Middlemen

They've been around for a long time now.  They're around in almost every market segment, taking their slice of transactions.  Lawyers are the middlemen between to parties in a legal dispute.  Grocery stores are the middlemen between farms and consumers.  Up until now, record labels have been the middlemen between musical artists and their fans.

Bringing two people together to do business has always been a hard thing to do.  Direct contact between buyer and seller is almost always the best, but sometimes its just really hard to connect.  Enter the middleman (or middlewoman).  New middlemen are popping up all over the internet.  Social networking sites are the middlemen between people trying to connect.  Sites like Digg and Technorati are the middlemen between Bloggers and readers. Google is now the middleman between just about everything (content) and everyone (searchers).

Which brings be back to the record labels.  It used to be if you wanted to make music and get it into the hands of your fans, you pretty much had to go through a record label.  What did the record label really do for you though?  For the most part, they did some advertising, and they got your Vinyl / 8-track / Tape / CD from you to record stores, and then into the hands of your fans.  

With the costs of producing music plummeting, and the ability to do your own advertising and distribution, where's the value from the record labels anymore?

Death of a Record Label

I predict that within 50 years, maybe less, the record labels will look nothing like they do today.  Oh they'll probably manage to hang around, but instead of the media titans they are today, they will be relegated to online bit bucket hosting and credit card processing.  That's really the only thing that's a little bit hard to do still.  The real power will be in the internet's new middlemen.  Google, iTunes, Amazon, these are the places where fans go to look for music these days.  What music fan goes to Universal's website to look for new music?  Bands in the future will simply check the 'music host' option from their local internet service provider, register with iTunes, and then do some advertising and play shows.

Will this mean the end of music superstars?  Probably not.  I think it just means that hype will die down, and only the bands with true talent will last long enough to get their music into enough fans hands to be called superstars.

Will there be more bad music out there?  Probably.  However social networks, peer ratings and the collective audience will quickly sort the good from the bad and allow you to find good music that you like.  Sites like Last.fm are doing this now.

So there's my prediction.  I'll check back in 50 years and see how I did.

NBC To offer video download service

The New York Times is running a story about NBC offering their own video download service this fall. So it looks like NBC is wanting to get in on the download action directly. At least they're not trying to hide their reasons for it.

“We did this to eliminate the middleman,” said Jeff Gaspin, the president of NBC’s digital division.

NBC seems to be waking up to the fact that the business they are in is media distribution, and that the distribution model has shifted online. Apple saw this much earlier and jumped on it. Now that the model has proven successful, NBC is looking to go it alone.

It will be interesting to see how this plays out. Initially NBC says they will offer shows free for download just after they air. It looks like you only have one week from the air date to download and watch it however, and then it seems they won't let that episode be downloaded. The downloads themselves will be restricted to Windows-based PCs, and will stop working after seven days. It's unclear if that's seven days from the day it is downloaded, or seven days from the initial making available after the air time. This sounds like it makes it impossible to pick up a new show mid-season, then go to NBC and back sample the earlier episodes. If you really like a new show you'll have to hope for re-runs, or buy the DVDs at the end of the season.

It doesn't sound like the free part will last long however. From the NYT article:

But NBC intends to transform the service into a model similar to iTunes by the middle of 2008 - that is, consumers will pay NBC directly to download episodes of the shows.

I will have to reserve judgement on the pricing until it is announced, but I'm not optimistic. One of the rumored reasons for the NBC-iTunes breakup was pricing, that NBC wanted to charge more. I can't really see how NBC expects to charge more that Apple's $1.99 per show, especially if the shows are really only rented for a week.

I will have to test this out on a Windows machine at work, since I don't have one at home. I'll be curious to see if NBC can put together an offering that is as easy to use as iTunes. I'm a little worried about the implications for 'TV Video' downloads if NBCs model proves effective. It seems each of the old guard Networks would likely follow suit with their own video download services.

Apple got out in front of all the old guard media companies, and quickly became the new network, the new aggregator. As a customer, I don't really care about NBC, or Apple. What I care about is a simple, direct path from the content creators to me. If NBC can pull this off, and I can still watch Battlestar Galactica on my schedule instead of theirs, more power to them.

iPhone Price Drop - Go For Market Share

A lot has been said about the recent iPhone price drop. Fairness aside, I think that the price drop is signaling a shift in Apple's overall strategy that's been happening slowly ever since the first iPod was introduced.

Apple is going for market share.

The 90s were plagued by Apple executives creating niche products and being happy with their great profit margins. However the iPod success has given Apple a taste of what its like to be the market leader. Apple sees another opportunity to become a market leader in the phone space, and they know they have to compete on price. Sure they could have held the price of the iPhone high through Christmas, and probably would have ended up making more money, but selling fewer phones. The price drop indicated Apple's desire to sell more phones, not necessarily to make more money. Apple is learning from watching other companies dominate in other markets. Step 1, become the de-facto standard, worry about profits later.

Apple has a long, long way to go to become that standard, but they have a shot at least. Nokia, Motorolla, Microsoft, Blackberry, Palm, etc all have a piece of the pie right now, but it would be hard to argue that any one has become a standard in the way that the iPod has. I don't know if Apple will succeed in this market, but the price drop indicates that they are going to make a serious push to dominate it.

Music vs. Motion :: Rent vs. Own

(reprinted from my other blog - Nov 2006)

Much has been said on the different models for the various online music stores. Here is my personal take.

Music and video are two very different mediums. Music occupies one sense: sound. Perhaps you could say it occupies touch also if you turn the music up loud enough, but sound is the primary sense. Video occupies two senses: sight and sound. As a result, there are certain activities where you can listen to music, or watch video at the same time, activities that occupy different senses.

Lets take music first. Since it occupies only one sense, sound, we are free to use our other senses for other activities. We can look at things. We can move around. We can't really listen to music and talk on the phone however, those activities overlap senses.

Video is more complex. It occupies two senses, sight and sound. We can't really look around too much, or we miss the video. Moving around is also awkward since we must split our attention between the video and not bumping into things. Running on a treadmil is ok, since we're not really in danger of running into things.

If we look at the activities when one listens to music, we find that in the majority of them, the music is secondary in nature. Riding a bicycle, or driving an automobile; music is there, but it is a background activity. Our primary focus is on a different task. Video on the other hand is usually the primary task. We sit down to watch television, we go to a theater to watch movies. We generally don't do much else while watching the video. Perhaps we eat or drink, but these are momentary, fleeting activities, and still secondary in nature. Exercise might be one of the few activities that could be considered primary while watching video might be secondary.

The frequency of consumption of these two media types takes different forms. Most music, with the exception of classical, tends to be fairly short. Even classical compositions rarely reach the length of a television show or movie. These smaller chunks are more easily consumed, and on a more frequent basis. We can listen to the same song three to five times a week, and not think much of it. Most of us probably enjoy it. However we probably will not watch the same movie that often, much less a television episode, or even a music video.

Since the associated activities, and consumption frequency of these two media types are so different, might our ownership and sales models also be different? Consider the successful iTunes Music Store. Their model for media sales is ownership. We pay Apple a one time fixed cost, and the media is given to us and we own it. (Well we own a license to use the media, but it's a very long term license) We can listen to a song as many times as we want, and we never have to give Apple another cent. Now consider other online media stores. Napster, Rhapsody, and others heavily favor a subscription model. We pay them a monthly fee, and can listen to as much music as we want each month. If we stop paying, we can no longer listen to any of their music.

Now for me.

I like owning music. It takes a lot for me to add a new song or new artist to my library. I listen to my music a lot. At home playing games, on my bicycle, in my car, at work, etc. I probably loop through my music library once ever week and a half or so. The songs that are in my main playlist however I really like, and I want to have them come up in rotation every few days.

Video is another matter. I perhaps own 20-30 movies on DVD. The last time I watched one of them was 2 months ago (Star Trek II: The Wrath of Kahn). I watch a fair amount of television. I got really into Farscape and Angel, and bought a few seasons of them on DVD. I watched each episode once and haven't played them again. I'm currently recording the new episodes of Battlestar Galactica. Since I'm not usually at home in front of my television Friday nights at 10pm, I record the episodes on TiVo, and watch them when I get time. Then I delete them. I enjoy the story, but I don't think I'll ever be really dying to go back and watch them again. Before I got a TiVo, I did buy a few episodes of Battlestar Galactica off iTunes. Again I watched them once and haven't looked at them since.

I want to buy music. I want to rent video. They are different media, offer different experiences, last different lengths of time, and occupy different parts of my senses. Why should we think they should be treated the same?

Response to Cory Shields

I just sent Cory Shields the following email in response to his recent statement.

From: Mark Fischer
Subject: Source for estimated piracy levels on iPods
Date: September 1, 2007 9:30:12 PM MST
To: cory.shields@nbcuni.com

Dear Mr. Shields,

I am greatly interested in the source for your comment recently:

"In addition, we asked Apple to take concrete steps to protect content from piracy, since it is estimated that the typical iPod contains a significant amount of illegally downloaded material."

I would very much like to investigate the piracy levels on portable music and video devices, but have been unable to find a relevant study. If you have access to, or know of such a study that was the basis for your statement, I would be grateful if you would let me know.

Sincerely,
Mark Fischer

NBC To Pull Shows from iTunes

I'm sad today, because I just found out that come December, I won't be able to watch Battlestar Galactica anymore. Oh NBC will still be airing new episodes, and it will be available on SciFi, but NBC announced today that they will be pulling their content from iTunes.

See here's my problem. I'm a new father. I work full time. This leaves me precious little time to spend on entertainment. That time doesn't necessarily fall Friday nights at 10:00pm. I know, I should just get digital cable and a TiVo. However a digital cable runs me about $50 / month, and a minimum 1yr TiVo contract is another $300. That's $900 / year (plus taxes, fees, media access charges, etc) to watch what, maybe 24 episodes? That's about $37 per episode. I can wait until the season is over and buy the episodes on DVD, but that's a long time to wait.

No offense, but I preferred the $2 I paid to get each episode off iTunes the day after it aired. (Even cheaper if you get a season pass).

Media companies are facing a hard future. And they seem to be ignoring basic economics.

Demand is Dropping
I have limited time and dollars to spend on entertainment. Frankly, there's just a lot more compelling entertainment options out there today than a decade ago. In the olden days before the internet, you had basically Television, Movies, Books Music, and the Arts. Today you have YouTube, World of Warcraft, Facebook, Xbox, PS3s, Wiis, the list goes on. The overall supply of entertainment is increasing, and as a result, demand for any one of the options will be diluted.

Faced with falling demand, the large media companies are desperately trying to cling to their old profit margins the only way they know how, try and wring every last dime out of anyone they can. Yet this is exactly the wrong thing to do, as any first year Economics student will tell you. If you have infinite supply, and you want to raise demand, you lower prices.

I like Battelstar Galactica, but after the birth of our first child, I canceled our cable subscription. I just don't have the time to sit down and watch television anymore. Somehow I don't think I'm alone in this decision. The shows I really do enjoy, I try and buy off iTunes and watch them here and there as I find time. I'll be sad if I can no longer watch these shows because large media companies feel I'm not giving them enough money. It looks like instead of getting $2 per episode out of me, they'll be getting zero. Oh well, I have a lot of good books to catch up on.

[Update]
It looks like Apple decided to just cancel NBC's contract now, rather than leave consumers with only half a season. Just another example of Apple looking at things from a constomer perspective. Wouldn't it be great if more companies did that?

Apple's Press Release on the topic.

Adobe vs. the printshops

&Adobe has been taking a lot of flak over the past few weeks for it's decision to include a 'Send to FedEx Kinkos' button on its 8.1 update for Adobe Reader / Acrobat Pro.  Well on August 1st Adobe apparently blinked and agreed to remove the link in an upcoming release: 

Adobe originally announced the FedEx Kinko's features on June 6, 2007 and decided to remove them from Adobe Reader and Acrobat following a meeting and getting feedback from print service providers. Moving forward Adobe is setting up a Print Advisory Council to investigate how best to integrate third party print services into Adobe products, as more partners invest in online print infrastructures.

Adobe's solution, to remove the button and let Kinko's distribute a special version with the button in it partly solves the problem.  I think a better solution would have been to develop a framework for letting the small printers get in on the built in action.  Imagine a 'find local printers' option in Acrobat, type in your zip code, and see a list of participating printers in your area.  Adobe could provide a server framework for receiving print jobs, and each local printer would have the option of either managing their own server for receiving jobs, or work with Adobe and use Adobe's servers.

It wouldn't be easy. It would be a lot of work on Adobe's part, as well as for the local printer.  Making sure the local printer has the capabilities to handle the submitted job would be difficult, but there are a lot of smart people at Adobe.  I think this approach would be a better balance between Adobe's two customer bases than their current solution of removing the button all together.  Granted, Kinko's will now be distributing their own version of Reader, but that ends up being less convenient for the content producers, who would have to download a special version, rather than the one they get from Adobe.

The print shop industry needs to start thinking differently about the marketplace as we move into an ever more networked world.  The print industry needs to take a lesson from the music industry.  Fighting technology and making life more difficult for your customers is not a winning strategy in the long run.  

Change is difficult, but rather than kicking and screaming about how Adobe hates the little guy, they should be looking at 'how can I get in on this so I can make things easier for my customers too?'

Network Neutrality vs Getting What You Pay For

There is a lot of talk these days about Network Neutrality, and all sides of the debate use the term to mean different things. Ars Technica has a great article about Network Neutrality and Deep Packet Inspection, and it has me wondering the same thing I've been wondering each time I hear Network Neutrality brought up.

It seems to me we have three primary players.  One is me, the end user.  Two is the other end of the 'tube', lets pick on Google since they're big and have more money than they probably need.  Three is the network owner, I'll pick on AT&T for this example.

AT&T is in the business of selling bandwidth on this big 'ol network that it owns, or leases, or cobbles together from a bunch of OTHER people who own networks etc, but for my example, I'll deal with the simplified AT&T.  So AT&T owns a network with a certain maximum bandwidth, and it makes money by selling people small slices of bandwidth on its network.  Google is a huge company that is ravenous for bandwidth, and it buys a huge chunk of it from AT&T.  I'm a little guy on an iMac in my living room, and I pay AT&T for a really tiny slice of bandwidth.

Once AT&T sells the bandwidth, why should it care if I talk to Google?  If I hit my bandwidth cap, I get throttled.  I paid for 5Mb lets say, and when I hit 5 that's it.  If I keep requesting more and more connections, either my new connections get refused, or my old connections get throttled back to make space in my little 5Mb slice for the new connections.

Google should be the same way.  Now Google's numbers are huge compared to me, and if too many of Google's connections are being throttled because Google hasn't bought enough bandwidth, then Google's customers might start to get upset with bad performance, and Google will be forced to either buy more bandwidth or deal with unhappy customers.

However, lets say that Google has purchased plenty of bandwidth, and in fact is doing a great job of serving its customers, so much so that Google is making money hand over fist.  I have heard the argument made that 'Google is getting rich on the backs of the networks', AT&T in my example.  Should AT&T be allowed a cyberspace version of a stage coach hold up?   Pay us a percentage of your ungodly profits or we'll throttle your bandwidth?  Google has paid AT&T for a certain bandwidth slice, as long as they don't exceed that limit, why should AT&T have any expectation of getting money out of Google?  Is it just that Google is better at making money with a given allotment of bandwidth than say Yahoo?  Isn't that like saying FedEx is better at making money on highways than UPS, so we should charge FedEx more to use the roads?

In my simple mind, packets are packets.  If I have an agreement with AT&T that they will deliver to and from me a certain rate of packets, then they better live up to their end of the bargain, or we'll be talking to the BBB.  Now if AT&T has oversold their available bandwidth, and too many people are actually using what they agreed to such that AT&T actually CAN'T provide each user with the bandwidth they agreed to, well that's a problem AT&T needs to deal with by either increasing its maximum bandwidth, or by not overselling what they can actually provide as much.  Similarly, if I've paid for a 5Mb connection, I better not get upset when I can't download 10 iTunes movies at the same time, each at 5Mb.  I can buy more bandwidth if I want to.

I know the real situation is much more complex than this, however this seems to be the fundamental question.  People are afraid of AT&T making deals with Yahoo to give Yahoo traffic priority, presumably at the expense of traffic from people who have not signed up special deals.  As long as that doesn't mean depriving Google of the bandwidth that Google has paid for and AT&T has agreed to provide, then I don't see the harm.  Yahoo is getting more and paying more, they're getting what they paid for.  The moment AT&T denies Google the bandwidth they have agreed on, AT&T needs to be taken to court for breach of contract.

I've never known anyone to complain about getting more than what they've paid for.  But I certainly know that customers will not stand by long and put up with not getting what they've paid for.

Where this came from.

Occasionally I come across articles on the web that make me scratch my head and wonder. Frequently these lead to private musings on my part about the subject. Infrequently, these musings bug me enough that I post a comment on the site if I can.

Occasionally this scenario occurs with a site that does not provide comments. Such a thing happened early in July with John Gruber's site, Daring Fireball ("One word: Newton" argh! what the heck?). Joel Spolsky recently provided a great summary of why comments can be quite a bad thing. Based on that logic I completely understand Mr. Gruber's decision to not enable comments on his site.

That doesn't help me any my musings unfortunately. I'm one of those people who tend to regurgitate ideas and chew them over and over again until I get them out and do something about it. So this shall be my place to get these nagging thoughts out of my head and written down. If Mr. Gruber ever stumbles upon this site and answers my question about just what the heck he meant back in July, then heck, I will be really happy. If that never happens, at least that thought is now written down here, instead of continuing to clang around in my head.