Jan 072008
 

—Caveat: the views below represent my own current personal views and are subject to change—

Apple Inc

SonyBMG

It’s wonderful what a bit of competition can do…

For a very long time, the music industry has been dominated by a few labels. Prices hadn’t shifted substantially in favour of consumers for decades.

Then along came the highly effective MP3 compression format, and Napster creator Shawn Fanning.

Suddenly everything is turned on its head. Initially, people are proclaiming the music industry will be ‘defeated’. Later, these projections became more severe, with claims that the industry would die out completely ‘within 5-10 years’.

What was driving this massive shift in perception (and in sales)? Why were people selling their moral values so cheaply and becoming ‘thieves’ (1) so readily? Why is it that the software industry has been coping with digital piracy for years yet when it hits the music industry, it is the end of the world?(2)

The large players in the music industry have been working together ‘cooperatively’ for years. The top 4 mega labels (Universal, SonyBMG, Warner and EMI) dominate the industry with over 70% of the world music market according to IFPI 2005, and 90% of all legal sales are made through these and other members of a single association – the RIAA. Effectively, this has led to complete control of music and its pricing such that it was determined by a handful of organisations. I am not alone in believing that in a scenario remenicent of that in the diamond industry, music has been given artificial value far higher than a competitive market would price it.

From the perspective of quantity (and I would argue quality) of inherent content contained (3) or from the perspective of production costs (4), music is substantially less valuable than video+soundtrack. However buying a DVD of a movie such as Kill Bill Volume 1 on Amazon.com will set you back US$14.99. The (admittedly memorable) soundtrack will set you back US$12.97. So the estimated US$55 million spent on filming Kill Bill added $2 to the unit cost of the content? In the UK it is even worse, with Kill Bill Volume 1 and 2 DVDs retailing on Amazon UK for £4.98 each and Kill Bill Volume 1 and 2 soundtrack CDs retailing for £7.98 each.

Admittedly, the soundtrack contains complete songs and can be played on your CD player, but it is still very difficult to comprehend the premium that even now is being placed on music content without looking at the music industry as one big price-fixing cartel, controlling thousands of ‘mini-monopolies’.

So what impact have changes such as MP3s and online peer to peer filesharing had? Not too long ago, that £7.98 CD would have retailed for substantially more than £7.98. Thanks to these technologies, there is now an alternative (other than just giving up) to paying what the music industry dictates for a song. If a consumer feels they are being ripped off, they can download it.

Apple and Digital Rights Management (DRM)
After MP3 and Mr Fanning, along came the iPod, and then selling DRM-secured music online became one ‘solution’ achieved by the industry. However this was plagued with problems arising from the removal of freedom in the way music can be used (the freedom that DRM is designed to get rid of). Encryption is used so that transferring your files between computers (except where explicitly allowed e.g. home iTunes PC to iPod) is intended to be impossible, which led to all kinds of problems using music you had bought in ways many consumers felt they should be able.

Apple provided the digital platform. They provided a customer base of millions of users (iPod owners) and the iTunes digital download infrastructure so that music could be sold directly to users without the involvement of other retailers.

The ‘problem’ was that the music industry began to be concerned by the amount of power shifting from them to Apple. If they couldn’t find other digital distributers, then Apple would be fully in control of their fast-growing digital customer base.

But how to incentivise customers away from Apple and towards other distributers? There are really only a couple of courses of action available. They could pull their music from Apple’s iTunes, and then sell without DRM from other sellers or sell at reduced prices from other sellers but keep the DRM.

Pulling music from Apple is very difficult to swallow if it is not in combination with one of the other two incentives, in part because Apple has a relatively loyal customer base that will not necessarily use anything else (so customers will be lost) and in part because of the inconvenience to users of having to install further software (to provide an alternative framework for DRM music distribution alongside Apple’s iTunes).

In addition to the ‘corporate-competitive’ reasons discussed above, labels have received immense public pressure to remove DRM, and they are having to compete with DRM-free downloadable music ripped from CDs and distributed online.

The result? One by one the labels have removed DRM from their online offerings. First EMI then Vivendi Universal followed by Warner and now SonyBMG (more here).

Each of the changes considered above that the labels make (to compete both with Apple and with illegal online downloading) are good news for consumers. No wonder abuse/artificial creation of monopoly is illegal in most developed economies…

Finally, there is the question of ‘how can we compete with free?'(5). Actually, while it is difficult, the labels are successfully doing this already, as is the film industry. The software industry has done this for many years. When people don’t feel like they’re being walked all over and prices are reasonable, they prefer to own an original, licenced, paid-for copy. This has been demonstrated in the extreme by Radiohead’s high-profile (and probably highly-profitable relative to regular methods given the lack of middlemen) recent distribution scheme where downloaders are able to choose how much they pay for an album. Given that the average payment was $2.26 ($6.00 excluding non-payers), it is clear that people will pay for music even when there is no incentive other than the ‘feelgood factor’/guilty conscious to work with.

When you combine the ‘feelgood factor’ with ease of location of the music, sound quality, extras etc, I can certainly see that you can ‘compete with free’ as long as you are willing to embrace digital download and provide superior product rather than inferior (DRM’d) product.

——————————

Note (1): I am not a lawyer. However, as I understand it, ‘piracy’ is not the same offence as theft. This is clear from two angles: firstly, from a conceptual perspective piracy does not represent an actual physical loss of anything by the ‘victim’ (record label or artist) – just a perceived loss of a potential opportunity to sell something, contrary to copyright lobby advertising campaigns and references to “Copyright Theft”. Traditionally, theft results in the loss of a CD or DVD or whatever other medium you choose – something that cost money to produce and distribute – from a store or other location, where as piracy is more akin to criminal conversion. Secondly, if piracy were theft, the penalties would be much much lower (see Off The Shelf for an excellent, well-cited analysis on TV shows – I believe the contrast is even more extreme for music CDs). Also note that criminal copyright infringement requires that the infringement be for commercial advantage or private financial gain.

Note (2): Of course music, films and other media have been exposed to piracy for years as well – audio cassette tapes and VHS tapes have been easy to copy for decades, and even copy protection such as Macrovision on VHS hardly made things too difficult due to devices such as this or these. However the key difference with digital piracy was that the content could be repeatedly copied without loss of quality.

Note (3): Digital music can be stored ‘losslessly’ (at CD quality) at a rate of just under 10 megabytes per minute (80 minute CD = 700MB). MP3 format songs that represent almost all of the audible data of a song can be stored at (very roughly) a rate of one or two megabytes per minute of music. For comparison, video and soundtrack of a 5mbps MPEG2 2 hour DVD-quality movie requires storage of just under 5 gigabytes or approximately 62 megabytes per minute – compression to ‘widely acceptable’ (as observed on online distribution and Video CD formats popular in Asia) mpeg or divx quality can be acheived with approximately 700 megabytes of space or approximately six megabytes per minute (DVD video example taken from http://www.dvdforum.org/images/Forum_HD_DVD_Universal_24.pdf page 2)

Note (4): Admittedly there are a large number of costs involved in producing an album, not all of which are immediately obvious (the Music Business Calculator lays it out quite well), however the costs involved are usually not even on the same scale as those for films.

Note (5): “Can’t compete with free” has been a factually incorrect ‘battle for hearts and minds’ phrase (alongside “downloading is stealing”) from the very beginning – see here for more detail

Sep 052007
 

I’m not normally a big fan of on air TV (i.e. I usually just get a specific series I like on DVD), however while musing over ICQ’s newfound popularity in Russia, I became captivated by this new show – Outnumbered (Tuesday night, 10:35pm, BBC1). It is a frighteningly realistic, low-key comdedy about a house full of kids. Ranging from perpetual insult matches, through impossible questions, to the odd half-hearted fight (mixed in with irrelevant arguments), the children largely steal the stage. The Telegraph (see the bottom half of the review) summed it up well:

“All of this feels both carefully observed and suspiciously heartfelt. More unusually, it’s not contrived. Outnumbered sticks firmly with the mundane, yet manages to be funny about it.”

Outnumbered

 Posted by at 2:58 pm
Aug 032007
 

Darn it – unless you can describe them as ‘sporting equipment’, it looks like lockpicks are illegal in Canada. Guns are of course legal (with the appropriate licence) for sporting purposes,
but I guess people just don’t see lockpicking as a sport yet… I was very much looking forward to sitting on an island with my newly acquired lockpicks and the various locks I have bought, and spending hours attempting to open them. Not sure why it’s so appealing, but it is. Oh well, I’ve got a few books to read. Poor substitute, but will have to do.

Aug 022007
 

Fantastic – off to Canada tomorrow. One week will be in/around Toronto/Peterborough (I’m actually not sure exactly where – it’s my grandparents’ cottage that we used to visit by the lake, but I’m not sure where it actually is given how young I was when we last visited), where we will mostly be staying on an island in the lake (there is a cottage on the island, but it has been untended for many years, so were expecting to be effectively camping EDIT: pictures here). Unfortunately based on my fuzzy memories of last time, the mosquitos have probably (through the generations) been looking forward to this almost as much as I have.

The next week will be a mining town in the middle of nowhere, 200m North of Toronto. This is where I was born, and where most of my father’s family still resides. It is somewhat greener now, I’m told, but it has always historically been (in)famous for being a pile of rock, and not much else.

Then after all that I’m training for a week in Oxford before taking a long weekend in Newquay to try the handmade surfboard (we actually were given the opportunity to watch the guy make it) my dad gave me for my 21st. It’s 3 years old, and I haven’t even used it yet… so I’m seriously keen to try it!

Jul 052007
 

An old friend has put together a pretty amusing series of comics. I am not sure how broad the audience is for these, but they’re pretty good if you’re a geek! http://www.f8d.org/ – highly recommended.

God knows where he finds the time to do these – one every day apparently!


One of my favourites

Jun 242007
 

Having trouble with sending emails (registration emails, password resets on forgotten passwords etc) from your wordpress blog?

This is a tough one – the first solution I saw was to use WP-PHPMailer from Coffee 2 Code. However this left me with a “Warning: fsockopen(): unable to connect to smtp.mail.yahoo.com:25 in /home/www/james-scott.co.uk/…/plugins/wp-phpmailer/class.smtp.php on line 105″.

First I thought I could switch to Gmail – I tested it with Outlook, and it worked but only with SSL enabled. One of the things it helped with though was that it let me know I should change the port to 465 (secure port) but then I got “The e-mail could not be sent. Possible reason: your host may have disabled the mail() function…” error.

The issue is that even after you have this plugin set up, you then need to find a compatible SMTP server. And unfortunately this plugin doesn’t seem to work with SSL/TSL (which is required for most webmail SMTP servers, e.g. Yahoo!, Googlemail/Gmail etc). So what’s the solution? Use ShiftThis | Swift SMTP instead – with this one you can use SSL/TSL with your Gmail SMTP server (smtp.gmail.com) with the login details from your mail account.

Jun 122007
 

Haven’t really put anything on films here yet. I am a film lover, though due to the constraints of the job I do, and having very little in terms of memory, I wouldn’t call myself a film buff. I started the Film Society at my company a couple of years ago, and have learned quite a few interesting things from the experience, which I hope to get on here. In the meantime, tonight was a major sponsored film night, for which the Film Society nominated Cinema Paradiso to be screened, which was chosen by my firm’s employees (over 1,000 votes cast apparently)! Our contribution in nominating three of the options including the winning one was noted in the Times (even if it was only in passing before spending the rest of the article slating Eragon).

Unfortunately due to the aforementioned work commitments, I have spent my evening firmly inside the office, and thus missed the screening…

Apr 122007
 

In what is probably an astoundingly late revelation as far as the weblog world is concerned, I stumbled upon some Lonelygirl15 video weblogs on YouTube, and actually believed them up until the one where they go hiking (and I realised it was just too professionally shot to be real).Anyway, once I got over my disappointment that it wasn’t real, I realised it was a unique new form of film-making, and quite an exciting one too – I’d love to come up with some good ideas myself, but haven’t managed – I’m keen to hear anyone else’s ideas though…

Apr 122007
 

I’ve finally begun revamping the site I started building some 4 years ago, in an effort to put all of my various creations and learning experiences online.

As of writing this, I have put up a significant number of pages onto my site already, with something on Wifi (incomplete) and something on picking an HDTV (an interesting exercise but needs some work).

I hope to add to this with something on films (particularly strange films, but also some less controversial ones I believe are classics for whatever reason), what Investment Banking is like (and what the difference between being in country, product and sector teams is), valuation of companies, buying property (starting with London) and augment this with bits and pieces on my university project (as well as some other content) from my old site. I may even add some pictures at some point!

Best

James