Category Archives: Business Model

The BBC – Combating Piracy In The Digital Age.

Next Wednesday the BBC is hosting a conference entitled “Combating Piracy In The Digital Age.“:

On 6 May the BBC is hosting a conference, bringing together people from across a wide range of creative industries to examine common approaches to combating online piracy.

Rt Hon David Lammy MP, Minister of State for Higher Education and Intellectual Property, will make a keynote address. Media analyst Mathew Horsman will present the latest analysis of how piracy is affecting music, TV, film and other sectors including computer games, business software and publishing. Senior figures from these industries will discuss the right legal approach to tackling piracy; the role that media literacy and consumer education might play; and how new business models could create attractive legal alternatives to what the pirates offer.

I will be going along and I am hoping it will prove to be a productive conference.

My vision and advice for the industry:

Commercial Tools

– The content producers in a digital media world have lost their ability to guarantee the uniqueness of their content.
Content owners have sought to lock their content down with Digital Rights Management (DRM) techniques. These DRM techniques have imposed much greater restrictions on content reproduction and distribution than those present in a non-DRM world. This has led to a desire for those who wish to have their content as free as possible to seek to circumvent these DRM techniques. The past ten years, since the introduction of the DMCA act in the United States in 1998, has seen a clash of cultures between those who believe that content owners have a right to manage the distribution of their product and those who believe that this content is part of culture and should be freely available. The advent of faster network access, improved coding techniques, more powerful computers, new protocols allowing for decentralised, distributed digital media delivery architecture, the rise of Open Source computing and the convergence of consumer media products has created seismic shifts in the digital media landscape. This has resulted in content producers starting to look at distributing their content DRM-free – but without having an alternative system which allows them to maintain some control they recognise that they are in a business model which is doomed to extinction.

– The infrastructure owners, the people delivering digital media content, have no incentive to deliver unique content.
Online delivery methods have developed which are decentralised and open. These have facilitated the free sharing of digital media – where the marginal cost of copying is almost zero. This has resulted in more people wanting greater infrastructure access, faster broadband, uncapped limits, etc. The infrastructure owners have benefited from non-interference in the traffic flowing across their network. Hence there is no gain for them, at the moment, in having one digital copy more valuable than another. They also have no desire to do the content owners job for them. The infrastructure owners recognise that the content producers have painted themselves into a corner with their doomed policies on DRM. They also recognise that by adopting the “do nothing” approach they can continue to benefit from the explosion in digital media content without having to get directly involved in negotiating access to it. There is a lack of trust on both sides. There have been efforts by both sides to legislate and sue the other into compliance. Neither side is enamoured with the other at the moment.

– The key is to develop a Digital Media Exchange to put trust back into the ecosystem and give both content producers and infrastructure owners the benefits of a unique digital media product.

This will require the will of the content producers to try something different – which they are more than willing to do at the moment – and a big carrot for the infrastructure owners. This we can give them as there are a lot of complementary services they could develop, which is what they will need in their competitive market where margins are low and churn rate is high.

The plan would be to digitally watermark content as it enters the Digital Media Exchange to allow for a unique identifier to be attributed to each piece of content. The content will also be in the highest quality format. You can then implement a system which will allow the people who wish to have access to this content – primarily focusing on businesses wishing to sell advertising (and using the content as a vehicle) to begin with – to specify what format they wish to get this in and how they wish to place their logos/messages on the audio/video.

The advantage this gives to the content owner is that they now have a unique product which can be redistributed in multiple format but always with a unique identifier and so therefore with a full audit trail. The advantage to the infrastructure owner is that by having access to a legitimate source of content they can build services around this which they can use to differentiate their offering from their competitors. The advantage to the advertiser is they get access to a whole new world of legitimate content – an untapped market which the content producer now can bring their product to, thus delivering them another benefit.

The input of digital media is the advantage for the content producer. All they need to provide is one high quality copy of the product with appropriate descriptions of the content. After that the system within the Digital Media Exchange assigns the appropriate coding to the file to indicate who it originated from and when and then proceeds to transcode multiple copies in multiple formats – each with its own unique code to identify it.

Within a Digital Media Exchange advertisers can choose the individual files, categories, user profiles, genres, etc. they wish to market to and upload appropriate branding to go with the formats and different market segments can get the same content with different branding, also diffent market regions can get different products targetted at the same demographic.

The digital media buyer can browse the Digital Media Exchange online and choose both file format and branding they would like on their output. If they would like to brand the file with their own specific identity then that facility also exists. So they can have the choice of:

File
Quality

Branding

None

Bespoke

Advert

High

Expensive

Medium

Mid-range

Low

Free

This leads to a world where content producers and broadcasters stop thinking in terms of units sold or ratings achieved and more in terms of relationships formed.

Content producers target specific broadcasters for their market reach. Broadcasters deliver specific content to specific channels for specific market segments. People become fans of certain programmes/genres and they place a certain value on a programme based on the channel they receive it. These are the relationships that exist already between the various parties in the entertainment chain. These relationships get measured currently by specific metrics and these metrics give a value to a distribution chain.

By allowing users to store content centrally, the broadcaster becoming the facilitator of access to that content and the content producer being the primary source for renewal or upgrading of that content then you begin to build a new ecosystem that allows digital files to become unique as they begin to have a value that comes from the relationships.

This may not be to everyone’s liking – or people may want more immediate results – but if you begin to accept the realities of digital distribution then you recognise the need to think and act differently!

Marginal cost of zero or substitute goods – Redux!

(Or how I learned to stop worrying and love economics AGAIN!)

Dr_Strangelove_Redux

Following my original post – which induced some head scratching in some BBC people – I’ve revisited this idea in more detail:

If I have only a set number of hours in the day to watch/listen/read what you have to offer and I can now carry/sit at/watch a device which allows me to do any or all of these functions, and more, then the scarce resource isn’t the spectrum required to deliver the audio/video or the printing press required to deliver the text – but the scarce resource is my time. Using DRM to try and create a scarce resource (which is what DRM really tries to do) where there is none is flawed – more so, when there is a valid scarce resoruce already to hand!

Why is my time the scarce resource?

If I have a device which lets me treat all of these separate functions like one act – instead of having to decide whether I buy this newspaper or that one, whether to listen to this radio station or that one, whether to watch this programme or that one – I get to decide whether to read this newspaper or watch this programme, whether to listen to this station or read this article, etc. – then I can switch between one digital version of content and another without distinguishing between them as being completely different media. So I can substitute one for another.

Now the guys in the audio business are in competition with the video and text guys as well as the other guys in audio for a limited slice of my time. The video guys are in competition with the audio and text guys as well as the other video guys for a limited slice of my time. The text guys are in competition with the audio and video guys as well as the other text guys for a limited slice of my time.

Once content people start to realise that to make their content compelling they have to ensure that the text they have also has the appropriate audio and video links and vice versa, then they too realise that each bit of content is in some ways a substitute for the other – but by putting it all together in one space it makes the need for me to substitute one for another unnecessary. Make this offering compelling enough and it means I just use you for all my audio, video and text needs (free and paid-for) – thus instead of substituting one content/provider for another I see all your offerings as one complementary piece.

The convergence of electronic devices doesn’t mean I will eventually use only one device for everything but what it does mean is any of the devices I will have will be able to display all the various types of media and either I will swap the digital content between them quite easily or the digital content will live in the cloud and all the devices will be connected continuously to the cloud and to each other.

This gets more disrupted by some of the digital content being free of any economic cost. Therefore, because I can substitute one offering for another – I can read the blog entry which has the YouTube links to what I’m interested in or I can pay to read your article which has links to the official video which I also must pay for (and is in a proprietary format which will only play on one of the platforms I move my media around on) – you had better makes what you have worth paying for because there is no incentive for me to pay, if both cost the same amount of my time.

Now some make the case that all information should be free but that is not what my argument is. Just because something is free doesn’t make it worth spending my time on – but when all digital content (audio/video/text) can be reproduced and put online for little or no cost then your offering must compete with free. There is no point ignoring this concept or hoping to sue it or technologically defeat it out of existence.

What you can do is recognise that free is your starting point and then add value to various offerings that you have that make investing economically worthwhile – so you can have a free low quality version which has a link to the free medium quality (nagging) ad supported version which has a link to the paid-for high quality, personalised download from the content producer’s distribution system.

With the rapid growth in storage capacity, for a much cheaper price per megabyte, then people are making the argument that the cost of a digital reproduction is, in effect, zero – two much repeated examples at the moment are Chris Andersons’s “Free! Why $0.00 Is the Future of Business” and Kevin Kelly’s “Better Than Free”

Both build their arguments implicitly on the demise of geographically restricted rights agreements – which is premature. But what they do correctly show, is that by taking the thing that makes the Internet so scary for rights holders (anyone can copy my stuff) and make that into a virtue (anyone can copy my stuff) then you begin to use the Internet, it’s community and your digital content to great effect.

Another article that gets repeated is a TechDirt one – “Saying You Can’t Compete With Free Is Saying You Can’t Compete Period”. I think the assumptions in this are flawed – but it does use “the marginal cost is zero” argument.

Once your stuff goes digital you have to compete with free.

Free is not a bad/good thing in itself but it is important that you recognise it as your starting point.

Adding value to the experience is where the sweet spot is in terms of being on the upward growth curve.

And that is the argument I was making.

Marginal cost of zero or substitute goods?

(Or how I learned to stop worrying and love economics)

Dr. Strangelove (Or how I learned to stop worrying and love the bomb)

(Update 07/04/2008 – See this post for a plain english version)

I have one hour to spare

Do I:

Listen to a live broadcast in the hope of serendipity or the podcast I have lined up?

Click on the YouTube and DailyMotion links I have in an email or go to the on-demand offerings from the broadcasters to catch the programme I missed last night?

Follow the links in a story I’m reading online or do I catch up on the RSS feed?

Post a blog entry or update my Flickr photostream?

Listen to the podcast or watch the YouTube/DailyMotion videos?

Read the links in the story or update my photostream?

In economic terms:

Is it that all digital information must be free or that all digital goods are perfect/imperfect substitutes and if one is free then this is your price floor?

Is it the average cost versus the marginal cost of a digital item or the average cost of one item versus the marginal cost of another where all goods are perfect/imperfect substitutes?

Is one digital good a perfect substitute for another or is it that the scarce resource is time and the choice of goods determined by the lowest barrier to entry where goods are imperfect substitutes but the means of delivering them makes substituting one for another more advantageous than the pursuit of the original?

What value can you add to a perfect/imperfect substitute to make it a complementary good?

So:

What is really happening with the convergence of electronic appliances is not necessarily the shifting of all content to one platform but the freedom to substitute one digital good for another, both of which are in competition for the scarce resource – time.

The marginal cost of production – where a digital reproduction is claimed to have a zero marginal cost, as you still have the original but I have a perfect copy for free, as the cost of storage heads to zero, – is missing the point as far as I’m concerned.

I don’t wish to consume something only because it is free.

When the substitutable alternatives available to me are free of cost but require my investment of time then I have no incentive to add a monetary cost to the equation.

If what you have to offer costs me in monetary terms and time then you need to add value in a way that turns the substitute good into a complementary one.

The trick is to recognise who in the market are playing by the economic rules (mostly the consumers on the Internet) and who are seeking protectionist measures (mostly the rights holders – DRM etc.) and to show those seeking protection from the market how rational the market actually is behaving and that if they innovate, they can reposition themselves from being protectionists in a declining business model to being on the growth curve in a new business model.

Links for substitute goods:
http://www.economist.com/research/Economics/alphabetic.cfm?LETTER=S#substitutegoods
http://en.wikipedia.org/wiki/Substitute_good
http://www.economicswebinstitute.org/glossary/substitute.htm

Links for complementary goods:
http://www.economist.com/research/Economics/alphabetic.cfm?letter=C#complementarygoods
http://en.wikipedia.org/wiki/Complement_good

Links for marginal cost
http://www.econmodel.com/classic/terms/mc.htm
http://www.economist.com/research/Economics/alphabetic.cfm?letter=M#marginal
http://en.wikipedia.org/wiki/Marginal_cost

Links for average cost:
http://www.econmodel.com/classic/terms/ac.htm
http://www.economist.com/research/Economics/alphabetic.cfm?term=average#average
http://en.wikipedia.org/wiki/Average_total_cost

Wanna…..clue?

As with the previous posts on documentaries and TV series, this is about business models.

The previous two sites do nothing other than index other sites where video has been uploaded – but they add value, as they act as pathfinders. The sites they link to have a lot of video uploaded – but I’m willing to bet a very few people did most of the uploading.

There is an enormous opportunity here for the right people to do the right thing and make sure everyone gets paid and people get to access the content in ways they want, with value being added and quality being assured.

Business model anyone?