at its own game.

[Via Against Monopoly]

The upcoming G8 summit has many important issues to discuss - climate change, world poverty, and file-sharing. That’s about it. Everything else is fixed.

On topic for the G8 is the secret (yes, secret) Anti-Counterfeiting Trade Agreement (ACTA) that only became public knowledge after details were posted on WikiLeaks.  The ACTA is a new treaty being written completely in secret for the purpose of restricting international piracy, allegedly allowing border security to check your iPod for illegal downloads, bring criminal charges against file-sharers, and require ISPs to police their networks.  While the public and consumer groups have not been privy to the treaty negotiations, a RIAA got a chance to submit its wishlist.

Aside from the improprieties of privately writing legislation, why is the G8 taking the time to prop up one industry’s unwillingness to adapt to the internet.  As I’ve written before, the entertainment industry does not have a right to revenue.  It’s their job to find business models that work, not the government’s.

The entertainment industry has pushed many copyright requirements into trade agreements with other countries (often falsely referred to as free trade).  The argument is these laws are needed to encourage innovation and content creation when in reality, these laws only help current copyright holders, hampering development in other countries who now have to spend money policing their citizens.

While several countries around the world waste time spoon feeding copyright holders, I’d have hoped the G8 wanted to at least pretend it cared about helping solve the world’s important crisis, of which their are many. It’s even listed first on the official website, “protection of intellectual property rights.” Piracy is not a world issue, even if the revenue losses the entertainment industry makes up were true.  That’s because it’s not the government’s job make you money - that’s your job through innovation and competition.  The G8 should try dealing with the food crisis, climate control, oil prices, genocide, poverty, human rights, and terrorism to name a few.  Of course, the U.S. attorney general says piracy funds terrorism.  Yeah, that’s convincing.

[Via CustomPC]

Government’s love losing. That’s the only way to explain the constant addition of Wars on _______ they keep launching. There’s the War on Poverty, War on Drugs, War on Terrorism, and the still ramping up War on Piracy which might soon be the legal responsibility of the executive branch. Since we have so much time and money to waste, I wanted to suggest some other wars that need to be fought. I’m sure with enough resources, we can wins these in a few hundred years.

7. Software bugs

An exciting new problems arrives, you install in, and quickly boot it up only to find out you have to type upside down to make it work. Publishers race their products to market with the piece of mind they can release patches at any time to fix bugs. It’s much more profitable to let other people pay to be your quality assurance team rather than pay one yourself.

Estimated cost to fight: $5 billion/year

Length of war: 75 years when computers become smart enough to conquer the world, but crashes after an automatic Windows update

6. Bathroom graffiti

The obsolete business model for dating services needs to be replaced by superior technology. Writing girl’s phone numbers or pictures of penises should be kept in controlled, safe environments like the World Wide Web. The last thing anyone wants to think about in the bathroom is how cool Dan is.

Estimated cost to fight: $200 million/year

Length of war: 50 years when we discover a safe way to hold it in

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