Wednesday, September 22, 2004

Daiwa EuroTelcoblog No. 79: Wednesday 22nd September, 2004 - The revolution will not be televised: takeaways from the P2P video event at Columbia U.

"You will not have to worry about a dove in your bedroom, a tiger in your
tank, or the giant in your toilet bowl.

The revolution will not go better with Coke.

The revolution will not fight the germs that may cause bad breath.

The revolution WILL put you in the driver's seat."

"The Revolution Will not be Televised" - Gil Scott-Heron

On 10th September I attended and presented in an event at Columbia University devoted to the issue of P2P video as a mass medium, sponsored by the Columbia Institute for Tele-Information of the Columbia Business School, the Marconi Foundation, the Columbia Engineering School, and the European Institute on the Media (though I was the only "European" presenting who was not affiliated with Columbia). The event was somewhat poorly attended (c.100 people) versus my initial expectations, but I believe this mainly reflects the fact that, even for the industry itself, the issue and its many ramifications are only really beginning to come on the radar screen. That's probably also generally true of the risk of large asteroid collisions with Earth, though the sudden appearance of one plummeting towards our planet would no doubt sharpen the minds of earthlings everywhere (in a New York minute). The future development of P2P may be the equivalent for the entertainment industry, and also to telcos who are trying to make the transition into content provision.

I saw in the audience representatives from two old-school US telcos, and there were also attendees and presenters from the media/entertainment world, though these were fewer in number than I might have expected. There was good representation from the legal arena, naturally, as well as from the engineering side of things. Those of us in attendance were treated to interesting perspectives on issues ranging from P2P economics to technology, community/society and law/policy. There was far more information available than I could possibly hope to correctly or fairly represent here in its entirety. Rather, I will attempt to distill some key messages from the panel presentations (including my own where appropriate) and the ensuing discussions.

Summary takeaways

  1. Video P2P is widespread, growing, and is a phenomenon which content owners and traditional distribution platform owners will struggle to contain. The costs to various stakeholders are potentially large and fairly well-documented. What is less clear is whether there is a case for business models built on using P2P proactively. Some early examples exist, but the legal, technical and structural mechanisms which would give media companies a higher comfort level are not yet in place.
  2. Attitudinal surveys of P2P users appear to show some potential for P2P to be employed by content owners as either a promotional or alternative distribution platform. The mass media portrayal of file sharing as a pure substitution behavior (or outright theft) is simplistic at best. Demographic data from Europe suggest that the educational and income levels of some P2P users may be quite favorable to employing P2P distribution models as a means of generating incremental sales for content owners.
  3. The experience of the music world suggests that a considerable portion of the very valuable back catalogues of media companies may be available online in relatively unpolluted form, versus the high file pollution levels seen in versions of current popular hits. This suggests that for older, potentially more affluent, file sharers, the most desirable content is also the most widely available with the least inconvenience. Therefore, the potential upside and downside for the music industry players could be great, depending on how they respond. Translated to the TV and film world, the same risks and opportunities may be expected.
  4. Some content owners may be open to a P2P distribution model, but in cases where they share corporate ownership with distributors, there are significant cultural and strategic conflicts to overcome.
  5. The copyright and security aspects of P2P content distribution are the principal chokepoint in harnessing the opportunity, and appear unlikely to be resolved in any definitive way in the short term.
  6. The rise of P2P may also have the potential to support new non-corporate sources of content and journalistic creation. In particular, the advent of more robust wireless devices (especially camera phones and handsets with high capacity storage), coupled with new wireless networking technologies, would seem to open up all manner of possibilities. Traditional content and advertising companies may find themselves in an uncomfortable position in this scenario.
  7. Consumers have asserted their will to control their media consumption, increasingly on an a la carte basis, irrespective of time, place or other constraints. The opportunity in P2P for the content owners and distributors is to find a formula whereby they can deliver this and remain a part of the consumer's menu. Otherwise, consumers will continue doing it for themselves, largely beyond the reach of any control mechanisms. If media companies go direct to the consumer in an attempt to harness P2P's potential, then the content strategies of distribution companies (cable and telcos) may suffer significant damage.

Sizing the market

A number of presenters, including myself, attempted to give some sense of scale to the current P2P phenomenon. Adam Toll from P2P monitoring and measurement company Big Champagne said that the platforms monitored by the company worldwide measure just under 8m concurrent users at present. While feature-length films account for only around 1.8% of total files on the P2P platforms, Big Champagne observes that video overall accounted for 23% of total data shared on P2P in August, demonstrating the disproportionately data intensive nature of video content (file size for a feature length film may range from 600MB to well over 1GB). My own presentation contained data from both the OECD and P2P policy solutions developer CacheLogic, showing somewhat less than 10m concurrent users (CacheLogic found 8m on average and 10m at periods of peak usage). Europe claims seven of the top ten positions in file sharing intensity, and judging from the OECD data based on KaZaA users, video content (in terms of file numbers) accounts for a larger proportion of content in many European countries than anywhere else. In Germany, which had the highest proportion of video content in the OECD data, the proportion of video approached 40% of total files shared. Also of interest in the OECD data is the observed growth in non-Fast Track users, which seems to support the notion that the growth in users overall is coming from video content, or at least being driven by platforms which handle video content better, such as BitTorrent and eDonkey. The Pew Internet & American Life project reported in April that 15% of US internet users have downloaded video content, up from 13% in Q4 2003. In France, 19% of all internet users have downloaded feature films.

Kevin Werbach, from the Wharton School of Business, voiced his belief that P2P video is already a significantly larger phenomenon than is currently being reported in the mainstream media, and that video content may already be the single largest class of data being shared on P2P networks. He also stressed that the technical nature of "data swarming" platforms such as BitTorrent, where an object is downloaded in separate segments from a number of contributing nodes, meant that the more popular a piece of content, the more efficient the download process should be, further compounding issues of controlling or containing the contagion. His vision of the world in four to five years' time was one in which the availability of ever-cheaper storage (multi-terabyte drives in this example), camera phones and video-encoding devices would put 500m - 1bn people in a position to post independently created content to the web, potentially fundamentally altering the existing media landscape. (Our own observation is that there are already some well-established examples of just this sort of effect taking place. One is Text America, which already contains an extensive range of camera phone blogs, including a growing proportion of video (, and camera phone photography itself has been acknowledged this year as a "legitimate" medium worthy of public exhibition ( At the other end of the spectrum, but no less interesting, are "new" episodes of Star Trek available on the web ( This new, largely decentralized, source of content creation and distribution is something we may expect to see much more of, and the traditional media and distribution companies will be challenged to define business models around them.)

In terms of the size of costs to stakeholders from P2P, there are a variety of costs to be considered beyond monetary ones. However, to cover these first, the IFPI's annual piracy report for 2004 cites $4.5bn in illegal music sales in 2003, though it must be acknowledged that physical piracy (illegally produced CDs) almost certainly still dwarfs P2P revenue leakage (one in three discs sold in 2003 was pirated). In fact, it is extremely unclear as to the real extent of financial impact on the music industry from P2P, and the industry's own appeals against file sharing have stopped short of quantifying the precise effect. The IFPI recently found that 27% of those surveyed claimed to have reduced expenditure on CDs as a result of file sharing, though 15% responded that their legal music buying had actually increased. What the IFPI doesn't drill down into is whether the 15% who bought more are a more valuable market segment than the 27% who bought less. Nevertheless, the important fact is that even in this study advancing the interests of the music industry, it is apparent that file sharing has a significant promotional impact on legal product sales in some user segments - the P2P phenomenon is not a complete loss for the labels. Similarly, research jointly produced in March by the Harvard Business School and University of North Carolina ( cited some cases where P2P user surveys seemed to indicate a net positive impact on music sales, and the researchers' own statistical observations of downloading behavior concluded that the impact on sales was "statistically indistinguishable from zero."

There have been reports of record labels actively engaging the P2P community in an attempt to gauge the direction of musical taste (, and this trend was recently further augmented by BBC Radio One's inclusion of a separate (legal) Download Chart in its programming, in acknowledgement of downloaded music as a distinct market governed by different dynamics. (In fact, a side-by-side comparison from the two charts from 19th September shows that only six out of the top 20 titles were common to both charts, and these songs occupied dramatically different slots in each, respectively. One distinguishing feature of the download chart is the presence of older material, as downloaders demonstrate that they do not necessarily wish to be limited to the "linear" contemporary playlists of Top 40 radio formats. One entry in the top 20 download chart was "Seven Nation Army" by The White Stripes, a song released more than one year ago. This kind of "time-shifting" behavior is obviously one way for content providers to extend the marketable life of their catalogues.) The Motion Picture Association of America, which has been a highly vocal critic of P2P (and of other innovations in distribution models historically), does not include revenues lost to file sharing in its $3bn estimate of piracy impacts, citing "difficulty in calculating internet piracy losses". More straightforward perhaps is the cost/potential cost of reputational damage/loss of systems integrity/lost productivity suggested by the statistic from policy/security firm Blue Coat that 39% of file sharers in the US claim to engage in file sharing from the workplace. In terms of more conventional costs to carriers, CacheLogic in the UK has estimated that P2P will inflict up to EUR100m in IP transit costs alone on European ISPs in 2004, not to mention the longer term capex costs necessitated by evermore bandwidth intensive applications traversing the networks. Litigation against ISPs and coerced broadband customer churn to stem P2P usage are other forms of cost I discussed in my presentation, and which have been previously documented here.

P2P user characteristics

What sort of people share files on P2P networks, and what are their motivations? My presentation contained some data from French regulator ART (via the OECD report), which shows that file sharers in France are just as likely to be high earners (monthly income of EUR3,100 or more) as low earners (EUR900 or below), and actually more likely to have a university degree. This is quite a different outcome to the findings in the US market, where the Pew Internet & American Life Project found last year that the young, students, those from lower earning backgrounds and ethnic elements of the market dominated file sharing activities ( However, even in these segments of the market, the motivators for P2P file sharing may be very complex.

Dr. Gali Einav of Columbia delivered results of her study into the motivations and attitudes of university students in video file sharing. Her research, involving interviews with university students, reveals some surprising things. Some respondents identified the need for social conformity as one aspect. The Government Accounting Office estimates that 90% of undergraduates in the US engage in file sharing, and Dr. Einav identified a certain level of anxiety at being perceived as an "outcast" if one did not engage in file sharing. In other words, we are talking about a social activity, or pastime, as much as anything. She also discovered a wide range of intensity of downloading activity, from once a week up to 300 movies in a single semester. In terms of the hierarchy of motivations for video P2P activity, the dominant factor is not cost, but convenience. Well over half of respondents cited convenience and immediacy as the key drivers. Of secondary, but significant, importance, were the ability to introduce friends to new content (the social aspect again) and the ability to sample new content before committing to a purchase. Cost savings appears quite insignficant relative to other factors.

Interestingly, in the specific area of movies (as opposed to sharing of TV programs), Dr. Einav found that most download activity relates to quality control issues - wanting to sample a film before either buying it or seeing it in the cinema. Students responded that P2P file sharing of movies did not diminish either their attendance at movie theaters or their purchasing of DVDs, though they acknowledged less spending on DVD rentals. As an extension of this line of enquiry, Dr. Einav asked about theoretical pricing thresholds for content to be legally purchased on the web via download. Respondents identified a price range in line with DVD rentals for movies ($3 - 5), and 99 cents to $5 for TV episodes or blocks of episodes (depending on the series). Intriguingly, the students responded that they would be willing to pay more for cancelled TV shows or rare content. In terms of general attitudes towards file sharing, students expressed no qualms about copyright or revenue loss for the entertainment industry, but also indicated an admiration for the iTunes model (because it is both legal and affordable). Conversely, they expressed ambivalence towards university-led attempts to procure content on their behalf, which is consistent with previous anecdotal evidence ( Overall, students believe that downloading of video content will eventually be a net positive for the entertainment industry as a promotional tool.

Let’s pause here for a moment to synthesize a couple of points. What Dr. Einav’s research seems to point out is that student P2P users, often demonized as flagrant, unthinking violators of copyright, would conversely appear to be willing consumers of paid download services if the pricing, terms and user experience are right. At the other end of the age/economic spectrum, wealthy, educated French P2P users seem to offer up another piece of evidence that there may be a lucrative market out there for a properly targeted P2P video content offering. Most interestingly, both groups appear, on the surface, to be good target audiences for offerings involving niche content from the back catalogues of TV and film studios. From a long-term perspective, this may arguably be an asset more valuable to media companies than the ephemeral content found in daily TV schedules, or indeed in music catalogues. On the other hand, one man's ephemera is another man's gold, and companies such as Rhino Records have built a successful business case out of just this market segment (

You can’t always get what you want

If we assume that there is a significant potential audience out there, which is comfortable with P2P technology, amenable to buying rare or niche content, and with the wallet to do so, then we should consider the experience of the P2P user in seeking to find suitable content. Relevant to this issue was a study by researchers at Polytechnic University on the issue of “Pollution in P2P File Sharing Systems” ( In this interesting work, presented at Columbia by Dr. Keith Ross, the researchers created a system for monitoring the entirety of the Fast Track ecosystem (estimated at 4m users, or roughly half the observable concurrent P2P user universe at any given time), and investigated levels of pollution, or corruption, of available content. This is a particularly relevant issue, in light of the recording industry’s history of employing professional P2P polluters such as Overpeer (acquired by Loudeye in the spring) to infuse P2P networks with faulty content in an attempt to frustrate illegal file sharers. This may take the form of versions which are either incomplete, or which stutter and skip, or which may be completely erroneous (for example, a track labeled as Eminem/D12’s "My Band," which is actually Tammy Wynette’s “Stand By Your Man,” or "Banjo Boy," by Jan and Kjeld).

The ethos underlying the pollution strategy is “if you can’t beat ‘em, frustrate ‘em,” and the Polytechnic research would seem to support its efficacy. Researchers found that, for popular current hits, KaZaA (and other Fast Track-based platforms) might contain as many as 50,000 uniquely identifiable copied versions of songs, and in some cases more than one million copies of these various versions available. However, despite (or more appropriately, because of) the popularity of these songs, pollution levels of as much as 75% were observed, which strongly suggests that record labels are focused on defending the more ephemeral segments of their artist portfolios. However, the researchers also looked at contamination levels in five “classic hit” tracks (Springsteen’s “Born to Run,” the Beatles’ “Hey Jude,” Madonna’s “Like a Virgin,” Chicago’s “Saturday in the Park,” and Carly Simon’s “You’re So Vain”), and found pollution levels of below 20%. In the case of “Hey Jude,” pollution levels approached zero, which is remarkable considering that the Beatles catalogue has so far avoided any licensing to legal download services. In other words, it would appear that large and valuable swathes of the music catalogue (and by extension, probably the film and TV catalogues) for niche (non-contemporary) content is available for download on P2P networks illegally with a greater assurance of quality and ease of use for the consumer.

This is bound to be hugely galling to the media groups, as it suggests that there may be some inherent value in trying to employ P2P platforms as distribution and promotion arms, yet they understandably have concerns over security, monitoring and copyright issues. This was confirmed by a sales and marketing VP from Turner Broadcasting, who stated clearly that, as a content company, Turner was open to any and all forms of distribution for video content, so long as the audience could be accurately measured for the purposes of advertising sales. One potential drawback in developing this level of comfort in the US market would be the central role played by Nielsen in monitoring viewing patterns, and finding an approach appropriate to the P2P world, but with equal gravitas among advertisers, would prove difficult. (The BBC, which doesn't have to worry about advertising revenues, has publicly embraced BitTorrent as a distribution platform for some programming (, and we think this may be extended to its entire archive in time via its interactive Media Player initiative.) Another relevant issue, which the Turner VP prudently sidestepped in his comments, was the inherent conflict between this strategy in the Turner division of Time Warner Inc., and the distribution strategies of sister divisions Time Warner Cable and AOL. For companies with huge vested interests in both content ownership and distribution (Time Warner most prominently, but also Vivendi Universal, Liberty Media and News Corp), or content ownership and consumer electronics (Sony), there is going to be an interesting balancing act developing around this issue, and we may expect a fair number of shouting matches and fisticuffs in conglomerate boardrooms around the world as P2P grows.

Keeping control and getting paid

Two issues where the anxieties of the media conglomerates may not see any relief anytime soon are security and copyright protection. A number of interesting presentations addressed both of these, though sadly with no clearer path to resolution emerging. On the security issue, Bobby Bhattacharjee of the University of Maryland proposed a trust inference system for imposing some order in the P2P world, and thus improving network performance ( The central issue here is that P2P is by nature decentralized, with no recognized trusted authority to validate users, as is the case in the "mainstream" internet world, administered by well-known DNS root servers and certificate authorities. P2P applications lack any prior trust relationships, user identities may be nebulous, and all users are inherently "insiders." This last issue is really key, as the security industry has built itself on the premise that malicious attacks inevitably come from outside the system. Various remedies spring to mind, based on reputational systems and user behavioral profiling to establish trustworthiness. The conclusion arrived at was that, rather than a punitive system, the most effective system for dealing with security issues may actually be to incentivize positive behavior. Protocols such as Overnet already have this principle built in, at least in terms of bandwidth. Overnet users who have faster connections for uploading, and who are willing sharers, can expect to receive faster downloads. This is presumably a mechanism for frustrating "free-riders," or P2P nodes which simply suck information out of the system, but do not reciprocate on the upstream link, which causes network inefficiencies. (One commercial variation on this incentivization idea appeared in my presentation - the distribution agreement between Morpheus and Heart, which was structured in such a way that file sharers could actually be incentivized to stay within the rules of the system by a promise of monetary compensation, effectively a sales commission. The day after this blog was published, 23rd September, eBay announced a music download partnership with a heretofore unknown company called PassAlong, which also employs this principle - albeit through a point system rather than cash.) One other interesting presentation, from Dan Rubenstein of Columbia, dealt with the concept of employing a P2P network scenario (based on Gnutella) to deal with network congestion arising from "flash crowds" on the web (, as occurred to the websites of popular news organizations during the 9/11 attacks. The Q&A session following this technology panel included the proposal that P2P could actually be the ideal untapped technology for distributed storage of vast quantities of information, utilizing the huge, largely under-utilized collective storage capacity of web-enabled PCs around the world. This idea was also touched on to some extent as a business development idea by Greg Bildson, the COO of Limewire, in a later presentation. Overall, however, the issue of security, in the sense of digital rights management aspects, received very little enthusiasm from some of the more experienced members of the panels, and indeed, we have already seen cases where DRM protocols supporting successful commercial content distribution have been quickly cracked ( and, reverse-engineered (, or otherwise sidestepped (

We now come to the Mother of All Stumbling Blocks to the uptake of P2P as a legitimate distribution platform, which is copyright protection and enforcement, and there were a number of interesting ideas and heated exchanges around this topic. Alain Bourdeau de Fontenay of Columbia was forthright in stating that copyright has zero value, because it is ultimately unenforceable in this environment. This understandably sent the blood pressure of many of the economists and lawyers in the audience into the danger zone. There were, however, other points of view presented, among them a proposal from UCLA Law School professor Neil Netanel, to adopt a compulsory non-commercial use levy (NUL) of around 4.1% on goods and services related to the P2P value chain ( In plain English, Dr. Netanel has worked through the complex inputs in the P2P economy and come up with a 4.1% tax to be added to services such as broadband internet connections, and hardware such as PCs, Wi-Fi networking equipment, etc., which would be fed into a fund established to compensate copyright holders for revenues lost to P2P. Non-commercial "Illegal" file sharing itself would pass into legitimacy, because rights holders' earnings from the NUL fund would ideally offset revenue loss. Advertisers and content providers might seek to reclaim lost advertising "eyeballs" through product placement, which is already an issue thrown up by PVRs, and one which seems to have gained critical mass in the wake of Oprah Winfrey's recent car giveaway, wherein the sponsor's product effectively becomes the program ( The compulsory licensing concept comes in contrast to proposals such as that tabled earlier this year by the Electronic Frontier Foundation, which published a white paper ( proposing a voluntary collective licensing regime, wherein P2P users could "opt-in" to a voluntary levy system. Under this system, P2P users formally declare their participation in file sharing activities and agree to pay a monthly fee (the EFF mentions $5) for the right to continue unlimited file sharing activities.

Dr. Michael Einhorn, economist with the US Department of Justice and contributor at the excellent DigitalMusicNews (, voiced a couple of very sensible objections to the compulsory licensing concept. Firstly, if the activity is not pervasive or near-universal, why should society at large subsidize the media conglomerates, or conversely, heavy P2P users, through a general levy on services and products involved in the P2P value chain? Indeed, though the record labels and film studios have spent a lot of time creating the perception that file sharing is a pervasive influence in society, in fact, even in heavy P2P markets such as Germany and France only around 1% of the total population is engaged in file sharing. What motivation would a 50 year-old woman in Leipzig, who uses her broadband connection primarily for email, shopping, banking, and listening to internet radio, have for contributing to such a fund? The second objection raised involves the issue of valuation of various content types. What differentiates P2P from other media forms is its eclectic nature. If we think of licensing regimes for radio stations, we are clearly talking about music, and music only. Similarly, if we think about licensing for cable networks, we are clearly talking about video content. However, P2P networks are employed to move content spanning areas as diverse as music, TV, film, software applications, books, static images/photography, and games. Even if a structure could be established to monitor and measure the market, and manage the payment of compensation on a proportionate basis to various market participants, we would soon find ourselves confronted with the issue of valuation of content. For example, how can we value a text file versus a musical work, or a game versus a film? Finding a formula mutually acceptable to all stakeholders would be exceptionally difficult, and accounting for and enforcing it would be almost inconceivable.

As an American ex-pat in Europe for more than nine years, it was interesting to observe the America-centric nature of this debate. Whether it be a compulsory non-commercial use levy, or a voluntary collective licensing fee, the proposals seem to largely ignore the global nature of media distribution and consumption. While such systems might have a slim chance of success if properly resourced and enforced on a national basis, the structures become, in our view, untenable on a global scale. The EFF's proposal, drafted by bright people with interesting views, has a surprisingly succinct and naive view on this issue: "As for file sharers in other countries, there is every reason to believe that if a collective licensing approach is successful in the US, it will receive a warm welcome and enthusiastic imitation abroad." However, the fact is that content licensing and royalty collection remain largely national-level functions, and thus fragmented not only by industry and geographical definitions, but also by national characteristics. Would the same book carry equal value in a highly literate society, such as Japan, as in Brazil, where literacy rates are significantly lower? What sort of PPP adjustments need to be made? How do we account for national taste? David Hasselhoff is known to be very popular in Germany, Jerry Lewis in France and Norman Wisdom in Albania, but is there a workable mechanism whereby the citizens of these countries are taxed proportionately to compensate the holders of rights for works featuring them? We quickly find ourselves having to establish some very complex formulas for compensation which would be unworkable and unsatisfactory. Lastly, we have to concede that not all countries are created equal in terms of their infrastructure for enforcement. This can be seen clearly in the IFPI's 2004 piracy report, where physical piracy (CDs, tapes) is found to account for less than 10% of units sold in countries like the US, Germany, France and the UK, but over 50% in countries like Brazil, China, Indonesia and Russia, where the IFPI concedes the authorities have bigger fish to fry on the law and order front. This situation probably bodes poorly for efforts to curtail electronic piracy as broadband penetration in these countries grows dramatically.


This is obviously a huge and exceedingly complicated issue for both the content and distribution companies, and I have not addressed some of the related areas of conflict (such as the software and hardware available to capture streaming audio, which were discussed in the Global Telecom Monthly for August). There are also other developments in the device pipeline which may complicate things further. For example, Samsung fired the first shot in the "iPod-ization of handsets" war just two weeks back (by announcing a handset with a 1.5GB mini-harddrive). Elsewhere, we have documented applications like Pocketster (and their likely equivalents using Bluetooth) which allow direct sharing of content between wireless devices, with no audit trail. The rise of municipal and commercial Wi-Fi networks increase opportunities for such behaviors exponentially, moreso with the advent of mesh networking technologies.

Dealing with the proliferation of P2P will necessitate that content owners bite the bullet and begin drafting strategies for exploiting the possibilities of P2P as a distribution and promotion vehicle, though this will inevitably entail compromises on pricing models, and may have implications on advertising revenues and issues of control. We have seen examples where independent software vendors have offered discounts to purchasers downloading the application via P2P networks, presumably because of the cost savings this approach offers on the marketing and packaging side. Similarly, we have seen Voiceglo adopt eDonkey as a distribution channel for its glophone VoIP client software, and again, the deal struck between Heart and Morpheus on the surface provides us with a good example of how P2P users may be incentivized to play the game. Moreover, we think there is a growing body of evidence to suggest that the P2P user base may contain a significant market segment which is interested in purchasing content via this platform if it is convenient, affordable, and flexible, with rare content proving a powerful potential draw to such potential consumers.

Nevertheless, these will not be easy strategies for content owners to formulate, particularly in cases where the corporate structure includes sizeable vested interests in both content and distribution. These internal conflicts would seem to be most likely in Time Warner, Vivendi Universal, News Corp., and Liberty Media. Similarly, Sony, which recently expanded its film library through the acquisition of MGM, is in a sensitive position, from our view, but by virtue of its hardware interests rather than distribution. Whether we can expect players not hindered by such cannibalization risks (EMI for example) to be more proactive is difficult to read.

For the pure distribution companies, such as cable and the telcos (who are really just getting into the game), we see a risk that, if the content owners eventually feel comfortable enough to get into the game directly, as has Major League Baseball in the US (, part of their content business case potentially goes out the window. More fundamentally, as developments ranging from PVRs to the mounting pressure for a mandatory a la carte cable policy in the US seem to illustrate, consumers increasingly want to define and control their own media experience and consumption. If the content and distribution companies don't put in place the systems to deliver this, and in doing so, remain a part of the equation, we believe consumers will continue to do it themselves. Most of the identifiable parties in this ecosystem come out as losers under that scenario. Some degree of compromise is essential, and individuals, let alone corporations, generally don't favor change which involves a lower standard of living.

Lastly, as suggested by a number of speakers at the Columbia event, the decentralization of distribution, coupled with evermore powerful tools for creating, manipulating and storing content, may lead to some interesting surprises in terms of new media forms and media sensations. This is the motivation behind P2P systems such as Torrentocracy, which we have previously profiled - to create an alternative platform for the distribution of independently created content. Mainstream media companies may struggle to deal with the emergence of such new forms, and advertisers similarly may find it difficult to wedge themselves into such an environment. We should not dismiss this as a real possibility. Going back to pre-digital days, the band Metallica (ironically one of the most vociferous opponents to file sharing in the music business) intially rose to international prominence in the mid-80's essentially through viral marketing. With no radio airplay or attention from the mainstream music press, the band continued to sell out very large venues on the basis of word-of-mouth, until the mainstream eventually had to take notice. (It later occurred to me that some of the quasi-reality formats which have gotten so much attention in the television world over the past couple of years, like "Jackass" or the UK's "Trigger Happy TV," are, technically speaking, probably not that far from what "guerillas" could do themselves.) Wi-Fi technology similarly became established as a function of purchase decisions by individuals, long before carriers or municipal governments decided there was value in it. P2P is yet another bottom-up revolution, possibly the biggest in history, with very broad implications and unforeseen outcomes for every industry which touches it.

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