|
Whose content is it anyway?
by J.K. Riggin
The vast majority of Web publishers are just dying for you to browse, read or download their content for free. Of course, if you're Stephen King, you can charge a whole dollar for an email-delivered installment of your serialized phantasmagoria. But the rest of us have learned the hard way that putting a price on anything but the highest quality content (such as Taipan) mostly just scares people away.
Such is the backdrop for the latest pop-controversy in Webland, in which rock stars (now content providers) like Metallica's Lars Ulrich go nuclear on the likes of Napster users for "stealing." The theft, of course, is the potential CD sales revenue lost to unauthorized copying and distribution of the band's songs in MP3 format via the Napster Web service. Like any good businessman, Lars does not want to be popular at the expense of being rich.
Everybody's got something to say about Napster and the record companies that are supposedly being displaced. This is a big deal because there are already more than 20 million people using Napster, and the numbers are growing. Of course the music industry has been gouging customers for years — it's called supply and demand. But now the barriers to (legally or illegally) copying and distributing your personal music collection are about as solid as the US/Mexican border.
It's important to remember, however, that Napster provides little more than the convenience of sharing MP3 files. Like many Internet companies, its business model is fuzzy. It takes more than millions of visitors to build a sustainable business.
The whole thing is kind of beautiful, is a warped way. Michel Foucault would have loved this. Way back in the early 1990s, nobody had a cow if you copied a favorite CD to a cassette tape for a friend. And today most people still say it's OK to share your tunes with a couple thousand anonymous fellow Napster users. But there can be no doubt that this kind of wholesale reproduction is clearly in violation of copyright laws. Yet the conventional wisdom is not so sure. Breaking the law has rarely been more sanitized or convenient.
Bits are bits
The real fact here is that Hollywood — so long a fabled destination for movie starlets-in-waiting and source of motion picture and music "talent" — has hugely failed to seize the Internet as a profitable distribution channel for its much-hyped content. On the one hand, it's your basic inertia. The drones continue to report to the megaplexes every weekend, and getting your first CD player is now a rite of passage for pre-teens. Whether it's because they're making too much money from traditional tickets and merchandising, or they just don't understand the business model, mainstream Hollywood leadership has yet to go digital.
Yes, almost no movie is launched without an accompanying Web site. And yes, Matt Drudge himself is based in Hollywood. But look around at the early Web powerhouses and just about everything that works and works well on the Web: it has little to do with Hollywood.
More importantly, music is not the only content that's ripe for Napsterization. One of the dirty little secrets of the new DVD-ROM format (you know, the format that's supposed to do to videocassettes what CDs did to record albums) is that these movies, just like music, can be transmitted over the Internet. Now, we're talking big files here... files that, even with broadband connections, take a significant chunk of time to copy from one computer to another. That makes such activity somewhat more difficult to accomplish by your garden-variety hacker, and also easier to detect by online law enforcement. So what's happening now is that hackers are breaking into Web servers and "parking" stolen DVDs. The hackers then broadcast the temporary location of the file for other users to download as rapidly as possible, until the scheme is noticed by the Web server's system administrator. Though these operations usually have a lifespan of only 48 hours or so, the cat is out of the bag. Last year, 150,000 films were illegally downloaded per day. That number is expected to reach 350,000 a day this year, and one million by 2001.
Hype du jour
If you're in the movie distribution business, what's your answer to this? Three words: video on demand.
Essentially a digital and therefore more flexible version of pay-per-view, video on demand will be attracting a lot of attention over the next few months. Much like wireless Internet technology last fall, cable television, video rental and personal television player companies are rushing to make their "VOD" announcements. And much like wireless Internet, there's a heap of hype to dig through.
Earlier this summer, Blockbuster (BBI:NYSE) announced a deal to digitally distribute limited titles through Enron Broadband Services. Later, Comcast (CCZ:NYSE) began making noise about a VOD offering set to come out during the fall months in the mid-Atlantic region. And well-funded Diva Systems has cut deals with Insight Communications (ICCI:NASDAQ) and Charter Communications (CHTR:NASDAQ), enabling the cable companies to brand Diva's VOD services for broad deployment.
But be wary of visions of a VOD world. This stuff is expensive! The digital upgrades required to deliver VOD alone cost nearly US$500 per customer connection. Add to that the massive cost to host the content on distributed servers, not to mention additional installation and marketing, and you're looking at an expensive ramp-up. Let's just say that for the short- to mid-term, Blockbuster's 65 million customers won't be switching from videocassettes in much more than limited rollouts and trials.
Rewind
But this is where we started from. Piracy puts a minor ding in Hollywood's profits, so Hollywood seeks an end-run via distribution or prosecutes piracy through the legal system. This overlooks two tenets of the Internet revolution. First, piracy is a given. Betting against there being a certain level of piracy is betting against ingenuity. The second is the digital impact of "free." Though there will most likely always be content worth paying for, the Internet provides an ever-increasing supply of free stuff. Therefore, to the degree that you are forced to charge less or give away your content, the next best way to monetize your audience is to sell other goods and services or refer your browsers (for a fee) to online merchants.
As far as music is concerned, I still like the post-hype vision of MP3.com (MPPP:NASDAQ). Napster may be going away, but the MP3 format is here to stay. MP3.com continues to offer up-and-coming artists a low-cost way to get popular in a hurry. The company is settling lawsuits and working with recording companies for a mid-term win-win scenario.
I also stand by my June report on CNET (CNET:NASDAQ), Homestore.com (HOMS:NASDAQ) and Ticketmaster (TMCS:NASDAQ). Earlier in the summer, CNET announced its acquisition of ZDNet at a bargain-basement price of US$1.6 billion, further solidifying its lock on both the consumer and trade avenues to computer geek buyers. Homestore also reported brisk earnings in July, with revenues up more than 25% and net loss at US$.03 per share, down from US$.36 per share a year ago. Homestore also cut a sweet deal with OnlineChoice, enabling consumers moving into a new home to save money on utilities. Homestore took a chunk of OnlineChoice in return for driving traffic to OnlineChoice's energy-buying pools. Ticketmaster also reported strong earnings in July; revenues were up 141% and net loss was down 27%.
One for the Wizard
As the model for integrated content and commerce continues to work itself out, add YellowBrix to your pre-IPO watch list. This company provides high-traffic Web sites with syndicated content linked to related product information. While YellowBrix calls it "contextual commerce," I just think it's a no-brainer. The idea works something like this. You're a Web site operator and you want to run a free story on how Tiger Woods lapped the field at St. Andrews.YellowBrix sends you code for the story to drop into your Web site, but accompanying the story are links to buy the same Titleist driver Tiger uses, or the same Nike shirt Tiger wears. You get the free story plus US$1 for each click, Titleist and Nike get sales, and YellowBrix gets a cut. Everybody's happy.
YellowBrix is currently serving about 50,000 articles each day, and matching those articles to items from a catalog of more than 1.5 million products. The company claims click-through rates of up to 13%, far beyond the dismal industry average of 0.5% for banner ads. Client Web sites include Go.com, CNNfn, MSNBC, ZDNet, CareerPath.com and Monster.com.
Founded by former Infoseekers, the company recently raised US$20 million in venture funding. YellowBrix is still strictly pre-IPO, and could easily become an attractive acquisition for a company like DoubleClick or Engage Media looking to shore up undersold banner ad slots across the Web. But Yellowbrix is the future, and we'll be watching them.
|
