Why are content distribution fees important?
In the last post, I mentioned content distribution fees for mp3 as being important. Here's why I think so.
Traditionally, codecs like mpeg-2 (video in DVDs) charged money in a number of ways:
- if you built a dvd player, you payed a fee
- if you built an authoring tool that created dvds, you payed a fee
- if you printed a disk, you payed a fee.
These were all fine, because all competitors in the space payed the same amount, and thus it just went into the cost of your DVD player, or copy of Terminator 2, or whatever. Content producers recouped by raising prices, and everyone had to raise it by the same amount because there's no alternative to DVD.
Streaming is different from DVDs. For example, mpeg-4 part 2 was promoted as replacing Windows Media and RealVideo for web streaming. But the vast majority of web streaming was free of charge (enabled because WM and RNWK didn't charge a fee for distribution). But if a site switched to MPEG-4 part 2, there was no way for a website to recoup the per-stream costs. Imagine if Youtube owed a few cents per stream to macromedia for distributing content on flash? And cnet, cnn, etc...? They'd switch codecs pretty rapidly, or else drop free streaming entirely.
Music services are also different from DVDs. The margins are razor thin - basically nonexistent - so if Apple uses AAC (which has no content distribution fee) and Napster uses mp3 (which does), Napster is at a 2% disadvangage vs. Apple, which could be the entire margin on the business.
It's interesting how choices made in the licensing regime for a technology can make or break it's adoption for different applications.
17 Comments:
"It's interesting how choices made in the licensing regime for a technology can make or break it's adoption for different applications."
And yet you proclaim mp3 the best format to choose in EMI's DRM-free offering for what reason?
How does eMusic (uses mp3) make money while Napster loses money (uses wma)?
How do you claim fees killed mpeg-4 part 2 when Apple and Real supported it for years when it hasn't killed mpeg-2 or mp3?
Or does your argument just keep shifting as you FUD one claim and learn a new thing about YOUR business?
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"But if a site switched to MPEG-4 part 2, there was no way for a website to recoup the per-stream costs. Imagine if Youtube owed a few cents per stream to macromedia for distributing content on flash? And cnet, cnn, etc...? They'd switch codecs pretty rapidly, or else drop free streaming entirely."
Free was always free for mpeg-4 part 2 (it's funny how you have completed shifted and slided out of significant issues to be talking about an issue that was resolved in 2002.
The only area in which "free" in this sense arose was: does a media property that derives revenue indirectly (say YouTube with advertising or some other media organization with advertising) constitute commercial use or not. The definition of commercial use largely remained unchanged. And certainly YouTube derives revenue from its videos.
What changed was setting a starting point (12 minute clips, I believe) and setting a cap on fees (there had been no cap).
The fact that the decoder was always freely accesible and usable for free use is how Divx and Xvid were able to be spun off from mpeg-4.
Similar, if not equivalent, licensing terms exist for mpeg-4 AVC and VC-1.
VC-1 may someday be finalized as a standard for the SMPTE. (wink)
I'm still cogitating this and other factors, but the content fee does impact my thinking on mp3 as an option.
Napster and emusic pay radically different amounts for their content. napster does major label content which is very expensive, emusic does indies which are much cheaper.
I'm claiming that *content distribution fees* killed mpeg-4 part 2. Apple and Real both supported it, but use was very limited for distributing content, including Apple and Real. Apple continued to stream sorensen, Real streamed realvideo.
@still:
How do you know eMusic makes money? I checked, and I don't see any public filings.
I'm not saying you are wrong, I am just curious because I was looking for similar information the other day.
I found this link:
http://www.usatoday.com/tech/products/services/2006-07-30-emusic_x.htm
It mentions "The company has 75 employees, mostly in New York, and will turn a profit next year, Pakman says."
I interpret this as meaning "we aren't making money yet, but we think we can next year." Based on that I would say it remains to be seen whether or not they can post a profit. Once they do, it will be interesting if the labels they do business with will increase wholesale prices to squeeze the profit out of the system.
stillanonymous drop it!
Funny you should mention this, as we just did a DRM-free music store roundup and discussion turned to eMusic. (Note that some of these stores even offer uncompressed WAV, which of course also plays on Zune.)
Basically, the eMusic economics are not at all a sure thing. Record labels are leaving (small labels, now), as they try to push the price down. So, I'd say it's important not to get totally hung up on license fees and adoption rates. I agree, but right now the far greater issue is deciding who gets a piece of the pie, and how big, in the first place. And while MP3 is indeed costly, compatibility remains the major issue there.
David:
I’ve read your last few posts (and their comments) about codecs and I’ve found it all very interesting. But I thought I’d comment to congratulate you, whether or not you’re, strictly speaking, factually correct on all of the issues, on how cordially and patiently you’ve dealt with a notable quantity of abusive, obnoxious and just-plain-nasty dissent. I really don’t know if I’d have had the patience for it!
Wow. Fanatics indeed.
"I'm still cogitating this and other factors, but the content fee does impact my thinking on mp3 as an option.
Napster and emusic pay radically different amounts for their content. napster does major label content which is very expensive, emusic does indies which are much cheaper."
I'm not sure what your thinking is at all. Previously, you said mp3 was the way to go. Now, it's not so see. Are you suggesting AAC support for non-DRMed music services now?
stefan, oh, boo hoo.
Peter: Zune actually doesn't support WAV (neither the player or the software).
Whups, there I go, giving Still more fuel for his fire. Honestly, why do you care so much that you troll this blog? It's not like you get anything out of this.
@Adam
Fuel for the fire? Trolling?
Look I don't want to defend stillanonymous (yet again) but it appears to me that stillanonymous and I both understand the industry to which David is directly speaking. While I'm not on the technical side (bitrates and compression) I am on the distribution side. When claims like "less expensive" or "quality" or "not supported other than by apple" are made and they are false; it is appropiate to question that information.
David has been very gracious in offering defense of his rational. However I still disagree with some of his claims. It is my assumption that if he just wanted to pontificate about his thoughts he would disable comments altogether.
chris, adam was directing his statement at peter who incorrectly claims Zune supports .wav. (Which is fairly absurd: I can understand not the device even though it should and I would expect it, but not even the software?)
I think his claims of trolling and fueling the fire are off base, but I do find his correction and call to avoid incorrect statements helpful.
@Still,
Yes I know. His comment about trolling however was directed (indirectly) at those who have disagreed with David.
Still, despite the player being basically a complete copy of WMP11, it doesn't support DVDs or a number of other advanced features WMP supports. WAV isn't among the most popular formats these days to store music.
- MP3 is *the* format for me because I know it'll work 100% on all my various devices.
- I use eMusic simply for the reason that I can get all my music DRM-free and in MP3 format.
- I found Apple's "announcement" about DRM-free music to be a bit of a smokescreen. First, they are charging extra for what you should already be getting AND they are offering it in a format that isn't 100% compatible with everything I use.
I'm actually more willing to pay a little extra not for a higher bitrate but instead for MP3. While it's fairly easy to convert from unprotected AAC or WMA it's just another bit of time I have to waste. Then again I'm a nerd so transcoding is "pretty easy" for me but my wife isn't nor does she see the need. The first time she bought a track from some website and discovered she couldn't just add it to her DAP or play it over our Sonos system she was amazed that people put up with a difficult system. Now in fact she'll just pop over to the store and buy the physical disc instead of having to deal with the issues.
What I find ironic in all of this is the fact that digital distribution is still setup to fail. It's far cheaper and easier to "pirate" music by just buying the CD and sharing it around with your buddies. Much easier than any P2P or DRM-breaking system.
"It's interesting how choices made in the licensing regime for a technology can make or break it's adoption for different applications."
I agree with this, though I think it goes even deeper. AAC was all but considered dead until the iPod and now it's a hot codec. Since the average consumer didn't know much about music formats they willingly walked into whatever was laid out in front of them in a nice, shiney Apple-bundled package. It wasn't until other digital media devices entered the consumer segment that they realized that maybe they shouldn't have taken quite so big a bite of the Apple.
On the flip side you have MP3 that is so ubiquitis simply because it was really the only thing around when all of this really hit the early adopter crowd. Not only that, it was also *very* easy to get around licensing fees of any kind. I don't know how many codecs I used to download source for and compile myself just to get around licensing issues. This was 2 years *BEFORE* the first iPod when almost everything was a bad UI slapped on top of a command-line encoder.
Sure, you could pony up and pay $20 to buy an "offical" MP3 encoder but almost no one did.
As you said it was the "choice" that the MP3 patent-holders didn't sue the pants off every hobbiest out there encoding MP3 that helped propel MP3 to it's "musical jpeg" status. Now of course the patent-holders eyes are bright green and they are willing to sue anyone and everyone that doesn't comply with their fees, because they know people are in too deep.
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