In his Midem blog post A Very Taxing Situation, Ted Cohen suggests we should consider a flat rate levy/tax/tarriff imposed on ISPs to compensate for unlicensed downloads and transportation of media.

“There’s a lot of discussion these days about the idea of a levy/tax/tariff on ISPs to compensate copyright holders for the unlicensed transport of music, film and television content across the Internet and mobile carriers. Whether or not these proposed revenues would offset the 15-20% drop in physical sales this past year, it is an interesting concept to consider.”

For me this brings to mind a situation we still live with today. In some countries, the recording industry benefits from a “tax” on the manufacture and distribution of blank magnetic tapes and CDs. I wasn’t supportive of this idea, and I’m not supportive of applying it more broadly to Internet access.

If the recording industry were to get a tax imposed on ISPs, then surely other industries, with alleged copyright violations, would want a similar ISP tax. This would include: television, movies, software, book publishers to name a few. Of course, these so called taxes would be passed onto the consumer. Consumers may ultimately end up paying more in Internet copyright tax than for monthly access. Surely there has got be a better way.

I’m all for an “all you can eat” approach - but on a voluntary basis. If the ISP or mobile operator I use, offer this service at an additional monthly fee, then I should have the choice whether I want to sign up for it or not. There are many people who have a hard time paying the $9.99 NetZero price to get to the Internet each month.

Let’s not impose additional reasons to create a divide between those that have access to the Internet and technology and those that don’t.

In my opening statement at the Future of Music, Copy Rights or Wrongs panel I talked about the nature of the shift occurring in the music industry.

The music industry is shifting from being a business associated with CD sales to the virtual world of digital singles, consumers with multiple music devices, and a society that increasingly believes that recorded music should be free.

The shift to virtual music is so profound, that it is cracking the very foundations of the recording industry. The recording industry should be fighting for survival by adopting new, innovative ways to make money. And, it should be doing this as rapidly as possible. In reality, the recording industry can’t embrace the digital world fast enough. Instead, it is trying to slow the rate of change by changing copyrights into copy wrongs.

One of the examples I spoke of was how copyright law was being manipulated through proposed legislative changes as well as by RIAA lawsuits. The idea of “fair use” has been with us for many years and has been an integral component of property and copyright laws. It is now under attack. If the recording industry gets its way we may see fair use completely eliminated.

What does this mean? We may be forced to purchase separate copies of every song for every device we own. This would mean If your household owns five iPods, you would buy five copies of each song.

Only yesterday, at the RIIA lawsuit underway in Duluth, Sony BMG’s chief anti-piracy lawyer was asked if it was wrong for consumers to make copies of music which they have purchased, even just one copy. She replied, “When an individual makes a copy of a song for himself, I suppose we can say he stole a song.” Making “a copy” of a purchased song is just “a nice way of saying ’steals just one copy’,” she said.

I agree that the recording industry’s value proposition is under attack by the technology industry and in some cases has been completed hi-jacked. Current copyright laws may not be enough to protect “virtual” music. The answer, however, is not to change the laws or shackle technology innovation. There are still many more ways to make money from music.

We must start by incorporating technology into the business model itself. Instead of trying to maintain an existing business model through lawsuits and legislation, I propose the recording industry and the technology industry work as one in developing a new and successful business model. Until this happens we will continue to see a disenfranchised consumer, technology innovation that abuses copyright and plummeting record sales.

Last week, I was a panelist at Digital Hollywood. As usual I was invited to speak to issues around the intersection of technology, digital entertainment business models and content licensing. It turned out to be a great discussion. I suspect that the panel moderator, Mike McGuire of Gartner, had hoped to pit us against each other, and to a certain extent he did. In fact we did not agree that outdated copyright laws and complex content licensing are a bad thing.

The panel split into two groups, the lawyers and the entrepreneurs. We had very different perspectives on how to solve the difficulties, complexities and time involved in negotiating content licensing, especially for new tech enabled entertainment startups.

Technology now enables us to push the edge of the envelope with new entertainment business models. Consumers and artists are ready to try new approaches. In fact, one audience member suggested that Creative Commons offers a solid alternative to the current approach.

This panel, reinforced my opinion that the greatest obstacle to new entertainment business models may be outdated copyright laws and not content pirates or fear of technology.

Today, I was talking to a collegue about how his 19 year old daughter gets her music. He told me about that a few weeks ago his daughter had 4 friends over to the house and they were on her computer using limewire to download their music and then sharing it with each other via usb flash drives. I asked him whether they understood that they were stealing the music. He told me they didn’t believe they were stealing - its coming from Limewire and it’s not as if it’s a real CD. He explained to me that he asked them the same question about movies and they all believed that downloading a movie was stealing – because they see it in a mini commercial on every DVD and whenever they go to see a movie at the theater.

I believe this is prevalent in the thinking of today’s youth. Removing a physical CD from a store is well understood as stealing, the same goes for removing a DVD from a store. Even with music download sites like iTunes, where you have to pay to download music, there is still a belief that downloading music is not stealing. The movie industry has gone a long way to educate people that downloading is stealing. The RIAA prefers to file lawsuits as its method to educate. Perhaps if it took the money made from settlements with consumers and invested it in ways that help educate consumers such as TV commercials, billboards, and other mass communications, there would be less people using peer-to-peer download sites and more people buying music from legitimate download sites.

In the last week, Nielson//NetRatings and comScore Media Metrix, two competing Internet measurement companies, both released their search engine results — with contradictory findings and implications for GYM. Tables 1 & 2 show Nielson//NetRatings results while Table 3 shows comScore Media Metrix results. Here is a link to the Nielson//NetRatings press release in pdf or in html at Tekrati and a link to comScore press release in pdf.

What’s interesting is the degree of the difference and the implications that can be derived.

According to Nielson//Netratings, searches grew by 1.6 billion or 39%, January 2006 over January 2005. It looks like the growth is very good, not quiet as high as the same period in earlier years — but trending well. According to comScore Media Metrix, search grew by half a billion or 11%, January 2006 over January 2005. Now the alarm bells are ringing and I’m wondering whether search engines and media sites that derive significant revenue from partnering with these search engines (like Google Adsense), are a worthwhile investment.

What’s even more confusing is share percentage increase. Looking at one set of numbers Google & Yahoo only slightly increased. Looking at the other set of numbers Google had a good increase while Yahoo lost 3 points.

It seems the only thing that both agree upon is the fact that Google is still the leader and still pulling away from its competitors.

Table 1. Total Online Searches, Jan 2005 vs. Jan 2006 (U.S.), According to Nielson//NetRatings

Source: Nielsen//NetRatings, February 2006

Table 2: Search Share Rankings (U.S.), According to Nielson//NetRatings

Source: Nielsen//NetRatings, February 2006

Table 3: Total Internet Searches and Share of Online Searches by Engine, January 2006 vs. January 2005 — Total U.S. Home, Work and University Internet Users, According to comScore Media Metrix

Source: comScore qSearch

Technorati Tag: Media

According to a press release today by The Interactive Advertising Bureau (IAB), they and PricewaterhouseCoopers (PwC) performed a joint study and found that Internet advertising revenues for 2005 are estimated to exceed $12.5 billion.

… a 30% increase over the previous revenue record of $9.6 billion in 2004. The 2005 Q4 revenues totaled a record $3.6 billion; making it the second consecutive quarter to surpass the $3 billion mark and the highest quarter reported. Fourth quarter revenues represent a 35 percent increase over the same period in 2004 and a 17 percent increase over Q3 of 2005.

I wonder what the split is between search based advertising and banner advertising — perhaps the IAB can tell us when their report is made available in April.

I was very surprised to see that VA Software had sold the Animation Factory assets to JupiterMedia. This brings an additional $9.35M cash to the company, bringing the total equity to approximately $55M. Is this a single event, or is this the start of a strategy to re-invent the company? I hope it’s a re-invention. This is what I’d also like to see.

1. Quickly grow the equity by selling off the rest of the e-commerce business (Thinkgeek).
2. Divest of the media business (Slashdot, freshmeat, Newsforge, ITMJ and Linux.com), but keep Sourceforge.net.
3. Change the name of the company to Sourceforge Corp, — there is far more brand equity in Sourceforge than VA Software.
4. Change the stock ticker symbol from LNUX to SFRG.

Steps 1 & 2 should yield at least another $50M to $100M cash. Maybe Novell or Red Hat would be interested in the Linux.com url. If done correctly it would free up a significant server farm that could be used for the new Sourceforge on Demand ASP solution. By keeping one or two of the media ad sales team, revenue from ads on sourceforge.net would be easily accomplished. The cash on hand might very well be used to purchase companies that fit with the sourceforge business and result in faster company growth.

Of course this is wishful thinking. As the former executive who turned around OSTG, I would like to see VA Software succeed at last, and see OSTG become a part of a larger media business where it can take advantage of media synergies.

Technorati Tag: Open Source, Software, Slashdot, Sourceforge, Media

In a recent report by Piper Jaffray analyst Safa Rashtchy, reported in Clickz , the tipping point for offline ad dollars moving to online will be in 2006.

“We believe online media now receives about 5 percent of total marketing spending, up from 3 percent two years ago. However, online is on its way to a 10 percent share much faster then we anticipated, and we believe we are now approaching an inflection point when spending growth could accelerate,” Rashtchy wrote in a newly-released report. “This point is likely to be in the second half of 2006, as the full impact of some of the recent allocation increases from major marketers becomes evident and creates a momentum that will attract more spending by advertisers who are on the sidelines now.”

The big winners of all this online ad spending are predicted to be Google and Yahoo. Additional spending will be on smaller vertical sites.

As more and more people are turning to the internet to get their news, shop and answer their basic questions, good online ads can help readers, consumers and researchers find what the items they are seeking. In my opinion this can only be good, and will allow internet sites to be more innovative as they see an increase in revenues.

Business Week Online’s article Less Impact from the Slashdot Effect leaps to conclusions about why the Slashdot Effect has weakened over the last 12 months. While I do not necessarily question an overall decline in the percentage of traffic that other tech news sites attribute to Slashdot, I do take issue with what appears to be lazy journalism in citing causes for the decline.

The article asserts that the number of news sites Slashdot is linking to has skyrocketed. And that has reduced the impact Slashdot can make on each individual site’s traffic. I decided to do a little investigating.

For example, compare the number of original stories and links embedded in them on a random day over the last three years. I picked the last Tuesday of February — February 22 2005, February 24 2004 and February 25 2003. BTW: On Slashdot it’s really easy to look at any day in history by using the ?issue=yyyymmdd url parameter. For example, February 22 2005 is http://slashdot.org/index.pl?issue=20050222.

2003: 17 stories on the index page with 38 links
2004: 22 stories on the index page with 48 links
2005: 22 stories on the index page with 51 links

The difference between 2004 and 2005 is nominal where is the “skyrocket”? Three additional links on a given day cannot cause a radical decline in The Slashdot Effect.

The article also suggests that look alike sites are lessening the Slashdot Effect. This means that sites such as geek.com and gizmodo.com are diluting the Slashdot Effect. This is ridiculous. The average number of comments per story on geek.com is less than 25. Compare that to 450 comments per article on Slashdot. The lack of community focus on these competing sites means they are too weak to either generate their own Slashdot Effect or too insignificant to dilute Slashdot’s.

Finally, the article also suggests that the growing number of tech news sites is another reason that the Slashdot Effect is diminishing. I fail to see the logic here. The sheer growth of Slashdot unique visitors and page views negates this theory.

If there is, in fact, a decline in the Slashdot Effect aside from anecdotal evidence, there were no plausible reasons explored in the article. Perhaps, Slashdot has grown beyond its original tech editorial focus and is linking more frequently to sites beyond the conventional high tech list. Perhaps, the proliferation of links to CNET and other tech sites have, over time, caused readers to visit those sites as part of their normal daily reading habits. Perhaps, the visitors to Slashdot are becoming increasingly focused on the community comments themselves rather than the news links. Or perhaps, more and more visitors to Slashdot have already linked to the source from their RSS news and blogs reader.

At a minimum, I would hope that an interested journalist or anthropologist will take a closer look at Slashdot to find out if there is a correlation between its increasing page views and visitors and declining traffic referrals. My sense is that we may be seeing the evolution of this worldwide community and its dynamics, rather than simple advertising-mentality trend lines.

Disclaimer: The opinions in this Weblog post are my own. I am no longer associated with Slashdot, OSTG or VA Software.

Technorati Tag: Slashdot