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March 5, 2007
Volume 16, Issue 11

Copyright Holders Welcome P2P Services

Excerpted from Reuters Report

It wasn’t so long ago when the phrase "peer-to-peer" (P2P) was practically a curse word in the music and movie industries. But in the past month, two new services have emerged to utilize the technology for protected distribution of content - specifically video.

One of them is BitTorrent, which developed the technology that at one point was used for one-third of all P2P traffic on the Internet. The other is Joost - formerly known as the Venice Project - which was founded by the same developers who created the Kazaa music-swapping community and later the Skype Internet telephone service.

Both BitTorrent and Joost rely on P2P technology to enhance the user experience. The more popular a file is on either network, the easier and faster it will download. Whereas the iTunes store shut down last Christmas because of overwhelming demand, services like BitTorrent and Joost are designed to improve as demand increases.

Both services are setting themselves up to provide some of the better digital entertainment services available today. The question is: will their technology credibility be sufficient to lure millions of downloaders?

More than 135 million people have downloaded the BitTorrent technology worldwide. It basically lets people publish content to the Internet in a way that enables multiple users to quickly download large files by sharing the distribution load.

The company hopes to convert users into customers through the BitTorrent Entertainment Network, which launched February 26th. The new service has compiled the rights to more than 3,000 movies, 1,000 games, and 1,000 music videos from 34 participating content providers.

The move makes BitTorrent a distributor - connecting content owners to the technology’s users in an attempt to monetize their interest in digital entertainment. Like any authorized digital music service, the challenge is to entice consumers away from a free, unauthorized environment into a paid, licensed one. The strategy aims to offer a superior experience.

BitTorrent COO Ashwin Navin says, "What users care about is getting their favorite content in a digital format."

Users can rent movies at $4 each, download-to-own TV shows and music videos for $2, and get user-generated content free. The company also plans to add a digital-rights-management-free music download service in the near future.

While BitTorrent works a rental download model, Joost is an ad-supported streaming video service currently in beta testing. Of the many sources providing video at this time, Warner Music Group (WMG), Nettwerk Music Group, MusicNation, Voy, and now Viacom are all contributing music videos and other music-themed programming.

Joost takes streaming video to a new level, with TiVo-like user controls and a high-quality full-screen display that captured the attention of content partners. Like BitTorrent, it uses P2P technology to optimize the streaming process.

But what really sets Joost apart is its ability to add widgets, or plug-ins - small applications that run atop the streaming video screen, enabling a degree of interactivity.

For instance, a chat tool allows users viewing the same video to discuss it with one another in real time. Joost not only allows but encourages content providers to create their own plug-ins customized for their video.

MusicNation is one such provider. The company conducts an online battle-of-the-bands competition on its website and will be providing exclusive content to Joost. It plans to create a live voting plug-in as part of that process.

"It wasn’t just about the display," MusicNation Founder & CMO Lucas Mann says, "it was about building a dynamic experience."

Report from CEO Marty Lafferty

Photo of CEO Marty LaffertyCongratulations to Digital Media Wire’s (DMW) Ned and Tinzar Sherman for a highly successful Digital Music Forum East.

We are very grateful to speakers on the "Pros & Cons of P2P for Music Distribution" panel Dan Porter, VP, Corporate Development, Virgin USA; Daniel Harris, CEO, MediaPass Network; Christopher Levy, CEO, BUYDRM; Peter Hause, VP, Business Development, Javien Digital Payment Solutions; Ashwin Moranganti, VP, Marketing, PeerApp; Les Ottolenghi, President & Co-Founder, INTENT MediaWorks; and James Toledano, Director of Digital Music, SafeNet; for their vital and energized contributions to what was an excellent discussion.

According to DMW, P2P file-sharing technologies represent either enormous new opportunities or an ever-growing threat to the marketplace for licensed music, depending on your point of view. With exponentially more traffic than competing online environments, and users who are actively seeking to discover and acquire new music; labels, publishers, bands, singer-songwriters, and other rights holders cannot afford to ignore this steadily growing phenomenon. What is really happening in terms of the development of P2P business models for monetizing music?

Dan Porter set the tone by acknowledging that, like dinosaurs, large record companies may face extinction as a result of the cultural revolution now underway that will drastically change how music is consumed. Major labels clearly will not be successful trying to stamp-out P2P and, to survive, must learn how to monetize it. Dan envisions a mix of ad-supported and paid-downloads in a fully developed commercial P2P marketplace, where currently many unauthorized tracks are downloaded but never played.

He called upon major recording industry executives to take greater risks with pricing experimentation to find a new market equilibrium. Dan also warned that consumers hate restrictions on their purchases, and concluded by stating that the current awkward stage will become a mere blip in time in the fullness of media history, and that rights holders will learn to partner with new technologies in a more holistic approach for digital distribution of their works.

Daniel Harris cited MediaPass Network’s background securely streaming music videos using centralized online distribution technologies and how MediaPass is now translating that experience to the decentralized P2P environment. He sees opportunities to use the file-sharing distribution channel for more than just viral marketing, which will also continue to be an important and cost-effective use of this consumer-based platform.

Daniel believes the largest immediate major opportunity is for ad-supported content, which could generate enormous channel revenue given both the vast amount of traffic and high-degree of involvement by P2P users, with paid transactions coming along further down the road. He put out a wake-up call to the music industry to the reality that economics of distribution are changing dramatically; there are now many, many more revenue streams for record companies to tap into; and it is incumbent upon the majors to lead in finding the optimal mix.

Christopher Levy outlined BUYDRM’s substantial experience in laying the foundation for P2P to succeed as a paid media platform. He views the monetization of P2P networks as a blend of various types of paid downloads supported by promotional content, preferring P2P content-advertising to other kinds of sponsorships. Before advertising third-party products and services to P2P users, content licensors should advertise their own premium content, which should also be made available in the channel.

Christopher views copyright infringement litigation in the P2P space as a waste of money that does little more than generate ill will towards content rights holders, and could be better invested in commercial development of the P2P channel. He concluded by expressing the need to pressure Apple to license its FairPlay DRM to foster device interoperability for paid music, and to encourage ISPs to step up their involvement.

Peter Hause described Javien’s advanced content commerce solutions, which are now utilized by several leading P2P software distributors that are selling licensed content using various types of subscription and paid download business models. He sees a richer mix of innovative content payment mechanisms for P2P with redeemable points, gifting options, etc., especially those geared towards young people who don’t have credit cards.

Peter noted that humans are incentive-based, and will be more responsive to attractive offers for licensed music in the channel than they will be to threats or fear tactics. He concluded paraphrasing "The X-Files" tagline that the truth is out there in terms of a growing need for the music industry to learn from the ongoing P2P consumer phenomenon.

Ashwin Moranganti pointed out PeerApp’s unique position among panelist companies, because of its work directly with ISPs to improve the scalability and efficiency of P2P, which is already a highly effective distribution technology. Ashwin said market economics need to drive the process of optimizing P2P business models: what is the value the consumer is willing to pay for a given entertainment experience? He observed that CD sales are way down, even as DVD sales are up, because CDs no longer reflect the way people want to obtain music and, unlike DVDs, CDs have not been downwardly priced to keep pace with demand.

Ashwin also pointed out that it is a mistake to equate the enormous number of P2P music-track downloads with lost sales. The vast majority of these would not have been purchases, and mostly reflect the insatiable desire of consumers to discover new music. Ashwin suggested the idea of an all-you-can-eat subscription music P2P offering, possibly billed and collected by ISPs. He encouraged much more experimenting with competitive alternatives at this stage to find the best approach(es) to monetizing P2P.

Les Ottolenghi underscored INTENT MediaWorks’ growing success as a distributor of licensed content in the P2P environment, and described its unique business model as "Media 2.0," where each entertainment property or content file is empowered with tools that INTENT offers to find its own path to profitability in P2P, social networking, and other high-traffic online environments.

Over 70% of consumers recognize and accept that they will need to pay for content in some manner (including by watching ads), but it is also clear that the user experience needs to more closely match consumer behavior. Les said rights holders need to think more in terms of "building snowballs" with their content, allowing consumers to interact with it and participate in its marketing, and then to be adaptive to that, rather than trying to sustain the Media 1.0 model of "exploiting blockbusters" formulaically.

James Toledano shared advances underway among major content providers who are moving on from trying to frustrate P2P users with spoofs and decoys to appealing to P2P users with promotional content and commercial "redirects" to licensed versions of content. He said one of SafeNet’s objectives is to help content owners recoup their spends on anti-copyright-infringement initiatives by delivering tangible value, such as advertising revenue or sales conversions.

A challenge that James sees is that a whole generation of listeners has become habituated to downloading enormous quantities of unlicensed music and that must be realistically addressed in a commercial way, as opposed to by means of an attempt at enforcement, for any plan to be successful.

Audience interaction with the panel included voicing frustration with the slow pace of conversion of P2P traffic – which is huge, continues to grow steadily, and accounts for exponentially more content distribution than the many paid-download stores – to a successfully monetized state.

The bottom line from this panel was that major players in the music and distributed computing industries need to focus more precisely and exert greater effort on transitioning P2P into a fully licensed commercial channel. While this may be challenging, it offers enormous upside potential. Share wisely, and take care.

BitTorrent Entertainment Network

Excerpted from Associated Press Report by Gary Gentile

BitTorrent is launching a peer-assisted service that will sell downloads of films and TV shows licensed from the studios.

The BitTorrent Entertainment Network was set to launch Monday with films from Warner Bros., Paramount Pictures, 20th Century Fox, Metro-Goldwyn-Mayer and Lionsgate and episodes of TV shows such as "24" and "Punk’d."

The service is squarely aimed at young men and boys who regularly use BitTorrent and who often watch films on their computers instead of on a big screen TV in the living room.

The San Francisco-based company is betting that at least one-third of the 135 million people who have downloaded the BitTorrent software will be willing to pay for high-quality content.

"The vast majority of our audience just loves digital content," Ashwin Navin, President & Co-Founder of BitTorrent, told The Associated Press.

"Now we have to program for that audience and create a better experience for that content so the audience converts to the service that makes the studios money."

To help wean users to paying for content, BitTorrent is featuring content and pricing that appeal to its target demographic – males between the ages of 15 and 35. TV episodes are $1.99 to download to own, which is typical for competitors such as Apple’s iTunes.

The new service will rent movies for a 24-hour viewing period for $3.99 for new titles and $2.99 for older films, but the service has decided not to sell films for now because the prices demanded by the studios were too high.

"We’re really hammering the studios to say, ‘Go easy on this audience,’" Navin said. "We need to give them a price that feels like a good value relative to what they were getting for free."

The service also will offer Japanese anime and high-definition video, which are popular with its users. Individuals will be able to publish their works to the site, which will compete for attention beside studio content.

The BitTorrent technology pioneered by Bram Cohen assembles digital movies and other computer files from separate bits of data downloaded from other computer users across the Internet. Its decentralized nature makes downloading more efficient, meaning that a full-length movie should download in about a half hour, about twice as fast as some other services.

Navin said TV episodes should download in about one-third that time.

Studios got comfortable with the idea of distributing content over P2P networks after they adopted strong digital rights management (DRM) safeguards created by Microsoft Corp. BitTorrent’s content is protected by Windows Media DRM and will only play-back using Windows Media Player.

Studios striking deals with P2P networks is a good first step toward allowing users to more freely distribute films and TV shows on the Internet, but it may take another five years or more for Hollywood to become completely comfortable with that, one analyst said.

"Their biggest concern is that an anonymous person passes it to an anonymous person without controls," said Les Ottolenghi, Chairman & President of INTENT MediaWorks, a company that helps content owners protect and distribute their works on P2P networks.

Ottolenghi chairs a working group focused on digital watermarking, a technology that helps content owners track the route of its files as they make their way around the Internet.

"Their greatest hope is that someone at home passes it on to someone else at home, from one device to the next, creating value for content owners," he said.

Record Labels and Jump TV to Joost

The Beggars Banquet Group and record label XL Recordings will create web TV channels for global P2PTV platform Joost.

The channels will screen music videos as well as documentaries and concerts.

Simon Wheeler, head of digital at The Beggars Banquet Group, said, "Joost is a very exciting concept and we have been very impressed with the beta trials so far. XL Recordings and our other labels produce consistently high-quality audio-visual content which is very suitable for this kind of environment and the ability to broadcast our own programming via a high quality platform such as this has great appeal."

Separately, JumpTV will also offer programming on Joost. The Canadian firm offers 270 channels of TV programs from 70 countries, including Albania, Bahrain, Pakistan and Korea on a subscription and free basis.

"Given the track record of the Joost founders, we believe that the Joost platform can be as transformational for online television as their previous ventures have been," Kaleil Isaza Tuzman, President & CEO of JumpTV said.

Babelgum Launches to Rival Joost

Excerpted from E-Consultancy Report

Babelgum is a new Internet TV service, using P2P technology to stream video to your PC at near -TV resolution, very much like Joost.

Like Joost, Babelgum has plenty of financial backing. While Joost’s founders Niklas Zennström and Janus Friis raised around £1.3bn from the sale of Skype, Babelgum founder Silvio Scaglia has just sold a quarter of his stake in Italian broadband firm Fastweb for £148m.

Babelgum, which is currently in beta, is very similar to Joost. As well as being based on the same P2P technology, it streams full length, professional quality content, and doesn’t allow users to save the video they watch.

You can choose to view Babelgum in a window or full screen.Controls pop up when you move your mouse, which includes a ‘remote’ for changing channels or volume, as well as options to view channel and program info, organize bookmarked videos and change your settings.

One feature which separates Babelgum from Joost is the ‘smart channel’ function, which will take note of the types of programs you are watching and deliver content catered to your interests. This sort of thing will underpin the future of the television advertising industry, which needs - and may receive - a big shot in the arm.

The Babelgum interface is clear and simple to use, and the picture quality is very good, better than most video sharing sites.

Ultimately, as with Joost or any other IPTV service, its success will depend on the quality of content offered.

In addition, Babelgum is looking to sign up plenty of niche content, paying content providers $5 for every 1,000 views.

We’ll be seeing more services like Joost and Babelgum, no question about it. It will be very interesting to see how the TV power players like BSkyBand Virgin Media react to these upstarts over the coming years.

Musicrypt Partners with Pando

Musicrypt, a leader in secure digital media distribution, and Pando Networks have entered into a licensing agreement extending and expanding their relationship following a very successful pilot program. Musicrypt proved the concept of integrating Pando’s unique technology with Musicrypt’s patented Digital Media Distribution System (DMDS) in order to provide the fastest and most secure delivery of large digital content such as television commercials, music videos, and audio files via the Internet.

Incorporation of Pando Networks’ innovative P2P architecture within DMDS will enable the secure digital delivery of full broadcast-quality music videos and television commercials via the Internet with the fastest downloads available to the music and advertising industries. Currently, large files like these are primarily delivered on DVD, Beta tape, or by satellite, which are comparatively inefficient, insecure, slow and expensive.

"Integrating Pando with Musicrypt’s DMDS means the end user will now be able to download video and audio files in record time, while providing unsurpassed accountability to the content provider," said Robert Levitan, Pando Networks’ CEO. "With our combined force, Musicrypt continues to be at the forefront of secure digital media distribution."

"This latest innovation incorporating Pando’s unique technology illustrates the flexibility of our DMDS platform," said John Heaven, President & CEO of Musicrypt. "The hybrid technology will provide the fastest, most efficient, reliable and secure delivery of TV commercials, music videos and audio files available to the advertising and music industries today."

Musicrypt’s patented DMDS has delivered over 7,000 different songs from more than 150 record labels to destinations which include radio stations representing over 35 US broadcast chains such as CBS/Infinity, Citadel, Clear Channel, Cox, Cumulus, Emmis, EntreVision, Entercom, Federated Media, Sirius, Journal, DMX, Jones Radio, AOL, Music Choice, Radio One, Salem Communications, Univision, Westwood One, Regent, Premiere Radio, Next Media, XM Satellite Radio, Waitt Media and many others.

Musicrypt is partnered in the US with Billboard, R&R, and Nielsen BDS; in the UK, Europe and Australia with Adstream; and is marketed to the US advertising industry by AWE, a division of Omnicom, and The Gary Group. DMDS is the only digital delivery system that can deliver music throughout the US, Canada, and the UK.

Advertising to File Sharers

Excerpted from Business Week Report

For a year, Edward Kozel valiantly tried to keep computer users from downloading unlicensed music. His company, C-Right, infiltrated networks using P2P technology used to share files. Once there, C-Right effectively blocked downloads on behalf of its entertainment clients.

But for every download thwarted by C-Right and others, countless more proceed unhindered. Unauthorized files still account for an estimated 90% of the music download market. Entertainment executives grew frustrated with battling downloads a few at a time, Kozel says. Representatives of one music label even told him they no longer planned to spend money on blocking downloads.

So Kozel adopted a different tack. If he couldn’t keep people from using file-sharing technology to chase free music, then he’d find another way to help clients make money from the technique. "There was this large market for the labels, we just needed to give them a chance to commercialize it," Kozel says.

In August, Kozel relaunched his company with a new name, Skyrider. And this month, backed by $20 million in venture funding, the startup unveiled a product that lets content owners include ads in video files over P2P networks.

Skyrider is one of a growing number of companies trying to deliver ads over P2P services. Among them is MediaDefender, acquired by ARTISTdirect in 2005. Last summer, MediaDefender launched a program that returns licensed videos or songs, often sponsored by advertisers, to P2P searches for that artists’ work. Among its first promotions: a Jay-Z video sponsored by Coca-Cola.

MediaDefender still tries to combat infringement through tactics such as flooding P2P networks with decoy files that tie-up a user’s computer. However, the company sees potential in the marketing business. "P2P is a phenomenon that is here to stay," said Jon Diamond, chief executive of ARTISTdirect.

Kozel concurs. Here’s how Skyrider works: A P2P user searching for, say, a Barenaked Ladies song [the band is a client] would receive multiple results for the corresponding music video, including one that includes a clickable ad at the base of the video for the band’s ring-tones, a list of the dates when the band is coming to the specific computer user’s area, or a marketer’s logo, for example. "It’s a way to engage with the audience," says Kozel. "And the labels now recognize this is a new channel for them."

That recognition, at least publicly, has been a long time coming, says Eric Garland, CEO of DCIA industry data resource BigChampagne. Marketing departments at major record labels have quietly discussed the potential of marketing to P2P audiences for years, Garland says. After all, at any given moment, big file-sharing networks such as Gnutella, eDonkey, and FastTrack often have millions of people on them searching for record label content.

The labels were reluctant, however, to use the services. "The problem was the litigation strategy," says Garland, adding that the labels did not "want to do anything that would jeopardize their legal position that there is no legitimate use for this technology."

That thinking changed in 2005, when the Supreme Court ruled that P2P networks could be held liable for music copyright infringement by their users. Once that was decided, it gave them more freedom to test the P2P waters, says Garland.

The Jun Group, a marketing company that has delivered ads on P2P networks since 2004, has seen more interest in its file-sharing ad services since the case was settled. "The MGM v. Grokster judgment took a huge monkey off the back of the entertainment industry," said Mitchell Reichgut, Principal at the Jun Group. He says the decision has allowed advertising on P2P networks to become mainstream.

INTENT MediaWorks, a P2P distribution company that was cited in the Grokster decision for its positive uses of P2P technology, also has benefited from a change in attitude among the major record labels since the court decision. The company, which works with rap artist 50 Cent, has recently signed letters of intent with several record labels. INTENT’s services give P2P users the music or movies they want bundled with a mini-pop-up website that offers everything from ring-tones and concert tickets to links to paid music and film download sites. About 60% of users interact with the mini-window, said INTENT MediaWorks President & Co-Founder Les Ottolenghi.

Despite what appears to be enthusiasm on behalf of content owners, Garland cautions that it is still early days for the market. Measurements for the market do not yet exist, and content owners are still unsure whether to embrace P2P technology. During the past school year, the recording industry seemed to ratchet up its campaign of complaints against P2P users, sending thousands more than in prior years and publishing a list of the worst offending universities. The Recording Industry Association of America (RIAA) refused to comment on this story.

There are hurdles for the marketing services as well. The companies that once combated infringement, and in some cases still do, will have to gain the trust of users, says Garland. Many users can identify a file more likely to come from a company because it has a faster connection speed. "It’s a difficult transition to reinvent your company around this different experience," says Garland.

Others will have to learn to walk a careful line between giving P2P users enough of what they want so that they interact with the ads. "I think there are some challenges," said Ashwin Navin, President & Co-Founder of P2P service BitTorrent. Users of P2P networks known for accessing content for free will not necessarily be the easiest people to transition into paying customers, he said.

However, some interaction has to be better than what the music industry is getting now: lost revenue. INTENT’s Ottolenghi is hopeful: "The users of P2P understand there will be a day when infringing traffic is going to be commercialized in some way," he says.

Telmex Rolls Out P2PTV

Excerpted from Zeropaid Report

In a first for Latin America, the Mexican phone company Telmex has launched a platform that offers streaming live television and the ability to download video content via the Internet.

The service is called Prodigy Media and will initially be offered to users for free, with the intent of making money in the future when current government restrictions on its ability to offer pay TV expire at the middle of this year .

Because of its overwhelming market share in the fixed line telephone business, Mexico has enacted temporary regulations that restrict Telmex’s attempts to offer bundled-packaged services that include phone, broadband Internet, and subscription TV.

The channels that are currently available include Fox News, TV UNAM, and another channel which will be dedicated solely to Mexican cultural programs.

The big question is how many DSL and broadband connections there are in Mexico and whether enough people will be able to afford to pay for this P2P Internet service.

P2P Service Zudeo Signs National Geographic

Excerpted from Digital Media Wire Report

Azureus, a provider of P2P file-sharing software based on BitTorrent, announced on Monday a partnership with National Geographic Ventures (NGV) to offer short- and long-form programming on its network.

Under the deal, NGV will initially offer video content to UK users of Azureus’ Zudeo service, with a North American launch to follow shortly. Palo Alto, CA-based Azureus, which claims 140 million downloads of its file-sharing software, has also signed BBC Worldwide, Bennett Media Worldwide, and Starz Media to provide content on Zudeo.

ROO Acquires P2P Wurld Media for $10 Million

Excerpted from Digital Music News Report by Alexandra Osorio

New York-based ROO Group has announced plans to purchase the assets of Wurld Media, a company specializing in secure P2P media delivery. ROO, a provider of video solutions for large enterprises, will make the acquisition for approximately $10 million. The Wurld Media buyout will allow ROO to expand into secure P2P distribution, social networking, digital ecommerce, and DRM solutions.

Wurld is the owner of Peer Impact, a closed file-sharing application that had previously secured media licenses from 20th Century Fox, WB, Universal Music Group, Sony BMG, Warner Music Group, EMI, Fox, Atari, and Activision.

"The acquisition of the technology and solutions from Wurld Media will enable our existing and future clients to engage their audiences at every digital touch point including online, mobile, and IPTV, in a market where enhanced distribution capability is leading the way on a global basis," said Robert Petty, chief executive at ROO. The purchase price will be paid in cash and ROO common stock at $4.39 per share, with an upfront guaranteed payment of $1.5 million. A total of $6.5 million will be delivered in stock or cash at the close of the deal, and an additional $2 million will be paid upon the delivery of certain benchmarks.

ROO, which counts clients like News Corp., Verizon, and TheStreet.com, will immediately deliver Wurld Media technologies to its customers.

"The combination of ROO’s already strong customer base, superior online streaming and advertising technology, combined with Wurld Media’s innovative P2P technologies and relationships, will establish a new standard for global industry broadcasting," said Greg Kerber, CEO of Wurld Media. The deal was announced Tuesday.

The Advertising Sector & Net Neutrality

Excerpted from MediaPost Report by Scott Leland

While at first glance it may not be obvious how the public policy debate over "net neutrality" affects the advertising sector, it does – and big time. In simple terms, "net neutrality" is the politics of "convergence."

As "convergence" makes the tech and communications sectors collide and creates more direct competition between the sectors than ever before, the choice is: will competition and market forces sort it out, or will government dictate which sector is competitively advantaged over the other?

In "brand" terms, the main opposing "brand" players in this public policy fight are the online giants like Google, Yahoo, eBay, Amazon, and IAC that want regulation of broadband companies versus the broadband companies like Time Warner, Verizon, AT&T, Sprint, and Comcast that do not.

So why should advertisers care who wins? There are three bottom-line reasons why.

1) The companies that advertise very little want to regulate some of the advertising sector’s best corporate clients. According to Advertising Age’s 2005 rankings: none of the biggest "brand" supporters of "net neutrality" – Google, Yahoo, eBay, Amazon, or IAC – are in the top 100 companies that advertise nationally. That’s because online giants already have their own huge network of users that they can e-mail or reach all by themselves. The online giants simply don’t have much need for big national advertising campaigns now or in the future.

On the other hand, the nation’s biggest spenders on advertising include: #3 Time Warner, #4 Verizon, #5 AT&T, #16 Sprint, and #83 Comcast – and collectively these companies spent over $10 billion on advertising in 2005. Not only do these companies advertise a lot now, they will continue to advertise a lot in the future because increasing broadband competition for the customer demands more advertising.

Competition is what drives demand for advertising. The broadband sector is vibrantly and increasingly competitive, which is bullish for advertising growth. Supporters of "net neutrality" do not believe competition offers enough protection for online business models, so they support government regulation of the Internet and broadband access.

It should be obvious to everyone in advertising that more regulation means less investment, less broadband deployment to all Americans, less marketing competition – all of which would mean less demand for advertising.

2) Regulation will only strengthen the online giants’ ability to dis-intermediate advertisers from their corporate clients. Google may be the single biggest threat to the traditional advertising business model. It is clear to most everyone in the TV, radio, and newspaper industries that Google is trying to dis-intermediate them and capture the value creation of brokering advertising purchases.

The practical effect of "net neutrality" is to prevent any verticalization of broadband competitors into Google’s advertising market. Less competition to Google’s growing chokehold on digital advertising is not in advertisers’ interests.

If Congress passed the law that Google is backing, it would freeze Google’s current business advantage in place, while outlawing broadband competitors from innovating and competing with Google in search-related businesses. Google would be able to squeeze TV, radio, and newspapers even more.

3) Regulation would effectively outlaw broadband from evolving into a two-sided market paid for by both consumer subscriptions AND advertising revenues – the way newspapers, magazines, and cable currently operate. In crass economic terms, "net neutrality" is all about making it law that consumers alone pay for the Internet and that Internet access cannot also become an ad-supported medium as it evolves to be capable of handling video.

This type of bad law would shift the tens of billions of dollars of new costs it will take to upgrade the Internet to do video – completely onto consumers. How is it in the interests of the advertising sector for the Internet not to become at least partially supported by advertising revenues?

In conclusion, "net neutrality" may not be on the radar screen of the advertising sector, but it should be. Not only is "net neutrality" a big threat to some of the advertising sector’s best spending clients, it may be the single biggest potential threat to future national advertising demand – save for a downturn in the economy.

Fair Use Amendment Introduced

Excerpted from Slyck.com Report by Thomas Mennecke

There are a few pioneers in the United States House of Representatives attempting to amend the DMCA in favor of the consumer. The Bill, called Freedom and Innovation Revitalizing US Entrepreneurship Act of 2007 (H.R. 1201), or FAIR USE Act for short, was introduced last week by US Representatives Rick Boucher (D-VA) and John Doolittle (R-CA).

"The fair use doctrine is threatened today as never before. Historically, the nation’s copyright laws have reflected a carefully calibrated balance between the rights of copyright owners and the rights of the users of copyrighted material. The Digital Millennium Copyright Act (DMCA) dramatically tilted the copyright balance toward complete copyright protection at the expense of the public’s right to fair use," Boucher said. "The FAIR USE Act will assure that consumers who purchase digital media can enjoy a broad range of uses of the media for their own convenience in a way which does not infringe the copyright in the work," Boucher explained. The Bill details several rights it hopes to give back to consumers, educators, and software/hardware designers. In an effort to pacify concerns of the entertainment industry (and to give the Bill a snowball’s chance), the Bill does not contain "fair use defense to the act of circumvention." In other words, it doesn’t establish a blanket safe harbor provision to all acts of circumvention. Instead, the fair use provisions are narrow. The Bill seeks to amend the DMCA’s circumvention provision by adding the following paragraph:

"(F) The prohibition contained in subparagraph (A) shall not apply to a person by reason of that person’s engaging in a non-infringing use of any of the 6 classes of copyrighted works set forth in the determination of the 2 Librarian of Congress in Docket No. RM 2005-11, as published as a final rule by the Copyright Office, Library of 4 Congress, effective November 27, 2006."

Paragraph "A" of section 12-01 of the DMCA states that, "No person shall circumvent a technological measure that effectively controls access to a work protected under this title."

This Bill would effectively negate the burden of paragraph "A" if the circumvention is within the scope of the six classes of copyrighted works. There is no mention of DVD or optical disc circumvention and the exemptions are very narrow - and antiquated - in scope. The only circumvention provisions related to DVDs allow for "…consumers to circumvent a lock on a DVD or other audiovisual work in order to skip past commercials at the beginning of it or to bypass personally objectionable content…", but not backup the work.

The reasons for such narrow provisions stem from previous attempts by Representatives Boucher and Doolittle to introduce much more aggressive fair use amendments. However because these previous attempts had a much wider circumvention scope, they were swiftly curtailed by the entertainment industry.

More relevantly, the Bill will also empower librarians to "ensure that they can circumvent a digital lock to preserve or secure a copy of a work or replace a copy that is damaged, deteriorating, lost, or stolen."

Perhaps most welcome to software and hardware designers is the provision to codify the Sony Corp. v. Universal City Studios, Inc. ruling, otherwise known as the Betamax decision. "Subsection (b) would immunize these and other hardware companies, as well as entrepreneurs, from copyright infringement liability based on the design, manufacture, or distribution of hardware devices (or components of those devices) that are capable of a substantial, commercially significant non-infringing use."

Additionally, the Bill seeks to limit "availability of statutory damages against individuals and firms who may be found to have engaged in contributory infringement, inducement of infringement, vicarious liability or other indirect infringement." In other words, the next time someone considers the creation of a new P2P network, they won’t have to worry so much about a potential $30 million judgment. The Bill is a positive step forward, yet, if passed, would not help those looking to make backup copies of their DVD collection. Like the DRM issue currently facing the authorized online music stores, this attempt is a small step forward in the effort to unlock the grip of the entertainment industry. Please read the section by section breakdown of this Bill here.

House Dems Review Telecom Policies

Excerpted from Technology Daily Report by David Hatch

House Democrats are planning a thorough re-examination of telecommunications and media policies that will feature multiple oversight hearings and fresh legislation, industry and congressional sources said.

Fostering high-speed Internet deployment, ensuring an open and accessible Internet, and overhauling the federal universal service program that subsidizes telecom connections in rural and impoverished areas are among the key issues to be addressed.

The competitiveness of the video, telephone, and radio marketplaces also will be explored, along with protecting the privacy of phone records and promoting efficient use of spectrum.

Energy and Commerce Committee Chairman John Dingell (D-MI) and Telecommunications and the Internet Subcommittee Chairman Edward Markey (D-MA) have not decided whether to pursue sweeping legislation or targeted measures, sources said. Senate Commerce Committee Chairman Daniel Inouye (D-HI) prefers the latter, a staffer previously said.

"The narrower and smaller the bites, then obviously their chances for success go up," an industry lobbyist said.

But that approach could prove challenging for enacting network neutrality regulations designed to restrict broadband providers from acting as Internet gatekeepers. Markey has not reintroduced a stand-alone neutrality measure.

"There won’t be a stand-alone net neutrality bill, and that’s a good thing because it won’t pass," said Gigi Sohn, President of the watchdog Public Knowledge, which supports the concept.

Observers said net neutrality might be added to a broader bill or to various related measures, such as privacy or antitrust vehicles. They cautioned that given the controversy surrounding the issue, Democrats would move slowly.

The Democrats’ innovation agenda, released in November by now-House Speaker Nancy Pelosi, D-CA, would be woven into upcoming telecom legislation, sources said, noting that Markey already has held discussions with Pelosi.

The agenda calls for universal, affordable broadband access within five years. The Bush administration has pledged to achieve that goal by the end of 2007, but critics say they are not on track.

Coming Events of Interest

  • IPTV World Forum – March 5th-7th in London, England. Mikkel Dissing, CEO of DCIA Member RawFlow, will speak on "TVoverNet: Threat or Opportunity." The company will also demonstrate SelfCast, its revolutionary new live publishing tool for user-generated broadcasting at Booth 70. SelfCast can be built into any existing social community site to allow for live broadcasting of video and audio.

  • Cross-Media Metadata Summit for Content Description, Visibility, Search, and Discovery – March 9th at the Frontline Club, London W2, England. The summit will identify strategies and tactics to drive adoption of metadata syndication ecosystems that enable content owners to increase visibility of their content.

  • National Association of Broadcasters (NAB) – April 14th–19th in Las Vegas, NV. Whether you’re making the transition to HD; looking to invest in new technologies like P2PTV; seeking new tools to create content and build revenue streams; or just trying to stay ahead of the competition, NAB 2007 is your essential destination. The DCIA is participating.

  • MUSEXPO – The 2007 showcase line–up for MUSEXPO, April 29th – May 2nd, at the Bel Age Hotel in West Hollywood, CA, has taken shape and is poised to be the strongest to date since the conference first launched back in 2005. Over the past two years, numerous acts have procured US and international recording contracts, publishing deals, synch–representation and management deals after showcasing at MUSEXPO. The DCIA will participate.

  • Streaming Media East - The Business & Technology of Online Video - May 15th-16th at the Hilton New York, NY. Streaming Media East is the only trade show dedicated to coverage of both the business of video on the net and the technology of streaming, downloading, IPTV and mobile video delivery. The DCIA is a show sponsor, and DCIA Member BUYDRM’s Christopher Levy will speak on the P2P for Large Scale Video Delivery panel.

  • P2P MEDIA SUMMIT LA – June 11th in Santa Monica, CA. This is the DCIA’s must-attend event for everyone interested in P2P. Keynotes, panels, and workshops on the latest breakthroughs. Held in conjunction with the new Digital Hollywood Spring conference and exposition.

  • International Broadcasting Convention (IBC) – September 6th-11th in Amsterdam, Holland. IBC is committed to providing the world’s best event for everyone involved in the creation, management, and delivery of content for the entertainment industry, including DCIA Members. Run by the industry for the industry, convention organizers are drawn from participating companies.

  • PT/EXPO COMM – October 23rd-27th at the China International Exhibition Center in Beijing, China. The largest telecommunications/IT industry event in the world’s fastest growing telecom sector. PT/EXPO COMM offers DCIA participants from all over the world a high profile promotional platform in a sales environment that is rich in capital investment.

Copyright 2008 Distributed Computing Industry Association
This page last updated July 6, 2008
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