Sunday, November 6, 2016

Piracy is as good as dead. Now What?

It’s been 17 years since Napster came onto the scene, bringing with it the combination innovation/major threat of peer-to-peer (P2P) file-sharing. What began as an outlaw activity of uploading MP3s and making them available to anyone with a desire to hear the song and a decent Internet connection ended up providing a beatdown to the music industry that lasted well over a decade, with the carnage only settling down recently. And even now the music industry is, in many ways, still up for grabs.

You may have seen the headlines proclaiming that 2016 was the first year in which streaming revenues were the largest revenue source for music, eclipsing digital downloads for the first time, and taking a big lead over physical sales of all other physical formats combined. The pie below shows the respective shares for the U.S. market. To put things into additional context it's worth considering that the global music industry peaked in 1999 with revenues of about $30 billion, which, by 2005 had shrunk to $20 billion, and now hover just under $15 billion

Source:
http://www.riaa.com/wp-content/uploads/2016/03/RIAA-2015-Year-End-shipments-memo.pdf

It doesn’t take Nostradamus to see that the blue piece of the pie is only going to get bigger, while the red and green slices shrink. (The diet yellow slice, marked “synch”, refers to music synchronization, which are the revenues that come from licensing fees when songs are used in commercials, movies, TV shows, videogames, etc. I have no view on whether or not this chunk will grow though I understand it’s a valuable source of income for musicians both well-known and up and coming).

What we can extrapolate from these developments in the music industry is that piracy is more or less dead. Which is not to say that it doesn’t exist. Of course it does. But it’s dead in the sense that it is considered to be public enemy #1 of the industry. When pretty much any music you want to hear is available on demand -- whether via legit sources or unsanctioned ones -- the location of value shifts irrevocably, whether we like it or not. Where did it go? To the new intermediaries,  in this case the platforms that enable us to hear anything we want to, whenever we want to.

So what happens now? This discussion got underway at a Music Tech Meetup I attended at the end of the summer, at which the featured speakers were Steven Ehrlick and Noah Schwartz, both from Ryerson University’s Music Den, a music and tech incubator that brings creators together with technologists, in the hope of building apps, systems, or platforms, that identify, and hopefully propose a solution to, addressable problems in a new environment of possibility. Ehrlick and Schwartz shared their thinking around the experience of being a musician in the 21st century, the reality of which, in their view, is that you have to a digital media specialist in addition to being a performer and/or writer. 

But what does that mean?  We so often hear people with titles such as Chief Digital Officer tell the troops at organizations that were not ‘born digital’ that everyone’s thinking needs to be re-jigged.  Phrases such as ‘from now on the company will think like a digital company”, or “starting today we’re a digital first organization”. Erhlich & Schwartz see it this way: There are two kinds of companies: Tech companies that get into music and music companies that get into tech.

An example of the former:

Bandcamp: A music discovery platform that, as of Fall 2016, has paid close to $200 million directly to artists since its inception.

Examples of the latter:

MusicNet (b. 2001, d. 2005)  and PressPlay (b. 2001, d. 2003), services started by the music labels that tried to replicate the analog industry in the digital world. 

Why did they do that? Because that’s the business they knew well. Contrast with what Steve Jobs did with iTunes: unbundled the album, established a price point of 99 cents that was low enough to move people from Limewire, Kazaa, Gnutella, and created an ecosystem of beautiful hardware and easy to use software which for many became a way of life, not just music or gadgets, and resulted in Apple becoming (if only intermittently) the world’s most valuable company.

The enterpreneurial trick is this: Ask yourself "what is the problem you're trying to solve?" Apparently the investment community, particularly in Silicon Valley, wants to hear things expressed as verbs, not nouns. It’s about what people will do with what you’re making, not what it is.  Think Twitter, Snapchat, even Pinterest – hard to rationalize if you’re only describing what it is; easier to rationalize as a vision for a new way in which people communicate and connect.

Erhlich and Schwartz suggested that a company allows you to solve musicians’ problems e.g. where to play, where to stay, how to do your digital distribution. And you can start small and do so on a small budget and scale up, moving from local to global, with the costs of working globally being a fraction of what they were in the world of physical things and physical places.

They point to this example: DistroKid, where for twenty dollars per year musicians get the ability to do unlimited uploads to digital services such as iTunes and Spotify (and no, it’s not free to get your music onto those sites.)

As we approach two decades since peer-to-peer technologies effectively detonated the music industry,  some pieces are falling into place while others are still trying to find a way for the peg to fit the slot (Heck, Spotify, with its 100 million users of which about 40 million are premium users is still not profitable in 2016). But it's not all bad news, which is the rallying cry of this blog if there is one. I am reminded of the words of Clay Shirky when asked how the rapidly declining revenues of the newspaper industry might be stemmed. His response: What will work? Nothing. But everything might. 

Tuesday, October 18, 2016

Where Credit Is Due: Max Levchin and Banking For A New World

HVF is his motto. And the name of the umbrella company that arches over his many undertakings. He is Max Levchin, one of the founders of PayPal, and therefore member in good standing of the PayPal mafiawith personal investments in over 100 startups, the most recent of which are a fintech company and a women’s reproductive health company

The HVF part stands for hard valuable fun, which is how Levchin decides which projects to take onThe hard part refers to something that is challenging, something that is a problem to be solved. If it was easy, anyone would do it. The valuable may be something on a global scale, such as a shortage of clean drinking water or it may be something of a more everyday nature, such as simplifying banking. And the fun, that’s where personal obsessions and passions come into the picture. If you love what you’re doing, it’s fun. It may not be Tommy Lee’s idea of fun, but we’ll leave the drumming on a roller coaster to him and the real HVF to others.

Levchin’s latest project is Affirm, which seeks to solve the problem of banking in a world which has changed. Whereas people used to get into professions in their mid 20s and stay in them until the arrival of the gold watch several decades later. As he put it during a recent conference keynote interview: “banking doesn’t have to be an industry that helps you shoot yourself in the foot”, referring to the fact that the banks’ objectives – of charging as many fees to customers as possible – and individuals’ objectives – of paying as few fees as possible while hopefully being able to squirrel away a few dollars here and there and earn a bit of interest – are generally at cross-purposes with each other. 

Max Levchin, interviewed by Kara Swisher in Boston, October 15, 2016

Does it have to be this way? Levchin doesn’t think so. “It’s possible not to charge 5 to 7% overhead, as most banks do, and it’s possible not to have 100 disparate software systems, which is what you find in a typical bank”, Levchin told the crowd. 

“I think the bank of the future is more like an app that works in real time, linking your decisions and behaviors to your financial goals and overall fiscal health”. In other words, if you say you’re saving up for a vacation, or a car, or a pricey jacket, then maybe visiting Starbucks twice a day isn’t in your best interest, and the app could help with reminders that nudge you in a more productive direction. And when it comes to determining creditworthiness, the Fico score has been the accepted standard since 1989. 


Lenders are in the business of risk assessment....i.e. are you a reasonably good candidate for credit? What recourse does the bank have if you default on your loan or mortgage, or if you overextend your credit? This doesn't sound at all unreasonable but, as Levchin is quick to point out, the Fico score system does not reflect today’s world of fairly frequent job hopping, of startups and creative endeavours funded on credit cards, of flexible work and the gig economy, or of rising student debt loads. The Fico system effectively penalizes people that don’t fit into neat little boxes of creditworthiness assessment, and that’s where Levchin sees the opportunity. 

After all, according to a recent McKinsey study, as many as 162 million people, representing 20 to 30% of the working age population, are said to participate in the economy of flexible work. This does not, by definition, make them irresponsible or poor candidates for loans; it just makes them people who don’t fall into the existing buckets of the Fico measurement system.

And this is where digital, networked systems -- whether they are deployed for fairly mundane functions such as dating or providing alternate accommodation options or for more serious enterprises such matching organ donors with those in need or identifying scientific, technical, or socio-political problems and providing monetary incentives for their solution -- are fascinating to both observe and participate in, manifesting new ways of operating that in no way resemble the rationales of the previous era.

For more thinking on this topic, here's Max Levchin speaking at SXSW 2016 about what he sees as the unstoppable trends in our midst.

Saturday, October 8, 2016

Discoverability: Audiences in a time of endless choice

One way to think about today's media landscape is as the 'attention olympics'.

It's not always the best or even the first that 'wins', but the players that are able to grab the most attention. I recently saw this line: "On the Internet the reptilian brain gets served first", and while it's not true across the board, there is certainly some truth in the statement.

That which is refreshing about the Internet is also that which is threatening to some. The authentic and the contraband flow throw the same pipes, which means the traditional big players often find themselves vying with the smaller ones online. Competition now comes from all corners. Competition for screen space, and competition for viewers', listeners', and readers' attention.

Search and Search Engine Optimization (SEO) used to be the primary ways things rose to the surface online. Then came curation and aggregation. Social added another dimension to an already complex model of production and distribution.

So how do audiences navigate through the maze? 


The term being used in some circles to refer to the challenges inherent in a saturated media environment is Discoverability. A report I worked on released earlier this week offers some perspectives. 





Click here to read the full report, entitled "Discoverability: Toward A Common Frame Of Reference, Part 2 The Audience Journey".

Sunday, September 25, 2016

When "you get what you pay for" no longer applies

Ah, the Internet. It brings us hotel reviews, deals on shoes, too many pictures of people's kids and renovations, and so much more...hence the 2 word catch-all Because Internet as a glib attempt to explain away the oddities of the vast network's offerings, and the often strange behaviours we all contribute to the mix.

The many splendored thing that is the Internet has rewritten the rules of many businesses, or, more accurately, those rules are in the process of being rewritten.

The conventional economic thinking of people operating in self interest, and therefore not working for free has been upended by the likes of Wikipedia and The Huffington Post.

The laws of supply and demand have similarly been suspended. Generally it works like this: demand goes down, supply co-operates with gravity and also goes down. Not always so on the Internet, with, for example, the output of the creative industries such as music, writing, and photography, being prime examples.  Fewer people pay, more people produce. What would Adam "Wealth of Nations" Smith have to say about this?  We'll never know.  

Conventional wisdom says we get what we pay for.  But on the Internet we also get what we don't pay for, a topic explored further in the Up Next Podcast on which I was recently a guest.  

Or perhaps as an old friend from my campus radio days put it:






Monday, August 1, 2016

Better complaining through technology

People just want to get stuff done. And with as few hurdles as possible. Sometimes intermediaries can assist in the process – that’s what the concept of a value chain is all about, i.e. the sequence of steps between creators and consumers, between organizations and citizens, that exist because they refine and improve products and services along way. That's the idea, anyway. Think of the journey a coffee bean harvested in Ethiopia takes to become the half caff tall skim latte at your neighbourhood Starbucks and you’ll have the beginnings of a mental model of a value chain. In such a case there are undeniable value adds along the way, though whether or not the end product is 'worth' the $4 you pay for it is a debate best left to branding experts. Or these everyday citizens. But I digress. 

This blog has focused on the changing faces and shapes of intermediaries in the creative industries, but today we’re going to look at an area known as civic tech, a way for interested individuals and community groups to enter the value chain of government and governance, using the self-organizing tools and techniques of peer-to-peer networking, crowdfunding, and co-creation.


I first learned of the field while living in Boston, by way of the MIT Center for Civic Media , and thanks to the civic tech involvement of a friend in Toronto ended up at an event hosted by the local Civic Tech group.

What I learned at this event is that while many of us spend our evenings with, I don’t know, laundry, yoga, or Netflix, there’s a group of laptop-toting individuals out there who get together each week to put their coding and design skills to work to address such civic issues as affordable housing, resource sharing, and getting out the vote. And they do it all on a volunteer basis. If you want to see the wheels of disintermediation in motion, this is a great place to start.

One of the projects discussed at last week’s Civic Tech meetup was based on SeeClickFix,  a website and app that lets anyone report civic concerns – whether they’re abandoned mattresses, potholes, or even roadkill -- and also offers tools through with third party developers can build on top of the site's core functionality. 

Civic complaints made easier at www.seeclickfix.com 

If you don’t believe me, just go to the home page at www.seeclickfix.com and enter your city’s name and see what’s going on around you. Some municipalities have some pretty brisk blotters going on while others have just a handful of ancient complaints. 

Street light bird nest issue recently resolved in NYC, taken from SeeClickFix.com

But the larger point is that anyone can post, thereby opening a ticket, and a combination of community members and civic officials comment and then follow up. As posts build up so does a picture of the neighbourhood, from the ground up. This is a key feature of the majority of civic tech projects: the collective corralling of community intelligence that also creates an asset for better governance and improved communication.

Note that also built into the system is a points mechanism, whereby frequent civic watchers can collect points for their interactions, becoming a digital Jane Jacobs at the 10,000 point level.



Tuesday, July 5, 2016

Organizing Without Organizations (and the story of the world’s biggest cash heist)

It’s an organization without a boss. No org chart, no hierarchy, no workflow plan. This may at first sound like utopian post-hippie talk, i.e. that if everyone just brings their best intentions, and their favourite casserole, that we the people can do anything. Barriers to entry be damned, business as usual be damned, best practices and all the rest be damned too. This may sound like a whole lot of antiestablishment nonsense except that we now have examples to point to such as Wikipedia, a free-to-use, high quality, written by no one in particular encyclopedia that is organized, vetted, and updated by the crowd.  Previous attempts to do the same – produce an online encyclopedia, with a combination of experts and the public had been attempted but with extremely limited success. How limited? In its first year a scant 21 articles went online, compared with Wikipedia’s 18,000 in its first year.

Design by committee, rather than bosses, VPs, and armies of the able, was the philosophy behind Nupedia, but apparently they did not go far enough. It wasn’t until the whole system was thrown to the wind and decentralization became the lay of the land that Wikipedia started to flourish, and now it is a daily destination for most of the world’s 3 billion Internet users.

The fact that with a few tweaks something like a wiki-based encyclopedia could go from a stalled, somewhat idealistic effort to a world-changing repository of knowledge may be reason for us all to have faith in other decentralized technologies.

The blockchain is one that comes to mind, and one about which I learned more at a recent Meetup. Blockchain, perhaps best known as the technology backbone of BitCoin, was looked at in an earlier blog post, as a potential solution to many of the music industry’s legacy system problems that send dollars to layers of the business that aren’t necessarily needed in today’s digitally connected marketplaces.  

The blockchain is also behind something called the DAO, which stands for decentralized autonomous organization.

Click to enlarge

The objective of the DAO, a single app running on the blockchain, is to eliminate the need for organizational decision making apparatuses, such as formal managerial positions and hierarchical structures. And note: Decentralization does not mean an absence of control, but, rather, no single person or entity is in control. It sounds kind of crazy until you think of, say, Wikipedia.

In the words of one of the Meetup speakers, Jeff Coleman of Ledger Labs, the blockchain enables “super secure, super awesome decentralized organizations that can give you more security for less work than any other system out there." 

Ledger Labs’ Jeff Coleman schools the crowd on the great DAO hack of 2016    

Coleman then walked the Meetup crowd of 100+  through the architecture of the DAO, explaining how, when a funding window in the DAO was opened on April 30th, 2016, over 10,000 people poured in about $100 million in funds, making it the largest crowdfunding endeavour in history. The idea was that it that this would be a relatively low risk investment where you could invest and withdraw funds at will.

All good. Really really good in fact, until the hack

Coleman called the hack, in which $60 million was drained from the DAO, “the largest cash heist in the history of the world”.  (As you can see lots of firsts and biggests here.) The problem, it was explained, came down to issues with the smart contracts, pieces of computer code that represent contract-like agreements between other pieces of code built on the blockchain. (I’m not a lawyer so for an actual lawyer’s perspective on smart contracts, click here.)

The short version of the story is that despite two years of due diligence, including bug bounties -- essentially crowdsourced security -- it was assumed the system was good to go. Who performed the due diligence? Not the DAO, pointed out Coleman, but the underlying platform, Ethereum.


How the Ethereum platform works
Source: https://www.ethereum.org

Coleman continued: "Thanks to this careful due diligence, Ethereum, the platform, remains uncompromised. But the DAO opted for just a few short weeks of public viewability and no serious testing, audits, or bounties, and that's why it was successfully attacked."

In other words, this wasn't a blockchain problem, but a negligence problem. If there's a problem with a single website you don't blame or impugn the entire Internet. Same thing here.

And the icing on the cake, in Coleman’s view: “It’s exceedingly likely that the attackers didn’t plan on actually getting the $60 million.” In fact, the cash is still yet to be released to the attacker, and Coleman thinks it may never be.

The moral(s) of this story? That’s hard to say, as this is a story that is only beginning to be written, and is one that changes dramatically from week to week. Not only do technologies move at unfathomable speeds and take on increasingly complex functions, but they also bring with them enormous flows of capital, and along with those flows trust invested in systems that are built and operated outside of the usual standards and structures that have formed the basis of our economy for decades.

Related Post:
Will the blockchain free music from being free?

Thursday, June 2, 2016

Do Borders Matter In A Digital World?

My original plan for this brief blog post was to point readers to an article I recently wrote for the CMF Trends Blog. Simply that. Then something arose the other day that added another dimension to the discussion. The topic for the piece I wrote is the fate of Canadian content -- and the related subsidy and quota systems for its creation -- in a time of Netflix, YouTube, streaming, torrenting, etc., and the full article can be found here. Meanwhile, in Europe, a similar debate has emerged.

More on that in a bit. But first, some Canadian content for you.

For readers outside of Canada the concept of CanCon, the catchy abbreviation for Canadian content, may be not only foreign but also a bit hard to get one's head around. The idea is this: That there is a mandated minimum on the broadcast schedules of radio and television entities across the country for music and television programs created by Canadians. This is part of Canada's Broadcasting Act, supported and enforced by governmental cultural institutions as well as industry partners such as radio broadcasters and cable and satellite companies.

Allow me to provide you with the most unintentionally successful example of Canadian content, created by Rick Moranis and Dave Thomas when they were informed that SCTV, the television show on which they appeared, was 2 minutes short on its CanCon requirements. Upon hearing this was the case, Moranis and Thomas are said to have jokingly responded with: "What...you want 2 guys sitting on beer cases, frying back bacon, and talking about donut shops? Will that do it?"


And so, a phenomenon was born, that led to catchphrases, a best-selling album, and a cult classic movie.

Most CanCon does not enjoy anywhere near this level of success, of course, fuelling ongoing debates about the usefulness and relevance of the governmental mandate in today's landscape of the all-you-can-eat offerings of Netflix and Spotify; not to mention the podcasters and YouTubers able to create content on a shoestring, with a reach limited only by the number of people that like what they're doing and are willing to publicize it via digital word-of-mouth. Competition now comes not only from the usual places, but from the most unusual places as well.

I thought of this conundrum as largely a matter of Canadian cultural politics until I saw this article, in which a department of the European Union "...proposes that video streaming services operating in Europe -- including Netflix, Amazon Prime, and HBO -- be forced to dedicate at least 20% of their local content offerings to European product, and to invest in some European productions....part of a larger effort to create a borderless digital marketplace stretching from Ireland to Greece..."



I'm not sure what a Euro version of Bob & Doug might look like...perhaps smartly attired, baguette-breaking Gitanes smokers, discussing the finer points of post-structuralism?

In the meantime, for those unwilling to wait for sweeping cultural reform or the end of geo-blocking, there's always VPNs.