IPac was formed to fight for a more balanced intellectual property
policy, but we also hoped to shed some light on the often mysterious
legislative process. We wanted to investigate how the "sausage
factory" really works.

This month, I'm pleased to report on one example where the legislative
process really did work as it should. As most of you know, last
session Senators Hatch and Leahy introduced the INDUCE act, a terrible
piece of legislation that would have significantly chilled
technological innovation. Fortunately, a coalition of groups were able
to stop INDUCE from passing. Senator Hillary Clinton (D-NY)
cosponsored this bill, and I recently met with a member of her
legislative staff, Mike, to talk about it.

Mike related some very heartening news: after initially cosponsoring
the bill, Senator Clinton heard all our objections loud and clear and
took them to heart. In fact, since then, she has been asked about
this issue countless times when she has spoken on college campuses.
Hearing the opinions from college students and other citizens, her
office has decided to be "much more judicious" about getting behind
similar measures in the future.

There are going to be a lot of difficult legislative battles to come.
And I hope Senator Clinton will be on the right side of these issues
in the future, though we won't know until the time comes. But I wanted
to relate this story because it shows that our elected officials
really do listen to all of us, and not just those of us who are
well-connected or contribute large amounts of money. Actually, when it
comes to issues like IP, most legislators' minds aren't made up, and a
little educating can go a long way.

I want to encourage all of you to reach out to your legislators -
whether writing letters or actually taking the time to try to get a
meeting with a member of the legislative staff. Ask your
Congressperson and Senators how they feel about these issues, and let
us know what they say. We'll post responses here on the blog.

I'm working on a longer research note on DVDs and CDs, but this excerpt suddenly became relevant, in light of a few WSJ and NYT articles yesterday.

Here's an early look at (hopefully) next week's release:

D R A F T It may be instructive to look at the pricing model of DVDs for insight into what has happened in the CD market. In case you were unaware, the film/TV industry uses a very different pricing strategy than the music biz.

Studios release far less product each year then the labels, with major film releases numbering in the 100s versus 25,000 or so annual CD releases.

Films have a model where they typically are released from the highest revenue generator down to the lowest. Another way to describe that progression is a dynamic pricing structure going from highest paying users to lowest.  Starting with theatrical release (movie theatres), moving next to pay-per-view, and than premium cable (i.e, HBO). After the premium cable run has begun (or ends) is when typically DVDs get released for sale (or rental) to the public. Eventually, movies make their way to basic cable, and lastly, to broadcast TV. (Somewhere in the middle is overseas release, but for our purposes, that's more of a parallel track).

DVD sales do not rely on a static pricing model. They are initially released at a price point consistent with expected demand. After a short period of time, prices drop, and in some cases, significantly.

A few recent film and TV examples may be instructive. The Seinfeld Collection (Seasons 1&2, and Seasons 3&4) were originally released before Thanksgiving (November 29, 2004), and sold for $49.99 at retail. As the Christmas holidays approached, prices were no less than the $44.99 level. Shortly after the holidays, sales as low as $39.99 were seen. Towards the end of March, Amazon (AMZN), Target (TGT) and Circuit City (CC) all advertising both sets for $29.95 a piece.

Pricing is a combination of popularity (demand) and age (supply). The older a release is, the more its available on the secondary markets. Let’s look at a few recent animated films: Older movies, such as Shrek, Ice Age and Antz are all $10 today. More recent films, such as Finding Nemo or Shrek2 are $14.99 and $15.99 respectively. Films fresh out of the theatres, such as The Incredibles, are $20.

Traditional films (live action) are priced similarly. Older releases such as School of Rock, Titanic, or Forest Gump are $7.50. We see more recent features such as Kill Bill  1(and Kill Bill 2), Lord of the Rings, Bourne Identity, Gladiator, and Master & Commander sold for $10.

But its not  just a function of age:  Certain older titles never seem to drop below $10 -- recently films of acclaim like Pulp Fiction, or Saving Private Ryan, or older classics like Ben Hur or Ten Commandments -- despite their age. Its a function of popularity and hence, demand.

Ironically, many of the films mentiooned here now sell for less than their soundtracks. Two hours (or longer) of a movie, plus additional audio commentary, a documentary of the making of the film, outtakes, special features etc., all cost less than a mere 45 minute audio only songs from the film.

We've stated this before, but it bears repeating: Consumers have very quickly figured out that CDs are a peculiarly weak value propostion. Is it any surpise that CD sales have slid while DVDs have grown explosively? How is it that the widespread availability of films on Bit Torrent haven’t dented their sales? A simple possible explanation is pricing structure.

By pricing DVDs strategically, the film and television industry captures marginal sales and maximizes revenue. The only comparable pricing structure in the music industry are budget CDs. These are typically much older than the DVD price discounts (6 months versus many years). Even worse, they are packaged differently, specifically marketed as “budgetline” -- with less desirable cover art and labelling. (There’s nothing quite like sending a message to your price sensitive clients that you are 2nd rate consumers, and we hardly value your business). 

Compare the differening approaches the two industries take. DVD sales are dynamically priced. Sellers are aware they have price sensitive consumers. They offer the exact same product -- albeit on a less timely basis.

CD sales are static, maintaining the same price over the life of a disc. On those select discs when price discounts do occur (budget line), the industry purposefully makes changes to make the product less desirable.

DVD sales in the secondary market have grown dramatically, paralleling the explosive growth of DVDs themselves. But the ongoing discounting process continues, with prices sliding as low as $5 per DVD. This dramatically reduces the impact of the secondary market.

More on this, and an some interesting conclusions via our study of secondary markets, next week.



Other Sources:
For Those of You Who Wonder How That TV Show Began
DAVID KOEPPEL
NYT: March 21, 2005
http://www.nytimes.com/2005/03/21/business/media/21dvd.html

What's on the Flip Side Of That CD? Increasingly, a DVD
Ethan Smith
The Wall Street Journal, March 21, 2005; Page B1
http://online.wsj.com/article/0,,SB111135876878284547,00.html

The Music Goes on Side A and the Flip Side Is a DVD
ROBERT LEVINE
NYT: March 21, 2005
http://www.nytimes.com/2005/03/21/business/media/21dual.html

Here's something enormously gratifying: A front page WSJ article about why Radio sucks.

The reporter even got the cause & effect right. Satellite and iPod's successes came about because Radio was so bad. Even my whipping boy, The 1996 Telecommunications Reform Act, catches blame. You can also see the impact of the Wired article (mentioned here earlier in the month) on the overall flavor of the piece.

While I place a lot more emphasis on the actual reasons for the migration away from radio, this piece is very much in the Big Picture spirit. As someone who has been kvetching about this for years, I am very pleased to see this front page WSJ coverage.

One thing I note as missing is a discussion of the long term generational effect, and the threat to a possible radio recovery: Since 1996, radio's decay has led to an entire generation of listeners who have essentially written off radio (at least, when it comes to music).

The other key issue: Radio as a source of new music, and its relationship to the labels. (Not really discussed). It used to be part of the draw -- a relationship with a trusted DJ who plays music you like, combined with introducing you to new songs (trust is the key component in granting someone taste-maker status).

I do not see how merely imitating the iPod's shuffle feature will do the trick. Walk along the beach this summer -- there are hardly any radios blaring -- a peaceful easy feeling eerie quiet, and lots of white headphone cords.

We discussed the The Hamburger Helper Effect previously. What will undo a complete shift of media consumption habits of an entire generation of listeners? Can the broadcast industry recapture these lost ears? (I dunno). If they can, then what will they have to so in order to bring back their lost audience?

1) Is it even possible; b) how they might accomplish that trick?

I'm not sure that anything short of a massive unwinding of radio concentration, and a return to local managers, program directors, DJs and playlists will undo the damage. Even then, you have to win back the listeners who felt betrayed and abandoned.

The 1996 Telecommunications Reform Act provides us with yet another example of the law of unintended consequences . . .



The full text of the article is here.

Jerry Del Colliano has an interesting column on the Shuffle feature of MP3 players. (We've previously discussed this in "iPod shuffle = new radio ?").

Is it a case of technology triumphing over creativity? With the effects of radio consolidation run rampant, frustrated listeners have turned to alternatives like the Shuffle, as well as internet radio.

Colliano wonders whether this is a good thing. Features such as Shuffle plays back only songs we know and like -- but avoids finding the new, the unknown, the challenging:

"But when we look at the music industry as a whole, is Shuffle a copout? Shuffle allows us to pick songs we know and love and make them sound new again. This is in direct opposition to the idea and passion of finding new music to fall in love with instead of sticking with the familiar classics. The download model, which drives the Shuffle concept, has given a vibrant new life to the once-mighty single market."

I find that the success of shuffle is not so much the result of a technological triumph -- rather, it marks one business failing (terrestrial radio) being replaced with another business success (iTunes, iPod, Sat radio, Net Streaming). Radio consolidation marked the death knell of local, innovative, intelligent music programming over the free airwaves. And the Technology Industry has stepped in to fill the void.

What does this mean for the music industry going forward -- or in fact, going backwards. The album model is being subverted once again for a singles model:

"For decades in the classic rock period, you were compelled to buy an entire album, not just a single. Can you imagine just buying “Comfortably Numb” from Pink Floyd’s The Wall when you didn’t own the entire album? Today, the iPod generation does just that. Does the newly-found ability to buy download singles and the major labels’ willingness to sell music in this model help to create great new records? Ask yourself this question: how many truly great (I mean a 10 out of 10) albums have you bought in the last 15 years? How many of those records were released in the last few years? When you do spring for an album, how often do find that there are only one or two good tracks on it? How often do you wish you hadn’t bought that album you thought you would like for $15 when you could have bought a DVD movie for $24 that you are almost guaranteed to like?"

The one thing I have to take issue with Colliano on is the "10 CDs."

As we noted at the end of 2004, there are plenty of terrific CDs.

You just don't hear them on the radio . . .

>


Sources:
The Shuffle Phenomenon – A Technological Fix For a Creative Problem?
Jerry Del Colliano
The Audio Revolution, March 10, 2005
http://www.avrev.com/news/0305/10.shuffle.html

And Now For Some *Real* Radio
Mark Morford
SFGate.com - Wednesday, March 9, 2005
http://sfgate.com/cgi bin/article.cgi?f=/gate/archive/2005/03/09/notes030905.DTL&nl=fixMark

A music producer turned scholar proposes Canada create a system of 5 cents/song download prices, boosted by revenue from sales taxes. Whether you think this plan has merit or not, the reporter relates a very illustrative comment from "another record-industry type": "Why not charge 10 cents, instead of 5, and double the revenue?"

Anyone who has taken basic economics knows that demand curves are downward sloping - the higher the price, the lower the quantity sold. So fewer songs would be sold at 10 cents instead of 5. Except the music industry seems to think that demand for music is very nearly inelastic, and therefore they should simply charge as high a price as their customers can bear. Only monopolists can actually do this. And as a consequence, the reputation of the record companies continues to sink, people do buy less music over time (since the demand isn't so inelastic in the long run), and the industry blames filesharing.

A little grasp of basic economics could go a long way.

From Interesting People (Prof Farber's listserv)

I just noticed the cool WIRED story "Around the World in 80 Clicks" about NASA's World Wind open source app that displays 10 terabytes of Earth imagery on demand so I thought I would give it a spin (heh).

The story says "...When project manager Patrick Hogan unleashed World Wind, one of NASA's servers collapsed under a deluge of download requests - 100,000 a day - and the service went offline. This spring, it's back, with a bigger server..." and a BitTorrent link!

It's nice to see USA government scientists making use of P2P to save taxpayers' money.

Fiona Apple's unreleased new CD, Extraordinary Machine, had 5 tracks pre-released on an AngelFire page. The host was quickly thereatened and the tracks were removed.

Yes, I grabbed them for myself. No, I won't make them available. I'll bet they are widely availalble on Kazaa/ Bittorrent already.

Here's the thing: This is her most compelling music since Tidal. Its intriguing, ambitious, oddly haunting -- and beautiful.

I want to hear more. Indeed, only having access to the first few tracks is a major tease. I must buy this when its released. >

UPDATE I:
Here's where things get interesting: It turns out Apple's label (Sony) isn't releasing the CD -- they have had the masters since Spring 2003. Rolling Stone notes that the album has been "indefinitely shelved", deemed too non-commercial for release by the brain trust at Sony.

If you go to Fiona's site (via Sony's page) and click on Fans, there is an ongoing discussion about getting the CD released. There's even a website, freefiona.com, dedicated to prying the CD free from Sony.

Thus, we see yet another valuable usage of P2P -- it provides artists a way around their lables when they get heavy handed or take advantage in a contract dispute. We won't have to wait very long to find out if this was yet another "accidental" P2P release. I have no doubt this was a purposeful tactic by Fiona or her management/producers . . . (It does not look like a publicity stunt, but if it were, there would be a major backlash).


UPDATE II:
As I was thinking about the title -- Extraordinary Machine -- I came to realize that it referred as much to P2P as it did the the name of the disc.

Consider:  P2P allowed a frustrated artist in a struggle against a
titanic company to reach her fans. Not only did she disintermediate the
label, bypassing them to go right to the end consunmers of the music, but the "Extraordinary Machine" leveled the field in a David versus Goliath battle.  (And now there are at least 7 tracks floating around).


Intriguing . . .



UPDATE III:
Incidentally, I knew none of this when I first came across the tracks earlier this week. I merely thought they sounded great.

Now I learn that this is unavailable by a conscious decision made by her label not to release this -- as too non-commercial. That's simply unreal to this music fan.

The Freefiona.com FAQ notes:

Why does Sony/Epic think her new album won't sell? Didn't her last two albums go platinum? Yes, Tidal and When the Pawn... are both RIAA certified platinum in the United States. Sony Music recently replaced chairman and CEO Tommy "Love ya, baby!" Mottola with former NBC president Andrew Lack, a businessman with no prior music experience. He immediately shifted Sony Music's focus to pop and hip-hop acts that are traditionally bigger sellers. The master recordings of Extraordinary Machine were sent to a warehouse, where they remain to this day.

Is this industry not its own worst enemy? I do not like to draw broad conclusions from mere anecdotal evidence -- but damn, these people are frighteningly incompetant.

I am astonished at this poor judgment. Quite frankly, the music industry's corporate management is simply too out of touch, clueless, and -- too *#$%ing dumb -- for the business to survive in its present form. Something must change -- and thanks to technology, actually is.

At this point, putting them down is akin to shooting a horse with a broken leg . . . its more merciful to put it out of its own misery. I>

UPDATE: March 17, 2005, 5:57am
Mark Morford of the San Francisco Gate weighs in on Extraordinary Machine: Who Will Free Fiona Apple?


Sources:
FreeFiona.com

In Brief: Fiona Apple aired
Rolling Stone, Posted Mar 01, 2005

Fiona Apple's Extraordinary Songs Leaked On The Radio
Seattle station the End 107.7 played five tracks from the unreleased LP.
MTV,  03.01.2005 3:07 PM EST

Downloading is killing the music industry. At least, that's their claim.

But consider this:

"Since the release of Give Up early last year, Sub Pop records has offered the Postal Service's two lead singles available as free downloads on their website, and they've sold more than 300,000 copies of their album. Despite the fact that the songs have been downloaded for free 1.5 million times since then (or more likely because of this), Such Great Heights and The District Sleeps Alone have both been in the top 100, sometimes at the same time, on the iTunes Music Store for the past several months.

But I've worked with the music industry in the past... I'm pretty sure they still think we're all a bunch of thieves."

-anildash at September 23, 2004 01:14 AM

I first mentioned Postal Service in A Different Kind of Top 10 Music List For 2004;

The Postal Service downloads mentioned above can be found here. For those of you too lazy to click to a new page, the two songs are linked here:

The District Sleeps Alone Tonight [MP3 5.43m]

Such Great Heights [MP3 4.07m]

Also, be sure to check out the live performance in the KCRW studio (real video).

Oh, and all of these sources are legitimate authorized by the label/artists downloads . . .

If its Tuesday, then we are talking about Tunes.

The following is a result of a discussion with a friend who has decided to go all digital -- no more polycarbonate discs (CDs). Here's what we nded up with:

Downloads (paid, of course)

Bad
- Inferior quality to CDs
- Little album art or liner notes (iTunes provides a cover shot)
- No disc for permanent storage (but can be burned)
- Online service dictates where the music can be played
- Online CDs cost as much as those purchased in a retail store

Good
- Buy only the wanted tracks
- Make purchase without leaving the house
- MP3 players are small, easy to carry
- 10,000 songs in your pocket

CDs (those polycarbonate discs)

Good
- High-quality, uncompressed tracks
- Play them anywhere, on any CD player
- Can be copied to a PC and duplicated for playing in the car, office, etc.

Bad
- Forced to buy unwanted tracks
- Price fixing by manufacturers leads to limited retail competition
- Expensive, with over-priced unit cost

Rentals

Good
- Lower upfront costs - $14.95 a month
- Enormous and ever changing selection of music

Bad
- Have to pay forever
- Limited as to what devices can play the tracks

>

Sources:

The Big Picture
http://bigpicture.typepad.com/comments/

THE online REPORTER
February 19-25, 2005 - Issue 432
Published weekly by Rider Research