Apple Schooled Music Ex...

Editor’s Note: This post is written by guest author Peter Csathy , who is President & CEO of online video enabler and transcoding company Sorenson Media . Previously, he served as President & COO of online music pioneer Musicmatch. Thus, the following is written from the perspective of a long-time media executive, and meant to be a conversation-starter. Csathy blogs at Digital Media Update . Apple’s all-in-one physical flat-screen iTV is coming , make no mistake. And, when it does, it will represent Apple’s attempt to reinvent the television experience in much the same way it did for music. But, while media execs were hopelessly naive in Apple’s presence back then, they feel they are ready this time. They are determined not to let Apple rule the premium online video world like they did (and still do) for online music. The question is, do they have the will? Apple will, of course, follow its established playbook, which most CE companies inexplicably still do not follow, and seamlessly marry its beautiful hardware (the iTV) with its underlying software and services (in this case, movies and television) in the same way it did with music via the iPod and iTunes. Apple’s goal is to be the center of the online movie and television universe for consumers (just like it is for music). Yes, content is king to Apple, but only because content serves as the Trojan Horse consumers ride into Apple’s kingdom of riches (initially Macs and iPods, and later iPhones, iPads and the inevitable iTV). Ay, but there’s the rub. The content king-makers — motion picture and television studio execs — now know this. They have seen this movie before, and this time they are determined to monetize content more directly for content sake – for themselves. Apple transformed itself into the #1 most valuable global company and juggernaut that we see today precisely because those media execs handed Apple the keys to unlock music value in the online world. Steve Jobs wooed them with his charms, pitched a great story, and established the rules of the online music licensing game. Apple’s massive growth in the past decade all started there with its iPod-iTunes 1-2 knockout punch. That, in turn, led to the resurgence of Macs, which led to the iPhone, then the iPad. Apple would be a very different company today if didn’t get the music it needed 10 years ago. And, how did Jobs’ playbook work out for the labels and musicians? Not so well. Online music sales (and royalties) were an asterisk next to iPod sales. Don’t get me wrong. Rampant piracy — and the music industry’s misplaced attack strategy — destroyed significant content value. Nevertheless, the music industry’s negotiations with Jobs one decade ago resulted in a massive transfer of value and wealth to Apple. So, what lessons have media executives learned from this past decade? Lesson #1 — Dictate the Rules of the Game, Rather Than Have Them Dictated to You. Music execs were on their heels reeling in fear when Jobs approached them a decade ago with the promise of iTunes. They had no real experience with the Internet. They certainly had no experience with technology (many still do not) – and how it could be used for both good and evil. Piracy was rampant. Napster ruled the day (the bad one, not the good one). Kazaa’s Niklas Zennstrom was public enemy #1 (now of course he is a media insider with Skype, Joost and others). The music industry was understandably panicked. Jobs promised a way out – under three conditions. First, Apple must be able to sell individual tracks unbundled from albums. Second, its price for those unbundled tracks must be $.99 each. Third, Apple must define and control the entire online music experience. The music industry capitulated, and these 3 commandments are fundamental rules of the game that still largely rule the day. Well, those rules haven’t worked out too well for music creators and owners. Lesson learned. So, one decade later, media execs are striving to proactively dictate the value of their content and support multiple online experiences and business models. But, even now, they frequently significantly under-value their content. More on that later. Lesson #2 — Never Again Put Too Much Power in the Hands of One Distributor. Prior to iTunes, piracy was rampant, and only relatively small players (including my former company, Musicmatch) played legitimately in the online music world. Amid this backdrop, media execs empowered Apple to be the first and only established online music source and experience. As a result, iTunes incredibly still commands 60-70% of all online music sales. That represents incredible power in the hands of one. It represents a downright monopoly. Media execs are determined not to allow that kind of power in the hands of any single player in the online video world. They instead are committed to fostering an eco-system of as many legitimate distributors as possible. They actively license their prized motion picture and television assets to all those willing to pay. That’s why we already have myriad established behemoths in the premium online video game. We have Netflix, Amazon Prime, Hulu, Google/YouTube, Comcast. The list goes on and on. Apple too is on that list, but it is behind the curve this time. Those same media execs who ceded control to Apple ten years ago have refused, thus far, to broadly license their crown jewels on Apple’s terms. But Apple — or more accurately, Apple’s massive hoards of cash – can be very persuasive. More on that later. Lesson #3 — License Broadly & Make the Licensing Landscape as Confusing and Opaque as Possible. Media execs aren’t panicked this time. They have a decade of learning under their belts. Yes, piracy continues to be rampant, but they now understand that it cannot simply be litigated into oblivion. The best defense truly is a better offense. Support better customer experiences, make your content available broadly to those legitimate distributors willing to pay, and experiment with business models and terms. That’s why we have over-the-top (OTT) “Internet TV” models in which content is monetized via paid downloads, subscriptions, and ads. We also have big cable’s “TV Everywhere” models in which consumers must continue to pay their monthly cable fees. And, coming soon, Google and others will become virtual cable operators that will also distribute live linear programming like ESPN. Apple too wants to be on that “virtual MSO” list, because that is the kind of premium content that ultimately moves mountains of consumers. Case in point: DirecTV’s “NFL Package.” This melange is great for the studios. No two content licensing deals are the same. Each negotiation takes place in a black box. No clarity. No certainty. Just the way media execs like it (I know, I have been there). Now THAT’s power! Right? Up to a point. More on that later. Lesson #4 — Be Audacious — After All, Content is King. Jobs ultimately taught music execs one fundamental truth – that content is THE key to unlock tremendous value online. The corollary to this is that without content, value is lost. That’s why all the deep-pocketed tech titans are lining up for a chance to play in the premium online video game. Just as it is for Apple, premium online video distribution is strategically central to their business. Apple? Sell its hardware. Amazon? Sell more goods and services. Google? Sell more ads. Comcast? Hold onto those cable subscriptions. Netflix? Survive! These players have inked a steady stream of significant licensing deals just in the past few months, the financial terms of which are almost never disclosed (remember, just the way the studios like it). But, one telling deal’s terms did slip out – Netflix agreed to shell out nearly $1 billion to stream shows from the CW Network. Think about that – if the CW can command those kind of numbers today, think about the price tag for real “premium” content like ESPN. And, we are still in the early innings of this premium online video game. Apple – with its head-spinning $100 billion war chest – is a lock to win (or at least be a massive winner in) the online video game, right? Most likely, the answer is yes. The inevitable iTVs will fly off the shelves. But, Apple isn’t alone this time. It is playing on a crowded field with other deep-pocketed and committed players (including CE guys like Samsung). Even more importantly, to really hit it out of the park, Apple’s coming iTV must be an experience. That means Apple must offer an extremely deep pool of compelling video content from the start (including sacred programming like ESPN). Otherwise, consumers will find holes, get frustrated, and look to fill those holes with programming offered by others. Each frustrated customer represents real significant loss, which is especially magnified in Apple’s case because of its closed product eco-system. For Apple, it’s not just about a single product sale (like an iTV). That sale, instead, marks the beginning or continuation of a long-term lucrative purchase relationship, which is the key driver of Apple’s stratospheric growth. That’s why Apple will be willing to strike very different content licensing deals with media execs this time around. Of course, Apple doesn’t control the content – the studios do. So, who really holds the cards here? Will the studios be as audacious as Steve Jobs was one decade earlier and demand terms that they believe reflect the true value their content creates for distributors over time? In Apple’s case, one truly audacious idea could be to seek a share of revenue for every iTV sold. Remember, not every license deal must be the same. Value means very different things to different players. If Apple, or any other online distributor, refuses to play, then they lose out. No soup for you! There are many others (including the studios themselves), but only one ESPN! Or, will media execs instead go for the quick-fix of easy money? After all it’s hard to say “no” to someone writing a big check. If they do go this instant gratification route (which is more consistent with their DNA), at least they should realize that their prized motion picture and television assets will be worth significantly more than they think in the online world over time. Avoid long-term deals! So, yes, media execs have learned their lessons well. Content is, in fact, king. Apple will continue to wear the crown, however, unless media companies have the will and creativity to take it back. After all, Apple made $46.3 billion this past quarter alone, a number that dwarfs global motion picture box office receipts for the entire year. Apple could buy Hollywood. But, will Hollywood let it? Excerpt image from SoulInTheMachine.com

I’m A New York Times Su...

The New York Times released its latest earnings report earlier this week, spurring another round of discussion about the newspaper’s paywall, which was near the beginning of this year . The consensus: Early signs are positive, but it’s not doing well enough to offset plummeting print ad revenue. What’s the solution? Well, if you listen to a number of online media pundits, it’s all about bringing more value to the most devoted members of The Times’ readership. Over at GigaOm, Matthew Ingram suggests , “Regular readers should get more than just a sales rep hitting them up for a monthly payment — the fact that they are a devoted fan should entitle them to earn rewards, whether it’s money off their subscription for interacting with the paper, or offers that others don’t get.” It’s a point he’s made before , as has Clay Shirky , who wrote that “this may be the year where we see how papers figure out how to reward the people most committed to their long-term survival.” I’m a happy New York Times subscriber, but I have to say: I don’t think The Times is doing a good job on this front, or much of a job at all. It’s odd, because NYTimes.com general manager Denise Warren appeared on NPR’s Talk of the Nation with Shirky, and she seemed largely on-board with his ideas: I think Clay has outlined it exactly right. I mean, this model was not designed to get everybody who comes to our website to pay. Clay is absolutely right in terms of the distribution of the audience, and I think this is true for most publishers. The vast majority of people come and turn one article or two articles. But there is a very loyal minority of folks who told us through rounds and rounds of research that they value the New York Times content, they’d be willing to pay to support the New York Times content. And so the key for us in this model was threading that needle – remaining open to the Web, enabling those who are coming to us for that one article or two article, et cetera, to still enjoy the content but at the same time enable those who are very loyal to have some kind of a different experience with us. Warren goes on to outline some of the advantages of a Times digital subscription — not just access to unlimited articles (20 per month is the limit for non-paying readers, though there are lots of ways around it), but also to the Times smartphone and tablet apps, as well as bonus apps like Politics and Collections, and email newsletters giving behind-the-scenes portraits of the newsroom. Now, as someone who’s constantly reading The Times on both his laptop and his iPhone, I’m happy to fork over $15 a month isn’t a bad price for those features, but I also feel like they’re a missed opportunity. As Shirky puts it, newspapers “must also appeal to its readers’ non-financial and non-transactional motivations: loyalty, gratitude, dedication to the mission, a sense of identification with the paper, an urge to preserve it as an institution rather than a business.” Those seem to be some of the main reasons people subscribed , but The Times isn’t doing much to encourage that feeling. The closest it comes is through its newsletters, but those newsletters also have the clearest shortcomings. I’ve been a Times subscriber since the program started in March, and in that time, I’ve received a total nine newsletters. And of those, five are “Innovations” emails, which function as ads for new features on The Times website — useful, maybe, but not particularly loyalty-inspiring. Emails offering “The Story Behind The Story” are better (though a still a little impersonal for my taste), but they show up about once every two months. Talk of the Nation host Neal Conan makes an interesting comment about this during his interview with Shirky and Warren: He notes that NPR has convinced one in six listeners to donate, while The Times has only convinced one in a hundred to subscribe. He later says, “If you get into the tote bag business, we’re going to have a problem.” Here’s the thing about those tote bags — they’re nice, but as NPR broadcasters constantly remind listeners, they’re not the real reason to donate. To pick an example from my local NPR station, is there anyone who would pay $144 just because it’s a great deal on a KQED hoodie ? (I hope not.) They make the donation because they love KQED, and the hoodie is a sign of their dedication. Compare that to The Times digital subscription page and pricing model, which are all about functionality — there are three pricing levels, and they reflect different levels of mobile access. That approach has its limitations — from a functional equivalent, it can be hard to justify the price, especially when you take into account the easiness of circumventing the paywall and the low price of other online services. (As a friend pointed out, it’s $15 a month for the cheapest plan, which is more than a basic Netflix subscription.) To keep The Times in business, however, I’m happy to pay $15 a month, and I’d probably be fine paying significantly more. I don’t think the basic subscription price should change (if anything, it seems a little high), but I suspect the paper could also offer higher price points without providing a dramatic improvement in the product. It just needs rewards that make subscribers feel loyal to The Times, and maybe a little special — the digital equivalent of a tote bag.

I Use Wikipedia More Th...

I just donated $40 to Wikipedia, because I promised myself I would every time I poked fun at its holiday donation drive and then just never got around to it. Did you know that you could actually donate during the off-season (Via the covert  “Donate to Wikipedia” link at the far left of each individual entry page)? I didn’t, before I asked Wikipedia founder Jimmy Wales whether it was possible to donate in the off-season. Spoiler alert, it is. My 40 bucks got me, in addition to the very sweet ‘Thank You’ letter below, the satisfaction of paying duly for something I use all the freakin’ time. Dear Alexia, You are amazing, thank you so much for donating to the Wikimedia Foundation! This is how we pay our bills — it’s people like you, giving five dollars, twenty dollars, a hundred dollars. My favourite donation last year was five pounds from a little girl in England, who had persuaded her parents to let her donate her allowance. It’s people like you, joining with that girl, who make it possible for Wikipedia to continue providing free, easy access to unbiased information, for everyone around the world. For everyone who helps pay for it, and for those who can’t afford to help. Thank you so much. I know it’s easy to ignore our appeals, and I’m glad that you didn’t. From me, and from the tens of thousands of volunteers who write Wikipedia: thank you for helping us make the world a better place. We will use your money carefully, and I thank you for your trust in us. Thanks, Sue Gardner Wikimedia Foundation Executive Director This year the Wikimedia Foundation raised $20 million during its high gear donation drive, to cover a total budget of $28.3 million — the deficit is made up in grants and off-season donations. Money raised is spent on things like servers, bandwidth, maintenance and staff. Here are the financials if you want to dig deeper. During the online encyclopedia’s blackout protest of SOPA , many off us felt the pang of “You don’t know what you’ve got until its gone” when we wanted to know something about, let’s say, Exponential Growth and that info wasn’t readily available. Google would be a bunch of spam if not for Wikipedia. I personally use Wikipedia more than I use makeup, multiple times a day. And I spend a good amount of money on makeup, AT LEAST $40 on a mascara/lippy combo. What do you use Wikipedia more than? Do the math …

HuffPo Unique Visitors ...

Say what you will about The Huffington Post and AOL, their merger has given HuffPo the resources to conquer the online news aggregation business. Today HuffPo dropped some big stats about the year since its acquisition, most importantly a 47% growth of monthly unique visitors to 36.2 million. Next it’s aiming to take down CNN and the cable news industry with The Huffington Post Streaming Network , which will stream content live on the web for 12 hours a day. HuffPo proudly announced that it added 170 editors and reporters, as well as 9,884 bloggers. Omitted was the fact that it laid off 120 editorial staff members earlier this year, and that swaths of Huffington Post freelance bloggers got the axe in favor of full-time journalists. On a brighter note, the site launched 44 new verticals, including HuffPost Green, and HuffPost Gay Voices, which are topping the comScore unique visitor charts for their categories. The Huffington Post Streaming Network, or HPSN its abbreviated, will be “a never-ending talk show” to “mirror the Internet experience” says HuffPo founding editor Roy Sekoff. 100 employees in HuffPo’s NYC and LA office will work on the project which launches next quarter, and it will bump up to 16 hours of streaming a day next year. Hollywood Reporter says there will also be on-demand clips, that the live stream will include a news ticker at the bottom, and that viewers will be encouraged to video call in and participate. Regarding the potential to become a full blown cable tv network, Sekoff said “We are happy to have it happen as long as we stay true to our format. We do not want to become like everyone else.” YouTube recently announced partnerships with 100 content providers including Reuters , Slate, and SB Nation to create original web tv series. Unfortunately, you still have to make an active choice of what to watch next when you finish a video, as shown above. HPSN is another example of the tech industry disrupting the inefficiency of old world media. Right now, news junkies have to pay enormous monthly cable bills to get a constant supply of video content. Sure they could go online and bounce from news clip to news clip, but that experience is exhausting. HPSN’s relaxing, laid back experience will work on the web, but it could be a big winner on internet-capable televisions. Disclosure: The Huffington Post is owned by AOL, TechCrunch’s parent company. Image Credit: Shutterstock – Arcady

For It Before They Were...

According to filings with the Federal Election Commission, Google spent approximately $390,000 (out of $3,760,000.00 total) on SOPA and PIPA lobbying including efforts to educate lawmakers on SOPA and the DMCA. The question, then, is whether the massive search and advertising giant was for or against the bill – and why so much money was spent to argue the case. The document, available online in PDF here , is fairly succinct and covers a number of topics, thereby explaining the massive cash outlay. Here’s the specific mention of SOPA: S. 968 – Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011; S. 978 - Commercial Felony Streaming Act; S. 2029 – Online Protection and Enforcement of Digital Trade Act; H.R. 3261 - Stop Online Piracy Act; Digital Millennium Copyright Act service provider safe harbors; Trans-Pacific Partnership. The document also mentions a number of other lobbying topics including “Regulation of online advertising; privacy and competition issues in online advertising” and “Renewable energy policies” so it’s not all SOPA all the time over at Google’s New York offices. However, there is a key word missing in the filing – whether Google was for or against the bill and what, if any, opinion they injected into the lobbying effort. Google was unavailable for comment for this piece but it’s clear that most organizations with a dog in the fight spent some money on lobbying. Wikimedia spent a mere $10K on their efforts , at least according to documents we found. The MPAA made its interests clear in the media but less clear in FEC filings , pouring in $850,000.00 in lobbying money while mentioning nothing of its stance. According to one reader who performed a bit of data mining on the documents , top spenders are, in order: RIAA $535,750 The Information Technology Industry Council $390,000 Google $312,500 CSC Holdings $295,000 Comcast $265,816 These numbers are clearly elusive. There’s no value in admitting your position in these documents and clearly there’s no requirement. All we have is a trail of cash going from company to lobbyist to politician. What is said during these glad-handing sessions is unclear, but given the predilections of some of the filers, assumptions can be made. More interesting are these numbers on the aggregate. While we don’t know what was said, the $1,799,066 represented above talks and it’s clear big business has more resources to pass favorable legislation than any nerd army massing online at SOPA’s gates.