MP3 Challenges Business Model

We assume iSuppli is not far off the mark in publishing this forecast of MP3 player shipments. And since the Recording Industry of America seems intent on declaring war on sideloading of music, one assumes the goal is to take control of the revenue model for MP3 downloading, forcing users to pay for downloads rather than sideload.

While acknowledging that there are copyright issues involved, there also are technologial issues. Precisely to avoid its use as a mass copying device, every Apple iPod, for example, allows linking to each iPod to just one PC and its hard drive. Which is fine if one's hard drive or CPU or input devices never fail. If a user's PC does become unusable, any iPods linked to that PC now have a problem. They no longer can sync. Which means the devices are permanently loaded with exactly what is already on them, or must be erased and synced to whatever new PC a user designates.

That means reloading all of the original collection of music.

Alternatively, if one loses the use of the MP3 on which purchased downloaded music has been loaded, there might be no legal way to move the music to an alternate MP3 player when the original MP3 player itself dies.

Both of these sorts of technical issues must be confronted by MP3 music users. In essence, the Recording Industry of America argues one should be able to buy a music CD, but only be able to play it on one device: a home audio system but not on one's vehicle audio system, for example.

There are copyright issues here, to be sure. But there also are major end user technology issues dealing directly with personal use of legally-obtained music. And the ability to copy is essential is a "purchase" is to be anything other than a "rental." In other words, if a user "buys" a song, but then cannot transfer the song to another playback device when the original hard drive dies, is that really "ownership" or simply a "lease of unspecified but limited duration."?

Music Industry Fights Legal Music on iPods, PCs

How long can an industry that sues its own paying customers thrive or survive? In what appears to be an escalation of on-going legal efforts, the Recording Industry Association of America has sued Jeffrey Howell, a Scottsdale, Ariz., man who kept a collection of about 2,000 purchased music recordings on his personal computer, reports Marc Fisher, Washington Post staff writer.

The RIAA argues it is illegal for someone who has legally purchased a compact disc to transfer that music into his or her own computer. By extension, one would assume the RIAA also opposes sideloading music onto an MP3 player.

That is going to be problematic if digital music downloading continues to grow, as iSuppli and virtually every other research outfit argues.

The RIAA argues that the MP3 files Howell made on his computer from legally bought CDs are "unauthorized copies" of copyrighted recordings.

The Howell case was not the first time the industry has argued that making a personal copy from a legally purchased CD is illegal, says Fisher.

But lawyers for consumers point to a series of court rulings over the last few decades that found no violation of copyright law in the use of VCRs and other devices to time-shift TV programs; that is, to make personal copies for the purpose of making portable a legally obtained recording, Fisher notes.

Digital media has proven to be a headache for copyright holders, to be sure. In a previous era where only imperfect analog copies could be made, and recording was cumbersome, the issue was inherently limited in scope. Digital technology of course creates an infinitely-bigger problem, in part because copies are identical and because it is much easier to copy.

The problem is that common sense suggests one should not have fewer rights in a digital domain than in the analog domain being displaced. That is to say, one should not find that legal personal uses of media in the analog domain are illegal in the digital domain.

That's essentially what the RIAA is arguing. There' a "moral hazard" here, as economists might describe it. If any established code of conduct, law, regulation or practice is routinely violated often enough, behavior changes. What formerly was seen as "prohibited" now is seen as "right."

While it is understandable that the RIAA wants to protect a business model, it isgoing about things in an ultimately destructive way by making war on its customers. The RIAA might think it is within its rights to restrict copying of a single user's legally-bought music to that user's own MP3 player. Users do not agree.

So by insisting on defense of its rights, seen as a violation of fair use by users, the RIAA creates a climate of greater "lawlessness," as users simply will lose all respect for the RIAA's position.

Open Mobile a Game Changer

There arguably are as many threats and opportunities as mobile carriers move towards more-open networks and terms of use. Not all customers will want all that much control over their experience, devices and services. Walled gardens work well where optimizing a complicated user experience is necessary. iPod offers a salient current example of that approach.

Others will want nothing so much as a mobile version of the Interent. But most users will be found in between those two poles. For many consumers, the ability to unbundle the device purchase decision from the service provider will be change enough, as has been the case in European markets where such unbundling is commonplace.

The open networks trend will more troubling for carriers to the extent that more users may want to use their mobiles just like they use their PCs to access apps and services delivered by the Web.

The business challenge there is the same one carriers have faced in the wireline broadband access market. They have a pipe business based on "access." Beyond that it has been tough to monetize the access.

It isn't clear yet how the user expectations about payment models change over time. For some, there will be a permanent change in thinking about devices. People will own the devices they want and then select access and transport services separately, much as they buy their own PCs and buy broadband access from any number of suppliers.

Just as clearly, some will prefer to have their handsets subsidized in exchange for service contracts.

It is clear enough that mobile applications will explode, much as they did when the broadband-accessible Web was popularized. Carriers will sell lots more data plans, and bigger data plans. Beyond that is where the business models will have to be developed. Right now, it's hard to determine whether this is primarily good or bad for carriers, as much as it is clearly good for end users. Obviously there is new thinking by carrier executives that the trend now is inevitable in any case, and offers the possibility of rapid applications development that will drive the attractiveness of mobile broadband access itself.

AOL Shuts Down Netscape

In what might be seen as a successful open source transition, AOL is shutting down its support efforts for the Netscape browser and encouraging Netscape users to switch to Firefox, the Mozilla-powered browser.

AOL acquired Netscape Communications Corporation in 1999. By 2000 AOL had launched the Netscape Communicator Web suite, otherwise known as Mozilla. The Netscape 6 browser, the first Mozilla-based, Netscape-branded browser in 2003 was supported by the independent Mozilla Foundation.

AOL was a major source of support for the Mozilla Foundation and the company continued to develop versions of the Netscape browser based on the work of the foundation. Perhaps AOL has succeeded.

By most estimate Microsoft Explorer holds about 66 percent market share while Mozilla has about 25 percent. Netscape currently has one percent or so share.

Video Penetration Higher than We Think?

By some estimates U.S. cable video penetration is in the mid-60s, at the upper level at 70 percent. Satellite video is said to be between 25 percent and possibly 28 percent. And yet at the same time some estimates show "no provider" other than over-the-air transmissions for as many as 26 million homes, something on the order of 23 percent of U.S. households.

The numbers don't square, and there are few explanations other than false reporting by cable and satellite operators; incorrect housing statistics or much-higher-than-expected numbers of homes where consumers are buying multiple subscriptions. False reporting of those sorts of numbers is so unlikely as to be implausible. One has the impression that consumers tend not to buy both satellite and cable video service. Try and think of someone you know who does this.

One can make the argument that multichannel video subscriptions are nearly 100 percent, or as low as 75 percent. So things are better or worse than we might think. It is hard to tell which is the case.

HDTV Transition Issues: How Big?

This summer, the Consumer Electronics Association estimated mid-year 2007 that 16 million high-definition televisions would be sold during the year, bringing the total number of HDTVs sold in the U.S. to 52.5 million.

Thirty percent of U.S. households had an HDTV in the early summer of 2007, likely rising to 36 percent by the end of this year. Among these HDTV households, almost a third own more than one high-definition set.

The issue is what happens as the analog TV broadcast shut off occurs in February 2009. Most surveys show a fairly high degree of consumer confusion about the coming change. That, in turn, has some observers calling for more vigorous programs to prepare the market.

The problem might not be as big as most people assume, irrespective of "awareness." For starters, most TV watchers in the U.S. market get their video from a cable or satellite provider.

Estimates of overall cable penetration range from 67 to 70 percent. Satellite providers have 25 percent penetration or more. Telcos aren't much of a factor yet, but the salient point is that these providers have a vested interest in making sure their customers remain customers, and will undertake most of the actual customer notification and equipment upgrade tasks when the time comes.

Some of those customers already get 100-percent digital signals using a decoder already in the home. Others already are outfitted with HDTV decoders as part of the upgrade process cable operators actively are pushing for "digital TV" tiers of service.

True, there are some viewers who get their signals over the air, and who will not own HDTV tuners by the analog shut off date. That's an issue, but affects a sub-set of over-the-air TV viewers.

User Generated Content Catches On

Some 40 percent of 2,200 U.S. consumers between the ages of 13 and 75 surveyed by Deloitte & Touche are making their own entertainment by editing movies, music and photos. You might not be surprised that 56 percentof all Millennials (ages 18 to 24) do so. But you might find it interesting that a quarter of users (65 or older) do so.

More than one in 10 Millennials are actively uploading their own videos on the Internet and 51 percent of all survey respondents are watching or reading content created by others. Some 71 percent of Millennials watch or read content created by others while 56 percent of Gen Xers do.

About 53 percent of Millennials say they would download more videos if connection speeds were faster.

But the survey also shows that traditional media, including television and magazines, remain part of the user mix. About 58 percent of Millennials say magazines help them learn about what’s “in.” Also, about 64 percent of users say they tend to pay greater attention to print ads in magazines or newspapers than advertising on the Internet.About 58 percent say they use magazines to find out about what's "cool and hip," such as clothes, cars and music. Perhaps more important, almost three-quarters (71 percent) enjoy reading print magazines even though they know they could find most of the same information online.

Millennials, though, are most receptive, as you would guess, in just about any area of "converged" or "new media" experience. About 64 percent want to easily connect their television to the Internet for viewing videos and downloading content to their television. About 60 percent want the ability to move their content to any device they own without any problems. Some 57 percent want an entertainment and communication device that lets them "do everything." Nearly half (49 percent) want a computer or similar device that will be the center of their household media experience.