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Tuning in to Reality
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
April 8th, 2004

By Brent Holliday
Greenstone Venture Partners

“They took the credit

For your second symphony,
Rewritten by machine

And new technology,
And now I understand

The problems you can see.
Oh-a oh” – The Buggles, Video Killed The Radio Star 

One of the inevitable problems with digital material is that it is ripe for piracy.  The recorded music industry has taken it on the chin over the past five years with music file swapping becoming rampant.  The main reason that music was hit first is that the file sizes were relatively small.  A few megabytes of music could be downloaded somewhat painlessly over a 56.6K modem.  But broadband made instant gratification possible.  Take the other night for example.  Going to a party where the birthday girl absolutely needed to hear “A Little Less Conversation” by Elvis, I took about five minutes of my time to “borrow” someone else’s recording and burn it with the rest of my ripped songs.

Is this song “borrowing” right?  We know it’s damn easy.  Where do we land on the ethic-o-meter on this?  Is it like running a yellow light?  Or is it more like shoplifting a candy bar from the 7-11? Or is it worse? Free music has become almost as “acceptable” as free satellite/cable.  Everyone else is doing it, so why not me?

As broadband explodes further in the next few years, video game developers and the television/movie industry will be next up for ease of use and instant gratification by the digital “sharers”.  Six hundred megabytes gets you a great game.  Five gigabytes will get you 90 minute DVD movie. 

So, it was with great interest that I watched the events unfold last week in Canada with regards to the Canadian Recording Industry Association’s court battle to get the ISPs to reveal massive “sharers” of music.  In case you missed it, a Canadian judge equated shared folders on a peer-to-peer network to a photocopier in a library.  A photocopier is merely a tool that allows copyright violation (copying printed material is illegal), but is not the violator, so to speak.  Ergo, a shared directory is not breaking any laws because they are not advertising or receiving money for the copyrighted material therein.  Releasing the names of the owners of those directories to be prosecuted by the CRIA would be wrong.  Now, we are talking about a privacy legal precedent, not a piracy one.  The ISPs can protect the privacy of those who choose to share, said the judge.  As you can guess, privacy advocates and libertarians tripped all over their Birkenstock’s to champion the Canadian ruling.  My favourite quote from the coverage, “The joke in the office was let's move to Canada," said Greg Bildson, referring to other issues where Canada has taken a different path than the United States, such as gay marriage and moves to decriminalize marijuana possession. " Canada is just a little more hip these days."

Great. Our national emblems have been updated from Mounties and Moose to anonymous, pot-smoking, gay pirates.

I tend to agree with the judge on the technicalities of the privacy violation.  If I left all of my CDs out on the porch in a big box that said, “Top Forty – Today and Yesterday” and someone came along and rummaged through and took all of my Milli Vanilli CDs, who is the thief?  It’s not me!  Makes sense, eh? 

So why is it that the same week the Canadian judge has this moment of clarity, the US House of Representatives proposed a bill (Piracy Deterrence and Education Act of 2004) that if passed into law, would create penalties of up to $250,000 (U.S.) and impose up to three years of prison time on anybody caught with more than $1,000 worth of copyrighted content knowingly held in a shared directory.  Seems the US lobby groups are better than the Canadian ones.

This lunacy of going after the networking services and software will not hold up.  Despite the US congress action, it is not the solution.  Time is probably the cure-all here.  Remember my reference to the Elvis tune I downloaded?  Actually, truth be told, I went to puretracks.com and paid $0.99 for it… legally. It’s mine, I did not borrow it. Why? Because the shared peer-to-peer services have become a victim of the Internet’s great equalizer of “free services”.  They are cesspools of viruses, pop-ups, spyware and spam.  Kazaa, and its ilk, have fallen victim to the same progress that made free e-mail, ICQ and free “adult” sites annoying and mostly useless.  In every case, the business model on the Web has become: a) free, but Kitty-bar-the-door, it’s the Wild West out there; b) some small fee and with it some protection and better service and c) larger fee for all the bells and whistles and no ads or other crap.  You see where I’m headed here… some segment of the population will always put up with the garbage to get “free” stuff.  Most of us will actually pay something to get clutter free, fast access to the digital content we want.  The best thing the Recorded Music Industry could do to bring back their revenues is embrace the paid download model completely.  The slimy underbelly of the Internet will make “free” access to copyrighted digital material an adventure for only the bravest of us.

Digital content is a massive business opportunity going forward, not anywhere near the “sky is falling” industry destroying threat that it is made out to be by the artists and their labels.  Wireless digital content is absolutely booming in Asia and Europe.  iTunes, RealPlayer Music Store and the Canadian PureTracks.com are proving that downloadable music is the next billion dollar industry.  One last point about the music industry:  For those of you under the age of 35, there used to be this compact analog medium called “tape casette” that was, in the early 80’s, the end of the music industry, v1.0.  You could by 1 LP (made of vinyl, about 30 cm across, black… you remember?) and make unlimited tape cassette copies.  Egads!  The lost revenue potential was staggering.  Laws were introduced.  Industry goliaths threatened to sue the pirates that copied LPs.  When the cops pulled you over, you stashed the cassettes in the glove compartment in case they saw that your “blank” Maxell tape had “AC/DC – Back in Black” scrawled in marker on the side.  Paranoia ran deep.  Then, a funny thing happened.  Technology advanced.  People fell in love with the quality and consistency of the new CD-A format. LPs were tossed like cheap suits.  And the record industry made a boatload of money charging more for the “premium” quality on CDs.

The video game business had better pay attention, because on the sliding bandwidth meter, they are likely up next before the Gigabyte movie industry is threatened.  One beef I have already?  Seventy dollars a game and it’s useless after your 8 yr old “beats” it in less than a month.  Also, the multiplayer requires a “key” for every concurrent computer… so if I purchase one copy, I can’t play Battlefield Vietnam with my brother on the other computer.  Unless I fork out another seventy dollars.  Disgruntled buyers with easy access to “free” alternatives will seek them.

I think it’s wrong to not pay for your content.  But I also think it’s wrong, and damned foolish, for industries to fight in the courts and the governments to protect old business models.  But I’m not a $500,000 a year industry lobbyist, so what do I know.

What Do You Think? Talk Back To Brent Holliday


Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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