Yesterday's unanimous ruling in the Metro Goldwyn-Mayer Studios v. Grokster case represents a long overdue victory for copyright holders. Grokster's specious argument that restricting its rights to distribute its P2P software would contradict the Court's wastershed Betamax ruling was revealed by the judges for the smoke screen that it was.
Grokster's assertion that it should not be held liable for how its technology is deployed by users would suggest that Grokster was in a business analogous to general purpose software development and the company was an innocent bystander in some egregious mis-use of its technology. The justices got it right and overtly stated that Grokster's "acted with a purpose to cause copyright violations." Moreover the justices found "substantial evidence" that the company's products encourages users to illegally swap copyrighted movies and music.
Grokster's other assertion that such a ruling would stifle the creativity of technology innovators was merely a fear mongering tactic as opposed to a factual accounting of how innovators who work within the boundaries of intellectual property law are not only prospering, but giving consumers what they want. One need look no further than Apple's success with iTunes, Yahoo's subscription music service, and NetFlix DVD rental business to see how innovators who respect copyright innovate their way forward to profitability.
The genie is out of the bottle and certainly P2P is not about to go away. I for one would be delighted to see legitimate P2P companies like Weedshare and SnoCap flourish in this new environment. Hopefully yesterday's ruling will make the way clear for innovation in digital media distribution that works in concert with the interests of artists and copyright holders.
Thank you Justices for getting it right.
Tuesday, June 28, 2005
Sunday, June 12, 2005
Microsoft & Hollywood: Did Anyone Think Win - Win?
When Microsoft released Halo 2 last year and racked up Hollywood-like box office numbers in its first week of release, it's easy to understand (and forgive) if the execs in Redmond experienced a little rush to the head and perhaps a momentary lapse in judgment believing that the market value of their videogame title "should" be equated to proven box office brands like Spielberg and Cruise or franchises like Star Wars or Spiderman. Surely, once the blush was off the rose and the champagne uncorked, cooler heads would prevail and recognize that, while Microsoft had in fact created a blockbuster videogame, that fact in no way should give the software giant the license to negotiate with Hollywood with the same hubris it displays as the dominant player in the software industry. Wanna bet?
As reported in the June 10th edition of the NY Times, Microsoft's MO was on full display in the disclosure of how it went about negotiating film rights for Halo 2 with the major studios. Rather than recognize (and perhaps humbly submit) that Microsoft was a new kid on the block in Hollywood and, using the bait of an admittedly valuable property, attempt to build long term sustainable relationships with worthy partners who shared their passion for marketing great games, Microsoft elected to play hardball. The Times reported that Microsoft hired a writer to write the screenplay for the Halo movie, invited execs from the major studios to read it and then offered the following terms: The studios would have 24 hours to provide a signed commitment to produce the screenplay Microsoft commissioned, pay a $10MM advance (non-refundable), invest a minimum of $75MM in production (not including actors fees), pay 20% of box office receipts, and pay all travel fees for up to 60 Microsoft execs so that Microsoft could maintain creative control during production. Oh, and for the privilege of producing the movie, the winning bidder foregoes all merchandising rights.
Predictably, once hearing of these terms, 4 of the 6 potential studios dropped completely from the bidding. The Times reported that the two studios who chose to bid, Fox & Universal, submitted terms that equated to half of what Microsoft demanded and have yet to sign an agreement as both sides consider further concessions.
Beyond the sport of Microsoft bashing-- one in which I rarely partake- not to mention the hubris that one can only assume is attached to such an aggressive posture, this episode particularly intrigues me because, if the Times reporting of events and terms are accurate, it appears the folks at Microsoft engaged in some of the most ill-conceived negotiating strategies ever recorded.
Did the person in charge of the negotiations at Microsoft pause for a moment to think that maybe they didn't know the highest value the film rights to this popular game title could command in an open bid market? Did anyone consider that a $10MM advance was too low? Did anyone consider that the titans of Hollywood, who perhaps know one or two things about what it takes to produce a blockbuster movie, consider Microsoft's requirement for "total creative control" as unacceptable? Did anyone think that maybe Microsoft should take the long view and-- assuming Microsoft is confident they will have a string of hit game titles worthy of future development-- engage potential partners in Hollywood with a little more--dare I say-- respect?
In short, did anyone think win-win?
Apparently not. Sure, in the end maybe securing 50% of everything they demanded will satisfy Microsoft so they can claim victory. But, one of the cardinal rules of negotiating is never let the buyer be the one to say "no" to your terms; the seller should always have the last word and say "yes" or "no". Microsoft's obscenely one-sided posture from the outset predicated the buyer would say "no" and Microsoft would have to respond lest they lose the deal (and since 75% of the eligible bidders dropped out, the "no's" were heard loud and clear). Hence, Microsoft may claim victory, but they will never know if they got the best deal. They will never know if they got the best partner. They will never know if they got the best terms. What they got was a reputation that will not serve them in obtaining better terms in the future. What they got was a deal valued at 1/2 of what they wanted. What they got is the deal to which all parties ultimately said "no."
Too bad. It could have been a win-win.
As reported in the June 10th edition of the NY Times, Microsoft's MO was on full display in the disclosure of how it went about negotiating film rights for Halo 2 with the major studios. Rather than recognize (and perhaps humbly submit) that Microsoft was a new kid on the block in Hollywood and, using the bait of an admittedly valuable property, attempt to build long term sustainable relationships with worthy partners who shared their passion for marketing great games, Microsoft elected to play hardball. The Times reported that Microsoft hired a writer to write the screenplay for the Halo movie, invited execs from the major studios to read it and then offered the following terms: The studios would have 24 hours to provide a signed commitment to produce the screenplay Microsoft commissioned, pay a $10MM advance (non-refundable), invest a minimum of $75MM in production (not including actors fees), pay 20% of box office receipts, and pay all travel fees for up to 60 Microsoft execs so that Microsoft could maintain creative control during production. Oh, and for the privilege of producing the movie, the winning bidder foregoes all merchandising rights.
Predictably, once hearing of these terms, 4 of the 6 potential studios dropped completely from the bidding. The Times reported that the two studios who chose to bid, Fox & Universal, submitted terms that equated to half of what Microsoft demanded and have yet to sign an agreement as both sides consider further concessions.
Beyond the sport of Microsoft bashing-- one in which I rarely partake- not to mention the hubris that one can only assume is attached to such an aggressive posture, this episode particularly intrigues me because, if the Times reporting of events and terms are accurate, it appears the folks at Microsoft engaged in some of the most ill-conceived negotiating strategies ever recorded.
Did the person in charge of the negotiations at Microsoft pause for a moment to think that maybe they didn't know the highest value the film rights to this popular game title could command in an open bid market? Did anyone consider that a $10MM advance was too low? Did anyone consider that the titans of Hollywood, who perhaps know one or two things about what it takes to produce a blockbuster movie, consider Microsoft's requirement for "total creative control" as unacceptable? Did anyone think that maybe Microsoft should take the long view and-- assuming Microsoft is confident they will have a string of hit game titles worthy of future development-- engage potential partners in Hollywood with a little more--dare I say-- respect?
In short, did anyone think win-win?
Apparently not. Sure, in the end maybe securing 50% of everything they demanded will satisfy Microsoft so they can claim victory. But, one of the cardinal rules of negotiating is never let the buyer be the one to say "no" to your terms; the seller should always have the last word and say "yes" or "no". Microsoft's obscenely one-sided posture from the outset predicated the buyer would say "no" and Microsoft would have to respond lest they lose the deal (and since 75% of the eligible bidders dropped out, the "no's" were heard loud and clear). Hence, Microsoft may claim victory, but they will never know if they got the best deal. They will never know if they got the best partner. They will never know if they got the best terms. What they got was a reputation that will not serve them in obtaining better terms in the future. What they got was a deal valued at 1/2 of what they wanted. What they got is the deal to which all parties ultimately said "no."
Too bad. It could have been a win-win.
Thursday, June 02, 2005
Online Advertising and The Competition
Internet advertising revenues continues to rebound from the bubble heyday. In 2000 online ads reached $8BB. Post-bubble, internet advertising took a nose dive as advertisers cut back online spending by more than 50%. With the passing of time and the demonstrated real-time effectiveness of paid search, 2005 is on track to exceed $14BB in online ad spending. However, in spite of these impressive gains, internet advertising continues to be the poor cousin to traditional media (network and cable television tracks at $160BB in ad revenues; print advertising and outdoor represent another $20BB in North America alone).
All of these facts represent positive trends for online advertising. As a result investors continue to be bullish as evidenced by the positive gains in search and online media stocks in Q2. However, given the constraint at the macro level of the total pool of advertising dollars spent annually (not to mention the inevitable cyclical nature of the ad business), online advertising will not enjoy an unfettered run at grabbing ad dollars:
Television is the 900LB gorilla and is not standing still: Television executives understand that the franchise is under attack and are not standing still. Interactive TV --long a pipe dream-- has finally arrived on satellite and cable. DirectTV and Comcast among others are rolling out these services with advertisers like Sony and Daimler Chrysler and are creating one:one conversion relationships for its advertisers-- just like the web. Moreover, technological innovation, such as VNU and Arbitron's Apollo PPM joint program ("portable people meter"), will help broadcast advertisers close the gap on cause and effect between the media we see and the products we buy. Finally, broadcasters, understand that they need to start delivering greater value if they are going to maintain their share of wallet. Just witness ABC's recently closed upfront performance. Based on the strength of their programming (last year's Lost and Desperate HW's were unexpected hits), ABC opted to take a modest 6% gain over last years rates (and close up $600MM in upfront commitments) rather than extend the upfront period in the hopes they could simply negotiate higher rates. ABC has made the bet that it will rely on the strength of its programming (sports and entertainment) and secure premium rates in the future as opposed to trying to sell the farm now.
In Store Digital Signage: With the proliferation of sub-$1000 (and soon sub-$500) flat screen displays connected to satellite or wireline networks, retailers are capturing greater revenue per square foot when digital signage is in place. A recent pilot with Bell Canada demonstrated a 9% lift in products sales where in-store digital signage was present as compared to standard paper signs. Expect marketers to divert ever greater share of ad spending to digital signage promotions as they now have the ability to reach customers during "the decisive moment" of buying.
Mobile Advertising: Much as broadcasters subsidized programming with advertising, carriers are doing the same using promotion dollars to leverage the value of their networks. Branded content, games and more will be paid for not by subscribers, but by advertisers. And with the truly intimate relationship marketers have the potential to create via mobile handsets, it will be an irresistible pull for ad dollars to be dedicated to the mobile market. And, yes, it will all be permission based.
Internal competition: Over time the efficacy of online advertising may well prove to suppress the percentage of ad dollars dedicated to online spending. The internet's unique ability to deliver highly targeted-- and infinitely measurable results (no fuzzy Neilsen or Arbitron ratings to interpret) lets marketers realize their nirvana: measuring actual results for every dollar spent. Television and print have always relied on the luxury of their inherent inefficiency to artificially protect expensive space rates. Online advertising has no such place to hide. Advertisers see exactly what they get, but they will only pay for what they get-- nothing more--- because they won't need to.
All of these facts represent positive trends for online advertising. As a result investors continue to be bullish as evidenced by the positive gains in search and online media stocks in Q2. However, given the constraint at the macro level of the total pool of advertising dollars spent annually (not to mention the inevitable cyclical nature of the ad business), online advertising will not enjoy an unfettered run at grabbing ad dollars:
Television is the 900LB gorilla and is not standing still: Television executives understand that the franchise is under attack and are not standing still. Interactive TV --long a pipe dream-- has finally arrived on satellite and cable. DirectTV and Comcast among others are rolling out these services with advertisers like Sony and Daimler Chrysler and are creating one:one conversion relationships for its advertisers-- just like the web. Moreover, technological innovation, such as VNU and Arbitron's Apollo PPM joint program ("portable people meter"), will help broadcast advertisers close the gap on cause and effect between the media we see and the products we buy. Finally, broadcasters, understand that they need to start delivering greater value if they are going to maintain their share of wallet. Just witness ABC's recently closed upfront performance. Based on the strength of their programming (last year's Lost and Desperate HW's were unexpected hits), ABC opted to take a modest 6% gain over last years rates (and close up $600MM in upfront commitments) rather than extend the upfront period in the hopes they could simply negotiate higher rates. ABC has made the bet that it will rely on the strength of its programming (sports and entertainment) and secure premium rates in the future as opposed to trying to sell the farm now.
In Store Digital Signage: With the proliferation of sub-$1000 (and soon sub-$500) flat screen displays connected to satellite or wireline networks, retailers are capturing greater revenue per square foot when digital signage is in place. A recent pilot with Bell Canada demonstrated a 9% lift in products sales where in-store digital signage was present as compared to standard paper signs. Expect marketers to divert ever greater share of ad spending to digital signage promotions as they now have the ability to reach customers during "the decisive moment" of buying.
Mobile Advertising: Much as broadcasters subsidized programming with advertising, carriers are doing the same using promotion dollars to leverage the value of their networks. Branded content, games and more will be paid for not by subscribers, but by advertisers. And with the truly intimate relationship marketers have the potential to create via mobile handsets, it will be an irresistible pull for ad dollars to be dedicated to the mobile market. And, yes, it will all be permission based.
Internal competition: Over time the efficacy of online advertising may well prove to suppress the percentage of ad dollars dedicated to online spending. The internet's unique ability to deliver highly targeted-- and infinitely measurable results (no fuzzy Neilsen or Arbitron ratings to interpret) lets marketers realize their nirvana: measuring actual results for every dollar spent. Television and print have always relied on the luxury of their inherent inefficiency to artificially protect expensive space rates. Online advertising has no such place to hide. Advertisers see exactly what they get, but they will only pay for what they get-- nothing more--- because they won't need to.
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