December 8, 2003
Volume 2, Issue 10
DCIA New Member Digital Commerce
Please warmly welcome Digital Commerce as the newest Member of the DCIA. Digital Commerce is a distributed computing development and media distribution company, based in Atlanta , Georgia .
The company is building its business under the leadership of its founder, highly regarded new media entrepreneur, Les Ottolenghi . Digital Commerce founded and owns interests in several peer-to-peer (P2P) network companies including AgentWare, Inc., the leading provider of web services to the travel industry, and Careerfish, the leading P2P job search engine.
Digital Commerce has partnered with BlueMaze Entertainment, Inc. of NYC to capitalize on alternative promotion and distribution initiatives for music in the P2P network marketplace. Digital Commerce and its partners will launch several business-to-business (B2B) and business-to-consumer (B2C) peer-to-peer network solutions in 2004, and is proud to be a member of the DCIA.
Report from CEO Marty Lafferty
 Thanks to everyone who contributed ideas during our development of the second-of-three alternative business models for P2P music distribution.
We unveiled this "Model B" at the cable industry Western Show last week, and added a summary of it to the first model on DCIA's website in an easy-to-compare PowerPoint presentation: P2P Music Models.
Model B is based on the structure of cable television, including basic, premium, and a-la-carte service levels.
Phase 1 would institute a flat nominal monthly fee to be collected from all broadband subscribers who use music file-sharing software. Phase 2 would introduce optional P2P music packages with value-added features and exclusive content for additional fixed monthly fees. Phase 3 would add individual new releases with per-track charges to be promoted into P2P.
This is part of our ongoing effort intended to stimulate the selection and implementation of viable business solution(s) by affected parties. We presented "Model A" at our Fall General Meeting in October, and plan to unveil the third model before our Winter General Meeting, scheduled to take place in New York on February 9th.
The Western Show provided a venue to invite participating cable multiple system operator (MSO) broadband ISPs into the process of resolving the current P2P music copyright infringement crisis. Following up, as the next step, we are now seeking to facilitate requested meetings with music labels, MSO broadband ISPs, and P2P software companies.
There are two key takeaways from the new Model B. First, unlike Model A, it reflects the input and, in some cases very strong convictions, of those who believe that some form of "compulsory licensing" will be required, at least as a first step in resolving the current crisis. Second, this model, in its fully realized implementation, would resemble in several ways the current structure of subscription television offerings.
Phase 1 of this new model would call for a universal basic subscription to be introduced as soon as practical, to be paid by all broadband Internet subscribers who have a music file-sharing application installed on their PCs. Most of the revenue would be shared among music rights holders, including labels and publishers. The remainder would go to parties, including ISPs and P2P software companies, that bill and collect these fees as well as provide statistical reporting to facilitate allocation of payments as to which music tracks are being downloaded.
It is important to note that Phase 1 would represent only a temporary and partial solution. While compulsory licensing could quickly generate significant revenue given the proliferation of P2P software - nearly $2.5 billion in its first year in the US market alone assuming a modest five-dollar per sub per month fee - it would do little to incentivize continued investment in new music or the development of new talent.
For Model B to be acceptable, terms for transitioning out of its compulsory-license-only Phase 1 within a brief finite period would arguably be its most crucial aspect to record companies. Lessons can be taken from the cable television industry, which began as a regulated basic service with compulsory-licensed retransmission of local and distant broadcast station signals, but rapidly evolved into a much more robust consumer offering, with premium channels, expanded basic programming services, pay-per-view, etc. The cable industry has been especially successful as a result of its investment and innovation in original video programming building upon and expanding from its compulsory-licensed foundation.
Phases 2 and 3 of Model B outline a similar, time-compressed, evolution for P2P music. Phase 2 would add optional broadcast-encrypted genre-and-theme music packages (like cable premium movie channels) featuring exclusive content and editorial, which at an additional average one-dollar per month could more than double the revenue from the universal service alone. Ultimately, tightly protected a la carte by-the-track new music sales (like cable pay-per-view or video-on-demand) would be launched, which priced at a blended average of fifty-cents per track, could add an impressive $300 million per month more in incremental P2P music revenue as Phase 3.
A time-compressed "sequential distribution" pattern, borrowed from the movie industry, would also be envisioned in the full iteration of Model B, once all three phases were implemented. Newest releases, like movies on cable, would go into the a la carte pay-per-track category first, and then, after a period of time, migrate into the less protected themed channels, and finally into the basic level of service.
DCIA's first proposed business model, presented for discussion at our Fall General Meeting on October 8, 2003 featured an alternative three-phase plan for monetizing P2P distribution of copyrighted music. Phase 1 would include an expansion of the current credit card-based business model of selling licensed content by adding tracks from all major labels. Phase 2 would expand legitimate P2P music sales by making the user experience more seamless with micro-payment options, such as bill-to-phone. Phase 3 would make payment of online music through P2P systems universal using ISP-based billing and file-hash-signature monitoring performed most likely at ISP points-of-presence (POPs).
Currently supported digital rights management (DRM) technologies enable licenses to travel separately from content files, and that approach works well in P2P environments as content moves from user-to-user. DRM can only go so far with P2P, however, where by definition consumers place most content into distribution. For Phases 2 and 3 of Model B, more security is necessary.
As in the late stage of Model A, ISP POP-based router software solutions are needed to track P2P-protocol traffic of music content, regardless of which P2P software application is used and whether or not content is DRM-protected. The largest issue is ISP acceptance of responsibility for doing this.
Unlike telephone-company owned broadband ISPs, MSO broadband ISPs (which lead the US market) have a wealth of experience in managing content-based businesses. They can take the lead in developing and deploying the solution ultimately required in either proposed business model, which represents the best among proposed options to protect and monetize copyrighted works in rapidly evolving digital distribution.
Cable industry expertise is what is needed now to lead the way to the next level for the music industry to be able to implement necessary new monitoring and billing mechanisms. The potential for a triple win is here for music rights holders, MSO ISPs, and consumers, given the "super-distribution" potential of P2P - where marketing and distribution costs are borne by the demand side (as opposed to the supply side) of the business equation.
Feedback on either of the currently proposed models, and the contribution of ideas for the third model or additional alternatives, are strongly encouraged. Please call me at 888-864-3242 or e-mail marty@dcia.info.
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