Jimmy Wales Says Irrelevance, Not Piracy, Will Doom Hollywood

from the times-are-changing dept

Jimmy Wales, who has become a bit of a thorn in the side of Hollywood of late, has given a speech in which he predicts that Hollywood is doomed, but not because of any threat from "piracy," but from the fact that technology and innovation means that the old infrastructure that filmmakers used to require is going away. As Ryan Singel at Wired reports, Wales' talk at the Internet Society's recent gathering let him predict that disruption was coming from the bottom up:

“Hollywood will be destroyed and no one will notice,” Wales said. But it won’t be Wikipedia (or Encarta) that kills the moviemaking industry: ”Collaborative storytelling and filmmaking will do to Hollywood what Wikipedia did to Encyclopedia Britannica,” he said.

Wales hedged by saying predictions are easy — and he’s usually wrong. But he looks at a generation of kids growing up in a world of video and mastering editing software at a young age. His own 12-year-old daughter, Wales said, is already adept at iMovie and won a local award for a short film she made.

And just as Wikipedia has show that collaboration on the web is possible (despite the messiness, flame wars and turf battles found on Wikipedia Talk pages), the new generation will find ways to collaborate online to create movies to entertain themselves and their friends.

And, Wales says, they’ll do that with impressive special effects, CGI and even remote actors.

Of course, we've been seeing this trend already growing at the lower end of the scale for a while. For example, the power that individuals have to create amazing special effects has been documented for years, and the tools are only getting better and better. Does traditional Hollywood have even better tools? Absolutely, but this is a classic innovator's dilemma situation, where the tools at the low end are getting better at a faster rate, and they're reaching the "good enough" point pretty quickly -- such that the value of spending many many millions extra on special effects doesn't provide any significant benefit.

Add to that the growth of Kickstarter as an alternative funding platform, the growth of the internet as an alternative promotion and distribution method... and at some point the benefits of going with a traditional Hollywood studio become more difficult to quantify.

Of course, this isn't something that happens overnight, by any means. And there are some in Hollywood who appear to understand this and are working to get their studios ahead of the curve, though it's unclear if they'll be able to do that successfully. Either way, the point that Wales makes is a pertinent one. Instead of worrying so much about online infringement -- the studios might want to spend a little more time figuring out how they can remain relevant.

Filed Under: disruption, hollywood, innovation, internet society, jimmy wales, wikipedia
Companies: kickstarter

It's Time To Re-Establish That If A Patent Blocks Progress, It's Unconstitutional

from the the-time-has-come dept

Andy Kessler has one of his typically insightful Wall Street Journal opinion pieces in which he says it's time for real patent reform (rather than the joke of patent reform we had last year). His main concern is the toll that patent trolling is taking on innovation. He goes through a number of different lawsuits and shakedowns -- many of which we've spoken about here -- before suggesting a few potential changes to the patent system which he thinks should be in any patent reform effort:

Time. Reform should start with the phrase "limited Times." For patents, it was originally 14 years, until 1861 when it was lengthened to 17 years, and then in 1995 it was extended again to 20 years with a five-year extension under limited circumstances. That may seem fine or even a little short for pharmaceuticals or gas turbines, but in technology things move a lot faster. Even AT&T won't make you keep a phone for more than two years. Apple is on its fifth iPhone iteration in less than five years.

"Times" ought to float by product and industry, perhaps with expirations based on the half-life of the product. PCs and telecom equipment have about a three-year half-life, pharmaceuticals more like 10. Someone needs to bring a clever case to the Supreme Court showing that 17 years, let alone 25, is an eternity and damaging for a fast-moving industry like tech.

This is a good suggestion (and we've seen similar suggestions, of course, when it comes to copyright, where the terms are an order of magnitude more insane). However, given the Supreme Court's rulings in Eldred and Golan, it seems unlikely that it gives a damn about if the laws actually damage industries. The Supreme Court has basically said that it's Congress' prerogative to do what it thinks is best, even if what it thinks is wrong.

Still, though, it is important to keep focus on the "limited times" clause in the Constitution, because it really is key, even if the Supreme Court horribly misinterpreted it. Highlighting, repeatedly, how excessively long IP monopolies hinder progress is important, because eventually the message has to get through.

Value. We have to stop allowing juries to establish the value of patents. In just the iPad alone, I would estimate there are 50,000 to 100,000 patents covering the chips, display, storage, communications and other features. They can't all be worth $6 per patent per device. Money isn't mentioned in Clause 8, but the market rather than juries can determine value.

This is a problem. When you look at how much patent holders often demand, where they rarely take into account just how many other patents impact a product, it becomes impossibly expensive to do anything when you let juries come up with crazy rulings that have no basis in reality. But it happens all the time. It's why there's so much money flowing into patent disputes these days, and why the lawyers love it.

Exclusivity. It's time to require patent holders to actually make or sell products before citing infringement. Lots of people have good ideas. Patent reform has to define what are exclusive rights for "Discoveries." As if you "discover" an algorithm or gene splicing rather than pull a year of all-nighters perfecting your invention. The idea is just a start. The rest is the sweat of execution. Facebook's Mark Zuckerberg had the right idea, telling his accusers in a deposition (perhaps the only true dialogue in the fictionalized movie "The Social Network") that "You know, you really don't need a forensics team to get to the bottom of this. If you guys were the inventors of Facebook, you'd have invented Facebook." That's the most sane logic against patent trolls.

This is a popular suggestion that we hear pretty frequently. And Kessler is right that the idea is just the start (and often, the idea has little to do with the final product). That said, I'm not as convinced of this one -- with perhaps a caveat. If we assume that there is a way to create a reasonable patent system, then you could see situations where this doesn't make sense: for example, if you have a university that patents something. It's not in the business of making things, so it just wants to license. That seems reasonable (again, assuming you could first solve other problems with the system).

So I'd propose a modified version of this, which Kessler also hints at later in the column: you can only sue over the patent if you're making or selling a product or if you've partnered with someone who is making or selling a product. That is, the patent holder has to be associated with actually bringing the product to market, even if it's through a third party. But if no such product is being made, then you have no ability to use the patent to sue those who actually are doing something.

Progress. Sane logic, however, rarely wins. Patent holders and even patent trolls have constitutional rights for their ideas. But the legal filter has always been "limited Times" or "exclusive Rights." Remember that the constitutional clause opens with "to promote the Progress of Science." Everything else follows.

Progress should take precedence over legal maneuvers and runaway jury awards. This is what James Madison must have meant. A smartphone is made up of thousands of interlocking pieces of hardware and software. Any number of them may violate a competitor's or troll's patents. Every time one of these is omitted, or worse, causes the final price of the end product to rise beyond its true economic value, the "Progress of Science" is seriously impeded. And progress is what creates jobs and increases our standard of living.

To some extent, this is related again to the first item. Actually paying attention to the part in the Constitution where it says that Congress is only able to pass such laws if they "promote the progress" seems important. If you're going to allow a patent system to exist, then why shouldn't it at least be a plausible argument in a patent dispute that allowing certain products is consistent with the "progress" argument?

Kessler then makes the key point, about just how ridiculously wasteful all this activity around patents has been lately:

Clearly we'd be better off having Microsoft, Apple and Google spending $1 billion on developing new products rather than buying up patents as an insurance policy so they and their partners can battle trolls and keep selling phones. How enlightening if we could see government actually promote progress as the Founders envisioned.

This is the key point that some people have significant trouble comprehending. Spending can go towards activity that expands the pie -- innovation, R&D, etc. -- or it can go to activity that does not expand the pie -- licensing, lawsuits, etc. This is an economic issue. Shouldn't we want more money going into non-zero sum games than zero-sum games? Yet the way the patent system is set up today, we get the opposite.

Of course, there's one other big reform that I think the patent system absolutely needs: an independent inventor defense. If someone creates something through their own smarts and intelligence, it's downright insulting to then tell them they can't actually do anything with that idea that they came up with themselves. For all the talk of the rights of individual inventors, it amazes me that patent system supporters aren't up in arms on this issue as well. Giving a patent only to whoever registered first is the most anti-inventor/anti-innovator concept around. Let people make use of their own ideas.

Filed Under: andy kessler, innovation, limited times, patent troll, reform

Kickstarter Keeps Funding Bigger And Bigger Projects

from the watch-'em-grow dept

One of the things that we always hear about new business models from critics is that they can't possibly "replace" some of the old business models. Often the talk is about how they're only good for "small" things, and how they simply can't scale. Of course, this seems to underestimate the nature of early experiments and how things grow over time. For example, Kickstarter has certainly become quite an amazing tool for helping to fund projects in the past couple of years. However, when discussing Kickstarter in the past, I've heard people complain that while it may be great for "small" projects of a few thousand dollars, it couldn't ever fund something "real," like more traditional sources could.

And yet... we've discussed how last year, Kickstarter users funded nearly $100 million in projects, and this year it's predicted to go much higher. And, already, we saw Kickstarter pass its first few million dollar projects. Then, late last week, the folks behind the Pebble e-paper watch announced that they were using Kickstarter to do pre-sales of their new iPhone and Android versions (previously they'd only offered a Blackberry version). The watch itself is certainly pretty cool. A smartwatch which is totally customizable, has a variety of apps, and basically acts as an interface with your phone (and it looks good). And lots and lots of people agreed. Within just 28 hours they had already passed $1 million. $2 million ticked off soon after. It's now approaching $4.5-million, making it the highest revenue Kickstarter project ever—and it's the fastest to get to those kinds of numbers.

No, we're still not talking about the huge budgets around Hollywood blockbuster movies -- but we're already going well past what the most expensive albums cost to record. But, more importantly, it's not difficult to see the trend lines here. And, Kickstarter has only been around for about three years. Go back to the beginning of Hollywood. How long did it take the traditional methods to get around to funding $3 million movies?

As Kickstarter (and similar platforms) become more and more popular, it's certainly not outside the realm of possibility to see a major motion picture funded via such a platform. This isn't to say (as I know someone will accuse) that this is the only way that such things will be funded. But it does highlight, yet again, that if there's demand, there will be ways to fund these things. If you don't think the future is full of amazing opportunities, you're simply not paying attention.

Filed Under: budget, crowdfunding, hollywood
Companies: kickstarter

Hearing Aids, Monopolies, And Why The Health Industry Is Ripe For Disruption

from the can-you-hear-me-now? dept

Recently, we saw a huge reaction to the story of how a patent lawsuit was threatening to silence a little girl by shutting down a speech-assistance iPad app that is her only means of communication. For many people, the focus of that story was the human cost of patent warfare—a valid and important topic to be sure. But the story also points to another, larger issue that is bound to get more attention in our increasingly entrepreneurial culture: the health and wellness industry is in serious need of disruptive innovation.

TechCrunch has a post looking at another area that is very similar to speech assistance devices: hearing aids. The market for these devices is old and stale, dominated by a few key players who have cushy exclusive deals with doctors that allow them to charge exorbitant prices (averaging around $3000), but a year-old startup called Embrace Hearing is beginning to shake things up by selling $300+ hearing aids directly to consumers. They discovered that 75% of Americans who qualify for hearing devices don't actually use one, and the number one cited reason is high price. But they also know that those high prices are mostly artificial:

Audiologists (health care professionals who specialize in hearing, and the loss thereof) control the majority of sales in the U.S. market. While these specialists provide essential services, they use the sale of hearing aids to their own gain, often charging markups of three to five times — because they can.

Not only that, but the clever business people they are, they bundle re-fittings and follow-up visits into the cost, generally using this as the explanation for why hearing aids cost so much. The Embrace co-founders say that the reality of the situation, however, is that only 20 percent of customers make five or more visits to audiologists in the year after being fitted for the device. For those who fall into that category, the insurance and other benefits might make sense, but for most it doesn’t.

That, my friends, is what you call a market opportunity. Interestingly, the TechCrunch post doesn't discuss patents, instead focusing on other factors that have limited the market: the aforementioned exclusive deals with doctors, the lack of entrepreneurial presence since hearing aids aren't a "sexy" product, and the fact that many people are uncomfortable bypassing a healthcare professional when purchasing something like this. Embrace Hearing is turning all these problems into opportunities: they work with a new manufacturer who has no exclusive deals, they are trying to make hearing aids sexy (social stigma is the #2 reason people who need them choose not to buy them), and they are working on an online tool for testing your hearing.

I do wonder, though, if they will face patent problems in the future. Their German manufacturer is presumably operating in good faith, but that's never stopped a good patent showdown before, since aggressive companies like to use their patent portfolios as a way to control the market and crush competitors, regardless of how valid those patents are or whether any genuine infringement is taking place. If Embrace Hearing grows and is perceived by the incumbents as a threat, it's quite likely that they or their manufacturer will face litigation. Of course, all this just tells you they are on the right track: when the kings of a particular market defend their thrones through exclusive deals, patents and other monopoly protections—rather than by actually competing—it's a surefire sign that the market is underserved. And where there's an underserved market, entrepreneurs will eventually move in to capitalize on it. When that happens, existing monopoly protections can only delay the inevitable, but they can cause very real harm by doing so—and in an industry that effects the quality of life of millions of people, the public backlash against these monopolies can be huge. Any company that operates in the health and wellness space by selling at huge markups and relying on exclusivity would be wise to start thinking about their future in the long-term: if they don't meet the demands of the market, someone else will.

Filed Under: disruption, health care, hearing aids, patent
Companies: embrace hearing

Study: Sharing Patents, Rather Than Blocking Others, Encourages Innovation And Market Success

from the well-duh dept

There's been plenty of research over the years (much of which we've pointed to here) showing that the sharing of information and knowledge -- including information and knowledge that leads to innovation breakthroughs -- can actually help companies thrive. Studies on the early success of Silicon Valley by Annalee Saxenian focus heavily on how information sharing among companies -- even those in competition with each other -- helped make Silicon Valley so successful. That's because the breakthroughs opened up new markets and expanded them in ways that allowed multiple players to thrive. To put it another way: if, by sharing information, companies were able to reach major market-changing breakthroughs faster, there would be more than enough benefit to go around as the new markets expanded. Thus, the "cost" of having competitors with the same knowledge was dwarfed by the "benefit" of having the innovation and the resulting market expansion.

Gene Cavanaugh points us to a new study that appears to reiterate this basic point, but focusing directly on situations with patents. The research, by economist Gilad Sorek, found that the free-licensing of patents to competitors actually increases the likelihood that a company's profits will grow as the result of a particular innovation. In other words, contrary to what many believe (that the best thing to do with a patent is to restrict others from using it), this research suggests that openly sharing that information for free actually tends to help the patent holder in the long run by opening up new opportunities that increase their profit.

The study, to be published in a forthcoming issue of Economics Letters, shows that the benefits of giving up patent protection outweigh the risks of surrendering a share of the market. By inviting further research, Sorek says, the original innovator is able to stimulate demand for its product. The company may lose a share of the market, but its product ultimately becomes more valuable as a result of the extended innovation effort.

The research points out that such open and free licensing acts as a way to get free research and development from other companies that help expand the original innovator's market. This paper certainly seems to match what we've seen in other research in the past and, yet again, raises significant questions about the way many companies today manage their patent portfolios, as well as how they view the process of innovation itself.

Filed Under: economics, free license, gilad sorek, silicon valley, study

Why Netflix Never Implemented The Algorithm That Won The Netflix $1 Million Challenge

from the times-change dept

You probably recall all the excitement that went around when a group finally won the big Netflix $1 million prize in 2009, improving Netflix's recommendation algorithm by 10%. But what you might not know, is that Netflix never implemented that solution itself. Netflix recently put up a blog post discussing some of the details of its recommendation system, which (as an aside) explains why the winning entry never was used. First, they note that they did make use of an earlier bit of code that came out of the contest:

A year into the competition, the Korbell team won the first Progress Prize with an 8.43% improvement. They reported more than 2000 hours of work in order to come up with the final combination of 107 algorithms that gave them this prize. And, they gave us the source code. We looked at the two underlying algorithms with the best performance in the ensemble: Matrix Factorization (which the community generally called SVD, Singular Value Decomposition) and Restricted Boltzmann Machines (RBM). SVD by itself provided a 0.8914 RMSE (root mean squared error), while RBM alone provided a competitive but slightly worse 0.8990 RMSE. A linear blend of these two reduced the error to 0.88. To put these algorithms to use, we had to work to overcome some limitations, for instance that they were built to handle 100 million ratings, instead of the more than 5 billion that we have, and that they were not built to adapt as members added more ratings. But once we overcame those challenges, we put the two algorithms into production, where they are still used as part of our recommendation engine.

Neat. But the winning prize? Eh... just not worth it:

We evaluated some of the new methods offline but the additional accuracy gains that we measured did not seem to justify the engineering effort needed to bring them into a production environment.

It wasn't just that the improvement was marginal, but that Netflix's business had shifted and the way customers used its product, and the kinds of recommendations the company had done, had shifted too. Suddenly, the prize winning solution just wasn't that useful -- in part because many people were streaming videos rather than renting DVDs -- and it turns out that the recommendation for streaming videos is different than for rental viewing a few days later.

One of the reasons our focus in the recommendation algorithms has changed is because Netflix as a whole has changed dramatically in the last few years. Netflix launched an instant streaming service in 2007, one year after the Netflix Prize began. Streaming has not only changed the way our members interact with the service, but also the type of data available to use in our algorithms. For DVDs our goal is to help people fill their queue with titles to receive in the mail over the coming days and weeks; selection is distant in time from viewing, people select carefully because exchanging a DVD for another takes more than a day, and we get no feedback during viewing. For streaming members are looking for something great to watch right now; they can sample a few videos before settling on one, they can consume several in one session, and we can observe viewing statistics such as whether a video was watched fully or only partially.

The viewing data obviously makes a huge difference, but I also find it interesting that there's a clear distinction in the kinds of recommendations people that work if people are going to "watch now" vs. "watch in the future." I think this is an issue that Netflix probably has faced on the DVD side for years: when people rent a movie that won't arrive for a few days, they're making a bet on what they want at some future point. And, people tend to have a more... optimistic viewpoint of their future selves. That is, they may be willing to rent, say, an "artsy" movie that won't show up for a few days, feeling that they'll be in the mood to watch it a few days (weeks?) in the future, knowing they're not in the mood immediately. But when the choice is immediate, they deal with their present selves, and that choice can be quite different. It would be great if Netflix revealed a bit more about those differences, but it is already interesting to see that the shift from delayed gratification to instant gratification clearly makes a difference in the kinds of recommendations that work for people.

Filed Under: contest, data, recommendation algorithm, streaming
Companies: netflix