Much of what we saw at CES relates to things we’ll be seeing 24 months out. In my mind, it’s all good: we’ll be able to target better, we’ll be able to segment better. The ads will be delivered on screens that are sharper, look better, larger, which ultimately provides more effective communication. There’s one last element: in the role that we [media buyers] play, we have a responsibility to ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business, doesn’t destroy the content amortization business, isn’t disruptive simply for the sake of being disruptive.

If it does alter the supply-and-demand equation, it needs to do so positively, not negatively. When you have the share of the deal volume that we do, you can’t just be passive about it. You have to try and influence it. The technologies and devices that begin to get manifested at a trade show like this needs to be guided, so that it all works out in the best interests of our clients.

– Irwin Gotlieb, Global CEO, GroupM; originally appeared at TVExchanger

We have a responsibility to ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business.

A bold statement and, it seems, a common mindset for many incumbent business giants in their respective industries; a mistaken belief that they can somehow coax disrupting forces (be they new companies, or larger macro consumer trends) into conforming to their legacy business models and cost structures. As we have seen countless times, the actions of incumbents when faced with technology disruption often is to turn to litigation, legislation or other non-market strategies (i.e., anti-trust investigations, artificial price barriers) in an attempt to delay or block the challenging technology or companies. This perhaps works as a delaying tactic in the short term (Rio MP3 player case, Napster, book publishing agency pricing model with Amazon) but fails in the long term.

Mr. Gotlieb’s apparent belief that he and other advertising agency leaders can “ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business” is futile in the long run, but perhaps more pernicious is the implicit arrogance of thinking the market force of the Web can be channeled into their bank accounts by sheer force of will. Of the many problems with this way of thinking, paramount is the ability to rationalize away making the hard choices and decisive actions to ensure the GroupMs of the world play a vital role in the new economy as they have done in the legacy one. (Cue Scotty from Star Trek… “You cannot change the laws of physics.”) For GroupM and other incumbents, it’s difficult to fathom, given how entrenched and advantaged they are, that they could drop the ball. But many will, as history has so often shown in times of market transformation.

Technology forces that bring greater efficiency and transparency to markets simply don’t care about privilege, access and rolodexes. They disrupt predecessor markets because of structural problems like price opacity and false scarcity that no longer “work” in the new market. Look at Google: its entire approach to advertising is to remove the middleman — just as, increasingly, the media-buying side of traditional agencies is reliant on the inefficient middleman, marketing up the cost of media to provide their services. Google is now selling $40B of media every year, the majority of it without a middleman (or at least with a different sort of middleman, and in any case, getting far lower margins than in traditional media bought by agencies.)

We watched as the music industry delayed its demise by suing Rio, Napster and literally hundreds of others, delaying the adoption of new business models not based on scarcity. We listen to Jeff Bewkes decry Netflix as the Albanian Army, as he feverishly works to reduce its influence with his content. We observe the movie industry fight with everything it has to protect the windowing strategy and defend limited access to content instead of moving toward open and immediate paid access to their movies. (Fantastic post on this from Rich Greenfield here, “Innovate Don’t Legislate” — registration required.)

And, as a microcosm of this larger conversation, we watched, over a very short period of time in the SOPA/PIPA debate, as the Web demonstrated the disruptive advantages of network effects and scale, as over a period of weeks, legislation that appeared all but ratified was shuttered, up to and including an implied Presidential veto.

Heady stuff. Granted, if we extend the metaphor and use SOPA/PIPA as a microscope, there are extremes on both sides, and it will be messy and require compromise if the big media incumbents and new technology disruptors are to learn how to co-exist. For big media companies and the service businesses that cater to them, this means recognizing the practical realities of changed business models — probably for the most part that their cost of production needs to drop dramatically and they need fundamentally to re-think distribution and customer relationship management to remain profitable and relevant.

On the tech side, it means recognizing that progress requires some level of institutional engagement and political compromise — because like it or not, this is the way our system of government works and how laws get written. This won’t be easy or natural, as it’s anathema to the culture of how new media tech and the start-ups that encompass it conceptualize and operate in our worlds. Facing reality and then demonstrating a bit more collaboration and compromise, however, would go a long way and be better for the customers who, like our democracy, these industries ultimately serve. Because it’s the customers who are in the driver’s seat, and increasingly they know it.

Perhaps it’s pollyanna-ish, but I bet on technology. Big media has the most to lose, because after decades of the game being rigged in its favor, the tables are turning. Of course it’s difficult and painful for media incumbents to embrace digital markets, considering these markets ultimately are smaller and have less attractive economics. That’s presumably why big media executives are so well compensated — if it were easy, anyone could do it. The alternative, however, is to be disrupted by new entrants that don’t have any allegiance to aging business models, and couldn’t care less how out of whack someone else’s cost structure is.

Coming back to Mr. Gotlieb’s view, I offer these thoughts. First, incumbents won’t be able to meaningfully guide the technology juggernaut of more efficient advertising mechanisms, so it’s perhaps better for them to focus their energies and advantages toward thoughtful reinvention. New technologies are bringing actual measurable performance and more efficient means of buying to a large share of advertisers. The challenge for incumbents is to adapt their enterprises to embrace this chaos and profit from it. The good news is, it’s doable. However, to think they can bluster their way out of this disruption is a fool’s errand.

David Pakman has been an internet digital media entrepreneur since 1997. He co-founded the Apple Music Group in 1995, worked at N2K (one of the first online music companies), co-founded MyPlay (pioneer of digital music locker), and was COO/CEO of eMusic for five years. Pakman is now a Partner at Venrock in NYC, investing in early stage internet and digital media companies.

“Not at all!” says the e-commerce giant.

“Maybe?” says the music industry. Adding: “We sure wish they would have asked.”

We’re probably going to dive deeper into the legal intricacies of music licensing and cloud storage in the next couple days. For now, we can say that:

• Lots of people think a version of cloud-based storage and playback is OK, without licenses, under certain circumstances.
• Some smart people (like former e-Music CEO David Pakman) say Amazon’s method in particular is just fine.
• Others aren’t sure. A digital music distributor who sells music through Amazon, for instance, tells me his company’s contract only allows Amazon to deliver buyers a “permanent download”–defined as a copy of an MP3–to a “local storage device.” Does that cover the new service, which moves a copy of a file to a Web-based server? He doesn’t know. But it’s “annoying that a company would put their own partners in legal peril knowing the contentiousness of the music space,” he tells me.

Note that none of the big labels has actually come out and said, on the record, that Amazon is breaking the law. The complaints, on and off the record, are that Amazon hasn’t asked for permission.

Instead, Amazon has told the labels that it wants to use today’s launch as a starting point for a more advanced service, which would require licenses–and, presumably, a new revenue stream for the labels.

Amazon appears to be betting that the big music companies will end up coming around instead of going to court. If I had to bet, I’d wager that Amazon is right.

But the fact that Google is intent on launching its own cloud service, and that Apple may be right behind it, makes Amazon’s wager an even higher risk: If the labels don’t squawk about Amazon, how can they negotiate with Apple and Google?

Some housekeeping. Early this morning Amazon sent out a press release announcing the new service and asked if I had questions. I did, but didn’t hear back from the company until late today. For the record, here’s our mini Q&A:

Me: Does Amazon have any licensing agreements in place with any music labels or publishers? If so, which ones? If not, does Amazon intend to ask labels and publishers for licenses?

Amazon: We do not need a license to store music in Cloud Drive. The functionality of saving MP3s to Cloud Drive is the same as if a customer were to save their music to an external hard drive or even iTunes.

Me: Does Amazon intend to make music playback available via iOS devices, either via browser or app?

Amazon: We have nothing to announce today about being on iOS devices but we are always listening to customer feedback and will continue to evaluate expanding to other operating systems and devices as the opportunity allows.

Me: What are Amazon’s plans for video playback?

Amazon: We haven’t announced any plans for video playback. Currently, when you save a video to Cloud Drive, you can then view it using using the player associated with the file format–just as you would if you saved it to your computer’s hard drive.

———————————

It’s also worth noting that mobile startup mSpot launched its own unlicensed cloud service last year (and has yet to be sued by the labels). I asked CEO Daren Tsui for this reaction to Amazon’s launch, and he sent me this statement:

Firstly, Amazon is offering a music in the cloud storage locker and player – and this is just one component of mSpot. We’ve had this feature out for almost a year, and in this time, we’ve learned a lot about our customers and what they really want. They want an experience that gives them lyrics with the song, info about the band, discography, etc. We’re gearing up to roll out our second phase very soon – including a new music discovery that will be unique to the market.

We’re in a multi-device world. While Amazon has done a decent job of their Web player – this is obviously the easiest half of the offering. We don’t think they can compete with us on mobile for the following reasons:
- We’re on both iPhone and Android; when people store their collections online, they don’t want to feel they’re locking down their choice of phone as well.
- Leading mobile carriers like Verizon, AT&T and Sprint havebeen offering our mobile entertainment services to millions of their subscribers for years, under our white label.
- Why? Our technology is truly optimized for the mobile, which has different requirements than the Web. We offer music playback over 2.5G and 3G that feels local to the handset, (which is very hard to do); faster syncing and streaming; continuous connectivity to your music, even when you don’t have a connection; choice in how much music to store on your phone – all are not just nice to have, they’re essential.
- We believe our proven industry experience on the mobile gives us a big edge over Amazon, or even Google or Apple.

On that note: We would welcome an opportunity to challenge Amazon’s service on mobile usability – any time.

We’ve been out for almost a year on Android, and since December for iPhone. We have a significant lead with over 1 million downloads on Android alone. People have already taken the time to upload their collections into our service, and they love it.

We think we have a better service and in order to remove any price barriers we’re going to offer 5 GB free storage. Going forward, we expect that the market for storage will be very commoditized and price-driven; but unique music services like mSpot will appeal more to music listeners looking for a complete experience on both Web and mobile.

But besides valuations, perhaps a more severe symptom of a brewing bubble is the recklessness by which venture capitalists are making their investment decisions.

Speaking Wednesday at the Digital Hollywood conference in New York, Venrock’s David Pakman tossed out an observation that makes the investment game sound like the Wild West.

“We are seeing what I would call bad behavior with investors looking at these hot spaces,” Pakman said, speaking specifically about ventures in social media and mobile. “Deals are getting done with little to no due diligence.”

Read the rest of this post on the original site

Earlier this week at Twitter’s Chirp conference, Venrock’s David Pakman seemed to strike a chord by coining a new buzzword that deserves to gain some level of acceptance.

On a panel BoomTown moderated, in answer to my question about what kinds of investments and trends he is looking for in the social networking space, Pakman said:

“The ‘right-time’ Web is more valuable in some cases than the real-time Web. Real-time data is only interesting when I’m actually looking for that information. There’s no service today that’s giving information when it’s really needed. If your company is doing that…I brought my checkbook.”

While the checkbook was a nice touch, Pakman is actually making a good point, as much as I hate the proclivity of techies to coin new and often silly terms to wow the general public.

But one of the key issues being raised of late about making all these status update data streams helpful is that they are super-useless 98 percent of the time, resembling a raging flooded river more than a way to navigate to any place that is actually useful.

Someone does have to significantly drop the signal-to-noise ratio on all this blather, cutting through to find the really valuable information we all know has to be there.

Until someone does, please enjoy the Mighty Diamonds, singing their classic song, “Right Time”:

Here’s a video BoomTown did yesterday at the Twitter Chirp conference, where a lot of noise was made about a lot of things.

Like: Twitter has a Google (GOOG) Android app; Twitter has a link shortener; Twitter does more searches than you think; Twitter has 105.8 million registered users and is adding 300,000 a day; Twitter users write 55 million posts a day; Twitter is being archived at the Library of Congress.

Also more blah-blah-blah on geolocation, metadata called Annotations and, of course, @anywhere, which is essentially Facebook Connect for Twitter.

And–oh, yes–making money. That.

Apparently, according to the execs in attendance, I will have to stop making fun of Twitter co-founder Biz Stone’s name, calling him things like: No-Biz-Here Stone, Ain’t-Nobody’s-Biz-Ness-If-We-Don’t-Have-a-Business-Plan Stone and Biz Stone-Cold-Profits.

Now, given that the San Francisco microblogging service is introducing a number of advertising-related efforts in a quest to make some bank, I will have to change the name to Hey-Zuckerberg-We-Have-a-Biz-Too Stone.

Or, given some of the tensions with third-party developers over Twitter moving into their space in core development areas: Pardon-Us-While-We-Stomp-on-Your-Biz Stone.

In fact, that issue was the main focus of a panel I moderated yesterday afternoon at Twitter’s Chirp, titled “Investing in the Ecosystem.”

My dudes-only panelists included Polaris Ventures’ Mike Hirshland, Venrock’s David Pakman, Bijan Sabet of Spark Capital, and Benchmark Capital’s Peter Fenton.

Mostly, they took my guff about the state of the Twitterverse, in what turned out to be a lively discussion.

While yesterday was all talk, from COO Dick Costolo (who mistakenly thinks he is as funny as I am), Twitter CEO and co-founder Evan Williams, Stone and others, Chirp today is 24-hour hackathon.

Here’s a video I did of interviews with a wide range of Twitter staff, investors and advisers–and blogger Robert Scoble, of course, who is as inevitable at an event like this as air:

]]> http://allthingsd.com/20100415/some-twits-chirp-from-twitter-conference-ev-biz-and-more/feed/ 3 http://allthingsd.com/20100414/what-shall-boomtown-ask-the-twits-oops-i-mean-twitter-loving-vcs-at-chirp-today/ http://allthingsd.com/20100414/what-shall-boomtown-ask-the-twits-oops-i-mean-twitter-loving-vcs-at-chirp-today/#comments Wed, 14 Apr 2010 15:21:08 +0000 Kara Swisher http://kara.allthingsd.com/?p=26701

Later today at Twitter’s Chirp conference in San Francisco, BoomTown is moderating a panel titled “Investing in the Ecosystem.”

Or as I like to call it, “How Do You VCs Come Up With Those Crazy Valuations: Magic 8 Ball? Ouiji Board? Darts?”

I have a choice group of dudes–of course, they are all dudes–for the panel, all of whom have invested in a range of start-ups, including Twitter.

They include: Polaris Ventures’ Mike Hirshland, Venrock’s David Pakman, Bijan Sabet of Spark Capital, and Benchmark Capital’s Peter Fenton.

Presumably, the group of venture capitalists will give the audience the 411 on what goes into finding, feeding and nurturing the many innovative start-ups that populate the Twitterverse.

That is, until you actually try to compete with Twitter or make some dough without its sanction, wherein all the nice Whos-down-in-Whoville sweetness of the folks who run Twitter turns into the backroom at the Bada Bing with Tony Soprano and the boys.

(You can see Twitter COO Dick Costolo here, in fact, giving us his best Don Corleone in this video interview with MediaMemo’s Peter Kafka.)

The tensions of late between Twitter and the many third-party developers circling it are perhaps going to add some frisson to the two-day event at the Palace of Fine Arts, which costs $469 to attend. Twitter also just announced its advertising platform plan.

The first day is all talk, from Costolo, Twitter CEO and co-founder Evan Williams, co-founder Biz Stone and others. The second day is 24-hour hackathon.

For those not there, Twitter will be streaming the event live with the help of Justin.tv.

And, of course, there will be tweets–lots and lots of tweets.

[Sticker image courtesy of Zazzle.com]

]]> http://allthingsd.com/20100414/what-shall-boomtown-ask-the-twits-oops-i-mean-twitter-loving-vcs-at-chirp-today/feed/ 0 http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/ http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/#comments Thu, 25 Feb 2010 12:53:05 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=16713 Apple is patting itself on the back for delivering 10 billion songs from its iTunes Store. And it frequently boasts about the number of apps customers download from iTunes, as well–the tally is now past three billion.

But you won’t hear Apple boast about how much money it’s making from iTunes. Because there’s not much to boast about.

Even at today’s hyper volume, the digital store is still running at “a bit over break-even,” the company reminded analysts during its earnings call last month.

Here’s the relevant excerpt from that call, via Seeking Alpha (thanks to Venrock’s David Pakman for pointing this out yesterday at the Digital Music Forum East):

Maynard Um–UBS
We have seen a number of industry revenue forecasts for applications and just given kind of the expected explosive growth there I am just wondering if that is still a break-evenish type of business as you look forward over the next couple of years?…

[Apple CFO] Peter Oppenheimer
…Regarding the App Store and the iTunes stores, we are running those a bit over break even and that hasn’t changed. We are very excited to be providing our developers with a fabulous opportunity and we think that is helping us a lot with the iPhone and the iPod touch platform.

As Oppenheimer says, this isn’t a new development. Apple (AAPL) has always maintained that iTunes wasn’t a real money maker. It’s supposed to help sell iPods, iPhones, and soon, iPads.

For years, industry observers figured that as the iTunes business scaled, this would change. An alternate theory, held by some of Apple’s media partners–the company was being overly modest about its success.

Apple doesn’t break out iTunes sales, but lumps them into a category called “Other music related products and services,” which generated net sales of $4 billion last year. That’s an increase of 21 percent over 2008, and the company attributed this growth to “increased net sales of third-party digital content and applications from the iTunes Store.”

]]> http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/feed/ 0 http://allthingsd.com/20100204/hachette-joins-apples-anti-amazon-book-club/ http://allthingsd.com/20100204/hachette-joins-apples-anti-amazon-book-club/#comments Fri, 05 Feb 2010 03:17:11 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=16000 Here’s another publisher publicly throwing its weight behind Apple–and against Amazon–in the e-book pricing war. Hachette Book Group says it will pursue the “agency model” for pricing e-books: It sets the retail prices and the retailer gets a 30 percent cut.

Translated into more practical terms, this means Hachette will demand that Amazon (AMZN) and other retailers–but really, this is aimed at Amazon–raise the prices on their e-books from the $9.99 standard they’ve adopted. Instead, the publisher will want them to use the $12.99-$14.99 standard for new books, which Apple (AAPL) introduced last week along with its iPad.

Hachette is one of five publishers that participated in Apple’s iPad launch event last week. Macmillan, one of the other five, has spent the past week engaged in a public battle with Amazon over the pricing model. On Sunday, Amazon said it would capitulate to Macmillan’s demands.

Macmillan and Amazon have yet to actually resolve their dispute, though, and as of Thursday night, Amazon was still not selling Macmillan’s books on its electronic shelves.

In Thursday’s New York Times, Macmillan advertised one of its titles by noting that it is available “at booksellers everywhere except Amazon.” Macmillan CEO John Sargent also defended his position, again, in an open letter to his book agents.

Meanwhile, look for the other three publishers that have allied with Apple–Pearson’s Penguin Group, News Corp.’s (NWS) HarperCollins and CBS’s (CBS) Simon & Schuster–to fall in line. On Tuesday, News Corp. CEO Rupert Murdoch said he expected to renegotiate his publisher’s deal with Amazon soon.

Again, it’s important to remember that by embracing the agency model, the publishers will actually make less per book than they do with the current version, whereby they sell the books at a wholesale price. But the publishers think this is their only chance to keep the prices of e-books from plummeting and undercutting sales of their ink-and-paper books.

The publishers hope this strategy will help them escape the fate of the music labels, which saw their $15 CDs replaced by $1 singles. To hear a (mostly) persuasive argument about why they’re wrong, check out this blog post from David Pakman, a digital music veteran now working as a venture capitalist with Venrock.

]]> http://allthingsd.com/20100204/hachette-joins-apples-anti-amazon-book-club/feed/ 0 http://allthingsd.com/20090602/emusics-new-boss-is-the-same-as-the-old-boss/ http://allthingsd.com/20090602/emusics-new-boss-is-the-same-as-the-old-boss/#comments Tue, 02 Jun 2009 17:34:24 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=7851 The eMusic subscription music service site, which specializes in nichey tunes for the “High Fidelity” set, has signed a deal to start carrying Sony’s (SNE) back catalog.

But I have a question: Whatever happened to eMusic’s search for a new CEO?

David Pakman, who ran the company since 2005, left last fall to join Venrock, the Rockefeller family’s venture capital arm. Last I heard, in late October, the company was “looking at a handful of very qualified candidates” to replace him. And in the meantime, eMusic Chairman Danny Stein–who runs the investment company that owns eMusic and who ran eMusic himself prior to Pakman–was serving as interim CEO.

So who’s the new boss? Same as the old boss. It’s also old news.

Stein says that’s he’s going to run the company for the foreseeable future, and that he figured that out way back in December: He just never announced it. “It was an easy decision to make”, he says.

Stein says he saw plenty of “very capable people”  but figures, a la Dick Cheney, that he was the right man for the job. He also says that the various headhunting companies who say they’re helping eMusic find a new CEO are doing so without his knowledge (or dollars).

Fair enough! The bigger question, as it has been for many years, is how eMusic fits into the larger digital music ecosystem. It sells DRM-free MP3 downloads, which some consumers like, via a subscription service, which most consumers don’t enjoy. Stein says the company has around 400,000 subscribers, and that that number has remained stready for a while. But he says his topline revenue still grew 40 percent last year, to $70 million. (No word on profits or lack thereof).

That’s a pittance compared to Apple’s iTunes (AAPL)  store, which moves about $2 billion worth of songs every year. And while eMusic was once a couple of signatures away from selling to Amazon (AMZN), that window looks like it’s closed, as the retailer launched its own MP3 store a year ago.

But perhaps there’s still an M&A opportunity for eMusic for a different retailer that wants to get into digital goods; Best Buy (BBY) did something similar when it bought up Napster last year.

]]> http://allthingsd.com/20090602/emusics-new-boss-is-the-same-as-the-old-boss/feed/ 0 http://allthingsd.com/20081029/emusic-cutting-10-of-staff-still-looking-for-ceo/ http://allthingsd.com/20081029/emusic-cutting-10-of-staff-still-looking-for-ceo/#comments Wed, 29 Oct 2008 21:06:07 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=290

Yet another digital company is cutting back: eMusic, the digital music subscription service, is firing “about 10 percent” of its 100-person staff, the company says.

eMusic explains the cut by offering what has become a stock answer–things aren’t terrible, but the company is bracing for a slowdown and is cutting now so it can avoid doing it later.

But eMusic chair Danny Stein, who runs the firm’s parent company, JDS Capital Management, offers some additional color: The specific problem the company is seeing is with its 2,000 retail partners–either chains like Best Buy (BBY) or electronics companies that were bundling eMusic offers with their products.

Those companies are cutting back shipments and reporting slower sales, which has been cutting into  eMusic’s subscription business in the second half of the year, he says. But traffic to eMusic.com has remained consistent and the company will still be able to report 40 percent revenue growth by the end of the year.

“We are expecting to grow, but we’re going grow slower than we’d hoped,” Stein says. So what about next year? “Good question. Definitely double digits.”

Stein says the company may also consider lowering prices for its subscription offering ($11.99 for 30 MP3 downloads a month), but that for now, “we’re comfortable with our pricing.”

The cutbacks come just a few weeks after CEO David Pakman announced that he was leaving to join Venrock, the VC arm of the Rockefeller family.

Spokeswoman Cathy Nevins says the eMusic is looking at a “handful of very qualified candidates” as a replacement.

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