May 24, 2004
Volume 4, Issue 10
DCIA Spring Meeting Games Panel
By Leslie Martell, G4/TechTV
The highlight of DCIA's quarterly general meeting was its fast-moving, enlightening, and highly energized games panel. Visionary industry leaders Kevin Bachus, President of Infinium Labs; Rich Roberts, Director of Atari; Jason Rubinstein, GM of UbiSoft; John Welch, CEO of PlayFirst; and Gabe Zichermann, VP of Trymedia Systems inspired attendees as they charted future digital distribution for games.
Is connectivity where it needs to be today?
Rich asked, "Why wait for broadband technology to introduce game products?" Step one, he said, is to get the game into a purchasable format where the market is right now. When distribution technology improves, good games will do even better. Kevin explained that part of the challenge is even with broadband, there are issues with distributing large games digitally due to lower upload than download capacity configurations. Gabe noted the majority of people using dial-up drops off when a game exceeds 10 megabytes, while those with broadband continue to download games up to 200 megabytes. "File size," he said, "alone, however, is not a success or failure determinant." If your content is up to par, people will want to download your games regardless.
What is the impact of piracy on the gaming industry?
All panelists agreed it is a problem. John suggested the solution might be delivering games by means of encrypted networks. At PlayFirst, the focus is on multi-player and community gaming, which will not be as susceptible to piracy. Jason asserted that the ideal situation is to avoid retail. He asked everyone to consider the example of Asia where there is no real home PC business, but gaming has become a very major part of pop culture; in Asia, they have resolved piracy. Rich said the way to control piracy is to make more and more games products available using software like Kazaa. By aggressively responding to the enormous traffic in the online marketplace with an increasing number of compelling offers, piracy can be beaten.
How are you trying to monetize the distribution channel?
Jason stated that gamers are now downloading multiple levels - and they are paying for them. Game manufacturers have the opportunity to add-on many ancillary features to content for fees. Unlike other types of media, in gaming you can add a character or a weapon, and charge for that addition. Manufacturers now are exploring ways successfully to add these "pay-for" features; and such enhancements are beginning to make gamers themselves feel more involved as "content creators." There is an enormous future in further developing in that direction.
Do you foresee a future where retail is not involved?
Rich indicated that he believes retail will always be involved, but the greatest growth and real future of games will be online. Retail has strengths - and the most progressive of them, like the Best Buys of the world, will themselves jump on the digital bandwagon to survive. He feels retailers will continue to be major players, especially the large discounters. Kevin added that some people will always prefer tangible objects - hence the importance of retailers. Gabe concluded that the real future of retailers will be as "search engines." The sales people at stores function as "expert guides," and that will be increasingly important for retailers...
Report from CEO Marty Lafferty
 Hats off to Competitive Enterprise Institute (CEI) President Fred Smith and his entire team on their twentieth anniversary celebration last week. CEI is a non-profit public policy organization dedicated to free enterprise and limited government.
CEI believes consumers are best helped not by government regulation but by being allowed to make their own choices in a free marketplace. Since its founding in 1984, CEI has grown into a $3 million institution with a team of nearly 30 policy experts and other staff.
This is not a traditional "think tank." CEI reaches out to the public and the media to ensure that its ideas are heard, works with policymakers to ensure that those ideas are implemented and, when necessary, takes its arguments to court to ensure the law is upheld. This "full-service approach" to public policy helps make CEI an effective and powerful force for economic freedom.
CEI took this opportunity to honor Norman Borlaug with its PROMETHEUS Award, named for the mythological god who brought fire to the world. Norman is an esteemed microbiologist and plant breeder who spent most of his life working in developing countries integrating agricultural research into viable technologies to help conquer world hunger. His efforts revolutionized agricultural production throughout the world, sparking what is now known as the "Green Revolution."
In 1970, he was awarded the Nobel Peace Prize for his achievements, which are estimated to have saved more than 1 billion lives. Norman has been honored by scores of governments, universities, scientific associations, farmer groups, and civic associations. He has been awarded 52 honorary doctorate degrees and belongs to the academies of science in 12 nations.
Norman's modest acceptance of CEI's recognition, recalling obstacles overcome in a world that greeted his technology with a mix of skepticism and scorn, and saw only threats to status quo agronomist business models and practices at the time, struck a familiar chord with what proponents of the new distributed computing industry confront daily.
Those who fail to see or are unable to embrace peer-to-peer file sharing, because it represents too radical a departure from old less efficient ways of distributing content, are very much like Norman's early opponents, and there are many lessons to be drawn from his strategies and tactics that successfully overcame their fears and issues to revolutionize agricultural productivity.
Norman is also an exemplar par excellence of the truth propounded by Julian Simon: "The greatest resource in the world is the human mind, the ability of intelligence and creativity to wrest incalculable value from inert soil and water, silicon and copper, coal and oil, iron ore and bauxite."
However, the greatest resonance with today's situation in the P2P space came from featured speaker Treasury Secretary John Snow. As Chief Executive of CSX Corporation where he worked for twenty years, John guided that transportation company through tremendous change, dramatically improving safety and financial performance. As Chairman of the Business Roundtable, comprised of 250 top CEOs, from 1994 through 1996, he played a major role in supporting passage of the North American Free Trade Agreement (NAFTA). John was nominated for his current assignment by President George W. Bush and unanimously confirmed by the Senate in January 2003.
John spoke eloquently in favor of letting markets develop the kinds of solutions favored by consumers and minimizing the intervention of government. He gave multiple examples of industries, from airline to wireless, where deregulation has unleashed both innovation that benefited the public and profitability that benefited the shareholders of companies involved.
The applicability to our industry is clear. Rather than having to discourage a succession of bill after bill seeking to create a complex and productivity-inhibiting regime of new rules for file sharing software providers and users, we should simply encourage major music labels to license the P2P distribution channel.
Private industry has already outpaced legislative efforts with P2P anti-virus protection and the safeguarding of confidential data. In-process education, deterrence, and enforcement programs, representing voluntary cooperation of P2P software suppliers and law enforcement agencies, will likewise make P2P one of the safest environments on the Internet for children whose parents use the continually improving controls being provided for that purpose.
And best practices that the industry is now developing for advertising will likewise go much further must faster than would new rulemaking initiatives - with the possible exception of a federal law to prevent additional state spyware laws, which although well-intentioned, have already caused damaging unintended consequences. Finally, the steadily increasing quantity and quality of licensed content in P2P, including games and independent music, is demonstrating the power, efficiency, and profitability of "super-distribution."
In short, very soon it will be obvious to even the most unobservant that the only remaining issue to be addressed is ending the major label boycott of the P2P distribution channel.
Welcome Go-Kart Records
Please warmly welcome Go-Kart Records 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.
Go-Kart Records is an independent punk label based in New York and Los Angeles that's not just coping with changes affecting the record industry, it's pouncing all over new opportunities. Go-Kart has released several full albums online, published the GO-KART MP300 RACEWAY, a $10 MP3 CD with 150 bands and 300 songs, and issued its manifesto. Go-Kart is on a tear. Check out its music after reading these excerpts from Downhill Battle's interview with Go-Kart President Greg Ross.
GREG ROSS: I was sick of the perception that the RIAA represented the opinion of all record labels, and I didn't want to be lumped in with the ones they do. I felt the RIAA went too far when it decided to sue individuals, and I had to speak up. There are probably other labels that wanted to do something too, who were probably scared or didn't really understand the situation. The truth is that I don't believe downloading is as big a problem as the RIAA claims.
DOWNHILL BATTLE: Does the way the major labels operate affect your business?
GREG ROSS: Radio is controlled through payola (known in its modern form as "consultants"), the print media is controlled through quid-pro-quo agreements (advertisements bought in exchange for coverage and vice-versa), retail is controlled by co-op dollars (which also includes in-store play for videos), and they even buy their artists' way on to opening slots on tours. In large part, the major labels have even co-opted the traditionally "DIY" network and infrastructure that are the backbone of punk rock and independent music as we know it. So, with very few exceptions, the five major labels control the fans' access to new music. No one can control what people download, though! All they can try to do is control the fans' access to downloadable music, or scare them outright.
DOWNHILL BATTLE: Independent labels sometimes get a reputation as being elitist or pretentious. Go-Kart doesn't seem to have that tone. Is that a conscious decision?
GREG ROSS: What? How dare you! You're lucky I am even talking to you. Ummm, actually, I don't think we are smart enough to be elitist or pretentious. Maybe we could be a part of the "hip" scene, especially here in NYC, if our bands could try a little harder to get featured in fashion magazines. We need less good music and more mesh hats and vintage clothes!
DOWNHILL BATTLE: What's the relative importance of record sales, money from concerts, and merchandise for the bands on your label? Are you doing free MP3 albums as an experiment or is clear that the publicity will help the bands?
GREG ROSS: We don't make any money from the bands' live performances, and while we do sell merchandise on our website, it's a small part of our business. We make our money from record sales for the most part. The bands whose MP3s we chose to give away were the bands that were less well known and needed exposure, so we hope that some people will like what they hear and buy an album, check out our other releases, etc. Essentially, what we are hoping is that free downloads will start a chain reaction of people who hear the songs and like them, tell their friends, and go see the band. Then the bands' shows will be a little bigger, and we can get them on bigger tours. More people will then see them live, and then check out the album, and so on, and so on...
More Evidence That P2P Users Buy CDs
Techdirt Corporate Intelligence
Just how much evidence will it take before the record industry realizes that there are multiple (possibly conflicting) effects to being able to download free music. Study after study after studyafter study have shown that many people who use or are interested in using free file sharing programs are likely to buy more CDs, because they view file sharing networks like a much more useful form of radio: as a way to try out lots of different music and determine what they like.
It's a "try before you buy" method of finding new music. Now, a new study, NPD Group Market Research, is getting a lot of press because it claims that people using legal download services like iTunes tend to buy CDs, but as Jason Schultz points out, that's basically saying that people who buy music, buy music. Big deal.
What's much more interesting is that the report notes (though, it's hidden at the bottom) that - people who use file sharing networks tend to buy CDs as well - though, not quite as many as those who use paid download services.
However, if one were to believe the recording industry's spin on things - no one would ever buy a CD if they can get those songs online for free. At what point does the industry admit that there's an awful lot of evidence out there that they're just wrong? It's okay to admit they made a mistake. If they were to embrace file sharing, and realize it's promotional powers, they would end up making a lot more money, but they refuse to pay attention.
Global Entertainment Media Summit
Don't miss GEMS Los Angeles. New Additions, Components and High Energy Empowerment Sessions Added to Star Studded Event for the Weekend of June 12-13. All Registered Guests and Industry Participants Are Invited to Special VIP Party on Friday June 11th. The First round of GEMS Performing artists will be announced this week.
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