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Gateway
Instructs Consumers To "Download and Burn" In a move that must tick off the prickly Re-cording Industry Association of America (RIAA), Gateway, the computer retailer, is offering free lessons that teach consumers how to download music from the Internet and onto a CD. Gateway says it's got market research in hand that shows digital media is a driving force behind home PC sales, a sensible enough conclusion anyone could come to without any pricey research. Despite a recent corporate slimming exercise, Gateway still has 275 retail stores in the US, and claims consumers are coming into the shops looking for PCs that handle digital music, video and photo editing. Gateway's retail stores are potentially a powerful, if expensive, direct sales method that only Apple is also currently attempting. The shops could give Gateway an edge over HPQ and Dell in the home and SOHO markets. Currently, two-thirds of all the machines it sells ship with CD burners. In-store sales of portable MP3 players have also been growing steadily. "Consumer interest in digital music is exploding, so we're mobilizing the training resources of the Gateway Learning team to help people understand the technology and make it work for them," said Luc Lambert, VP of Gateway's Services Division. When Gateway launched its digital music campaign in April, Hilary Rosen, RIAA CEO, went into a tizzy. A Gateway commercial featured its bovine mascot lip-syncing to Gordon Lightfoot's '70s tune "Sundown." The ad directed consumers to the company's "Digital Music Zone" site (http://www.gateway.com/ digitalzone/music), where they could download "Sundown" and other songs. It encouraged users to fire up the old DSL connection and burn away. "Burn it on to a CD...or load it on an MP3 player. Gateway supports your right to enjoy digital music legally," the ad said. Rosen blames the likes of Gateway for the spike in piracy and, of course, the record companies have done little to sate the public's hunger for portable and burnable music formats like MP3. The record labels, who are RIAA members, have still not made their songs legally available on the Internet and until they do, people will continue to turn to the black market to download the digital music they want. Rosen accused Gateway's commercials of facilitating piracy. "If only [Gateway] would devote a little bit of the millions of dollars they're spending on this ad campaign to help stop illegal downloading," she said, "but that wouldn't help them sell more CD burners, would it?" Gateway's digital music lessons cover downloading music from the Internet and burning CDs at home, as well as offering an overview of analog and digital music formats, subscription services, jukebox software and Internet radio. The lessons cover hardware and software options and requirements too - obviously providing the point where the Gateway sales pitch comes in. The company says the lessons apply to any PC, not just Gateway's products, but hope they translate into sales of its boxes. Gateway happily realizes that music and movie files need more horsepower from a computer than Word documents and PowerPoint presentations. A 2GHz processor is pushed to the limit to compress a home movie, rip and burn a CD or play a full-screen movie at 24 frames a second and the task of moving an LP collection onto CDs gobbles up the gigs pretty darn fast. In May, Gateway started selling three CDs or DVDs for 10 bucks a set under a deal with Warner Home Video, Warner Music Group and Curb Records. It also began offering customers free music downloads through a partnership with Vivendi Universal's subsidiary EMusic. All of Gateway's retail stores are promoting a 30-day trial offer with Emusic that offers consumers up to 100 free MP3s from EMusic's catalog of over 215,000 titles from 10,000 artists. Users can keep the MP3s at the end of the trial even if they don't join the EMusic service. A crucial part of Gateway's digital media strategy involves broadband. The company has teamed with enough ISPs that it can offer broadband at any one of its nationwide stores. Last month Gateway cut a deal with ISP Earthlink that covers 56 Gateway stores. Under its terms, buyers of Gateway computers get a free cable modem and a month of free service if they sign up with Earthlink. Service runs $41.95 a month. Gateway has similar broadband deals with Internet providers Adelphia, America Online, AT&T Broadband, Charter, Comcast and Cox. It says it has signed 50,000 subscriptions since it started bundling broadband in late 2000. Earthlink itself is pushing digital media and recently signed a deal with online digital music provider FullAudio to offer digital music services to ISP subscribers. Nobody would say if one of the online services Gateway is showing off in its digital music lessons is the FullAudio service. Gateway admits that its strategy sounds close to what Apple CEO Steve Jobs has been talking about for years. Jobs envisions the modern PC as a "digital hub" that does all the heavy lifting for digital media and unites small peripherals like portable MP3 players. Gateway, however, sells Microsoft PCs, not Apples and, despite rifts between the two companies, Gateway says it's happy with what Microsoft has done with Windows XP and that it's perfect for digital media. Besides the Dells of the world, Gateway has to complete with so-called "white box" PCs selling for $399 in department stores and, unfortunately perhaps for Gateway, Microsoft's Freestyle wireless digital media project calls for a fairly ubiquitous hardware platform that must cut into Gateway's margins. With white box PCs as cheap as they are, there's not a whole lot of wiggle room for anybody. On the other hand, products are emerging that can put a PC maker ahead of the digital media pack. For instance, the quiet PC phenomenon started by online retailer Quiet-PC.com shows some ingenuity. It reasons that PCs are getting louder, and as they move from the den to the living room, the noise level becomes obnoxious. QuietPC.com sells a variety of special fans and hard drive enclosures that it claims dramatically reduce the sound. Gateway has yet to exploit the noise factor. It says it doesn't think consumers care about it. QuietPC differs, of course, and claims it gets orders from all over the world from people who are turning their PCs into entertainment centers. Gateway and others vying for
the digital home market will be looking for any technology
edge they can get to maintain margins.
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BroadQ Turns Game Console into a Digital Media Center Stealth start-up BroadQ LLC is developing software designed to turn a video game console into a digital media center. BroadQ marketing VP Mary Browning said a preview release of the stuff will be available next month and that the product will ship in September. BroadQ's first release will only work on Sony's Playstation 2 gaming console, but Browning said it may support other consoles, such as Microsoft's Xbox or the Nintendo Game Cube in future releases. The software relies on a broadband adapter available for the Playstation 2. Browning said the program works with wireless 802.11 home networks and standard wired networks. No word yet on how much it will cost or if it will support other formats besides MP3. BroadQ turns the console into a digital media client. It uses the home network to stream MP3s stored on a PC. The software generates a menu that will be displayed on the consumer's TV. Consumers will use the console's joystick to select songs and arrange playlists. The selected MP3 is then streamed over the home network to the game console, where it's decoded and the music will play through the speakers attached to the console. Game consoles are often a part of a home entertainment system, so chances are high that a decent set of speakers are attached to the console. Although PCs have made some inroads into the living room, most home PCs are banished to the study or den, where consumers don't do most of their music listening. BroadQ has eight employees. Stacy Cook heads the company. Cook was previously chief intellectual property counsel and associate general counsel of Applied Science Fiction, a digital imaging company. Rob Lipman is BroadQ's executive VP. Lipman is also executive VP of Summit Management Services, an international corporate meeting planning and medical education services company. BroadQ's CTO is Eric Smith. Before joining the start-up, Smith was president and CEO of Gocho Networks, another software start-up developing delivery infrastructure for mobile computing environments. Other companies are taking a thin client approach toward digital media. Audio technology maker Turtle Beach has partnered with home networking provider TII Network Technologies. Under their deal, TII will offer customers Turtle Beach's AudioTron digital media appliance. Seth Dotterer, marketing director of Turtle Beach, claims home digital media appliances that ship with storage are outdated before they hit the shelves. He says PCs can store large amounts of data at a low cost and are easier to upgrade, so it's more economical for consumers to share digital media from a centralized PC over a home network than it is to scatter content across various specialized appliances. AudioTron has no hard drive and uses an Ethernet jack to grab media files over a home network. Consumers can control the device with a remote. It also has a built-in web server so consumers can control the thing with a browser instead of a remote. Ditching the hard drive is opposite to the approach taken by consumer electronics makers like Tivo and Digeo. While some of their products have networking support, all have local storage, which drives up cost. Turtle Beach's strategy is to offload the storage costs to the PC and compete on functionality. At $300 each, Turtle Beach is targeting the AudioTron at consumers with modular stereo systems who would be content to plunk down the same amount of cash for a CD changer or receiver. What makes BroadQ different
from the AudioTron solution is that BroadQ is software-only.
It turns an existing thin client - the game console - into a
digital media client. Back
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Earthlink Edges toward
Convergence Earthlink, the ISP, has launched a new digital music service called the Digital Music Center. The service, available only to Earthlink subscribers, offers music from the online music service FullAudio. Digital Music Center subscribers can buy 50 music tracks a month for $9.95 a month or 100 tracks a month for $17.95 a month. FullAudio has deals with four of the five major record labels and offers some 75,000 tracks for download. Earthlink says its digital media strategy has two sides to it. One is to use digital media to lure new Earthlink subscribers. The other is to use digital media to coax Earthlink dialup customers to switch to broadband. Earthlink dialup clients outnumber broadband subscribers by far, with 4.9 million dialup accounts to 530,000 broadband. Earthlink would love the dialup folks to switch to broadband. After all, the money would be better and subscribers would be happier. Currently it charges $21.95 for the dialup service and $49.95 a month for DSL. FullAudio is currently doing the billing for Earthlink digital music subscribers, but the two companies are working to shift it over to Earthlink. Earthlink customers would then get one single Internet/digital music bill and sales would be easier. Rather than hassle with selling a new FullAudio account, Earthlink subscribers could simply click a box to subscribe to the music service. The move into music makes Earthlink look like AOL, which is trying to converge and offer content that it owns over an infrastructure that it owns through a service that it also owns. So far AOL has failed as its recent stock price shows. Most AOL subscribers are dialup, not broadband, which means they reach AOL over phone lines AOL doesn't own. Like Earthlink, AOL wants to get its customers to switch to broadband. AOL's Time Warner Cable Division has 13 million cable subscribers, but only 2.2 million use the connection for broadband. However, those 2.2 million broadband subscribers are split among a bunch of ISPs other than AOL, namely Road Runner, Earth-link and various regional shops. How many each has is unknown. Earthlink uses AOL Time Warner's cable network to offer broadband to 39 cities, which puts the squeeze on AOL's convergence effort because Earthlink can offer broadband to exactly the same consumers AOL broadband can. Besides cable, Earthlink offers broadband to 100 cities via DSL. Meanwhile, AOL's goal in buying Time Warner was to sell the content it owned over its infrastructure. However, AOL has had to bow to consumer pressure and offer content from rival Vivendi Universal as well. Earthlink claims that since it's not a media conglomerate, it's free to make more flexible media licensing deals. It says it can license as much content as it needs without putting money in a competitor's pocket. The Earthlink agreement is FullAudio's second big deal. The first was with broadcasting giant Clear Channel for a service launched in April called MusicNow. MusicNow integrates with radio station web sites Clear Channel owns and is marketed to radio listeners. Currently four Clear Channel stations have a MusicNow portal, but FullAudio says 30 will be playing by the end of summer. Right now, FullAudio has music licensing deals with the four of the five big labels EMI, BMG, Universal and Warner. Only one, Sony, is missing and FullAudio would like to sew that one up too. Music isn't streamed from
FullAudio but instead is downloaded to a subscriber's hard
drive. It's in Microsoft's Windows Media audio format and is
protected by Microsoft's Digital Rights Management (DRM)
software. Although the music is downloaded rather than
streamed, it is "tethered" to the subscriber's PC.
If the FullAudio subscription runs out, the DRM layer will
prevent the music from being played back. The music can't be
moved onto portable devices or burned onto CDs either.
However, FullAudio announced two agreements this week (see
separate stories) that will allow CD burning of tracks from
Warner Music and the UK-based Sanctuary Records Group.
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Financially Strapped Vivendi Universal First To Offer MP3s Vivendi's Universal Music Group (UMG) will break ranks and be the first of the big five record labels to offer music in MP3 format on the web. MP3 is the format the record labels like Universal spent millions in legal fees to kill in a RIAA-fronted legal assault against Napster. The battle was won when Napster recently went bankrupt but the war may be lost if more of the big five follow suit. UMG will offer about 1,000 albums of older tracks through a deal with EMusic which Universal owns. The songs sung are by classic names like Buddy Holly, Elton John, Rod Stewart, The Mighty Mighty Bosstones, Ringo Starr, Bing Crosby, the Andrew Sisters, Patsy Cline, Ella Fitzgerald, Louis Armstrong, Lionel Hampton, Count Basie, Jimmy Buffett, George Jones, Aretha Franklin, Fred Astaire, Benny Goodman, the Neville Brothers, Andy Gibb, Neil Diamond, Patti Labelle, Chuck Berry, Pat Boone, Marvin Gaye, the Carpenters, The Supremes, BB King, John Coltrane and Stevie Wonder. EMusic's 50,000-plus subscribers pay a monthly fee of $9.99 for a 12-month subscription, or $14.99 for a three-month subscription to download an unlimited number of songs and keep them even after their EMusic subscription expires. MP3 files cannot support Digital Rights Management (DRM) software so subscribers can burn as many CDs as they wish or copy the tracks to MP3 players like Sonicblue Rio, Apple's iPod or e-mail them to friends or even upload them to peer-to-peer file-sharing networks that the RIAA has spent millions to close down like Kazaa or Morpheus. The MP3 format is also popular because its small size makes it easy to download or e-mail and its compression retains the fidelity of the original track. EMusic clearly states its support for MP3 freedom on its web page: "Unlike other subscription services that put strict limits on how and where subscribers can listen to music, EMusic offers extremely flexible usage terms that allow the convenience online music fans want and expect. All EMusic's tracks are in the industry-standard MP3 format and subscribers are encouraged to make multiple copies for personal use, burn the music to CDs and transfer their music to portable MP3 players. Because we use the standard MP3 format, consumers can use their music the way they want. In addition, EMusic subscribers own the music they download. Even if they cancel their subscription, subscribers keep the MP3s they downloaded through the service." (See http://www.emusic.com/about/facts.html.) A free two week trial is available at http://www.emusic.com/pitch.html. Calling the offering a consumer trial program, UMG eLabs president Larry Kenswil said that he hoped to enter into similar agreements for this segment of UMG's music catalog with other subscription services. Other music subscription services include FullAudio, listen.com, Pressplay and MusicNet. He also said that UMG does see the huge demand for digital music delivered over the web. UMG is estimated to have 30% of the worldwide music market and to be the world's dominant record label. Most of the artists offered through EMusic have high name recognition but probably diminished sales so UMG is hoping to get additional revenue from tracks that are no longer offered in most retail music stores. It hopes to use the web rather than be used by it. Kenswil also said that UMG
hopes that this experiment will generate new interest in these
older but still well-known artists. And, who knows, the
availability of their work may spark enough interest to spur
some of them back on a lucrative comeback trail.
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Back last fall, we broke a story about this guy in New Jersey by the name of Charlie Northrup who claimed to hold the patent on web services (OLR No 266). Heady stuff considering how important web services are to Microsoft and Sun and IBM and everybody else still in the computer business. So just about all the news outlets picked up the story and ran with it. Although we can't prove it, we suspect that Charlie's claim got some industry noses out of joint and as a result certain doubts about the validity of his patent might have wended their way to the US Patent and Trademark Office. It's just a theory, of course, but the Patent and Trademark Office (PTO) did go back over prior art when Charlie asserted a bunch of new claims. And, by golly, the PTO still didn't find any prior art that would stand in Charlie's way, so he's gotten his third web services patent. Patent number 6,421,705, or 705 for short, is due to be published on the PTO's web site on Tuesday, July 16. (See www.uspto.gov.) The new patent lends validity to Charlie's original patent - number 5,850,518, aka the 518 - because the new claims he asserts have been given the same filing date - actually priority date in PTO parlance - as the original claims - to wit December 12, 1994, which was long before Microsoft's first release of Internet Explorer, and the appearance of JavaScript, and the advent of Java itself for that matter. Now, Charlie, who's got himself a tiny four-man company in Princeton called Global Technologies Inc that productizes AT&T technology, doesn't say that any of the browsers or anything based on Java or JavaScript or any of the existing service providers is treading on his patents. But he might, if he gets the money to fund the kind of lawsuits such a conclusion might inspire. There's no question, Charlie says, that he could get a topflight law firm to take up his cause on contingency, but there's still the little matter of funding the investigations, due diligence and expert witnesses that would be needed to press suit, potentially half a million dollars a case. On the other hand, Charlie, not necessarily being a litigious sort, is also toying with the idea of simply selling his patents off to the highest bidder. (Now there's a word to the wise if ever there was one.) Presumably any deal would include all the claims that he's got that are still pending. The PTO works at its own bureaucratic pace and Charlie's got a slew of claims. The broadly worded 705 patent foresees a service provider supplying his customers with software that they run to connect to the service provider's server to get a specification for running a service. The specification could be a particular protocol or instructions for communicating with the service provider using any industry-standard protocol, Internet protocol, application protocol or e-mail protocol. Or it could be instructions for using a software component, or for using a function that's accessible to the client, or for data or for communicating data to the client, or it could a pre-requisite for using still other software or services, or a spec for scheduling when to use a service. In other words, 705 covers just about every case where the so-called specification tells one "process" how to connect to another. The important thing is that Charlie's claim covers reconnecting the client "process" to another "process," which would seem to implicate an awful lot of people. Like the 518 patent, which is
all about the automated discovery and connection of web
services using TCP/IP, the word web never appears in the 705,
because the web didn't exist back in 1994, but that shouldn't
diminish the huge implications of the 705 and its fellows.
After all, Charlie anticipated the advent of web services. -
MOG Back
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FullAudio Fires Up CD-Burning Deal with Warner Music Breaking new ground and getting a significant edge on listen.com, FullAudio has signed a second agreement with Warner Music Group that will permit FullAudio subscribers to purchase individual tracks and download them to a PC or a secure portable player or burn them to a CD. Warner Music currently offers 25,000 songs through FullAudio, all of which will soon be available for CD burning. A FullAudio spokesman said that thousands more Warner Music tunes will be added as Warner digitizes them. In April 2002 Warner Music signed its original agreement with FullAudio to offer selected Warner songs for downloading, but not for CD burning. FullAudio said that subscribers would be able to purchase the Warner Music tracks by this fall. Subscriber costs for purchasing individual tracks were not announced, but according to a company spokesperson should be less than a buck apiece. The company did not say which CD-burning software it would use. The FullAudio site is a music on-demand service that lets listeners create play lists and skip songs. Subscribers can search for music by artist or album name. Music is also grouped into something called a Trackpak, a play list created by a Clear Channel DJ. FullAudio also has a metadata library so customers can read artist biographies and album details online. FullAudio doesn't stream the music; it's downloaded to the subscriber's hard drive. It's in Microsoft's Windows Media audio format and protected by Microsoft's Digital Rights Management (DRM) software. A FullAudio spokesperson said that CD burning is the killer app for the digital music industry and trumpeted the advantage FullAudio has over listen.com and MusicNet, which do not offer CD burning. Warner Music executive VP Paul Vidichalso acknowledged the importance of CD burning when he said, "We can make more music available in a way that addresses the consumer's desire to experience high-quality music easily, securely and with maximum flexibility," no doubt meaning the ability to make a CD that users can play on their CD players anywhere. FullAudio currently has distribution deals with ClearChannel radio stations and Earthlink and expects to sign more shortly. Target distribution prospects are ISPs like Earthlink, radio stations like ClearChannel, cable TV operators, Direct TV, WebTV and music retailers like Tower Records (to sell on their web sites rather than in a store). Full-Audio offers its distribution partners software and systems that cover music content aggregation and delivery including content acquisition and management, media storage and secure delivery and digital rights management. FullAudio provides all of the back office functions including billing, reporting and usage analysis. FullAudio offers songs from four of the big five record companies: Warner (AOL Time Warner), Universal (Vivendi), EMI and BMG (Bertelsmann). The fifth, Sony, has signed distribution agreements with only two companies so far, both of them outfits Sony partially owns, listen.com and Pressplay. FullAudio has a publishing rights deal with Sony but a sound recording rights agreements has to be in place before FullAudio can distribute Sony's digital music. FullAudio is working on it. It's expected shortly and would make FullAudio the only digital music distributor with arrangements with all five big labels. Like FullAudio, MusicNet is an
online music wholesaler, but MusicNet is being investigated by
the Justice Department for possible price fixing because it's
owned by the record labels. Pressplay, owned by Vivendi and
Sony, is also under investigation. FullAudio stresses that it
is the only online music wholesaler that is fully independent,
making it immune to the price-fixing charges.
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British-based record label Sanctuary Records Group has cut a licensing agreement with digital music distributor FullAudio. FullAudio subscribers will be able to download, burn to CDs or stream tracks from over 100,000 of Sanctuary's songs. Its performers are particularly strong in metal, reggae, rock and punk music. Artists include Bob Marley, Lynyrd Skynyrd, Bad Company, Iron Maiden, Megadeth, Pet Shop Boys, Joey Ramone and The Kinks. Sanctuary president Tom Lipsky said Sanctuary and FullAudio share the same vision of delivering high-quality music to fans via the web. Listen.com also has a deal with Sanctuary but FullAudio claims it does not include the CD burning provision that FullAudio considers the killer app. FullAudio's stable of major
music labels is only shy Sony. It presently includes EMI, BMG,
Universal and Warner, but a deal with Sony is in the works and
FullAudio hopes to be the first house to offer songs from all
of the five big labels. Back
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Judge Permits Sharman Suit To Go Forward A federal judge is letting record labels and film studios expand an existing copyright suit to include Sharman Networks, developer of the Kazaa Media Desktop (KMD), a popular P2P file-swapping program. Both the Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) have already sued file-swapping technologists Kazaa BV, StreamCast Networks and Grokster for facilitating copyright infringement. The two associations said in June that they planned to expand the suit to include Sharman. Dutch ISV Kazaa BV gave birth to FastTrack, a P2P network protocol used in KMD and Morpheus, a client StreamCast developed. In late May, Kazaa BV conceded
defeat in the lawsuit, which could make it liable for millions
of dollars in damages. Before a judgment could be handed down,
the tiny company said it was folding because it was bankrupt.
Meantime, its FastTrack technology was sold to Joltid, which
is owned by Niklas Zennstrom, who invented FastTrack to begin
with and started Kazaa BV. Kazaa BV sold its client-side KMD
P2P technology to Sharman several months ago.
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Record Label Signs Tivo Deal for Promotion Potential While broadcasters and movie studios are busy suing consumer electronics maker Sonicblue for selling a digital video recorder (DVR) that consumers can use to skip commercials, other advertisers are experimenting with ways to exploit the controversial device. The most recent example is the deal record label Interscope Geffen has made with DVR maker Tivo. The two companies are developing an "advertainment" campaign that will send video clips featuring Geffen artists to Tivo subscribers. The campaign is built on technology Tivo calls Showcase. The service packages an infomercial with a prominent ad on the Tivo interface. Tivos will automatically record the infomercial and store it in a "hidden" partition on the hard drive reserved for Showcase promotions. Once the Showcase content has been saved, consumers will see a message on the main Tivo interface screen advertising the Showcase promo. Showcase advertisers can run their ads during normal hours, with special control codes inserted between the video frames. If a Tivo user is watching the ad, the device will detect the control codes and display a message on the TV screen telling the viewer that there's more information available about the advertised product in the Showcase presentation. Geffen's first Showcase promotion launched on Monday and stars the multi-platinum rock band, the Counting Crows. The promo features music videos, band interviews, performance rehearsals and video footage of the band as they created the music for their new album, "Hard Candy." Geffen will promote a different band on Tivo each month. The Geffen deal is not the
first Tivo Showcase promotion. Several months ago Tivo tested
Showcase by offering viewers a half-hour "Hollywood
Awards" presentation that featured an interview with film
director Francis Ford Coppola. The company said about 304,000
viewers received that show, but it couldn't say how many
actually watched it. Tivo first tested Showcase during Super
Bowl week and used an interview with football quarterback Joe
Montana as the draw. Back
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Pressplay president Andy Schuon has resigned to return to old media, taking a position at Infinity Radio. Pressplay COO Michael Bebel has been named to replace him. Bebel was most recently at Universal Music Group's eLabs unit as executive VP. It's surprising that someone like Schoun would step down as CEO of an organization backed by Sony and Vivendi. Perhaps it's the result of Vivendi's bleak financial situation or the troubling DOJ probe of the licensing agreements between Pressplay and its owners or the poor results that Pressplay has had attracting subscribers due to its limited music selections and restrictive user terms. Pressplay, a joint venture of Sony and Vivendi's Universal Music Group, was formed to offer Sony, Universal and EMI tunes to paying Internet subscribers. Reviews of its offerings have generally been poor and it's believed that paying subscriptions have been scarce. Pressplay lost what may have been its biggest supporter last week when Internet and technology fan Jean-Marie Messier was terminated as Vivendi's CEO when he encountered the twin devils of rising debt and plummeting stock prices. Pressplay and lookalike rival
music distributor MusicNet, a joint venture of RealNetworks,
Bertelsmann's BMG Group, AOL Time Warner's Warner Music Group
and EMI, are both under investigation by the Department of
Justice for possible price fixing because they are owned by
the record labels. Independent Internet music distributors
listen.com and Full Audio are not being probed.
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Movie88.com, a Taiwanese streaming site that sold unauthorized streams of copyrighted movies, has been sued for copyright infringement by the Motion Picture Association of America (MPAA) in a California federal court. Movie88.com relocated to Iran in June and changed its name to Film88.com. It only took a few hours for the MPAA's international wing, the Motion Picture Association (MPA), to realize Film88.com was getting its bandwidth from the Netherlands, where the MPA has jurisdiction. TrueServer, the ISP providing Film88. com with bandwidth, cooperated with the MPA and cut Film88.com off. At first Film88.com vowed to return, but a day later threw in the towel, saying, "We have no plans at the moment but the innovation must go on." The MPAA suit appears to be trying to stop the site's owners from reappearing online in another incarnation. According to its complaint, a company called Broadband Univer-sal is behind both Movie88.com and Film88.com. The suit names Malaysian businessman Alex Tan and his California-based corporation MasterSurf as well. In late February Movie88.com got its Internet pipe shut down by the Taiwan government. The site had been streaming copyrighted movies to American customers for a buck apiece without the permission of the copyright owners. The site was operating in Iran and claimed to be run by Broadband Universal "under the laws and jurisdiction of Iran, with our servers in Iran." Film88.com maintains its
innocence. "We have made clear many times that we are not
pirates," reads a notice on its shuttered site. "We
have proposed to major studios in Hollywood to pay 30% of our
movie rental price as copyright compensation," the notice
continues. "This represents a huge percentage from our
gross profit but we feel that a balance between innovation and
copyright compensation is important. However, Hollywood has
reacted negatively."
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RealNetworks Brings CBS's "Big Brother 3" Live to the Internet CBS' three-month broadcast of
"Big Brother 3" will be shown via video streaming on
RealNetwork's RealOne 24 hours a day. RealOne is a
$9.95a-month subscription service that boasts more than
700,000 paid subscribers and shows news, sports and
entertainment programming. Back
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Internet Delivered Digital Content to Reach $2.9b by 2005; Downloaded Movies Will Reach $882m Record labels and movie studios will find that the revenue derived from Internet delivery to PCs, TVs and wireless devices will become very important by 2005 with total value to reach $2.9 billion and feature films alone to be worth $882 million according to a report by UK-based Screen Digest. See http://www.screendigest.com The dominant content delivery networks are expected to be Akamai Technologies, Digital Island, Speedera and RealNetworks. Western Europe alone will have 155 million mobile Internet users. Digital Rights Management (DRM) technologies will emerge to meet the threat of illicit file sharing on peer-to-peer applications like Kazaa and Bear Share as well as by Internet Relay Chat (IRC), File Transfer Protocol (FTP) and Usenet. The Brits also forecast that
the MPEG-4 delivery format will fuel user acceptance of
streaming video. The study costs 995 pounds sterling, $1,595
or 1,775 euros. Back
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5.5 m Wireless Broadband Subscribers Predicted by 2005 Broadband, broadband, broadband. Every-one wants every home to have it. The fiberoptics backbone glut. Everyone blames it for the telecommunications crash. The last-mile hurdle. It's supposed to be the barrier to getting broadband delivery to every home and the obstacle that caused the backbone glut. Is wireless Metropolitan Area Networks technology and the resulting wireless service provider the solution? And will it become the first bright spot in the telecom industry since WorldCom's high-priced accountants confused assets and expenses? Multi Media Research Group
(http://www. mrgco.com/) thinks so and forecasts that 5.5
million subscribers will have high-speed wireless Internet
access by 2005. They and Fuji-Keizai USA have written a $1,845
130-page report in English or Japanese that examines the
standards and market trends driving wireless local area
networking (WLAN) as a possible solution to the last-mail
hurdle. Three separate infrastructures and each of their
standards are examined: WLANs (Wireless Local Area Networks
for the office or the airport), WMANs (Wireless Metropolitan
Area Networks and WPANs (Wireless Personal Area Networks).
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Metavante is strengthening its e-billing business by buying Paytrust. The terms of the acquisition, expected to close later this month, were not disclosed. However, Metavante said integration costs would run about $6 million after taxes. It's expecting the integration to take about nine months. The deal should be accretive to Metavante's earnings next year. Founded in 1998, the Lawrenceville, New Jersey-based Paytrust is said to have about 100,000 subscribers, 60,000-70,000 of them direct, the rest from its private-label deals with financial houses such as American Express, Citibank, E*Trade and Capital One. Paytrust's e-billing offerings include both electronic bills and the scan-and-pay presentment of printed bills, invoices and statements as well as a "pay anyone" functionality. The start-up's backers include American Express, Capital One, Citigroup, ComVentures, E*Trade, FTVentures and Spectrum Equity Investors. Metavante currently has 495,000 e-bill subscribers through its private-label business with financial institutions. The company has been growing its e-bill activities through acquisitions. In May 2001, it acquired Cyberbills, a Paytrust-like e-bill service provider, and e-bill application services provider Derivion. Metavante wouldn't say if its e-bill business is profitable. Its e-billing and e-banking operations are part of its larger e-finance business, which is currently unprofitable, but is expected to turn the corner by the end of this year or in early 2003, Metavante said. Metavante plans to combine Paytrust's Small Business Edition bill management services with its existing offering for accounts payables management to provide a turnkey small business electronic presentment and payment service. It's not clear if Paytrust's operations will remain in New Jersey or be moved to Metavante headquarters in Milwaukee. Paytrust founder and executive VP Ed McLaughlin is expected to stay with Metavante for a while to help with the transition then leave. Metavante did not say whether the acquisition would lead to any layoffs. Paytrust once had IPO
aspirations and filed with the SEC to go public in March 2000
but cancelled it a month later because of the market's wild
gyrations. Back
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eBay Acquires PayPal; Billpoint To Shut Down In a clear acknowledgment that Billpoint, its online payment service, has been a dismal failure, Internet auctioneer eBay is buying Internet payment services provider PayPal for roughly $1.5 billion in stock. The deal is no surprise what with the rumors of it floating around for several weeks now. eBay plans to acquire all PayPal's outstanding shares in a tax-free stock swap using a fixed exchange ratio of 0.39 eBay shares for every PayPal share. The deal is expected to be immediately accretive to eBay's pro-forma earnings per share. However, on a GAAP basis the deal will be dilutive since eBay will initially incur incremental charges for stock-based compensation and amortization of intangible assets of about $4 million and $9 million a quarter respectively. The final purchase price is supposed to depend on several factors including the length of time required to close the transaction and the value of eBay's stock at closing. The purchase price includes $18 million in acquisition-related costs. eBay execs expect that integrating PayPal's functionality into its auction platform will strengthen the user experience and let buyers and sellers trade with greater ease, speed and safety. eBay plans to phase out Billpoint after the PayPal transaction closes. eBay acquired Billpoint in May 1999 and subsequently sold a 35% stake in it to Wells Fargo. At the time, the two organizations hoped their alliance would create "a company that will set the industry standard for person-to-person payment on the Internet." However, even Wells Fargo's involvement in Billpoint couldn't provide the needed momentum. In February, Wells Fargo pulled out, selling its stake back to eBay. Billpoint never caught on with users even on the eBay auction site, where PayPal was more popular. About 60% of PayPal's business is said to take place on eBay, making it the preferred electronic payment method among eBay users. The other 40% is done mostly with small merchants who now constitute a potential new audience for eBay. For PayPal, eBay's community of 46 million users worldwide represents a growth opportunity. eBay said it would phase out PayPal's gaming business after the transaction closes in view of the uncertain regulatory environment surrounding online gaming. PayPal will continue to operate as an independent brand. The acquisition is expected to close by the end of the year. Along with the acquisition, eBay also announced preliminary results for the second quarter. Revenues are expected to come in at about $266 million, net income at $54.3 million, or 19 cents per diluted share, with a gross margin of 83% and a pro forma operating margin of 30%. Pro forma earnings per share came in two cents higher than the company's guidance. eBay's previous revenue guidance for the quarter was $260 million to $265 million. eBay attributed the stronger-than-expected results to an accelerating US transaction business, which grew 48% year-over-year, combined with 148% growth in its international operations. Last month, PayPal announced that its Q2 revenues would be between $53 million and $54 million and pro forma earnings per share would be eight or nine cents. Back to Headlines
Simultaneous Users In Top 4 P2P Networks
07/15/02 P2P networks allow users to anonymously trade music, videos and software. This chart tracks the average number of simultaneous users logged into the leading P2P networks for the current week. See http://www.g2news.com/chart.html
for the latest chart. Back
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Gnutella Creator Commits Suicide Gene Kan, the inventor of the
Gnutella P2P service, killed himself on Saturday, June 29. Kan
was reportedly struggling with depression and anti-depressants
had been prescribed. Gnutella offers Internet users a way to
search for and transfer files from computer to computer. Kan
was one of the first programmers to produce an open source
version of the protocol. He was 25. Back
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Drive 7,500 Miles or 12,500 Kilometers without Hearing the Same Song Twice Kenwood, the home and mobile
audio/video products house, makes a "Music Keg" MP3/WMA/WAV
player for cars with a 10GB HD that'll hold approximately
2,500 songs that can be organized into up to 999 playlists. A
USB desktop cradle connects the Music Keg cartridge to a PC
for downloading songs easily using Music Keg's Music Manager
software. The cartridge is then inserted in the Music Keg
player, you select the music you want using the Kenwood head
unit and drive over 7,500 miles without hearing the same song
twice. The Music Keg player installs and connects just like a
CD changer and includes internal shock-absorbing suspension
for smooth playback. Music Keg users can also shop at http://www.audible.com
for Audible's 34,000 hours of audio including best-selling and
classic audiobooks like Jack Welch's "Straight from the
Gut," John Grisham's "The Summons," Stephen
Hawking's "The Universe in a NutShell," or audio
editions of the Wall Street Journal, the New York Times,
Forbes, Fast Company, and original programming like Robin
Williams, public radio, language learning, professional and
self-development titles. See http://www.musickeg.com/index2.html
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Web portal leader Yahoo
surprised Wall Street this week by reporting a profit and
posting a 24% year-over-year increase in revenue for the
second quarter. Earnings were $225.8 million for the quarter,
up from $182.2 million year-over-year. Notably for Yahoo, it
got close to half the revenues from business other than online
advertising, a significant turning as far as the Street goes.
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Play Audio Files Stored on Your PC on Your Stereo Australian-based Xitel Pty Ltd.
makes the HiFi-Link that lets you play music and other audio
files stored on your PC on your stereo by connecting your PC's
USB port to your stereo's audio input port. It'll also play
streaming audio and Internet radio on the stereo. At an
estimated street price of $49.95, the HiFi-Link bypasses the
inferior sound cards and speakers that most PCs have. Because
it's external to the PC, electromagnetic radiation doesn't
degrade the sound quality. No special drivers are required and
it's compatible with all Windows- and Mac-compatible media
players including Windows Media Player, Winamp, RealAudio
Player, LiquidAudio Player, MusicMatch Jukebox, Itunes and
others. Back
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78% of 15-35-Year-Olds Know How To Download Music Harris Interactive surveyed
1,960 15-to-35-year-old Internet users in a study commissioned
by Sony Electronics and found that the number of online
consumers who own a portable digital music player is expected
to double by the year 2003. It figures 21% of the U.S.
population aged 15 to 35 with Internet access currently owns
at least one portable digital audio player, that 54 % plan to
buy one by the end of 2003, that 64 % knew how to
"rip" CDs onto their computers and that 78 % knew
how to download music off of the Internet. In addition, 83%
said that the joy of downloading was being able to customize
music collections, 76% liked being able to choose from a large
selection of songsand 61% liked the simplicity of downloading.
See http://www.harrisinteractive.com
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RIAA To Go After Individual Infringers The Recording Industry
Association of America (RIAA) says it plans to file copyright
infringement suits against individuals serving large amount of
songs using P2P software such as Kazaa's Kazaa Media Desktop (KMD).
Up to now, the RIAA has ignored individual users and focused
on shutting down technology providers like Napster. The labels
were afraid of the consumer backlash if they went after
individuals, but that fear appears to have been exchanged for
the fear of losing their shirts to piracy.
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Movielink To Launch by December Internet-based video-on-demand
service Movielink, a joint venture between several Hollywood
film studios, says it will launch by December and has made
some hiring decisions. John Godwin, former DirecTV CTO, has
been named its CTO. Bruce Anderson has been hired as VP of
operations and Kenneth Goeller has been picked as VP of
business systems. Anderson used to work as CTO of set-top-box
appliance maker Bast. Goeller was senior VP of technology at
banking and insurance software firm Global eTechnologies.
Movielink will feature films from its parent companies, which
include Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony
Pictures Entertainment, Universal Studios and Warner Bros.
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Clear Channel better watch out. The broadcasting giant owns hundreds of radio stations across the country, and is known for operating predictable, genre-specific stations with short playlists. A new device from Sony could insure listeners never hear a commercial again. The device, called the CMT-L7HD, works like the audio equivalent of a Tivo, or digital video recorder. It has a built-in radio and can record broadcasts onto a 20-gig hard drive, so consumers can play the content back with the ability to skip commercials. The 20-gig drive can store about 232 hours of music. As a consumer listens to a station, he could gradually record most of the playlist of, say, an oldies station. Once 80% of the playlist is recorded, there'd be little reason to listen to live radio, except for maybe traffic reports. The CMT-L7HD has a CD player as well, so consumers can build hybrid music playlists of radio and album content. The CMT-L7HD costs $1,000.
Back
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If ever that overused phrase "paradigm shift" was apt, it's now, about the Digital Media industry. There's not a company in the industry that's not worried about where it'll still be standing after the deluge - and that goes for leaders like AOL Time Warner as well as that feared monolith Microsoft. Its format is concise and pointed, its style a touch brash and, with any luck, a bit controversial. Its object is to break the stories that give its readers the real inside track. It is pledged to fact and fair comment. THE online REPORTER - Intelligence for decision makers.
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