There are a lot of conflicting views about the value of new business models enabled by the Internet.

One of the hardest things is to get a quick impression of what various alternatives may mean for the entrepreneur.

Of course it is relatively easy to map the comparative cash flows from one model or another, but it is much harder to attribute concrete value to the services that the "inbetween" players may bring.

I came across a visualization of the comparative values of the top line revenues for selling music online as opposed to selling it in the form of CD's at Information Is Beautiful. The graphic is displayed below and if you can't read it because of the resolution in the browser download the image or go to the original.

My view is that with regard to content industries, the role of the editor or the curator is now becoming much more valuable than ever before. These are the people who either make content more discoverable or more desirable. That happens either through the provision of advice to the creator of the content - traditionally what the music publisher or the book editor or the record producer has done in the past, and in some cases continues to do; or through providing technical expertise in terms of online technologies to enable material to be more rapidly presented to a potential customer, through the use of search engine optimization or choice of meta data or even perhaps by use of new tools that are being developed such as Prezi.

The creative entrepreneur who ignores the role and value of these intermediaries is unlikely to succeed. Now that doesn't mean that everyone who wants to sell their creative works online still has to go through a giant corporation. The reality is that many of the people who are truly expert in these various fields don't work for big corporates. But the fundamental issue is that unless you cost into your overall profit model, the inclusion of these services, what you end up with is content that fails to engage and therefore fails to generate sufficient revenue to make it worth while.

Have a look at the numbers for music and you will understand why making money online is not as simple as it sounds.

I had a coffee with Laurel Papworth yesterday to catch up on life in general, but also to tap her brain with regard to a project that I am putting together.

The project is in regard to a possible infringement action on behalf of a songwriter that I signed back in 1979. The first song he delivered was a #1 in Australia, it was in the top #20 in the UK and then was covered in the US and became a top #40 country record there. It was pretty amazing.

I am not going to get into the name of the song or the artists - if you know me, you can figure it out pretty quickly anyway...

But you have to develop a media strategy when you take on the very substantial forces that are arrayed in this particular case and at some time I will be writing in detail about that.

I wanted to see if I could get some insights from Laurel on how to set out right from the outset to develop a strategy that would, once established, be able to be simply and inexpensively managed and would assist in enabling a viral, community driven campaign to evolve so that from the songwriter's point of view the costs would be bearable, since they would be near zero, and from the point of view of the people who we feel have done wrong in the case - a major global corporation - it would be hard to counter the wisdom of the crowd.

Anyway Laurel gave me some sage advice, for which I am very appreciative. She also said that she would be blogging the advice because she thought it should be out in the community - so go to her blog and watch out for it if you are keen to look at how to build an activist social campaign. (It wasn't posted when I checked a few minutes ago, but here is the home page of her blog in any event).

One thing that she told me that I thought was really interesting as a general comment about how the online community sees matters like this is that in her view there are now a massive number of people who have a totally negative view of the whole concept of copyright and the ownership of creative work where money flows to the owners.

While I can understand that there is a very substantial frustration with major corporations who have tended to use a sledgehammer to crack a walnut with their approach to copyright infringement by ordinary folks, particularly in the US, I think that this is actually a pretty dangerous place to get to - not just for the content companies, but for society generally. While I totally agree with the move in the courts earlier this week in the US to disallow a patent on a cancer causing gene (that would have led to the owners being able to charge whatever the market would bear for the basic diagnosis) I believe that it is really essential that we have a strong regulatory framework for intellectual property. The real issue is that clearly this framework needs to be in sync with the way that technology is evolving...

Over the next couple of weeks I shall be starting to explore the advice that Laurel gave me with regard to putting in place the "hub and spoke" structure for the campaign. Once it it up and running I will be pointing regular readers to it, and hopefully it will have the desired effect of helping build public awareness of the case and the specific elements of it.

Historically, music publishing catalogues are valued at a multiple of the NPS (Net Publisher Share) with the multiple increasing or decreasing according to the perception of the future earnings potential.

The NPS is the gross margin the publisher keeps after the songwriter has been paid and is made up of a basket of Performing Rights income, Mechanicals, Synch and Print.

Back when I was involved in music publishing in the 80’s and early 90’s from within the music business rather than in a business advisory role, I would regularly be asked to do analyses of likely gross revenues going forward. This was generally because an emotional decision had been made to make the deal, but a rationale needed to be built to meet the internal management metrics set out by the corporation to minimise risk.

That meant looking at sales history, territories where sales had taken place and potential for growth in the future.

I would do the research, submit the numbers and generally would be told that the numbers weren’t quite what they were looking for and consequently I had to look for additional revenue sources that could help bump up the perceived value to get a deal over the line.

In every case that I can remember, even with incredibly bullish future revenue predictions and with quite substantial multiples driving very optimistic valuations, the acquisitions recouped their investments in shorter periods than anyone anticipated and went on to be hugely valuable.

That wasn’t because I was a genius. It was because the songwriters were artists who had enormous talent. As they built their fan bases, the back catalogue that had been purchased kept on increasing in sales even though some of the albums were years old – a lifetime in pop music.

I suppose it was thought that I had some talent in figuring out business models and how to extract revenues because while at MCA I recommended a strategy that was implemented and which drove a massive increase in the gross revenues of the publishing company. This was achieved by simply acknowledging reality. Artists that wrote their own songs, but not necessarily the lead airplay single, were more valuable to acquire in short term cash flow terms than song writers who wrote the hits.

This was because sales ensuing from the exercise of distribution clout by a major record company would sell through in enormous numbers, which would in turn deliver very high mechanical income. Those were the days when album sales were booming.

The hit song would generate considerable income from performances and would typically receive one tenth of the mechanical income from being a track on the album. Not too shabby, but controlling nine tenths of the mechanical income on an album that sold 5 million copies was pretty serious income.

In such a scenario, the valuation of the underlying catalogue was then about having an understanding of the granular detail of the make up of the revenue. Now it is even more critical to understand the drivers for the revenue and what the active momentum is that supports the revenue of a catalogue. Songs that were airplay hits then had a life beyond the charts and have a continuing value for a rights owner. Songs that derived their value predominantly from mechanical sales need to be valued much more carefully and with greater consideration.

Now there are a vastly increased number of variables inherent in the way that music is consumed that make it much more difficult to build out a robust valuation of a music catalogue. (I don’t regard piracy of copyrights as having any bearing on establishing true value as it represents revenue that is foregone in any event).

One quite critical change to the market that is both good and bad is that as a result of iTunes consumers don’t have to buy albums to get a song. They can easily browse all the songs that an artist has released and purchase only that which they particularly like. That means that there are hidden gems that may have a new life even though they are obscure and were not truly valued by the record company. But it means that those songs that were album fillers in times gone by have a substantially lower potential to yield income than they did before, because of the nature of uncoupling.

We appear now to be moving to a period similar to the early days of music publishing where the true value of a song writer was established purely by the hits.

In trying to develop a robust valuation model now what seems to be apparent is that quite forgettable pop songs of the past have potential in the future in movies and TV shows, as themes for advertising jingles and as novelty downloads or ringtones.

Being able to look for the gems in a catalogue and to then extract value from the song, and bearing in mind that the song will continue to generate money for its creators and their heirs and its publisher for possibly 70 years or more from now means that the art of publishing is returning. Instead of it being a pure numbers game, which some people in the industry like quite a lot, it is going to be about what it was in the past – identification of songs that resonate emotionally with the masses on a timeless basis. One of my friends and mentors in the music industry for years, Wally Brady, put it aptly, “A hit song is being able to say “I love you” in a new and unique way”. There is science in good valuation, and there is art in identifying what will touch the human soul. Putting them together enables acquisitions of catalogues to work for both the songwriters and the new owners of the catalogue.

On Tuesday evening I went to the launch party for the new book, "House Of Hits". This is a book written by Jane Albert that examines the Australian music publishing, recording and broadcasting dynasty, the Albert family.

I worked for Ted Albert during the 70's building the record label during the early days of John Paul Young, AC/DC, The Angels, and others such as Flash In The Pan and William Shakespeare and Stevie Wright. They were great days when the  music industry was young and when we did things because we loved the vibe, and not just because the bottom line deemed it to be necessary...

Anyway, to the book launch: It was a tremendous event. I can't describe it any other way. And it must have been the most expensive and elaborate book launch anywhere in the world for any new book. I kid you not...

It was at the State Theater in Sydney, and for anyone who has never been there, The State is one of those grand old venues from a time gone by: ornate ceilings, comfortable seats, a big stage - and a capacity of about 2,000. Its a beautiful old theater. I was reminded during the evening that this was where the ABC used to broadcast from, back when it was a private company in which Frank Albert was a shareholder; back before the government decided that it needed to be the national broadcaster and acquired the fledgling broadcaster from its entrepreneurial founders... So there was a good nostalgic reason to hold the event there.

The State was transformed for this event. As you walked into the area where the stalls are located you discovered that a new floor had been build extending from the existing stage and across all of the ground floor seats with a riser at the end opposite to the normal stage of the State Theater. Lighting rigs, sound system and massive video screen were on the new stage area, and dining tables across the rest of the new floor.

About 250 people sat down to a catered dinner and entertainment to celebrate 125 years of the Alberts dynasty and company and of course the launch of the book...

The people who spoke included Brett Cottle, the CEO of APRA, who read out a congratulatory message from the Minister for the Arts, Peter Garrett, Baz Luhrman, the director of Strictly Ballroom (which was produced by Ted Albert and his wife Popsie, after Ted passed away), Rod Muir, the father of FM Radio in Australia, and Marie Bashir, the Governor of NSW... and of course various members of the Albert Family and the CEO of Alberts, Tim Prescott).

The entertainment featured music and performers from the Albert Music catalogue and record label - including John Paul Young and his band performing "Love is in the Air" and an Irish band called "The Answer" who performed a Rose Tattoo song. It featured legendary actor Jack Thompson playing harmonica and a band of Scottish pipers playing the intro to "Its A Long Way To The Top" and a video montage of AC/DC songs...

It was, as I said before, sensational. And it was great to catch up with a bunch of people from the music business that I haven't seen for a long time... People like Stevie Wright and Eric McCusker (from Mondo Rock) and Paul Gray (from Wa Wa Nee), and Buzz Bidstrup, Chris Bailey and Doc Neeson from The Angels...

But it all got me thinking.

So why does a family that is notoriously private lavish at least $250k on a one night stand to launch a book? Well, of course if money is no object why not give one of your family members the benefit of a great push start to launch a book?

But let's look at this in a broader context. This is actually the second or third event that, taken as a set of events, seem to indicate a change at Alberts. And change of this kind, with families of this type and businesses that are extremely profitable and don't require a huge amount of effort to keep on track, is invariably about the execution of a plan.

Last night I started to think what the plan might be.

Here is a stab at unraveling what is happening:

Let's take it as read that the Alberts are very successful in music. They own the rights to AC/DC and that on its own, regardless of how much of the top line goes back to the band, is a license to print money.

They also own a bunch of radio properties.

They also invested in, and own, the only piano manufacturing company in Australia, Stuart & Sons.

And they own a portfolio of real estate. Who knows what else they may be involved in...?

I was told that after making one of the most successful independent films of the year, globally, Popsie Albert was asked what movie she would be investing in next, and she answered that the family would be unlikely to be able to replicate the phenomenal success of "Simply Ballroom" ever, so they would quit while they were ahead. 

So during each generation of the family they have done something quite significant. From founding a store and selling harmonicas to gold miners, to starting radio in Australia, to being a foundation investor in the beginning of TV in Australia (Channel 7 in Sydney), to signing and developing one of the most significant rock acts in the world, AC/DC, in each generation a member of the family has stepped up and achieved something great that has continued to build their wealth.

A few years ago David Albert took over the company and is now CEO of the group of companies. What a pressure he must be under with that mantle of responsibility to do something significant...

When you look at the feature story that ran in the Financial Review several months ago, and then the book launch event this week, and the hiring of a seasoned professional (Tim Prescott) to run the music company, you start to see what looks remarkably like a company that is using a professional PR company to help it stage a move into the spotlight.

Why would a family that is so private want to become public property?

There can only be one reason. They want to build brand visibility. There is no other reason for anyone to spend so lavishly, to become so public and in such a considered way.

And why would they want to build brand visibility?

I can think of only one reason. They are positioning the company to go public.

I believe that they must have had the corporate advisors in looking at what they have to help develop the strategy that will see them going to an IPO that will increase their fortunes from the hundreds of millions to the billions.

Imagine a company that has diversified holdings in entertainment. What would it need to do to go public? Acquire some strategic assets, build the value of those assets, build the public awareness of the brand, and then float the company.

It may take another 2-5 years. But I reckon that we are seeing the first steps on the way to this taking place.

What sort of companies could they buy to build up their perceived value? More music publishing companies perhaps, or a TV production company, or an Internet based company, a games producer... There are lots of ways that they could go. Will they wait until they have got scrip to make purchases, or will they make some careful moves ahead of an IPO to build the assets further... That is something to think about, but I am quite convinced that the engine is running and that Alberts will go public in the foreseeable future. It will remain closely held as a stock. Again they won't want any more risk than is tolerable, and they will want to have enough cash to keep up the value of the stock as required.

You heard it first here, folks. Am I right or am I wrong? Time will tell.

I read a report last night about a new Internet service called Chatroulette.

It is a video chat room, where you get hooked up randomly to people and get to do what you do with people who you meet randomly, I suppose...

According to the writer of the article there is a lot of full frontal in it... I must admit I am not quite ready for that... But for a new Internet value proposition, it is undoubtedly a doozy! And I imagine it consumes a considerable amount of bandwidth.

As far as content is concerned from a philosophical point of view it seems to me to pose a very interesting set of questions...

1) Is anyone recording the material? There is a message that you get before you initiate the feed that asks you if you will allow your camera and mic to be switched on. And it says that this feed may be recorded. If so who owns that content? And more importantly, if someone does, how do you stop it from being replicated and/or disseminated? Because no longer should be rely on copyright laws to prevent. In the digital realm they can't. All we can really do is to set some guidelines for revenue sharing...

2) As this sort of concept gains traction, as it almost certainly will, what will that do to traditional content? I suspect that this sort of concept will be so unbelievably viral that there will be huge audiences for all kinds of spectacles that enable people to do things virtually for each other from remote locations. Not sure what these will be, but no doubt people will figure out what they want to do...

According to the article this is being spread virally from campus to campus among students. That's where there is plenty of bandwidth so not surprising.

I would be interested to hear from anyone who is using this service regularly...

Late last year I was speaking to industry representatives about the outcome for the iiNet court case. They all believed that it was a lay down misère, (in favour of themselves).

 

After all, there was little old iiNet, a small (by world standards) ISP and there were thirty-four financially well heeled complainants. (Just on the basis of odds, it would have appeared that fortune would favour the litigants.)

 

Well apparently not so.

 

This morning in court, reading out his summary of the almost 200 page judgment,  Justice Cowdroy summarized that the evidence established that iiNet had done no more than to provide an internet service to its users which was a legitimate communication medium that was neither intended nor designed to infringe copyright.

And further, he said that “while iiNet had knowledge of infringements occurring and did not act to stop them, such findings did not necessitate a finding of authorization”. (In other words, iiNet didn’t create an environment that publicly proclaimed “Join iiNet and get your movies for free,” and thereby ostensibly “authorize” it’s users to download content illegally.)

This is the second time in in the last decade that the content companies have gone after small Australian ISP’s. The last time in 1999 it was APRA for music on hold.

 

The content industry cherry pick their litigation victims based on a formula:

 

 

Reliance on jurispridence in this instance would appear to have failed, so it's back to the drawing board for the content companies.

 

Or maybe not, after all, ACTA is still hanging it’s head over the entire free world, our politicians having been obviously influenced to an extent by the large political donations recieved over the last few years.

 

Whichever way the content companies jump, one fact remains foremost in every film directors minds.

 

"If everyone downloads the content for free, then where will the funding for next years blockbuster movies come from?"

 

There is however another story at play.

That is the story about how for decades, money has won the majority of legislative decisions, because after all, that is the nature of the corporate beast (and it is the corporate beast that donates the most money for political hopefuls to become Miisters of Parliament).

 

The mantra of the Corporation is survive at all costs, repel all boarders, prosecute all wrong doers (doing wrong against the company).

 

Anyone that is, or has been a CEO knows that being the boss means that you have a fiduciary interest to the company and its shareholders to win at all (legally permissable) cost.

Or, failing winning, the CEO still have to answer to the toughest boss of all, the shareholders; and shareholders can be a merciless audience at annual general meetings.

 

Shareholders don’t care why you failed, they just know that their investment is worth less this year than last and as you’re running the show it must be YOUR fault.

 

The content industry has had some major upsets at the helm of several of their member companies. But what is also happening is that their shareholders are realizing that strongarm tactics are not working.

 

Sometimes it takes a long time for an idea or meme to become an accepted fact.

 

In Australia, the “Belt-up” seat-belt road safety campaign ran for ten years before Australians accepted that putting on the seat belt was an automatic function of traveling in a motor vehicle.

 

Possibly, the content industry shareholders now realise that :

 

A)      File sharing is here to stay.

B)      ISP’s are unable to prevent it from occurring.

C)      The Justice system is unwilling to enforce fascist type lawmaking precedence.

D)      Other options need to be examined.

 

Now, if we could just convince our legislators of the same (in relation to ACTA and restrictive and privacy infringing aspects of other Free Trade legislation,) then we might just have a world where we all get on a lot better and happier.

 

Wikipedia states that the definition of happiness is a state of mind or feeling characterized by contentment, love, satisfaction, pleasure, or joy.

 Happiness economics suggests that measures of public happiness should be used to supplement more traditional economic measures when evaluating the success of public policy.

 

Source: http://en.wikipedia.org/wiki/Smiley

 

 

I’m pretty sure that right now, Michael Malone (CEO of iiNet) looks like the little guy above.

 

Curiously, I believe that today’s decision means that the shareholders of content companies can actually now also be happy and instruct their representatives, the content company CEO’s to start the process of meaningful dialogue to profit from P2P, rather than lose from it.

 

P.S: And Australia really does have a balanced and fair court system. Which is rather nice to know.

 

 

References:

 

Judgment - Roadshow Films Pty Ltd v iiNet Limited (No. 3) [2010] FCA 24

http://www.austlii.edu.au/au/cases/cth/FCA/2010/24.html

 

Happiness

http://en.wikipedia.org/wiki/Happiness

 

Or – The Havenots become the Haves.

 

Preamble

It’s a well known fact that when placed under restricting circumstances, all animals will look for an escape or release from the restriction.

 

"The Internet treats censorship as a malfunction and routes around it." - John Perry Barlow.

--------------------------------------------------------------------------------------------------------------------------------

 

The Article

IRC stands for Internet Relay Chat. It’s been around since I was a little boy. OK – It’s been around since 1988.

 

For those that are not familiar with IRC, it’s the same (in principle) as MSN chat, Yahoo chat, Skype chat – in fact all of those programs allow you to type messages to each other – via the internet – FOR FREE.

 

In fact in the early nineties, I, with a number of BBS sysops in Australia set-up a chat link called Ozlink and we connected our BBS’es  to other BBS’es all over Australia.

I was connected to the Internet so we found like minded Sysops in other countries like like Florida Frankfurt and Colorado to which we connected the Australian Ozlink chat.

 

It was fun, chatting to people on the other side of the country or world. (This was BEFORE MSN/YAHOO etc.)

 

I fell in love with the technology because I saw it as a way for people to communicate with lots of other people, cheaply and as an economist, I just knew that had to be good for the economy.

 

Fast forward to 1996 and Telstra attempting to defend their voice traffic by attempting to implement a ”B” party charging regime for incoming VOIP calls via the internet.

Well we stopped that one with concerted activism which I believe for the first time in Australia had thousands of consumers sending faxes to their MP’s. (The power of the Net…)

 

Telecommunications companies in the early days of the Internet were moaning and groaning about losing revenue. Every one of those groaning, complaining Telco’s, are still with us today, stronger and more profitable than before the internet.

They observed, they learnt, they entered the ring and started boxing… and it rather looks like they have won the game. In most countries, it is the large Telco’s that control access to most of the internet infrastructure.

 

That accounts for approximately one fifth of the worlds population, mainly what we like to call the industrialized world.

 

The other 4.8 billion (the emerging economies) are still hunting with bows and arrows.

Or so I thought until I received an email from Tomi Ahonen today. It contained the summary of his 2010 Mobile Phone Almanac.

 

We started talking about messaging programs on the Internet.

 

Here are some bullet points from Tomi’s Almanac Cheat Sheet.

 

• The mobile telecoms industry grew subscribers, services and revenues even in economic downturn 
• The 'mobile internet' browser service use (including WAP) now has more users than legacy PC based internet 
• The mobile phone is the only device that 30% of the world's population carries
• Digital content revenues on mobile are four times as large as those on the legacy PC based internet 
• Mobile is considered the 'first media' in the emerging world, only medium able to reach half of the population 
• Mobile messaging revenues $153B are bigger than radio, Hollywood, videogaming & music industries combined 

 

Source: TomiAhonen Almanac 2010

Sorry folks, I just have to say it again. WOW.

 

The phone companies – in a recession, increased their revenues to 153 Billion which combined is larger than all the revenues form Hollywood, Videogaming, the Music business and Radio combined.

 

And here is the interesting bit...

 

They didn’t need to sue their customers for using MSN/Yahoo or IRC.

They didn’t need to turn our courts into their personal employees.

They didn’t need to lobby our politicians for unworkable legislation.

 

The Telephone companies achieved their 12% revenue increase in the middle of a recession, the old fashion way.

 

By providing a service and billing for it.

 

Let me spell that out in large letters for the folk that don’t quite understand how this works.

 

If you are a mobile phone consumer and wish to send a message – first you have to be located within a service area, and you need a mobile phone.

 

If there is no Cellphone tower within range, the Telephone Company don’t get your business.

So of course, Telephone companies build infrastructure to make sure that there's a cellphone tower close by, in case you want to send an SMS.

 

If you cant afford to buy an expensive handset, they offer you whichever handset you want on a pay by the month plan; just to ensure that they have your business.

 

SMS messaging in Australia started in 1995. Billing for the messages commenced in 1996 at $0.25 per message.

Now the cost of SMS varies between three cents and eight cents (at the wholesale level) and twelve cents to twenty cents at the retail level.

 

According to Tomi’s data, 3.6 billion people used messaging services of whom 2 billion were from emerging nations. )(OK so bows and arrows and cellphones….)

 

So now persons in emerging nations are able to afford to send a message to others for a few pennies/cents.

Obviously low cost messaging with availability of service equals windfall revenues for the carriers.

 

Can those emerging nations afford to buy a Blu-Ray copy of this years movie? – Nope.

Can they buy it from Amazon if they don’t live in the USA? – Nope.

Is there any legal affordable manner for them to obtain the content legally ? – Nope.

 

What choice do they have?

 

They can download it from the Net or not watch it.

 

That’s not a choice, it’s a Technical Meme waiting for some software to make it happen.

Oh the software for mobile phone P2P downloads already exists?

Sure has done since 2004.

 

But only for people from the industrial countries surely.

 

Nope, its available to anyone with a data connection.

 

 Source: TomiAhonen Almanac 2010

And as can be seen from Tomi’s connectivity data, the communication crossover between industrialized and emerging has occurred.

 

DIGITAL DIVIDE per capita	Industrialized World		Emerging World		Total
Banking account unique holders	950,000,000	(79%)	1,250,000,000	(22%)	2.2 B
Internet users incl PC, shared & mobile	775,000,000	(63%)	925,000,000	(17%)	1.7 B
Mobile phone subscriptions	1,600,000,000		3,000,000,000		4.6 B

 

 

There are now more people connected from the emerging nations than the industrialized nations.

 

The moral of the story is that the industry that provides the ability for it's customers to :

a) Acquire the content (get connected)

b) Use the content (send/receive a billable message)

c) Economically (cheaply)

Appears to be leaping ahead of the industry that makes the content

a) hard to get - if you happen to live in the wrong country.

b) too expensive

c) encrypted and too hard to use

d) self destroying DRM rental overnight digital copies

e) sues their customers

f)  wastes money lobbying Government to enact prehistoric legislation.

g) When it does make the content available - it is usually not in a timely manner.

    In other words what would happen if when you wanted to send an SMS, the Telephone company operator came on the line and said - I'm sorry

    sir, but SMS service to your destination party will be delayed for three to six months from the time you send the message.

When you ask why.....

The operatior replies....

Well our boss is on the board of Warner Bros Studios and it's a new thing they're trialling. Three month Delayed SMS. Do you think it will catch on?

 

The Telcos with their agressive and suportive marketing plans have made a success of harvesting increasing revenues from countries who it seems only last decade were on our foreign aid recipient list.

We wonder if the content industry can learn to do the same.

After all, look at the money they made out of a lousy billion people. How much could they make our of selling that catalogue to five billion more?

Hint - A Bluray video that sells for $25.00 on Amazon is not going to sell too well in Burundi where the average income is $120.00 per annum.

(Of course I'm assuming that unlike Australians, Burundians will be able to purchase Video content from Amazon and not be told - I'm sorry the country of your IP address is not yet authorized to purchase that content.....) AAaaaaargh!

Disclosure:

I have purchased Tomi Ahonens 2009 Almanac. I have no other connection with Tomi or his products. I do however happen to like the way he presents his data and findings.

 

References:

 

Tomi Ahonen "Tomi Ahonen Almanac 2010"

 

[Tomi Ahonen presentation and slides on The Next 4 Billion]

http://fora.tv/2009/09/24/Mobile_Phones_The_Next_4_Billion_with_Tomi_Ahonen

This is the third article in this series entitled: The Economics of Video Entertainment

Part 1 Here

Part 2 Here

 

For the last couple of days I’ve been leading up to talking about the individual value proposition as to why people purchase, watch, read or listen to certain types of content.

 

Hedonic pricing components of entertainment are based on the public’s willingness to pay for perceived differences in entertainment offerings.

 

Chris and I have been batting the ball backwards and forwards over the variables that cause the purse or wallet to be opened and the transaction to take place.

 

We have concluded that the age old sin of pride in the context of gossip and water cooler conversations is the major culprit.

 

Being able to tell your friends that you attended a viewing of Avatar at the IMAX at Darling Harbour - and that the experience, as one Avatar attendee relayed to me: “Blew me away with the surround sound, the completely immersive nature of the film, I felt as if I was there, a part of the whole adventure. It was great!” (We’ll call this Experience 1 – “E1”) – is a cool thing to do. Especially so, if you were one of the first that recognised the “greatness” of the entertainment offering.

 

Experience 2 (“E2”) - Conversely : “I have been to some bad cinemas showing brilliant films, yet the lumpy and ungiving seating has not only ruined my enjoyment of the cinema experience, it has soured it for me so that I no longer attend the smaller theatres that show the limited release films.”

 

Here we have the two extremes of the Cinema experience.

E1 enjoyed the environment so much that he was gushing to tell me how great it was.

E2 put me off permanently from ever wanting to visit a certain Cinema chain.

 

Let’s break down the components:

 

Peer Review Outbound – he enjoyed telling me about his experience

Peer Review Inbound    - I was so impressed with his enthusiasm, that I immediately went to Rotten Tomatoes to read the Critics reviews where 82.4% said it was great.

 

 

The E1 experience also dealt with

 

Visual Quality

Audio Quality

 

Rotten tomatoes brought to my attention the Director of the movie so let’s add:

 

Direction, Plot and Editing to our list.

 

Obviously the quality of the stars would be important so lets add:

 Actors.

 

Now what would happen if we added one further ingredient?

Possibly the most important one.

 

What’s happening to Avatar on the P2P Networks?

 

At the Pirate Bay, some kind anonymous person is providing the current Top 100 of all downloads (which used in the right manner, allows anyone that can mine data to become a Nielsen’s wannabe.)

                                                                                                                                               

RANK	NAME	DATA	Seeders	Leechers
10	Avatar (2009) PROPER TS XviD-MAX	Uploaded 12-20 2009, Size 1.36 GiB,	15882	5695
27	Avatar (2009) Spanish TS HQ	Uploaded 12-21 2009, Size 1.64 GiB,	4109	6127
37	Avatar TS XviD-IMAGiNE(No Rars)	Uploaded 12-19 2009, Size 1.53 GiB,	6342	2320
43	Avatar.2009.iTALIAN.MD.INTERNAL.DVDscr.XViD-THEMA[S.o.M.]	Uploaded 01-16 20:17, Size  1.29 GiB	3763	4468
TOTALS			30096	18610

 

Which actually put it ahead of the most popular TV shows, however with P2P interest waning (decreasing Leecher numbers).

 

1	Heroes S04E18 HDTV XviD-LOL [eztv]		Uploaded Today 04:42, Size 349.94 MiB	28148	31306
2	House S06E12 Moving the Chains HDTV XviD-FQM [eztv]		Uploaded, Today 03:27Size 350.04 MiB	24325	22834

Data is as at 23:30 hours, Feb2, 2010 EST AU.

 

Therefore TODAY – Avatar, the movie (albeit in three different languages) is the number one downloaded file in the world.

 

If we gave all of these items based on personal Hedonic preferences and here is the difficult part. What appeals to “moi” may not necessarily appeal to you and vice versa…. So obviously we have to nominate the following list as:

 

	Arbitrary Hedonic Values
1	Currency of Content	<1 Mnth =+35%
1	Familiarity of Content	+3 for current affairs memes, themes and Temes.
1	Value of Content	+1 for each minute of content
5	Action	+5 for each explosion/car chase/
2	Music	+2 for appropriate music scoring per scene.
5	P2P Downloads	+5 for each download
#	Actors	+10 for each famous actor
8	Director	+8 for "Like the Directors Films"
5	Patriotism	+2 for program reflects my patriotic values
5	Oscar Awards etc	+5 for program has been nominated for an award (x # of awards)
1	Critiques	+1 for every Critic posting Positive or Negative.
5	Technology	+25 for every unique Technology aspect. (3D/Imax).
3	Social Networking	+3 for every mention on Facebook
1	TV Advertising	+1 for every time I noticed a TV advertisement
3	Newspaper Advertising	+3 for every time I noticed a Newspaper Advert
5	Scenery	+5 for artistic content - e.g.: Beautiful Scenery
5	Plot	+5 for Great plot
5	Editing	+5 for excellent editing.
5	Peer Review Inbound	+5 for every person that has told me about it.
5	Peer Review Outbound	+7 for every person I talked to about the film.
5	Venue Quality	+5 for Great seats and comfortable ambience
1	Visual Quality	+10 for IMAX, +8 for Cinema 2K +5 for HD +1 for 720 x 480
#	Audio Quality	+10 for Dolby surround sound

 

So now I have my very own personal Hedonic scoring method value for each piece of content viewed or under consideration for viewing.

 

The discerning consumer might then look-up his entertainment budget to ascertain whether a $27.00 ticket price is affordable, however, if we add “Peer Pressure” to the above mix, then we have obviously reached “Engagement Point” and the contents of the wallet/purse are then utilized.

 

The days when consumers are driven exclusively by free to air and print-press advertising are long past.

 

Word of Mouth has expanded to Peer to Peer networks including the social networks. A thumbs up on Facebook or the Torrent/ED2K Networks is an apparent guarantee of success at the Box Office.

 

The desire for non-cashed up young people to be able to be in the first group of viewers that have seen a film is high. Peer pressure demands conformance.

 

Short of building thousands of IMAX theatres throughout the world, I don’t know how Hollywood can satisfy the growing demand for the real experience of these modern technologically advanced films.

 

Australians that download Avatar from the P2P networks pay approximately $3.00 in bandwidth charges for the privilege of being under-awed by the experience.

 

Down-loaders soon learn that the experiences of E1 are far superior to their own….

“Well I saw it for free”.

Free low-res computer-fare might have been cool in 2004, but now, it’s just so, ho-hum.

Free doesn’t have fresh popcorn smells.

Free doesnt include 3D

Free doesnt include a hugest screen.

(We blogged about the ersatz “taste” here.)

 

Value of the P2P download as recommending tool = High

Value of the P2P download to the downloader is questionable.

 

If Hollywood continues this innovative approach to movie making, I dare say their coffers will keep filling.

 

3D heads up display glasses anyone?

Just maybe, instead of ignoring these new technologies, Hollywood should bring them out first.

 

I see in the not too distant future, content companies with technology R&D departments.

 

Sort of like…. Sony and of course with the reverse process, Apple..

 

Old Hungarian saying – if you can’t beat ‘em, join ‘em.

 

Tomorrow we are going to discuss the Value per minute.

 

Stay tuned.

 

References:

Transformers 2: The IMAX Experience

http://screenrant.com/transformers-2-imax-experience-kofi-14656/

 

This is Part II in a series of articles entitled: The Economics of Video Entertainment

 

In yesterdays article,  I commented that :

 

At Perceptric, we have commenced an attempt at applying our P2P Value method against the relatively new science of hedonic valuation.

Early results have enabled us to see patterns that are contra-indicative to standard online Nielsen type ratings.

 

Programs that would appear to be decreasing in popularity on TV would appear to be increasing in popularity on the P2P networks.

 

e.g.: Flash-forward.

 

Flash Forward? Every statistic appears to publicly call me a liar.

 

 

Source: http://www.tvu.org.ru/index.php?show=episodes&sid=27955

 

Yep it looks like it’s dying. But hang on a minute, lets see the clicks per day.

A Histogram of the data shows us a very different picture.

 

 

It shows solid growth with the exceptions of the 7^th and 10^th episodes.

 

What do I base this on?

 

Hits per day.

 

Episode	HPD
E1	44.46723
E2	46.09355
E3	48.05903
E4	50.77546
E5	53.82808
E6	52.8084
E7	49.19266
E8	59.12285
E9	64.89869
E10	48.37375

 

Therefore regardless of what Nielsens or anyone else are saying, Flashforward has an audience that is growing at 0.0284x per day.

 

Not enough you say?

 

Okay lets compare it to the most downloaded TV series of 2009 which was House.

 

 

Hits per day.

 

Episode	HPD
E1+2	60.91882
E3	60.48799
E4	62.06326
E5	62.28052
E6	70.56682
E7	80.82763
E8	80.84548
E9	88.08141
E10	97.45169

 

Or, growth is at the rate of 0.0677x per episode.

 

So was House always a hit?

 

Not on the ED2K networks.

 

Here’s the results for the first ten episodes of house from series 1 (2004).

 

 

In other words losing user attention at the rate of -0.0283x per episode.

 

But Koltai, House started in 2004.

We didn’t have any near as many people connected via high speed DSL in 2004.

 

Ahh yes well, now we get back to what I was talking about yesterday.

 

Hedonic Value.

 

The last twelve months have been filled with discussion and concern about the “end days” of the world with doomsayers telling us that December 21^st 2012 is it.

 

There is little discussion about the Dec 21^st being the traditional first day of Winter and the natural end of the annual Spring, Summer Autumn growing calendar.

 

Educated people are aware of these facts and typically ignore the doomsayers. However there are billions that believe everything that comes out of the little box that we call TV.

 

“End of the world is coming Mother, it said so on the TV.”

“Well I better go and make the beds and sweep the porch then……”

 

Flashforward has involved itself in the doomsday conspiracy meme and mentioned the Haldron Collider  (As has another popular show, “The Big Bang Theory”).

 

Ears perk up. Haldron Collider –  End of the World!!!!! (Burn the Witches, where is my necklace of Garlic.)

 

The most prized hedonic possession is a combination of life, liberty and health.

Of course if you live in Australia or one of the lucky countries in the world, these are taken for granted and not considered individually valuable.

 

Possibly one has to be a survivor of the Gulag populated salt mines to understand the definition of freedom.

 

Subconsciously however, humans are aware that life and living has a priority attached.

On the basis that Hedonic enjoyment can only be experienced by a live human, therefore let us give being alive on 22 December 2012 a Hedonic value of 100.

 

With everything else allocated a value less than 100.

 

Therefore programs about the highest (human) valued topics are likely, regardless of their acting, special effects or plot, likely to do quite well.

 

e.g.:  the BBC are having some success with their Horizon series:

 

BBC Horizon - 2009-11-03 Who's Afraid Of A Big Black Hole.avi 746 MB

 

and

 

BBC Horizon - Lost Horizons - The Big Bang.avi 746 MB

(Which is actually receiving more hits than Flashforward.

 

Stay tuned, Hedonic Valuation of viewing choices is just starting to get interesting.

 

 

 

 

 

Qualification of Data.

TVU is only one from amongst approximately 87 ED2K indexes

 

 

 

References:

Flashforward Partial Plot Outline....

http://bunchofnerds.com/2009/10/physics/large-haldron-collider-sabotaged-by-its-own-future-cern-physicist-arrested-charged-w-working-w-al-qaida/

 

Preamble

Humans strive for perfection. Not necessarily in everything that they do, but in the public presentation of our lifestyle choices.

 

It starts a few years after college/university when the Besser (concrete) block and wooden plank bookshelf just wont do any longer. To impress the new girlfriend/boyfriend/parents with how well we are doing, we have to buy the IKEA varnished pine Swedish bookshelf.

We want the name brand German manufactured autos. We prefer the Sony Bravia LCDs; we prefer to fly first class.

 

Economists have a name for this desire. We call it the “Hedonic Value Proposition”.

 

The pricing proposition of any article, be it food, vanity item, travel or entertainment depends on several factors, each one of which can be calculated to have and is purchased partly because of it’s Hedonic value.

 

Some items are purchased on hedonic value considerations alone.

 

“I purchased that Strawberry Trumpet ice cream because I really enjoy the taste of strawberries blended with vanilla ice-cream, encased in chocolate so much better than plain vanilla. If the choice was Plain vanilla ice-cream or no ice-cream, I would have to say – No ice-cream.”

 

“I flew to Los Angeles First Class because when I fly – unless I’m in the pointy end, I don’t fly!”

 

The Article

Screen resolution is calculated by the number of columns and lines that a screen is capable of displaying.

 

On LCD screens, this is a simple calculation because the screens capabilities are usually in its description. E.g.:

Normal US Television (Standard Definition) = VGA = 640 x 480.

Therefore 640 pixels (columns) multiplied by 480 pixels (lines) gives us a total of 307,300 pixels for a black and white picture or approximately .3 of a mega pixel. (Think digital camera – how many mega-pixels does your camera operate at?)

 

Each picture represents 1/25^th (PAL) or 1/36^th (NTSC) of a second of video. Therefore a ninety minute movie (raw footage – using PAL – 25 frames per second) equals 2,025 MB.

 

Depth of field, image sharpness, colour (each pixel is either Red Green or Blue), pitch of pixel, size of pixel and a host of other things (too complicated to include in such a short article), add to this mix to produce a picture that is either:

 

Nice, very nice, pretty darn good and bloody fantastic.

 

I am one of those old grey haired ex-geeks that started in computers in the early eighties. Therefore I have lived through every resolution update from the traditional 40 columns by 25 lines  (mono) monitors right up to the present 2560 x 1600 x 32 (bits)

 

Table of resolutions

 

 

Columns	Horizontal Lines	Displayed Lines	Aspect Ratio	Computer Acronym	Broadcast Terminology
Analogue:
40	25				Teletype
80	25				Teletext
320	200			CGA
320	240			QVGA
350	240	(260 lines):			Video CD
330	480	(250 lines):			Umatic, Betamax, VHS, Video8
400	480	(300 lines):			Super Betamax, Betacam (pro)
440	480	(330 lines):			analog broadcast
560	480	(420 lines):			LaserDisc, Super VHS, Hi8
670	480	(500 lines):			Enhanced Definition Betamax
Digital:
*720	480	(520 lines):	3:2		NTSC Native, D-VHS, DVD, miniDV, Digital8, Digital Betacam (pro)
720	480	(400 lines):	3:2		Widescreen DVD (anamorphic)
768	576		4:3		Native PAL
800	480		16:9	WVGA
1024	600			WSVGA
1152	768
1280	720	(720 lines):	16:9	HD720	D-VHS, HD DVD, Blu-ray, HDV (miniDV)
1280	768		8:5	WXGA
1280	800		8:5	WXGA
1280	1024		5:4	SXGA
1366	768
1440	900		8:5
1440	960		3:2
1440	1050		4:3	SXGA+
1440	1080	(810 lines):			HDV (miniDV)
1600	1200		4:3	UXGA
1680	1050		8:5	WSXGA+
1920	1080	(1080 lines):16:9			D-VHS, HD DVD, Blu-ray, HDCAM SR (pro)
1920	1200		8:5	WUXGA
2048	1080		17:9		: 2K Digital Cinema
2048	1536		4:3	QXGA
2560	1600		8:5	WQXGA
2560	2048		5:4	QSXGA
4096	2160				: 4K Digital Cinema
10,000	7000	(7000 lines):			IMAX, IMAX HD, OMNIMAX

*Green shaded area is where most of the P2P content is currently encoded at.

 

However, until now, we have been talking about computer monitor resolutions.

 

Let’s now talk about the big screen.

 

The world's largest cinema screen and IMAX screen is the IMAX theatre in Darling Harbour, New South Wales, Australia. It is approximately 8 stories high, with dimensions of 35.73 m × 29.42 m (117.2 ft × 96.5 ft) and covers an area of more than 1,015 m² (10,930 sq ft).

Its content resolution is 10,000 x 7000 or a total of 70,000,000 pixels (yep, that’s 70 million).

 

So one has to consider, how much extra data is there in a frame that covers the entire spherical visual range of human eyesight as compared to a normal standard definition Television picture.

 

The answer’s easy. There are 69,692,800 million more pixels on the IMAX screen than your old television.

 

OK dude, I see ya in the back row, I can hear the question; if you have an HD LCD (1920 x 1080) screen, how’s the comparison? Well, congratulations, IMAX only beat you by 67,926,400 pixels.

 

Each frame of your video content is 2,073,600 pixels.

Oh yeah, let’s add colour in there (multiply by three).  Each frame of your HD video content is now 6,220,800 (yep that’s 6 MB); each minute (PAL) is 155,520,000 MB and a ninety minute movie is now 13,996,800,000 MB.

 

WOW. (As in “Golly Gosh” and not World of War craft….)

 

So what I want to know, is, how anyone expects to download HD content on the current internet links available around the world.

 

The fastest links in Japan run at 100 MB per second. That means that the above raw movie will take only 38,880 minutes (or three weeks) to download.

 

But Koltai, what about video encoding technologies (codec’s)? Where the movie resolution is scaled down to fit a lower requirement transport methodology, like the DVB Broadcast Transport Stream (TS).

Good point. A Transport Stream (TS) (MPEG-2) version of a 720 x 480 ninety minute movie is only 1,119.74 MB.

Therefore a transport stream version of an IMAX movie will only be 226,800 MB.

 

Hell if I was in charge of Hollywood, I wouldn’t worry about folks downloading movies via the internet, I would just buy all the telephone companies and charge by the megabyte.

 

Let them download as much as they like. The higher the resolution of the monitor, the higher the download quality is required by the discerning downloading public.

If you had a 50” Thin LED 1920 x 1080i  Sony screen, would you watch a movie that had been scaled down to  640 x 272 (or one twelfth of your screens display capabilities)?

 

You might do it once, twice or possibly if you have no hedonic self respect, three times.

 

I believe that persons who have spent $7,000 buying a decent screen want all of its real estate used, not just a little thin band in the middle.

 

But let’s just see what Hollywood is selling to us this week.

 

At the IMAX, Avatar is showing and tickets are available for $27.00 for which I get 210 million pixels per second surrounding me (yep peripheral vision included).

 

Or I can wait until it comes to Free to Air (in about three year’s time).

 

The Blu-Ray version is bound to be released within a couple of months and is likely to cost around $(USD)25.00

 

Therefore assuming playback at a quality of 1920×1080 at 50-I (frames per second) with an aspect ratio of 16:9, the two dollars I am saving on a movie ticket have only cost me about 900 GB of resolution detail. Obviously not important.

 

Well then, I might as well download it for free.

 

There’s the rub. How does one download a 3D, surround vision movie and then receive even 1% of the inherently orchestrated, (designed and filmed to be enjoyed in 3D,) hedonic enjoyment value watching it on a 50 inch two dimensional LCD screen.

 

The answer, quite honestly is that it’s about the same as constructing a library bookshelf from two bricks and a plank. It’ll hold your books, but don’t let your girlfriend or parents see it.

 

Whilst Hollywood continue to develop technologically superior experiences for the viewing public, they have little to fear about the “free” downloads occurring on the P2P networks.

 

The resolution numbers just don’t add up.

 

It’s quite clear that for consumers that utilize only P2P the Hedonic value (2D –v- 3D) of the immersive experience is missing and as economists working with psycho-analysts start allocating Hedonic values to product pricing structures, Hollywood will realise that P2P is merely a TEME (technologically enabled meme) and not really impacting on their Box Office revenues in a negative fashion.

 

At Perceptric, we have commenced an attempt at applying our P2P Value method against the relatively new science of hedonic valuation.

 

Early results have enabled us to see patterns that are contra-indicative to standard online Nielsen type ratings.

 

Programs that would appear to be decreasing in popularity on Free To Air (FTA) TV would appear to be increasing in popularity on the P2P networks.

 

e.g.: Flash-forward.

 

Stay Tuned – this one is important

 

 

Resources:

 

Detect your Screen Resolution

http://www.infobyip.com/detectscreenresolution.php

 

Detect your Screen Physical Size

http://www.infobyip.com/detectdisplaysize.php

 

References:

 

Video Streaming Hosting Price Calculator

http://www.videostreamingservices.com/Hosting_prices_calculator.htm

 

Digital Resolution

http://en.wikipedia.org/wiki/Image_resolution

 

Image Sharpness Tutorial

http://www.normankoren.com/Tutorials/MTF.html

 

Display resolution

http://en.wikipedia.org/wiki/Display_resolution