Contra Lefsetz on Netflix

"They could go back to buying DVDs, but that's still a bad deal compared to Netflix."

 ~Bob Lefsetz

You go over to a buddy's house. he tells you, "Let's watch [X title]." Do you care if it's rented or "bought"? Of course not.  Does the fact that its rented give you a better "experience"?  Of course not. If you owned that video for 24 hours and sold it back to a completely fluid used market, would it make a difference to you?  Of course not. A long as that video was there when you wanted to watch it.  

Transfer of ownership via cloud immobilization is easy to do.  It's what they do in the financial world with stocks and digital banking. It just hasn't been tried.  Because influential critics like Lefsetz think "renting" and "streaming" are something magic.  The magic, instead, is in the way the Internet allows us to account for which users have rights to content, and which users don't.

Lefsetz is making a fundamental error. He is confusing modes of delivery with types of ownership.  A user doesn't care whether a video is owned or rented.  He just cares, "Am I watching this when I want it?".  When a record store was on every corner of every city block, did people care that it was "bought" rather than "rented"?  Of course not.  It was called "access".  You bought a loaf of bread.  You bought a Beatles record next door to the bakery.  You were listening to the music then and there, when it was hot.  That's all you cared about.

You can own a DVD and stream it and then sell it back to the pool if you think you'll never want to watch it again.  But if you want to watch it again, it's better to own it.  It's your choice.  But: do you think the Internet is not up to dealing with a market where everybody owns a DVD for a length of time determined by them and then resells it by a click of a button? Or lends it to a friend?  Or lends it to a stranger?   Have you not heard of "cloud computing"?   When you put stuff up in a cloud it is immobilized.  It's one-for-one.  There is no need to "rent".  Ownership changes hands within an instant.

Rental itself was born in a physical era.  Yes, we can accommodate rental on a digital exchange basis, but it is not a magical talisman.  In order to rent a copy to its customers, Netflix owns copies.  Netflix is simply a library, no different from the one in your neighborhood.  It buys stuff.  It lends it out.  Streaming is just one of several ways to distribute the content to the borrower.  The point is that we need to account for each copy and keep track of who is a Verified Accessor of that copy so that the person who is the Verified Accessor can have his or her access switched on when they go to the cloud to stream it.  When the Netflix movie is returned to Netflix then Netflix is the verified accessor until the next time it is rented out.

All of this is possible through an Exchange.  We have one patent-pending, and an embodiment in beta-test right now.  It's called the Digital Content Exchange. Once the Digital Content Exchange is up and running, it will have a log of everyone who can watch The Kings Speech, from the cloud, at that moment.  That "right to watch" could be by virtue of ownership (digital download or physically-verified DVD), renting (Netflix) or borrowing (New York Public Library).  If you own you can also download to as many devices as you like.  If you are renting or borrowing, you can only stream (the Library and Netflix don't want you making copies of stuff you borrow, and the DCE will abide that rule). It's that simple.

And now, Lefsetz:

For those who say people will never rent music, remember people rented videotapes, bought DVDs, rented DVDs and now stream movies. Don't tell me what the people want, they don't know. Furthermore, what made streaming so appealing was two breakthroughs, Netflix-compatibility in television hardware and the iPad. Yes, imagine if the music industry had enabled tech innovation instead of thwarting it, maybe it would have been prepared for the future.

In case you've been under a rock, yesterday Netflix split streaming from renting, instead of one low price you got a whopping increase if you still wanted both. People are complaining, but as stated above, what is their alternative? They could go back to buying DVDs, but that's still a bad deal compared to Netflix. As for renting, where you gonna do it? The video shop has evaporated and yes, we've got coin-operated rental machines, but inventory is limited and you've got to leave your house.

So I'm laughing. It's the cheapskates revolting.

But they've got an alternative, streaming.

 

Unfortunately, the movie business is leading.

The music business could have killed the CD, could have driven people to subscription, but afraid of the future and wedded to the past it refused to do so to its detriment. We'll see what happens now.

Carnegie's 19th century 'Cloud Storage System': a parable

Everybody knows Andrew Carnegie was a great philanthropist of libraries in the 19th century. But let us enter a fantasy world for a minute in which Carnegie sets up libraries which are made up almost entirely of books that were illegally copied.  

So now there are millions upon millions of counterfeit books stocking the shelves of newly-built libraries in towns large and small across America, Canada, Great Britain and Ireland ... and even in Belgrade. If this had really happened, is there any doubt that Andrew Carnegie would not be thought of today as a great philanthropist? Would there be any way to describe the Carnegie lbrary legacy as anything other than an unmitigated disaster for copyright and for authors?  Would it have made any difference in our estimation of Mr. Carnegie that he didn't actually create the unlawful copies himself nor was he sure that all 100% of the volumes in his library were counterfeit ?  

Why, then, is there hesitation to call Google Music Beta, Amazon cloud player and iCloud, as presently constituted without verification, an unmitigated disaster for copyright and for authors? Is this a “speaking truth to power issue”?

The dream of the buzz app with the adorable name saving copyright for all mankind (Subtitle: A long-term solution for a short-term thinking world)

"If your method is so great, why haven't I heard about you?".  

Answer:  I am not sure. Since the web is a new phenomenon, there is really nothing in history to compare it to.   What is the "way it's supposed to be done" when it comes to a problem this huge?  Tens of billions of counterfeit songs competing with paid.  Retailers like HMV at death's door.   This is unprecedented.  

Do you really think some "buzz app", with an adorable name, is going to come along and everybody's going to love it so much that they stop using their counterfeits and start paying for content all the sudden?

No.  We've got to exercise our brain muscles to find a solution.  Just like "The Revolution Will Not Be Televised",  "The Answer May Not Fit on a Bumper Sticker."

The investors in the web right now seem not to be focused on real solutions but rather on following the crowd of users.  FOMA is a big factor driving investment (Fear Of Missing Out).  (Query: Is there anything that Groupon does that somebody else cannot possibly do?)

The other problem is that the Digital Content Exchange is a new ecosystem for copyrights that helps everybody.  The stakeholders in digital media do not seem interested in doing something that helps *everybody*, they want to do something that helps only themselves.  

An exchange is defined as “a system that allows competitors to compete fairly and creates efficiency”.  Guess what?  If you are a giant stakeholder, and you have a competitive advantage, you don't want something that could potentially rearrange the competitive deck-chairs even if you are on the Titanic (like the record companies). 

And then there is short-term thinking.  As Lefsetz said this week in his column "They Should All Pay": "if you don’t think there’s short term thinking at America’s corporations read The Wall Street Journal, it’s all about quarterly profits.  Long term is almost irrelevant.  But it’s all that’s relevant if you’re a (musical) act."

So we are trying to sell a long-term solution to people for whom the long term is “almost irrelevant”. And the people for whom a long-term solution is all that's relevant by-and-large don't understand our solution because it's a smidgen on the technical side and .. after all ...  they're artists, not tech innovators.  So it is not really surprising that the Exchange is still in beta.

For the record, we've had high-level discussions with Google, the RIAA, the IFPI, the Federal IP Task Force, Apple (investment people only, not tech people).  Everyone who has bothered to understand our system has admitted, tacitly or expressly, that this ecosystem will work.  They just don't want to be the ones to bring it up to scale.  Fortunately, a lot less effort is needed now in order to bring it up to scale than a few years ago, because many of the key components that we have been recommending for the past 8 years have recently been put in place (e.g. registration, cloud storage and immobilization). 

 

A formidable DCE could be put together right now, simply with all the registration info, digital purchase info, and digital master files that already exist. If everybody who has possession of this info shared it with the Exchange.   

I'm telling you ... Users would LOVE it too.  It would be like they died and went to (cloud) heaven.  It would be the most user-centric media experience ever. But if we have to build an exchange, new user by new user, immobilized track by immobilized track  … it is going to take a while.  What can you do, from where you sit in the industry, to help get this idea out there so it can get to scale more quickly??  Or so that the idea can be just discussed?  Who in your circle needs to know about this??  Be a part of history ... Hit them up, now!

A new ecosystem for copyright-protected media

What the Digital Content Exchange (patent pending app. no. 10591416, priority date March 4, 2004) provides is a new ecosystem for copyrighted works.  Copyright cannot sustain life under the current ecosystem.   Apple's  "Scan & Match" iCloud and Amazon's Cloud Player are recent examples of attempts to "strip-mine" copyright resources and are very bad for the envronment that copyrighted works need to thrive.  (Unfortunately, the record companies, with their craving of up-front cash, are the boss of this strip-mine.)

An entirely new ecosystem is needed.  This goes beyond a business model, beyond just another new "app".  But it will work with all business models, with all apps.  A subscription service like Spotify needs a proper ecosystem just as much as a digital download service does, just as a radio station like Pandora does.

You can see an example of how this ecosystem works for music here.  But it also works for books and video, too.

If you are interested in giving this new ecosystem a chance to show what it can do, be part of the solution in any of the following ways:
a)  Explore!  Get in touch with us.  Ask questions.  We love questions. We love challenges!  And we need your input to make the ecosystem work better.
b)  if you personally are involved with music, books, or video, no matter where you are in the supply chain, cooperate with the DCE.  Share your registrations on a voluntary "opt-in" basis.  If you are the copyright  owner, share metadata about a work that you have created (among other reasons, so we can pay you!).
c)  If you are a cloud provider, please, do not allow counterfeit songs to be stored and accessed in your cloud.  Allow the DCE to verify a clean cloud for you.
d) invest in the future of the DCE ecosystem.  The sooner we can provide this new environment, the sooner artists can reassert that control over their works in digital space that is their moral right ... and things will start to look a lot brighter. 
e) become a beta tester at www.thedce.com
f) help us "scale up" by registering your library (i.e. your media collection) with the DCE.  And consider immobilizing it in the DCE "cloud" (which, until one of the big cloud companies start verifying, is the only clean cloud and therefore the only cloud that allows you to trade, sell, or lend your library.) 

And I would like to issue a challenge to anyone who is concerned about the copyright ecosystem:  The next time you are thinking about shipping a used CD or video using, e.g., Amazon or eBay ... don't!  The new owner may "rip it and ship it".  This just introduces new counterfeits into the environment.  Instead, ship it to the DCE and let your CD live in the DCE ecosystem.  Your CD will be verified, immobilized and registered in your name.  When you go to sell it to another user, the Exchange will assure a "one-for-one" exchange.  No "freebies"!!

Toward Copyright Sustainability: The DCE and the Digital Green Movement

A critic of the Digital Content Exchange recently told us “the urgency you mention will not be shared with any of the stakeholders you mention”. **

A critic probably once said the same thing to the environmental movement of the 1960s.  The DCE and Jim Yates are basically playing the same role as the Green Movement:

1. Preaching sustainability on behalf of the future.
2. Recommending a change in the way business is done which is a) difficult to implement, b) seems too costly,  and c) comes from people “outside the industry” who "don't understand how their business works" and who should, therefore, "mind their own business".
3. Saying that people have to clean up their messes (but offering a clean-up technology to do it).

It is 1968 all over again, and the “denial lobby”, aided and abetted by average people who want to continue to throw trash out the car window on the highway (people today who want free downloads), will rule for a while.  But we trust that people will eventually have their consciousness raised to the need for copyright sustainability.  Creativity itself, (nurtured by copyright ... or what else?), is at stake.

It took the green movement twenty years before anyone took them seriously when they said that "going green can actually be profitable".  And, like the green movement, we know that a digital content exchange will instantly make all the media industries more profitable, once the DCE is brought to scale.

But for right now, when Jim Yates is talking to the record industry, he might as well be Barry Commoner in 1967 talking to ExxonMobil!



**The stakeholders we most frequently mention here are the record labels, the music publishers, the artists, the tech giants (Google, Apple, Microsoft, HP), NetFlix, the MPAA, Blockbuster, the Universities under the Higher Education Opportunity Act, and public libraries.

Why I follow maverick internet inventor Jim Yates, and why you should too.

I follow Jim Yates, and here is why you should too:

1. He is an inventor who has already been very successful solving one digital age problem and is now gifting his time and energies into solving another problem that should concern all of us: that artists have lost any meaningful control of their creations because of digitization.
2. He has invented a method which monetizes a User’s valid media collection (music, video and books) and demonetizes illegal downloads by making them not forward compatible.
3. His method for dealing with illegal downloads is totally "opt in" and does no harm to either the user (who may continue to use his illegal files the same as he always has) or to any record company that may want to continue to allow access to free music for promotional or other purposes.
4. His invention works without the need for licensing ... from the record companies or anyone else.  (Though record companies can benefit greatly by becoming a User).
5. The method Jim Yates uses is exciting, and therefore fun to follow, because it has never been tried.  And all other methods that promised to “stop” illegal file sharing have been dismal failures.
6. When the peer-to-peer file sharing problem arose in the early 2000s, he began working on a solution and has both written a patent application and developed a web-based media cloud portal.
7. His background put him in a unique position to work on this problem.   In his last position, he solved the financial industry’s problem of counterfeit securities and was midwife to that industry’s complete conversion to digitization.  
8. He has twin degrees from Washington University, in both engineering and business.
9. His career has had a twin path: working in the securities industry with the New York Stock Exchange and in computer engineering.  
10. He is not from the record industry.  Or the home video industry.  Or book publishing.  If these industries had solutions from within, don't you think they would have found at least one by now? After all, they are the parties that supposedly have the financial incentive to fix the problem.
11. The earlier company he founded, Bridge Data, is now owned by Thomson Reuters.  Many of the features that are now taken for granted in financial information and securities trading were invented by him and implemented under his management of Bridge.
12. I have been using Jim’s  application in beta test for years and I am personally excited about it.  It really works!  I say that as a true record freak.  (If you have ooTunes, check out my DJ set, streamed right out of my immobilized and verified cloud on the DCE.  Simply do an ooTunes search for “Emmett”).

Don't Call Scan & Match an Amnesty: Call It Amnesty and Abolition

People have been saying that Apple's announced Scan & Match represents an amnesty to illegal downloaders  (see 1.6 million hits for scan & match amnesty)

Make no mistake:  it's not just an amnesty, it's an abolition.   It's not just what this does to past pirates.  That's a minor footnote.  It is the incentive it creates for tomorrow. 

It now behooves anyone who was buying music on June 6th to immediately STOP DOING SO, get it for free somewhere* then store it in Jobs' cloud and thereby get your music at a 99.993% discount (yes, i did the math).

The record industry is basically inviting you to do that.  Look at the statement from Frances Moore, president of the IFPI, the largest-in-the-world representative body of the four major labels:

IFPI’s chief executive, Frances Moore, told me via email that iTunes Match was “good news for music consumers and for the legitimate digital music business. It is the latest example of music companies embracing new technology, licensing new services that respect copyright and responding to the new ways consumers want to access and enjoy music.”

That's right.  She just said that a new service that even an Apple spokeswoman admits ignores copyright, respects copyright.  Brave new world.  And that "new way consumers want to access and enjoy music".  What can she mean other than getting it for free and paying a nominal amount to access it from a cloud?

In the end, what is a user to conclude but that if you pay your $24.99, your downloads are "all licensed up."?

* p2p, bit torrent, Google docs, email, rapidshare, intitle search, zip drive from a dorm-mate ... whatever ... Who knows?  Why not just develop a Limewire app for iPhone and cut to the chase?

6/21/2011 Update: Gracenote has disclosed how Apple's iTunes Match service will work when it launches alongside iCloud in the fall.  According to SAI:  "iTunes Match will not, as previously speculated, use any kind of customized new and more secure fingerprinting technology to determine what songs you have in your music library.  If you have a 128 kbps version of a song you pirated, iTunes Match will feed your Apple devices a 256 kbps version of the track.  One more thing to note: you'll be able to upload any music iTunes Match can't find to Apple server's for listening on your Apple devices."

Let's just say that (in honor of the opening of Wimbeldon) with this news it is no longer "advantage, Pirates" but pretty much "game, set, match".