April 26, 2004
Volume 4, Issue 6
Welcome Trymedia Systems
Please warmly welcome Trymedia Systems as the newest member of the Content Group. We look forward to providing valuable services to this newest DCIA Member and supporting its contributions to commercial development of the distributed computing industry.
Trymedia Systems offers secure digital delivery services for a wide range of solutions dedicated to optimizing game and software sales for top-tier PC content developers and publishers.
Trymedia also operates the world's largest B2B marketplace for downloadable games and software, through which major portals and other high-traffic destinations, as well as the largest P2P software applications, make a catalog of ActiveMARK-enabled content available to consumers worldwide.
Founded in 1999, Trymedia is an Intel Digital Home Fund financed company, headquartered in San Francisco with offices in Europe .
ActiveMARK is Trymedia's digital distribution and DRM technology services suite. Developers, publishers, and distributors use it as a simple way to securely distribute and sell PC games and software on CD/DVD, the Web, and in P2P distribution environments, with a single solution.
When consumers share ActiveMARK-enabled software with their friends, instead of preventing copies from being made, the duplicated files revert to trial mode and offer the next user an opportunity to purchase.
Trymedia's milestones include: ActiveMARK testing was completed in 2000. The first videogame titles were released for sale via digital download in 2001. The 10 millionth trial download of ActiveMARK content and the first legitimate game files posted on P2P occurred in 2002.
The company began distribution of high-demand games day-and-date with retail availability of boxed products, and surpassed the 30 millionth trial download of ActiveMARK content in 2003.
In 2004, Trymedia has already launched a unified ActiveMARK offering for retail and downloadable products, and looks forward to expanding its marketing and distribution activities through a recently completed round of funding led by the Intel Digital Home Fund.
DCIA Quarterly General Meeting
Please plan now to join us for the DCIA Spring Meeting that will take place on Wednesday, May 12th from 5:30 PM to 8:30 PM at the Wilshire Grand Hotel in Los Angeles adjacent to the LA Convention Center. Developed in partnership with iHollywood, this promises to be our most valuable and stimulating event to date.
The meeting will kickoff poolside with a networking buffet dinner. Then move inside for opening remarks from Nikki Hemming, CEO of DCIA Charter Member Sharman Networks, and Elliot Maxwell, Project Leader, Digital Connections Council, Committee for Economic Development. Meeting participants will receive the new CED Report "PROMOTING INNOVATION AND ECONOMIC GROWTH: THE SPECIAL PROBLEM OF DIGITAL INTELLECTUAL PROPERTY."
Next join Harvard Business School's Felix Oberholzer-Gee and Rich Feldman, President of Feldman Research Lab, for a discussion of the just released Harvard/UNC P2P Music Study as well as consumer attitudes and behavior relevant to file sharing of games and movies.
The centerpiece of the DCIA Spring Meeting will be our panel focusing on digital distribution of games. We are thrilled to feature speakers Kevin Bachus, CEO of Infinium Labs, which will be debuting Phantom at ESA's Electronic Entertainment Exposition (E3); Rich Roberts, director of Atari; Jason Rubinstein, GM of UbiSoft; John Welch, CEO of PlayFirst; and Gabe Zichermann, VP of Trymedia Systems. John Gaudiosi of iHollywood Gamemaker will moderate.
Our focus will be on what is working now and what more is needed to ensure successful licensed digital distribution of games, with an emphasis on the special issues of commercial redistribution in P2P environments. What are the lessons to be learned from music file sharing, and how can the games industry ensure that legitimate distribution of its titles prevails and that copyright infringement does not become a significant issue for publishers.
Closing remarks will be provided by Christian von Burkleo, Senior Vice President of DCIA Charter Member Altnet, now the world's largest distributor of legally traded games, music, and movies on the Internet.
Report from CEO Marty Lafferty
 The actions of our elected representatives vis-a-vis the pharmaceutical industry augur well for American consumers looking for assurance that their government does not operate at the behest of large well-financed special interests.
As a result of Congress's ongoing efforts, the public will be the beneficiary of greater competition and more attractive pricing for prescription drugs.
There is a strong parallel between what's happening in that arena and what should be, but is not yet happening in the entertainment sector. This is attributable to the success of powerful campaigns to mask the issues of competition and pricing in myriad distractions ranging from consumer privacy to computer viruses to child pornography to malicious spyware to copyright infringement.
Entertainment interests have spent huge amounts of time, energy, and money diverting the attention of Congress, private institutions, and the public, away from the core issue - retail price control.
The advent of the Internet brought about the liberation of pharmaceutical customers - with on-line virtual stores offering prescription drugs from an expanding array of competing providers. Market shifts occurred so rapidly that within a few years the pharma industry had to adjust its long-established preferred-pricing policies.
The industry predictably began to lobby Washington for legislation to oppose such innovation and protect existing distribution infrastructures at the expense of the consumer. Fortunately for the public, this tactic has been exposed and will not prevail.
The entertainment industries, facing similar issues, have resisted with greater sophistication and for a longer period of time. On-demand content delivery systems have been envisioned by consumers, advanced by distribution technology providers, and tested by large entertainment companies in various forms for more than two decades.
Yet none has emerged to the mainstream, not due to technical issues, but because dominant business forces have thwarted any competition with their entrenched terrestrial distribution infrastructures - in particular, preventing relief to consumers from collectively protected retail price-points.
With the coming of the Internet, and more so broadband, consumers have rapidly adopted efficiency-improving advances causing their migration towards on-demand content delivery. As technologies have improved and users have become more transparent to each other, small music files were the first to become susceptible to this trend. As soon as Napster and file formats like MP3 hit the scene, the world's first mainstream on-demand content system was born.
The entertainment industries made the decision to litigate against these technologies as a knee-jerk reaction extending from their earlier moves to block prior technical iterations during the past twenty years. The primary reason was the threat to retail pricing schemes and their traditional distribution infrastructures.
Lawsuits were enough at first, but legislation had to be attempted as these faltered: the original DMCA, followed by the Broadcast Flag, now the Piracy Deterrence & Education and PIRATE Acts among several others, all shielding the real issue - retail price control.
Consumers have a basic right to more attractive pricing being afforded to them by the efficiency of new distribution technologies. Contrast the retail price control that results in a downloadable song priced at $0.99 - derived directly from and intended to be uncompetitive with the effective per-track price of a CD - with Linux OS being offered to consumers via legitimate P2P at a fifty-percent (50%) price reduction versus CD. Linspire (formerly Lindows) is passing along the efficiency savings to its customers (and even so its margins are probably superior.)
Major labels are charging $0.99 for tracks delivered over the Internet . T hese do not need to contribute their share of cost recoupment for CD retail mark-up (est. $0.27), marketing and administration (est. $0.17), VAT (est. $0.14), or compact disk manufacturing and shipping (est. $0.12).
To yield CD-comparable allocations for artist royalties (est. $0.13), publisher mechanicals (est. $0.08), and A&R (est. $0.08), the wholesale cost into P2P could in fact be below $0.30 per track.
In the digital realm, and particularly with P2P, consumers willingly bear the costs of manufacturing, storage, transmission, and even some of the costs of marketing - and have demonstrated clearly that they're willing to pay a fair price for digital content.
How can the major labels justify a higher price for tracks delivered via the Internet than the tracks they deliver through traditional distribution? For the same reason that the pharmaceutical companies demanded their high prices: RETAIL PRICE CONTROL AND PROTECTIONISM.
And distributed computing promises to provide benefits to consumers and to entertainment companies far beyond supporting a reduction in costs that can be translated into much more attractive prices. The music industry needs to end its P2P boycott and establish legitimate P2P offerings.
We respectfully request that Congress consider carefully the core issue when dealing with the entertainment industries. The music industry in particular now needs to embrace new technologies and distribution models in order to pass on the benefits in efficiency these technologies provide to consumers.
The record labels should not be given the support they are seeking when they have not yet demonstrated that their intent is anything other than retail price control. The pharmaceutical companies are receiving a very clear directive. It is time for entertainment companies to receive the same.
Rich Feldman To Lead Research
In response to the increasing importance of understanding consumer behavior in the rapidly developing P2P marketplace, the DCIA has named Rich Feldman as Consumer Research leader. He will be joining us at the DCIA Spring Meeting to lead a discussion featuring Felix Oberholzer-Gee.
For the past 20 years, Rich has been working to understand consumers of new media and how companies can best market to them. He founded Feldman Research Lab in 2000 to serve the market research needs of leading media companies including Disney, Time Warner, Bell Globe Media, the NFL, and the NHL.
Rich's professional experience began at the Media Lab at MIT, where he worked as a Research Assistant and received a Bachelors Degree in Political Science and a Masters from the Sloan School of Management.
NBC hired Rich as Director of New Media Research in 1985. In 1988, he moved from the Network to the newly formed Cable Division, where he was responsible for research and business planning, and was actively involved in the FCC Advisory Committee process to establish an advanced television standard.
In 1990, Rich joined the management of research suppliers Norman Hecht Research and ASI Entertainment. Among successful projects he led were effectiveness studies of advertising during the Olympics, research for sampling-kiosk trials in record stores, as well as dozens of projects to optimize emerging media services.
Rich has presented at Advertising Research Foundation conferences on place-based media, the convergence of telephony and cable, and prognosticating the future of media. He is a member of the Advertising Research Foundation, the CTAM Research Committee, and QRCA - the professional association for focus group moderators.
FTC Spyware Workshop
From "FTC Hears Multiple Approaches to Spyware Threat"
By Patrick Ross, Washington Internet Daily
The FTC organized the workshop in part to help define adware and spyware, but several panelists said that's not the best approach. Instead, they said, the behavior of software providers and the impact on consumers should be the focus. "The definition has been in eye of the beholder," said Center for Democracy & Technology Assoc. Dir. Ari Schwartz . The focus, he said should be "not so much the technology, but the feeling of the user of the loss of control."
The FTC should "identify practices that have been most abusive," said Software & Information Industry Association General Counsel Mark Bohannon , including business users among the victims.
"What we're all trying to do," WhenU.com CEO Avi Naider said, "is stop rogue, deceitful practices." Distributed Computing Industry Association CEO Marty Lafferty agreed. Taking pains to define his member companies as providing adware, not spyware, Lafferty said his members are "defining high standards for what industry should be doing."
His call for self-regulation echoed prerecorded comments by FTC Commissioner Orson Swindle, who recalled the 2000 debate over website privacy policies. That debate, he said, featured "lots of emotion and calls for regulation," which led to industry responding to demands for greater disclosures and notices, without legislation. He said now "almost 100% of most frequently visited websites have privacy policies."
FTC Commissioner Mozelle Thompson also seemed to suggest private-sector solutions were possible. In an address, he laid down a challenge to "responsible industries" that they "come back to us with a set of best practices to provide consumers transparency, notice and choice." He said spyware "can undermine confidence in e-commerce," an industry the agency promoted aggressively.
Spyware Vs. Adware Debated
"There is no overlap between adware and spyware," Lafferty said. He said adware provides notice to consumers before downloading and can be easily uninstalled. Schwartz also distinguished between the two, but disagreed there wasn't any overlap. Some adware companies that may themselves be legitimate pay affiliates to get their software on people's computers, Schwartz said. Some "don't check up on the practices of affiliates," he said, and those affiliates might exploit security holes in browsers or lie to consumers that the software must be downloaded for a Web page to work.
CDT and DCIA are members of the Consumer Software Working Group. A paper by the group distributed at the workshop identified unacceptable behavior, including hijacking computers, surreptitious surveillance, and inhibiting software termination. The paper was endorsed by Schwartz and Lafferty and welcomed by Ed Black, Computer & Communications Industry Association President. Bohannon praised it, but said his group was withholding endorsement in part because of a need for clarity on software removal. "One has to be extremely careful in this area," he said, because giving a consumer the ability to uninstall all software "could leave them in a worse situation." To do that, he said, "We have to have a very strong caveat emptor."
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