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Media is Ripe for a Convergence of a Different Sort

by Andy Oram
01/23/2003

The Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) have careened from one horrendous legal collision to another, like sociopathic drivers in a movie chase scene. After getting a free ride from Congress and the courts for several years, however, these aging syndicates have been slowed by three recent legal decisions:

With the public clearly voicing its opinion, the music and movie studios are quietly being forced into retreat. An early signal is this week's announcement by the RIAA that it will not seek legal backing for copy protection in consumer devices, pursuing private means to the same end instead. Perhaps this is the right time to defang the debate on both sides and work jointly to construct a rich media future.

To be negotiating in situations like this is quite unusual. Even though oil companies hold incomparable amounts of social power compared to movie and music studios, outsiders don't wrings their hands over what companies can do when oil resources get harder to extract (should their behavior in the meantime allow humanity to survive). And a century ago, nobody shed tears over the plight of horse-and-buggy drivers when the automobile was invented. This is because horse-and-buggy drivers--more properly known as teamsters--had a clear way forward: they became truck drivers.

Similarly, most of us in fields of technology would prefer to concentrate on advancing our technologies and ignore the fall-out for the studios. But the studios have a charming way of making their problem into everybody's problem.

Furthermore, I'm constantly reminded that my own publishing industry is facing the same forces. So I'll summarize here the ways that various observers have suggested handling the onslaught of the digital age in media. Like all suggestions, these do not promise success. They promise only a welcome relief from the inflexible forms of thinking that have prevented positive responses to change.

That Voodoo That You Do So Well

There's a lot of life yet in the old business model based on physical media. Studios regularly find improved delivery mechanisms such as CDs and DVDs. Furthermore, they've mastered the marketing and distribution of these products.

Physical distribution media will probably be popular for at least 20 more years. How many corporations can base a business case on a time period any longer than that?

Admittedly, news from the past month or so seems to limit the lifespan for old media. KaZaa and Morpheus continue to attract millions of users, and sales of CDs and DVDs have shrunk by several percentage points.

But some of the poor sales can be attributed to particular conditions in the current environment, such as the economic recession and the tedious staleness of most new offerings. Also remember that technology has reduced the cost of producing music and movies, so industries may be able to survive on smaller margins. (Studios don't like Linux running DeCSS-based programs, but they sure like Linux on production equipment.) Finally, live performances and film theaters are sources of revenue that file-trading can't undermine.

Certainly, it's psychologically hard for companies accustomed to maintaining an iron grip over distribution to leave the exploitation of online media to others. But doing so would pay off. Studios could learn a great deal about marketing by sitting back and watching what more nimble players do. They could selectively adopt online practices where it fits their business models, such as cutting out middlemen by offering products on their own Web sites, and distributing films digitally to movie theaters.

Furthermore, if the studios create a space for innovative online businesses (no, I do not mean P2P file-trading systems--I'll say more about them later in this article), such businesses will be eager to cut the studios in on a piece of the action so as to avoid copyright claims and to benefit from partnerships.

What about copyright infringement? The studios can continue dealing with it as they have traditionally done. Each company has to consider its own strategy, which should be relatively strict, or loose, depending on such aspects as how quickly their product goes out of date and how costly it is per unit. But some elements of a reasonable strategy could be:

  1. Explicitly leaving fair use and first sale in place, rejecting such nonsense as encryption controls tied to playback devices.

  2. Tolerating small-scale copying by individuals. If a guy makes his friends a few copies, it does not significantly impair the company's bottom line. Even if the guy spends a huge amount of time making large numbers of copies--it's up to him to stop and get a life.

  3. Sending cease-and-desist letters to commercial infringers, followed up by stronger legal action where they clearly present a danger.

  4. Choosing one's battles carefully when infringers operate in underdeveloped countries (because there is little revenue to be generated there by traditional sales in any case), by using international agreements to limit the damage done by such infringers.

Keep Them Coming Back for More

Whether one's income is based on subscriptions, advertising, or repeat sales, it's critical to get users' patronage on a regular basis. This well-understood principle led to many failed attempts in the dot-com era to "win eyes" by putting up news portals and even by creating artificial "communities" that were really just vehicles for corporate vanity. Those ill-conceived parodies of the principle do not discredit the principle itself: one must patiently build a following.

How do studios generate recurring business? The game is tough because success requires playing two different hands at the same time. The first is, "If you liked that offering, we'll have more of the same." The second is, "We're willing to take the risk of going beyond what we've done before and regularly try something ground-breaking."

The second hand tempts companies to play with digital media, which they eventually will be able to do. But initially it is more important to concentrate on the quality of their basic materials.

How about recording and promoting more music that sounds different from that which was released 30 years ago (a time that was by no means a golden age in recording)? Suppose that a movie studio, seeing a competitor release a successful film, said, "Good for them, we'll find our own way to compete" instead of, "We have to base our next 20 films on the formula that worked for that other guy?" Everybody talks about generating excitement, but the most fulfilling types of excitement take time to build.

Eventually, studios may relinquish their controlling roles, in which all creative artists are reduced to puppets, and act more like services that can be chosen freely by the artists.

Enhance Old Models

Companies should learn from many of the practices they observe, instead of squelching them. Do music listeners like to select songs from many different CDs and combine them into one? Companies can offer this service through a just-in-time manufacturing system.

When you buy a CD today, you're lucky to get even lyrics. An illegal copy contains just as much information as the original. When I was young, LPs might contain posters, booklets, and even full scores of classical music. That was the ultimate in reaching out to the high end. Music studios should consider returning to this form of marketing, which offers customers a more compelling product and another reason to buy.

Entering New Markets

The other business model--aggressively exploiting the Internet--offers more risks and correspondingly bigger potential rewards. The key is to compete by making use of what is best about networks, not by trying to stifle it.

Anything put online can be instantly copied, so success requires the principle "Enhance old models" to be combined with the principle "Keep them coming back for more." Interviews, discussion groups, and reviews can spice up a site.

Corporate goals could include maximizing ease of access, richness of searches and retrieval, and (through standards like XML) flexibility of display and data manipulation. Layered products would be encouraged, along with plenty of ways to annotate a site, repurpose content, and build communities. And the company would certainly impose no controls that interfered with these facets of online communication--least of all such systems as On Demand Distribution that enforce the use of a single proprietary product.

Recording companies start out here with all the cards: initial access to the material, access to the performers and writers, and access to the media outlets and reviewers who publicize the material. In fact, to have all these advantages and not be able to beat Napster or Morpheus on their own turf is undeserving of pity.

But success in this new media has to be measured along different scales from success in the old media. Perhaps studios will have to stop relying on mega-sales for a few popular artists and learn to promote a variety of acts. The old pay-per-unit model (which was always complicated by such institutions as libraries, video stores, and used book vendors) will probably have to be abandoned; funding through subscriptions might replace it. A big challenge for studios will be abandoning the standard target customer--the middle-class, 12-to-15-year-old male--and serving everyone.

Creating New Media

Ultimately, the Internet has to prove itself--so far as its benefits to culture go--by spawning totally new media instead of just distributing the material created for old media. The new media, probably very fast-changing and interactive, will offer new opportunities for studios to push their content, and will no doubt, offer new ideas for ways to make money. By providing constant change and even allowing users to participate in creative activities, studios can definitively "Keep them coming back for more."

A significant barrier to collaboration is the specter of perpetual copyright, which Congress is creating in a manner reminiscent of the old canard about boiling frogs, by legislating continual term extensions to copyright.

If there's an encouraging message to be taken from the recent Supreme Court decision in the Eldred case--where the Court upheld Congress's right to extend the length of copyright--the message is that Congress has great leeway to reinterpret what copyright means. The Court pointedly refused to endorse Congress's gift to copyright holders--opting merely to "defer" to Congress--and tangentially reaffirmed the doctrine of fair use.

While Congress is probably incapable of removing the copyright walls it has erected, future copyright holders may voluntarily punch holes in them by adopting one of the liberal licenses provided by Creative Commons in order to join the new adventures in media.

A Napster Post Mortem

Finally, let's analyze a great historic failure in media. Whatever happened to the cigar-chomping corporate mogul who would see a young talent and say, "Come with me, kid, I'm gonna make you a success"? Was that just a Hollywood movie stereotype? It certainly isn't happening around Los Angeles these days.

In retrospect, it's obvious that the problem with Napster was not its success--which brought all the negative studio attention--but the fragility of its success. Left to its own devices, Napster would have collapsed along with the rest of the dot-com fly-by-nighters, because it had a rather inscrutable business model and depended for its income on advertising. The few portals left that keep going on the basis of advertising, like Yahoo, offer their users a lot more than a song directory.

What Napster needed was to be taken under the wing of a sympathetic, worldly-wise, older guide, as Thomas Middlehoff of Bertelsmann AG tried to do. (Whether Bertelsmann really had the key to success, and would have followed through after a change of executives, are questions I can't answer.)

But even though Napster probably lacked several key elements necessary for long-term success, it offered several lessons. It showed everyone the dream of a worldwide repository of all the music that anyone would want--a powerful dream that provides a major justification in itself for the existence of the Internet. If we had even one such dreamer somewhere among the managers of major film and music studios, think of what we could accomplish.

Studios now can remove encumbrances by firing the managers that conducted the move to digital media. These managers made a deliberate decision to adopt those media in light of their commercial advantages, but apparently failed to consider the accompanying disadvantages. Such lack of planning deserves no reward from their companies, much less from Congress and the courts.

Studios are also doing well to abandon the tired 1990s strategies of "synergies" and "convergence," which meant merging into ever more unwieldy conglomerates and expecting they could gain market share by brute force--shoving their material down people's throats by advertising it everywhere.

Most of the ideas presented in this paper have been circulating among commentators for some time. New technology always presents a range of possible new practices. Risk-takers will discover the successful ones eventually, given the legal freedom to try.

Andy Oram is an editor for O'Reilly Media, specializing in Linux and free software books, and a member of Computer Professionals for Social Responsibility. His web site is www.praxagora.com/andyo.


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