May 17, 2004
Volume 4, Issue 9
DCIA Spring Meeting Music Panel
By Paul Resnikoff, Digital Music News
P2P Advocacy Group DCIA Tackles Gnawing Issues in LA Symposium
The Distributed Computing Industry Association (DCIA) held its quarterly meeting in LA Wednesday, igniting debate over what role peer-to-peer (P2P) should play in the music industry's future. The powder keg symposium had all the ingredients for a volcanic debate, as players from P2P apps, the music industry, academia, and even established artists did everything except jump from the top rope.
Debate centered on the recent Harvard/UNC P2P study, the valuable exposure that P2P can provide to artists, and what can be done to legitimize distributed file-sharing systems. In the mix were: Ted Cohen (EMI), Felix Oberholzer-Gee (Harvard), Christian von Burkleo (Altnet), Marty Lafferty (DCIA), Jeremy Welt (Maverick), and Michael Stroud (iHollywood Forum). The event was held at the USC Davidson Executive Conference Center on South Figueroa Street .
Issue One: What Harvard Study?
Felix Oberholzer-Gee of the Harvard Business School has taken a drubbing from major label execs who have greeted his file-sharing study with disbelief. For most inside a major label, rounds of layoffs and revenue plunges simply do not support the study's findings that file-sharing increases legitimate CD sales. Oberholzer-Gee himself was surprised at just how much attention the report received, and regretted that certain shades of gray were completely erased in an unexpected storm of media coverage.
But the report's co-author calmly stood by the study's results, even as executives peppered him with questions challenging his findings. Questions and counterarguments were aplenty. Some execs pointed out that the most heavily downloaded tracks are those that have received the greatest amount of promotion on the radio and MTV, suggesting that P2P apps are on the tail end of discovery. Are new acts actually discovered on P2P apps? Major label players did not see enough evidence to support this, although theoretically the possibility is quite strong.
Issue Two: Can P2P Ever Be Harnessed for Legitimate Purposes?
Peer-to-peer systems are undoubtedly a powerful distribution mechanism with implications far beyond music. The question is: can P2P applications ever be harnessed to legitimately sell music? Ted Cohen posed the question to Michael Weiss, CEO of Morpheus. Weiss outlined a system of legitimate sales involving files from Altnet, which automatically appear at the top of a search query. The only problem is that same search result will produce an innumerable amount of unlicensed, illegitimate results as well.
Cohen commented that "I am not against super distribution," but filtering unauthorized content was an important aspect of any system going forward. Weiss took the P2P party line, responding that there was no way to filter content in a decentralized application like Morpheus. Meanwhile down under, Sharman Networks is defending its Kazaa application against Australia 's ARIA with a similar defense. Some have been scratching their heads ever since Kazaa removed Morpheus from the Fast Track network, suggesting that forms of central control actually exist.
Issue Three: Artists Remain Ambivalent Towards P2P
Scott Page of Pink Floyd helped to provide the often-missing artist perspective to the DCIA symposium. Page implored the industry to explore more avenues to connect with artist audiences, including P2P outlets. The suggestion has an obvious complication: although a connection can often be established within a P2P environment, a connection to a listener's wallet is often far more elusive. Hence the ambivalence by many artists towards P2P applications. Michael Stroud , co-chair of the iHollywood Forum, lucidly noted that getting some exposure with subsequent smaller revenues is better than receiving no exposure and no revenue. And the debate continues...
Report from CEO Marty Lafferty
 Thanks to each of our 160 Spring Meeting participants for helping make this our most valuable and stimulating event to date.
Next week's DCINFO will feature full coverage from TechTV/
G4's Leslie Martell of the truly exceptional games panel, featuring industry leaders Kevin Bachus (Infinium Labs), Rich Roberts (Atari), Jason Rubinstein (UbiSoft), John Welch (PlayFirst), and Gabe Zichermann (DCIA Member Trymedia Systems), as they take an exciting look at digital distribution centering on P2P.
We are especially grateful to the Committee for Economic Development's (CED) Elliot Maxwell for sharing his strategic vision.
Elliot urged encouragement of both follow-on innovation as well as original creation to benefit the advancement of society. He observed that the combination of digital production and distributed computing technologies empower individuals increasingly to be not only consumers but also producers and distributors of content.
Because premature intervention may have unintended consequences in this time of rapid change, government should move slowly and strive to do no harm. Putting new business models for distributing creative content into market trials should be our top priority, while we should also continue enforcement and education.
Digital rights management (DRM) systems will clearly play a role in commercial solutions, but government should not mandate them. And we should explore an acceleration of the movement of copyrighted works into the public domain in this age of super-distribution, concluded Elliot.
The DCIA is focused on helping entertainment companies and file-sharing software providers find business solutions to issues that for too long have been more the province of litigation and legislative upheaval than commerce.
The music business can be great again, just as the movie industry enjoyed an enormous resurgence after adopting VCRs; and we clearly see harnessing P2P as the key to that. The games industry, already the fastest growing entertainment category, has embraced the Internet through several initiatives, including P2P, and this augurs well for its continued expansion.
DCIA Member Sharman Networks would like nothing more than to lead the software sector to enter into licensing agreements with labels and publishers, paying reasonable wholesale fees and accepting other terms and conditions customary in such arrangements.
Members Altnet, INTENT MediaWorks, and Trymedia Systems offer rights holders a choice of DRM solutions, ranging from Windows Media to proprietary software. Member Digital Containers, having recently been awarded its second patent, brings additional features to P2P DRM. Member Clickshare offers innovative micro-payment and affinity services especially tailored to file-sharing environments.
Through affiliations with P2P programs like Kazaa, Grokster, and eDonkey, and web portals like Excite; Altnet enables 80 million Internet users to locate, sample, and purchase digital entertainment.
Its TopSearch compensates rights holders when users redistribute content, returning licensed files, labeled with gold icons to verify authenticity, at the top of relevant search results. Unlike download sites, Altnet gives content providers the ability to dynamically set pricing, control promotion, and maximize customer interaction. Altnet integrates a one-click payment system and PeerPoints program that rewards users for exclusively sharing licensed material.
Trymedia Systems specializes in secure digital delivery of games for top-tier developers and publishers. ActiveMARK is Trymedia's proprietary technology. Rights holders can use it now as a simple way to securely distribute PC games on CD, DVD, the Web, and P2P, with a single solution. When consumers share ActiveMARK-enabled games 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 them.
Altnet and Trymedia are already the largest distributors of legal music and games on the Internet having achieved 50 million transactions per month. Contrast that with iTunes that only reached 50 million cumulatively in a year. And note that Altnet and Trymedia achieved their success with only 5,000 titles, while Apple has 500,000.
The question for a rights holder is - would you rather only be repped by a store that sells 100 of your products in a year, or also marketed door-to-door by an enterprise that can deliver 10,000 per month.
DCIA Members Relatable and Shared Media Licensing are working to address the challenge of unprotected content entered by consumers into P2P distribution. A new solution is needed to identify files being uploaded, apply DRM in real time, and permit instant transmission to the next user.
While the DCIA is continuing to pursue a long-term strategy to involve broadband ISPs in POP-level metering solutions, we are also working on a short-term solution that requires participation of content providers to move ahead.
Relatable offers acoustic fingerprinting attuned to the decentralized architecture of P2P. Its TRM software uses waveform technology and works with all formats with astonishing precision.
Shared Media has deployed a highly innovative business model. Its WeedShare compensates end-users for redistributing files, with rights holders receiving the substantial revenue share.
Relatable's experience includes having been selected by the original Napster to provide "music bar-codes" during its attempted conversion to a subscription service. Relatable inventoried over 13 million unique files available through Napster users from a universe of more than 300 million files. That was three years ago and P2P has grown exponentially ever since.
WeedShare tracks and pays users in the distribution chain. By purchasing Weed files at rights-holder-established prices, buyers are entitled to redistribute them and earn a sales commission.
The DCIA proposes bringing content and technology interests together to develop an approach that will balance consumers' willingness to pay and rights holders' willingness to participate. We encourage both the exploitation of revenue-generating opportunities currently available, as well as collaboration on these more advanced solutions.
We believe the parties will be most effective by working together, rather than continuing to act at odds, to counter copyright infringement and ensure that P2P realizes its full commercial potential.
For more details, please check out Competing with Free: Has Digital File - Sharing On the Internet Made Record Companies Obsolete?
Child-Pornography Arrests
As anticipated by the FBI's Kevin Lourdeau at the HR Energy & Commerce Internet Pornography hearing on May 6th, the apprehension of P2P child pornographers was announced Friday afternoon. There were 65 arrests, out of 350 cases, from 1,000 investigations. The DCIA and our Members unanimously praise the enforcement actions of the Cyber Division of the FBI with whom we have been working cooperatively since October, and the coordinated law enforcement efforts of the Department of Justice and Homeland Security.
No amount of child pornography is acceptable, and we are committed to doing all we can to eliminate this illicit content from P2P file-sharing environments. DCIA Members supported the covert operations that led to these arrests, and the DCIA is working with the FBI to introduce deterrence and education programs in coming months. The first of these is designed to deter those who use P2P software applications from becoming involved with child pornography in any way. The second is to educate P2P users to recognize, report, and remove criminally obscene content, should they encounter any such material online. We will be meeting with the National Center for Missing and Exploited Children (NCMEC) on Monday to discuss additional efforts.
The DCIA would also like to commend Members who are P2P suppliers for their industry leadership in integrating powerful family filters with their primary software applications. These voluntary initiatives are intended to give parents the tools they need to protect their children from undesirable content. P2P users can choose options such as blocking adult content by key words, preventing downloads of all images and videos, and password protecting their filter settings.
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