Entertainment & Entrepreneurship

The FTC recently published its seventh report focusing on "violent entertainment products" that are available to children. The report focuses on the motion picture, music, and video game industries.  It reports generally good self-enforcement of the purchasing guidelines. Of course, at 80%, one of five attempted purchases goes through without objection. Toys-R-Us is singled out for even worse enforcement: "The Commission’s undercover shop found that retailers are strongly enforcing age restrictions on the sale of M-rated games, with an average denial rate of 80%. Only Toys ‘R’ Us lags far behind on enforcement (56%)." So the first lesson of the report is that otherwise savvy tweens who would rather not be caught dead in the Giraffe's den of lame childhood wonder, is that they can at least stop by to pick up the goods other stores won't sell.


The in-store enforcement does little to stop those non-adults with access to online accounts and gift cards to purchase anything they want without limit. The role of the store cashier has changed from that of gatekeeper to the monitor light on a freeway on-ramp. They moderate traffic flow, but will not stop the consumption.

I don't suggest that the non-adult ratings should be anything more than advisory for parent. On the other hand, I disagree with the line of court decisions which suggest that obscene material must be sexual to be obscene. Even under the auspices of the First Amendment, a society can identify that content which is so far beyond the acceptability on depictions of violence that the material is beyond First Amendment protection. This, along with requirements that any such obscenity label, must be fully adjudicated before any police action can take place against the content, should give states the right to declare ultra-violent material as obscene. Like sexual obscenity cases, the actual cases should be rare and the evidence 'beyond a reasonable doubt' because of the potential criminal enforcement.

Without the ability to identify content as obscene, the parental guidelines do little to manage content. They provide some helpful information for our under age and adult consumers. They are like food labels. They make us feel guilty after we have binged, but probably have little impact on what we actually consume unless we individually choose to follow them.

I look forward to next year's report. It is nice to know some things won't change.

Posted by Jon M. Garon at 09:25 AM | Permalink | Comments (0) | TrackBacks (0)

As widely predicted, the peer-to-peer file sharing case ended quickly and decisively after U.S. District Judge Nancy Gertner disallowed any evidence on fair use. The jury awarded $675,000 to the plaintiffs. But as mentioned in the previous post, the approach of Judge Gertner has been rather favorable for the defendants (despite the ruling on fair use and her frustration with Professor Nesson).

Taking a cue from a ruling in the prior jury trial ruling out of Duluth, Judge Gertner may follow some of the dicta by Judge Mike Davis in the prior case and review the appropriateness of the damage award in the context of due process and Eight Amendment claims.

Judge Davis wrote of his grave concerns regarding the disproportionate damage awards. This may be the decision that directly addresses the concern that a very few individuals are being held responsible for the costs to the entire industry.  At the same time, of course, there may be evidence that there are far more songs traded than those actually named in the case. Jurors understand that as well, which can definitely impact their decision regarding damages.

Posted by Jon M. Garon at 10:27 PM | Permalink | Comments (0) | TrackBacks (0)

According to a recent report from Arstechica, Judge Nancy Gerntner has thrown out the fair use claims in the file sharing trial of Joel Tenenbaum. The trial has been something of a circus due to attempts to broadcast the hearing over the Internet and a fairly bitter relationship between Harvard Law Professor Charlie Neeson and the Judge. She threw out their fair use defense as a matter of law in the hours just before the trial started.

Her ruling reads, in part:

To be sure, this Court can envision certain circumstances in which a defendant sued for file-sharing could assert a plausible fair use defense. Indeed, an amicus brief previously filed in this consolidated action by the Berkman Center at the Harvard Law School (on which Defendant's counsel was a signatory) outlined some of those circumstances—for example, the defendant who 'deleted the MP3 files after sampling them, or created MP3 files exclusively for space-shifting purposes from audio CDs they had previously purchased.' The Court can also envision a fair use defense for a defendant who shared files during a period of time before the law concerning file-sharing was clear and paid outlets were readily available.

The advent of the internet in the late 1990s threw a number of norms into disarray, offering sudden access to a wealth of digitized media and giving the veneer of privacy or anonymity to acts that had public consequences. At the beginning of this period, both law and technology were unsettled. A defendant who shared files online during this interregnum but later shifted to paid outlets once the law became clear and authorized sources available would present a strong case for fair use. It might matter, too, who the defendant shared files with—his friends, or the world—as well as how many copyrighted works, and for how long.

But the Defendant has offered no facts to suggest that he fits within these categories. He is accused of sharing hundreds of songs over a number of years, far beyond the infancy of this new technology or any legal uncertainty.

The outcome will be hard on the defendant. Mr. Tenenbaum has admitted to file sharing (which was a much better choice than Jamie Thomas' hard drive issues). Without any factual evidence on fair use to try and befuddle the jury, the case comes down to the need to document ownership of the copyrighted works and assess damages. The damage portion of the case could prove interesting, if Prof. Nesson can convince judge or jury that the statutory damage range violates the Eighth Amendment because it bears no relation to the value of the songs copies or the economic harm caused by any particular file sharer. (Each individual should not be responsible for the cumulative economic impact of peer-to-peer file sharing, assuming arguendo that the illegal sharing was one of the causes of the music industry's economic collapse.)

But Judge Gertner's denial of fair use is more generous than most. Her ruling adds additional support to the idea that sampling might be acceptable, that using peer-to-peer as a technological work-around for content owned in other formats (think albums and 8-tracks, not just CDs), or because the law was unclear when the technology was first introduced all suggest a very broad vision of fair use.

The ruling does nothing for Mr. Tenenbaum. I can only assume his lawyers were much more circumspect about the small likelihood of success with him in private than the rather blustery approach they have taken in public. But the ruling says a good deal about the expansion of fair use as a consumer protection statute, which is a significant expansion from its meaning during the past 40 years. The ruling is mindful that fair use must have its limits and protect the rights of copyright owners, but it goes further than most to recognize the interest of consumers as well.

The approach suggests that the court may pay more attention to the issue of damages than has been given in the past. So this case is still not over.

Posted by Jon M. Garon at 04:23 PM | Permalink | Comments (0) | TrackBacks (0)

SoundExchange and a group of Internet "Pureplay" webcasters today agreed upon a new royalty formula to keep the Internet-only radio stations alive on the Net. Pureplay stations are those stations that exist only through Internet music streaming; those that have no terrestrial or sattelite versions,

Authorized by the Webcaster Settlement Act of 2008, the agreement will have the force of law once it is published in the Federal Register.  Webcasters can elect to use this new settlement instead of the 2007 rates set by the Copyright Royalty Board. It uses a revenue sharing formula so that the costs of broadcasting are tied to the income generated by the broadcaster.

For this settlement, the agreement affects three rate classes are large pureplay webcasters, small pureplay webcasters (defined as those earning $1.25 million or less in total revenues with a cap on music streamed) and pureplay webcasters that provide bundled, syndicated or subscription services. It does not address the concerns of microwebcasters with revenues below the $1.25 million threshhold.

As presented by SoundExchange "SoundExchange views these newly negotiated rates as an experimental structure intended to provide an innovative approach for a particular genre of webcasters and does not consider these terms indicative of fair market rates. Time will tell if revenue sharing is the right move for both the recording community and webcasters,” added John Simson, Executive Director of SoundExchange.

The settlement provides a floor of $25,000 in royalties, so it applies to companies with significant revenue.

The newest settlement is only one of a myriad of potential licensing schemes available for Internet broadcasters. At the other end of the pay spectrum, non-commercial, tax exempt charities (501(c)(3) organizations), pay only $500 plus a usage fee for programming in excess of 159,140 aggregate tuning hours in any given month.

The settlement remains good news that the Internet tubes will continue to be stuffed with music: at rates webcasters can afford - and hopefully with payments that will reach the artists.

Happy Listening.

Posted by Jon M. Garon at 04:59 PM | Permalink | Comments (0) | TrackBacks (0)

Fortune Magazine covered the recent announcement that iTunes has crossed the 5 billion song download mark. "It took Apple (AAPL) nearly three years to sell its first billion songs (Feb 23, 2006), ten months to sell its second billion (Jan. 6, 2007), seven months to sell its third (July 31, 2007) five and a half to sell its fourth (Jan. 15, 2008), and five months to sell its fifth (June 19, 2008)." Moreover, the report states that 50,000 movies are purchased or rented daily. The apps store has been an even bigger hit, propelling sales of iPhones and the iPod Touch.

But Apple claims the iTunes store operates at just break even (though other reports suggest 10% to 30% margins, according to Fortune), including the movies and apps store.

Worse for the musician, the artists royalties for the less expensive digital albums reduce the price on which the artist's income is based.

So the artists need to take advantage of iTunes, Napster, and other online services while controlling more of their own marketing and revenue.  The elements for this new model are just appearing on the horizon.

First, there are the sell-thru services, CD Baby, Tunecore and ReverbNation. Each provides artists the ability to move their music directly through the major digital outlets. The pricing models all provide a greater return to artists than the artists would receive working with traditional record companies. But access to the audience is not nearly enough. Artists need the promotion and marketing services provided by record companies to the top of their roster.

The answer to the promotion may come from new tools in the semantic web. Google provides simple, word-based alerts, but those don't have predictive power. Instead, services from The Echo Nest, a music recommendation platform built to read the music and the music press like a musician. In addition Band Metrics builds a media analysis - social networks, blog, YouTube, and the related music press. Both these services fall into the vaguely defined (but critically important) semantic web.

The semantic model utilizes algorithms to "read" the web, including non-indexed information, develop predictive models and track interests. It is a powerful tool to develop behaviorial advertising and allow companies to know what you want to buy around the same time you do.

So it should come as no surprise that the next piece of the new music model is advertising-embedded music.

ReverbNation has jumped into these waters with its "Sponsored Songs" program, "a new online music distribution program that will give music fans access to unlimited free song downloads from 1,000 artists. Through this innovative pilot program, a passive advertisement is embedded alongside the album cover art that is seen by music fans when they play the song on their computer, portable device or phone. The advertising in Sponsored Songs travels with the fans wherever they enjoy their music - following them onto the subway, going with them to the gym, and showing up at the party - giving the advertiser frequent and regular brand exposure, and the fan free music."

Windows is the first advertiser to participate in this program. The 'free' music is at www.MySpace.com/Windows.

The advertiser-based song support makes good business sense for advertisers. Songs are a low-cost distribution tool for the advertising - far lower than television or motion picture product placement. The movement of music in peer-to-peer systems, social networks and on YouTube makes the advertising inherently viral and trackable. And the pricing can already be modeled on a per-copy basis. Music fans may not like the advertising-based music, but for now, at least, the ad-based music is just one option.

A robust music industry free of the traditional record labels needs some powerful marketing tools. The semantic web tools available to artists or independent labels will allow them to target the interested audience directly. Since the semantic web provides such a powerful tool for advertising, it is inevitable that as the semantic web tools improve, the advertisers will become increasingly interested in music as its delivery device.

So the new shape of the music industry is shaping up. Let's just be sure that the artists continue to be paid.

Posted by Jon M. Garon at 10:34 AM | Permalink | Comments (0) | TrackBacks (0)

For two tortuous years, The British-based Virgin Megastores remained the largest music-only based chain. But the sales of CDs have dropped by half since 2000, iTunes has grown to control 20% of the market, Amazon has taken 8% of the market while WalMart and Target continue to stuggle to maintain their market share. Tower Records demise in 2006 merely heralded the dramatic transformation of music sales. With the sale of the last New York and Los Angeles Virgin Megastores, the chain will leave the U.S. It still has over 100 stores worldwide.

Rollingstone does find a glimmer of a silver lining in the long lines outside the 14th Street store as people pick up deeply discounted discs for their collections. But this silver lining is thin indeed. The economic downturn has put pressure on music sales and live ticket sales. The industry's strategies to stop illegal downloading have failed. As CBS news pointed out, the top album in 2000 had a 3.6 million CD sales opening week. This year's Green Day achieved the goal with 600,000 units. ('N Sync's No Strings Attached sold 9.9 million in 2000; Lil Wayne's "Tha Carter III" sold 2.88 million in 2008 - the first time the top album was below 3 million, according to Billboard. Coldplay's  "Viva La Vida or Death and All His Friends" followed well behind at 2.15 million.)

Ringtones, video games and other music genres are replacing some of the revenue streams, but the shuttering of Virgin Megastores should not go unnoticed. Today may not be the day the music died, but we've lost a friend nonetheless.

Posted by Jon M. Garon at 08:23 AM | Permalink | Comments (0) | TrackBacks (0)

The Pew Internet & American Life Project provides an excellent array of surveys and empirical data of the development of online media and its societal influence. The Project has covered music, teen behavior, election fundraising, the digital divide, and a host of issues.

One of their more interesting projects comes out next week. On, Monday, June 15th, it will report "The State of Music Online: Ten Years After Napster."

From the Project release:

Posted by Jon M. Garon at 07:20 AM | Permalink | Comments (0) | TrackBacks (0)

Cher, the Rock Legend and heir to Sonny Bono's musical legacy, has sued Universal Music Group according to a report by The Hollywood Reporter. According to the California state lawsuit just filed, UMG has used the well known tricks of selling albums through its controlled subsidiaries to avoid royalty obligations to Cher and song producer Snuff Garrett. In addition to Cher and their music producer, Bono's second wife Mary Bono-Mack and Bono's children also have an interest in the royalties.

Of course, these tactics are nothing new for the music industry. But as Cher's attorney reportedly commented, "Universal is playing a game of catch-me-if-you-can with one of the most popular and iconic artists of all time."

Still, at a time when the music industry is under intense scrutiny for its anti-piracy efforts and hoping to reform itself into a less parasitic industry, lawsuits like this which highlight the extent to which the labels take advantage of their artists are particularly embarrassing. If the allegations are true, the UMG should go well beyond a mere accounting correction and think about a more representative business for its artists.

As a result, I expect the stakes may be much higher than other cases where "accounting irregularities" are identified by their victims.

Posted by Jon M. Garon at 09:54 AM | Permalink | Comments (1) | TrackBacks (0)

Led by Paul McCartney and Ringo Starr, E3 hosted a press conference for the September release of The Beatles: Rock Band. The game will be available for Playstation 3, X Box 360 and Wii, so everyone can get together and play the game.

The graphics range from stunning to strange as we experience the Beatles move from their 1964 Ed Sullivan barnstormer image to the psychedelic image of the '70s. Even more exciting may be the replica instruments, including brand name guitars and the logo-emblazoned drum kit.

The dedicated website explains it all:


Rock Band Beatles Trailer from E3 featuring Gameplay

The "game" may be less a platform for the current generation of gamer rather than a digitized re-imaging of history. With powerful graphics, games like this may become the next battleground on the "truth" of history. Academics might not view the history of The Beatles as the same as the Civil War, but all history is selective and written by the victors.

Playing with history may be taking on new meaning.

Posted by Jon M. Garon at 08:08 PM | Permalink | Comments (0) | TrackBacks (0)

A study released last week by NPD Group stated that 63% of Americans have played a video game in the past six months, higher than the 53% who went to the movies during the same period. (The study notes that 94% of those surveyed listened to music, but does not report what percentage saw a movie either in a theater or at home.) The financial impact is that gaming accounts for one third of the consumer's average monthly spending, according to NPD survey data.

The statistics explain why companies selling video game systems and high-cost premium games are faring somewhat better in the economic downturn. Given Blockbuster's difficulties (see my previous post), the company's recent announcement that it will begin experimenting with the addition of video games to its subscription service should come as no shock.

Blockbuster intends to add the service to its online rental service, initially testing it for existing subscribers. The company has yet to announce the fee structure, but expects to add both an additional charge for the game rentals and count the games against the number of rental items the subscriber has "at home."

GameStop has been one of the more successful companies in the current economy, with its first quarter sales rising 13%. Ironically, the game company did not play the Wall Street game particularly well and lost some value because the sales were below analyst targets. Despite the analysist expectations and the potential of Amazon entering the used game market, GameStop's quasi-rental model of easy resale may be a better model than Blockbuster has in mind.

There are two problems with a game rental service. First, the demongraphics may put the gamers as younger members of the household. Parents will join Netflix for the family, and they will have as much benefit as the children in the household. Parents tend to buy game consoles and games for their children, and tend not to admit to being the primary consumer of these games.

Second, games should have a longer home-life than DVDs, so the idea of churning through 2-4 games per week seems less likely than doing the same with DVDs. Of course, in actuality, many of the DVDs sit in Netflix subscriber homes for weeks or months, but no consumer would buy the service if they intended this result. In other words, the upside of the video game subscription does not have the value that a DVD subscription can have.

If Blockbuster (or Netflix, Amazon or GameStop) changes to a pricing model based on quarterly rentals or a guaranteed return price, then consumers will see the potential to save if they play enough and consider trying the service. Like club discounts, subscription services are built on the differential between what the consumer thinks is possible and what the consumer actually does.

There is more money in gaming than ever before. But Blockbuster still has yet to understand the market.

Posted by Jon M. Garon at 10:36 PM | Permalink | Comments (0) | TrackBacks (0)

Both CD Baby and TuneCore announced expansions of their services enabling bands increased access to national distribution without the need of even a pressing and distribution agreement. CD Baby allows bands to create packaged CDs or digital offerings. They have expanded the service to allow for digital singles to be sold in addition to the digital albums, given greater flexibility for musicians pushing singles or adding cuts between albums.

At the same time, Digital Media Wire reports that TuneCore has expanded the services it provides through Amazon.com, and will provide a new pressing and distribution service for the nominal charge of $31.00. CD Baby has a $35.00 membership fee.

The two services are slightly different, with CD Baby having a larger revenue base, but TuneCore offering more international options and advanced production services. Since iTunes and Amazon have moved to dominate sales of music, the access to these markets by both services makes either a good choice for most bands.

For example, I love the TuneCore tee-shirt service. Having the tee-shirts made along with the CD artwork is a stroke of marketing brilliance. Mixing services, banner ad campaigns and other add-ons can push the costs up, these services represent the bits and pieces of the traditional music industry. The radio service Jango goes a step further, offering paid airplays - the Internet version of payola. Other services offer to promote songs to radio stations.

These new services reflect the unbundling of the traditional music industry. Musicians have the ability to select which services they want and what price they are willing to pay. The trend will likely result in each of these discrete services being unbundled from the label - only to be offered again on a package basis for the band. The choices seem to be growing quite rapidly.

Posted by Jon M. Garon at 11:05 PM | Permalink | Comments (0) | TrackBacks (0)

As reported by DigitalMediaWire, Warner Music is stopping all plans for future capital investments in digital distribution after being required to write down $33 million in its recent investments. As reported, Warner CEO Edgar Bronfman Jr. said he is "disappointed" with the MySpace Music joint venture, because it "has been slow to create monetization tools and to be able to impact revenue-generating way, the massive audience that they have been able to attract."

Having complained about MySpace failure, he signaled the retreat of Warner Music from its ownership model of digitial distribution in comments made to investment analysts:

"We do not intend to make more digital venture capital investments. The intention was to (invest in) young companies pursuing innovative business models. Some of these digital venture capital investments have not met expectations. It makes sense to recognize the very different valuations these companies are receiving in the current economic environment," said Bronfman.

In the print financial report, Bronfman sounded a different note: "We are laying the foundation for future growth by extending our digital presence and increasing the number of expanded rights agreements to now include about one-half of our current global artist roster."


In the weakened financial environment, the warchests of traditional media have been tapped, leaving Apple, Microsoft, and Google to fund - and control - the future of digital media content.

Posted by Jon M. Garon at 12:52 AM | Permalink | Comments (0) | TrackBacks (0)