Good For The World, But Not Good For Us: The Really Damning Bits Of The Facebook Revelations

from the anti-competitive,-anti-consumer-issues dept

As expected, UK Parliament Member Damian Collins released a bunch of documents that he had previously seized under questionable circumstances. While he had revealed some details in a blatantly misleading way during the public hearing he held, he's now released a bunch more. Collins tees up the 250 page release with a few of his own notes, which also tend to exaggerate and misrepresent what's in the docs, and many people are running with a few of those misrepresentations.

However, that doesn't mean that all of these documents have been misrepresented. Indeed, there are multiple things in here that look pretty bad for Facebook, and could be very damaging for it on questions around the privacy protections it had promised the FTC it would put in place, as well as in any potential anti-trust fight. It's not that surprising to understand how Facebook got to the various decisions it made, but the "move fast and break things" attitude also seems to involve the potential of breaking both the law and the company's own promises to its users. And that's bad.

First, the things that really aren't that big a deal: a lot of the reporting has focused on the idea that Facebook would give greater access to data to partners who signed up to give Facebook money via its advertising or other platforms. There doesn't seem to be much of a bombshell there. Lots of companies who have APIs charge for access. This is kind of a standard business model question, and some of the emails in the data dump show what actually appears to be a pretty thoughtful discussion of various business model options and their tradeoffs. This was a company that recognized it had valuable information and was trying to figure out the best way to monetize it. There isn't much of a scandal there, though some people seem to think there is. Perhaps you could argue that allowing some third parties to have greater access Facebook has a cavalier attitude towards that data since it's willing to trade access to it for money, but there's no evidence presented that this data was used in an abusive way (indeed, by putting a "price" on the access, Facebook likely limited the access to companies who had every reason to not abuse the data).

Similarly, there is a lot of discussion about the API change, which Facebook implemented to actually start to limit how much data app developers had access to. And the documentation here shows that part of the motivation to do this was to (rightfully) improve user trust of Facebook. It's difficult to see how that's a scandal. In addition, some of the discussions involve moving specific whitelisted partner to a special version of the API that gives them access to more data... but in a way that the data is hashed, providing better privacy and security to that data, while still making it useful. Again, this approach seems to actually be beneficial to end users, rather than harmful, so the attempts to attack it seem misplaced -- and yet take up the vast majority of the 250 pages.

The bigger issues involve specific actions that certainly appear to at least raise antitrust questions. That includes cutting off apps that recreate Facebook's own features, or that are suddenly getting a lot of traction (and using the access they had to users' phones to figure out which apps were getting lots of traction). While not definitively violating antitrust laws, that's certainly the kind of evidence that any antitrust investigator would likely explore -- looking to see if Facebook held a dominant position at the time of those actions, and if those actions were designed to deliberately harm competitors, rather than for any useful purpose for end-users. At least from the partial details released in the documents, the focus on competitors does seem to be a driving force. That could create a pretty big antitrust headache for Facebook.

Of course, the details on this... are still a bit vague from the released documents. There are a number of included charts from Onavo included, showing the popularity of various apps, such as this:

Onavo was a data analytics company that Facebook bought in 2013 for over $100 million. Last year, the Wall Street Journal broke the story that Facebook was using Onavo to understand how well competing apps were doing, and potentially using that data to target acquisitions... or potentially to try to diminish those competing apps' access. The potential "smoking gun" evidence is buried in these files, but there's a short email on the day that Twitter launched Vine, its app for 6-second videos, where Facebook decides to cut off Twitter's access to its friend API in response to this move, and Zuckerberg himself says "Yup, go for it."

Now... it's entirely possible that there's more to this than is shown in the documents. But at least on its face, it seems like the kind of thing that deserves more scrutiny. If Facebook truly shut down access to the API because it feared competition from Vine... that is certainly the kind of thing that will raise eyebrows from antitrust folks. If there were more reasons for cutting off Vine, that should come out. But if the only reason was "ooh, that's a potential competitor to our own service," and if Facebook was seen as the dominant way of distribution or access at the time, it could be a real issue.

Separately, if the name Onavo sounds familiar to you, that might be because earlier this year, Facebook launched what it called a VPN under the brand name Onavo... and there was reasonable anger over it because people realized (as per the above discussion) that Onavo was really a form of analytics spyware that charted what applications you were using and for what. It was so bad that Apple pulled it from its App Store.

The other big thing that comes out in the released documents is all the way at the end, when Facebook is getting ready to roll out a Facebook app update on Android that will snoop on your SMS and call logs and use that information for trying to get you to add more friends and for determining what kinds of content it promotes to you. Facebook clearly recognized that this could be a PR nightmare if it got out, and they were worried that Android would seek permission from users, which would alert them to this kind of snooping:

That is bad. That's Facebook knowing that its latest snooping move will look bad and trying to figure out a way to sneak it through. Later on, the team is relieved when they realize, after testing, that they can roll this out without alerting users with a permission dialog screen:

As reporter Kashmir Hill points out, it's notable that this "phew, we don't really have to alert users to our sketchy plan to get access to their logs" came from Yul Kwon, who was designated as Facebook's "privacy sherpa" and put in charge of making sure that Facebook didn't do anything creepy with user data. From an article that Hill wrote back in 2015:

The face of the new, privacy-conscious Facebook is Yul Kwon, a Yale Law grad who heads the team responsible for ensuring that every new product, feature, proposed study and code change gets scrutinized for privacy problems. His job is to try to make sure that Facebook’s 9,199 employees and the people they partner with don’t set off any privacy dynamite. Facebook employees refer to his group as the XFN team, which stands for “cross-functional,” because its job is to ensure that anyone at Facebook who might spot a problem with a new app — from the PR team to the lawyers to the security guys — has a chance to raise their concerns before that app gets on your phone. “We refer to ourselves as the privacy sherpas,” says Kwon. Instead of helping Facebook employees scale Everest safely, Kwon’s team tries to guide them safely past the potential peril of pissing off users.

And yet, here, he seems to be guiding them past those perils by helping the team hide what's really going on.

This is also doubly notable for Kashmir Hill who has been perhaps the most dogged reporter on the creepy levels to which Facebook's "People You May Know" feature works. Facebook has a history of giving Hill totally conflicting information about how that feature worked, and these documents reveal, at least, the desire to secretly slurp up your call and SMS records in order to find more "people you might know" (shown as PYMK in the documents).

One final note on all of this. I recently pointed out that Silicon Valley really should stop treating fundamental structural issues as political issues, in which they just focus on what's best for the short-term bottom line, and should focus on the larger goals of doing what's right overall. In a long email included in the documents from Mark Zuckerberg, musing thoughtfully on various business model ideas for the platform, one line stands out. Honestly, the entire email (starting on page 49 of the document) is worth reading, because it really does carefully weigh the various options in front of them. But there's also this line:

If you can't read that, it's a discussion of how it's important to enable people to share what they want, and how enabling other apps to help users do that is a good thing, but then he says:

The answer I came to is that we’re trying to enable people to share everything they want, and to do it on Facebook. Sometimes the best way to enable people to share something is to have a developer build a special purpose app or network for that type of content and to make that app social by having Facebook plug into it. However, that may be good for the world but it’s not good for us unless people also share back to Facebook and that content increases the value of our network. So ultimately, I think the purpose of platform – even the read side – is to increase sharing back into Facebook.’

I should note that in Damian Collins' summary of this, he carefully cuts out some of the text of that email to frame it in a manner that makes it look worse, but the "that may be good for the world, but it's not good for us" line really stands out to me. That's exactly the kind of political decision I was talking about in that earlier post. Taking the short term view of "do what's good for us, rather than what's good for the world" may be typical, and even understandable, in business, but it's the root of many, many long term and structural problems for not just Facebook, but tons of other companies as well.

I wish that we could move to a world where companies finally understood that "doing good for the world" leads to a situation in which the long term result is also "good for us," rather than focusing on the "good for us" at the expense of "good for the world."

Filed Under: access, anti-competitive, antitrust, api, business models, damian collins, mark zuckerberg, privacy
Companies: facebook

'Free' Game Making $300 Million Per Month? But I Thought You Can't Make Money On Free...

from the old-school dept

For most of the first decade of the millennium, we would post over and over again about content business models and how "free" content makes a ton of sense as a component of a business model. And yet, people in the legacy entertainment industry would laugh and laugh, and talk about how "you can't make money on free." You even had folks who claimed that if you gave away anything for free it proved you had "no fucking clue" about how to run a business. My favorite may have been Doug Morris, who was boss of Universal Music and then Sony Music, insisting that there was no way anyone in the recording business could make money on "free."

These days, that's all looking pretty silly, but just to drive home the point: the insanely popular free video game Fortnite made $318 million last month. Not last year. Last month. And it's free. Of course, as we've always said, the whole point of free is not that free is the business model, but that free is a part of the business model. And that's exactly how Fortnight works.

Even better, all of that revenue comes from nonessential in-app purchases. You don't ever need to pay any money to play Fortnite. And, if we went by what the entertainment industry "experts" from years past would tell you, if that's the case no one will ever pay. Except, obviously, they are, to the tune of over $300 million per month. Why? Because, they're still buying an actual scarcity: mainly different skins or dances/moves that let them show off. In other words: fashion. Something to make themselves distinct -- to stand out. That is a scarcity. Even in a digital world.

So, Fortnite is yet another example of how someone is taking a digital property, and leveraging free to attract a massive audience, and then figuring out ways to charge for a scarcity that people actually want to buy. And people are paying like crazy. So, can we put to rest the idea that you can't make money off of free yet?

Filed Under: business models, differentiation, economics, fortnite, free, free to play, scarcity

How The Record Labels Screwed Up The Music Industry, And The Tech Industry Saved Them

from the start-thinking-about-the-customers dept

If you've been following how much the record labels stumbled around the internet for the past couple of decades, then you know the basics here. But time has a way of erasing some of the nuances of history, and I find it incredible to watch the RIAA and the record labels these days walking around proudly acting as if they were the ones who "saved" the music industry by embracing streaming services that now make up the bulk of the recording industry's revenues. Indeed, as we've pointed out for years, the recording industry has a very long history of overvaluing the music and undervaluing the services that people want. They've spent so long insisting that the music is the sole source of the value of what they produce, that they always downplay (or entirely erase) the rest of the equation: getting the music to fans in a manner that is convenient, reasonable, and non-burdensome. Instead, they always focus on killing the golden goose -- insisting that any successful music tech service pay them more and more until they're squeezed dry.

Over at Motherboard, Ernie Smith, has a good history of how the recording industry screwed up streaming in the early days (unfortunately he does what most people do and refers to what's really the "recording industry" as the "music industry" -- and also simplifies the history to be just one round of mistakes, rather than many, many mistakes leaving a graveyard of dead tech companies in its wake -- but the overall article is still excellent). It's a very instructive piece in detailing exactly how the record label bosses were so focused on making sure that they had control and limits, that they didn't care at all about providing a service that people actually wanted. Much of it focuses on the two idiotic music label-approved streaming services that the industry tried to launch MusicNet and PressPlay (which we dubbed MusicNot and PressPause way back in 2001). Smith details how both services were built entirely focused on "how do we protect our revenue stream" rather than "how do we serve the customer." Thus, you had lots of DRM and lots of stupid limits:

Their offerings were slightly different—for a $9.95-per-month fee MusicNet allowed for 100 temporary downloads and 100 on-demand streams at launch, according to Billboard, while Pressplay allowed for 300 streams and 30 downloads and offered limited CD-burning capabilities at higher price points—but the tissue tying the two approaches together was DRM.

It certainly wasn’t music, as the services made no effort to collaborate with one another. In the post-Napster era, the combination of limited libraries and competition from peer-to-peer file sharing services put the companies at a major disadvantage.

Incredibly, inside the industry, executives so believed their own bullshit that they really thought these consumer-unfriendly services would win over piracy:

Stephen Witt, in his 2015 book How Music Got Free, portrayed Universal Music’s then-CEO, Doug Morris, as being overly excited about PressPlay, to the point where Recording Industry Association of America President Hilary Rosen, frequently portrayed as an “enemy combatant” of the Napster era during this time, had a hard time talking him off the ledge. (Rosen, it should be said, was simply sharing the company line because it was her job.)

“On several occasions he told Rosen to stop talking to Napster, to stop negotiating with the Fannings, to stop worrying so much, because he had something that would ‘make it all go away,’” Witt wrote. “In later years, PressPlay would be a reliable starting point for listicles of the ‘Top All-Time Tech Busts.’”

If you don't remember Doug Morris, he was the guy who, back in 2007, gave a stunning interview where he insisted that the reason why the labels missed the boat on the internet was... because they didn't know anyone who understood technology and then blatantly admitted that he didn't know how to hire someone who would have understood technology. To me, that seemed like evidence for why the board should have fired him and brought in someone who actually understood the market. For Morris it just meant he remained a revered leader of the recording industry.

But really the thing that screams out through Smith's piece is the same old thing: the record labels seem to believe that the only thing that matters -- the only thing that provides any value at all -- is the music (which, coincidentally, is the one thing they have some element of control over thanks to copyright). And thus, the idea that the technology or service matters, or that making a service that people actually want is considered barely even worth considering.

Indeed, reading through the article, it basically shows how the tech industry -- in the form of Apple and Spotify -- more or less rescued the recording industry from their own incompetence. And the incredible thing today is that the record labels still whine and complain that the tech industry that saved them is "taking advantage" of them, rather than showing them the way forward.

Filed Under: business models, doug morris, drm, golden goose, music, overvaluing content, streaming
Companies: apple, musicnet, pressplay, riaa, spotify

Gaming Industry And Game Consumers On A Collision Course Over Loot Boxes

from the down-their-throats dept

If you're a gamer, you know all about loot boxes. We haven't covered them or the associated controversy here, as both are slightly outside of the usual topics we cover. But we do in fact cover digital marketplaces and how companies and industries react to market forces and it's becoming more clear that the gaming industry and the gaming public are on something of a collision course over loot boxes.

As a primer, a loot box is a digital randomized thing, typically purchased in-game and resulting in a random reward of in-game content. Some content is more valuable than others, leading to some referring to loot boxes as a form of gambling, particularly when some of the game content can provide benefits to players in multiplayer settings. Overwatch popularized loot boxes somewhat in 2016, although mobile games have used some flavor of this kind of monetization for pretty much ever. The gaming public never really liked this concept, with many arguing that it breaks in-game competition by giving players willing to pay for loot boxes an advantage. But the loot box fervor hit its pique after the release of Star Wars Battlefront 2, with EA being forced to massively alter how its loot boxes worked in game. Since then, loot boxes are a topic of consumer backlash as a general rule.

Making it somewhat strange, therefore, that the gaming industry seems to want to embrace loot boxes as its dominant business model.

With all the controversy, scrutiny, and international regulation randomized video game loot boxes are facing these days, you might think the practice of charging players for a chance at unknown in-game items might be set for a precipitous decline. On the contrary, though, one analyst sees spending on loot boxes increasing by over 62 percent in the next four years to become a $47 billion piece of the industry. By then, loot boxes will represent over 29 percent of all spending on digital games, the analyst said, up from just under 25 percent currently.

In a newly published forecast of the global game market, Juniper Research concedes that developers are "effectively encouraging a form of in-game gambling" with loot boxes and using that addictive potential to "extend both the lifecycle and engagement of games titles to their audience." These kinds of non-traditional money-making techniques are a practical necessity for developers squeezed by increasing costs and stagnant or declining up-front game prices, Juniper says.

Whatever your opinion of loot boxes, it should be clear that there is trouble on the horizon. Individual opinions will vary, but it seems clear that the majority of gamers are strongly against loot boxes, and that majority is very, very loud. Put another way, the vocal reaction to loot boxes is almost universally negative, with barely anyone at all praising their use in games. The market is sending the gaming industry a very clear message and the industry has apparently decided to place an awful lot of poker chips in dismissing that message.

Even governments are getting in on the backlash, actually, for a variety of reasons. Some seek to protect consumers from blatant attempts to extract more revenue from them by gamemakers, while others want loot boxes regulated as a form of gambling.

Yet the gaming industry is so all-in on this that Juniper thinks both the public and governments will allow loot boxes to exist merely because gamemakers are making so much money off of them right now.

"Whilst some restrictions may be put in place by government and regulatory bodies, the practice is unlikely to be banned outright simply due to the effect it would have on the games industry as a whole," Juniper writes in a recent white paper on the subject. And while platforms like Steam have recently cracked down on third-party "skin gambling" sites, Juniper argues they've resisted calls to ban skin trading altogether for the simple reason that they make too much money from their five-percent transaction fee.

That all works at the governmental level, where regulatory capture is indeed a thing and monied interests likely will indeed sway politicians, but the market forces in the public are another matter. Already the public has thought of loot boxes as generally abusive of the industry. Free to play mobile games are one thing, but the moment EA tried this in a paid-for console game, the shit hit the fan.

Loot boxes aren't the only business model available to the gaming industry, but they are fairly unique in how disliked they are. If the gaming industry doesn't correct course soon, we could easily see a slowdown in an industry otherwise primed for massive growth.

Filed Under: business models, consumers, loot boxes, video games

It Ain't Innovation if No One Wants To Buy What You're Selling

from the innovation-is-about-making-something-people-want dept

In case you missed it, last month Gibson, the famed guitar company, filed for bankruptcy. Matt LeMay has a really fascinating and worth reading Medium post up, claiming that Gibson's failure is a "cautionary tale about innovation." He compares what Gibson's management did over the past few years to another big name in guitars: Fender. And finds quite a telling story in the contrast.

Specifically, he notes that Gibson doubled down on "innovation" and trying to come up with something new -- almost none of which really seemed to catch on, while more or less ignoring the core product. Meanwhile, Fender took a step back and looked at what the data showed concerning what its existing customers wanted, and realized that it wasn't serving the customer as well as it could. LeMay points to a Forbes interview with Fender CEO, Andy Mooney, where he explains:

“About two years ago we did a lot of research about new guitar buyers. We were hungry for data and there wasn’t much available. We found that 45% of all the guitars we sell every year go to first-time players. That was much higher than we imagined. Ninety percent of those first-time players abandoned the instrument in the first 12 months — if not the first 90 days — but the 10% that didn’t tended to commit to the instrument for life and own multiple guitars and multiple amps.

We also found that 50% of new guitar buyers were women and that their tendency was to buy online rather than in a brick and mortar store because the intimidation factor in a brick and mortar store was rather high.

The last thing we found was that new buyers spend four times as much on lessons as they do on equipment. So that shaped a number of things. It shaped the commitment we made to Fender Play because we felt there was an independent business opportunity available to us that we’d never considered before because the trend in learning was moving online. We also found we needed to communicate more to the female audience in terms of the artists we connect with, in terms of using women in our imagery and thinking generally about the web.”

The end result is two very different approaches to innovation. LeMay points out that this is perfectly demonstrated in what you see when you go to each company's website:

A cursory glance at Fender’s website tells you a lot about how the company has implemented their findings: pictures of women playing their instruments dominate, and the “Fender Play” platform for learning how to play guitar is given equal billing with the guitars themselves. (Gibson’s website, on the other hand, features a picture of Slash with the headline “global brand ambassador” — a noxious and deeply company-centric piece of marketing jargon if ever there was one.)

It's a really good point, though I think it's slightly misplaced to argue that the problem was Gibson's focus on "innovation." The problem is Gibson's focus on something new and shiny without paying enough attention to what people actually wanted. If you've done anything in product development ever, you've probably heard the famous (and probably apocryphal) Henry Ford quote:

“If I had asked people what they wanted, they would have said faster horses.”

This is often deeply embedded in the minds of people who are quite sure they're coming up with the next great thing. And it's rarely actually true. There are exceptions, of course, but they are really few and far between. True innovation tends to come from better understanding what people actually want to accomplish and then helping them better do that. Sometimes it's coming up with something new. Sometimes it's coming up with a new way to sell. Or a more convenient way to use something. Or a better business model. Or a better way to educate. There are all sorts of innovations.

Indeed, digging deep into the Techdirt archives, I'm reminded of the debates we used to have about the difference between invention and innovation. Invention is coming up with something new. Innovation is successfully bringing something to a market that wants it. Sometimes the processes overlap, but not always. But, as we've pointed out (in the context of debates over patents), it's usually the innovation (successfully bringing something to market in a way that people want) that's much more important in the grand scheme of things than invention (just making something new).

It seems clear from looking at the approaches that Gibson and Fender each took that one focused on true innovation: figuring out a better way to solve the needs of customers. The other used the falsely promoted definition of innovation -- the one that is more synonymous with just "coming up with something completely new." (On a separate note, it's also possible that some of Gibson's problems stemmed from the ridiculous decision by the Justice Department to seize a bunch of its wood for extremely dubious reasons).

It would be a useful lesson in understanding innovation to recognize that that the innovation that matters is the one that best serves customers. Not the one that is just bright and shiny and loud.

Filed Under: business models, customers, guitars, innovation, invention
Companies: fender, gibson

Goldman Sachs Analyst Asks Whether Curing Patients Is A Sustainable Business Model

from the better-to-ask-whether-the-traditional-drug-development-model-is-sustainable dept

Pharma companies generally like to give the impression that their business is a win-win kind of thing: you get better, they get sales. But sometimes the mask slips, and the real strategy that lies behind the benevolent exterior is revealed. For example, back in 2014 we wrote about the CEO of Bayer, one of the biggest drug companies in the world, openly admitting it developed medicines for rich patients in the West that can pay high prices, not for those in places like India that need them just as much, but can't afford them.

Now CNBC has spotted another revealing remark that probably reflects what many in the Big Pharma world say privately. It appears in a report called "The Genome Revolution" about a new generation of treatments based on powerful genomic techniques like CRISPR. They hold out the hope that many diseases can be cured permanently, for example by editing the patient's DNA to replace genetic code that is causing the problem. The report asks: "Is curing patients a sustainable business model?" It goes on to explain the issue here:

"The potential to deliver 'one shot cures' is one of the most attractive aspects of gene therapy, genetically-engineered cell therapy and gene editing. However, such treatments offer a very different outlook with regard to recurring revenue versus chronic therapies," analyst Salveen Richter wrote in the note to clients Tuesday. "While this proposition carries tremendous value for patients and society, it could represent a challenge for genome medicine developers looking for sustained cash flow."

That's a fair analysis. Given the choice between creating a product that cures people after one use, and another that requires a lifetime's supply, the rational choice for a company is the latter. The analyst's question, shocking as it is, exposes neatly the tension between what Big Pharma and its shareholders may want -- fat, recurring profits -- and what patients and society desire -- a short course of treatment that results in a complete cure. As genomic medicine continues to progress, that question is likely to be posed more frequently, both behind closed doors, and in public debates. It will also bring with it another one: if curing patients isn't a sustainable business model for traditional pharma companies, why not find other ways to fund the development of genomic treatments?

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+.

Filed Under: business models, cures, diseases, gene therapy, genetic engineering, genetics, health, pharmaceuticals, profits
Companies: goldman sachs

China's Tencent Proves You Can Make A Decent Profit From Online Publishing -- If You Have A Platform With A Billion Users

from the blame-the-innovation-gap,-not-the-value-gap dept

A constant refrain from the publishing industry is that it's impossible to make a decent profit from online publishing because of all those people downloading and sharing digital stuff for free. An interesting article in Caixin reporting on the Chinese digital giant Tencent offers an interesting perspective on that issue. It provides an update to a story we wrote last year about Tencent moving into online publishing, with evident success:

Net profit for Tencent's online publishing unit China Literature was 15 times greater in 2017 compared to 2016, according to the company's first annual results released after its blockbuster initial public offering (IPO).

Revenue grew by 60% to 4.1 billion yuan ($648 million), from 2016's 2.6 billion yuan. Profit attributable to shareholders jumped by a staggering 1,416% from last year's 36.7 million yuan [$5.8 million] to 556.1 million yuan [$88 million] in 2017.

As the article explains, revenues came mostly from payments by readers of the company's online offerings, which cater for a wide range of tastes -- from comics to romance. In total, works are supplied by 6.9 million writers, most of whom are contracted to produce original material for the company. The scale of the operation is similarly large: last year around 11.1 million people paid to use China Literature's services, up from 8.3 million in 2016.

Although those are all impressive figures, it's worth noting one of the key factors driving this business. Tencent is the company behind the WeChat messaging app. Last year, there were 963 million users, so it's likely that more a billion people now use WeChat's powerful and wide-ranging platform. That naturally makes selling China Literature's services much easier.

Traditional publishers will doubtless claim this means they are unable to compete with this kind of platform power, and that they can never generate significant profits online. Their conclusion seems to be that companies like Google and Facebook should be punished for their success. Indeed, this demand has been crystallized into a slogan -- the so-called "value gap", which supposedly represents the money that publishers would have received had it not been for the online giants.

In truth, this "value gap" is more of an "innovation gap": if the publishing companies had embraced the Internet fully in the early days, there is no reason why they could not have turned into Google and Tencent themselves. Instead, publishers have fought the Internet from its first appearance, as they still do. They hanker for the more profitable days of analog publishing, when they were the undisputed gatekeepers. And in their heart of hearts, they secretly hope one day those times might return if only they can persuade politicians to bring in enough retrogressive copyright laws to hobble innovative online companies.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Filed Under: business models, china, publishing, scale
Companies: tencent

RIAA Reports Music Industry Is Making All The Money Just As New Study Says Piracy Has Never Been More Widespread

from the hmmm dept

As much conversation as gets logged on the topic of copyright infringement, or piracy, you may not have noticed that there are not that many arguments against piracy. Certainly there's a volume of voices, particularly those coming from the entertainment industry, but those voices are typically making only one of two claims. The first claim is that piracy is morally wrong. This claim typically devolves into something along the lines of "but piracy is theft", and relies on the intuitive notion that downloading, say, a song hurts the creator of that song by depriving them of income. If there was no income deprivation, there would be no moral wrong. The second claim skips the first part of that equation and simply asserts that piracy harms the entertainment or content industries, depriving them of the income they need in order to create more content. You will notice that, ultimately, there is actually only one argument against piracy: its effect on the income of the content producers.

With as much as entertainment advocacy groups like to pantomime Chicken Little on this topic, you might be surprised to learn that the RIAA recently came out with its 2017 Year-End industry report, in which it gleefully notes both how much money the music industry is making and, importantly, how that revenue is growing rather than shrinking.

In 2017 revenues from recorded music in the United States increased 16.5% at estimated retail value to $8.7 billion, continuing the growth from the previous year. At wholesale, revenues grew 12.6% to $5.9 billion. These increases were driven by more than 35 million paid subscriptions, a 56% growth year-over-year. This is the first time since 1999 that U.S. music revenues grew materially for two years in a row, while gaps in core rights continue to distort the marketplace and deprive recording artists and songwriters of the royalties they deserve.

So, we have two years of growth in music industry revenue in America, even as the RIAA is also still complaining about market distortions and artists not getting enough royalties. The full report notes that streaming revenue is way up, digital downloads are down, and physical product purchase revenue has been mostly flat. Note that this is all for the American market. Nowhere in the full report does it flesh out exactly what the RIAA's complaints about artist compensation are based on, although piracy/infringement is almost certainly the answer.

The problem for that argument, which is again the only real argument for focusing on piracy as some great evil, is that another report just came out from MUSO, a group that tracks piracy, indicating that piracy is more popular in the public right now than it ever has been.

Piracy tracking outfit MUSO has documented the piracy landscape with data from tens of thousands of the largest global piracy sites. In its latest report, the company recorded more than 300 billion visits to pirate sites last year alone. This is an increase of 1.6 percent compared to 2016.

More than half of all these visits (53%) are going to streaming sites, making that the most popular piracy tool. Torrent sites and direct download portals still have a significant user base, but follow at a respectable distance. Most of the pirate visits came from the United States, followed by India and Brazil. Despite the various pirate site blockades, the UK also secured a spot in the top ten, ranked at the bottom with nine billion visits.

A couple of things to note in the report's details. Again, America had the highest instances of piracy by far, nearly twice as much as India, which came in third. Also note that, while streaming sites for television was the most popular method of piracy in the public, pirating music came in second. So, we have two data points. The RIAA says that the American music industry revenue has risen two years running. MUSO says that Americans pirate more than anyone else, that they often pirate music, and that piracy levels are at the zenith and rising.

The "piracy hurts the music industry" mantra just took a credibility hit, no?

The explanation for this isn't difficult to understand. Those that pirate music also buy music, go to concerts, and support the bands and music industry through all kinds of other purchases. They also likely subscribe to streaming services and pirate what they can't find there, or what they discover there. The point is that music pirates are often fans of music and may purchase along with pirating.

In other words, the simplistic attack mantras from the RIAA don't make a great deal of sense alongside the RIAA reporting that the music industry is making gobs of money, and increasingly so.

Filed Under: business models, copyright, music, piracy, recording industry
Companies: riaa