stephen hill : spatial relations

The CRB Rate Increases: Get Over It

Royalty rates for online music have always been a complicated issue for me. I can see the side of the rights holders and performing artists just as well as that of the "casters," both terrestrial and web.

I have a foot in both camps: in addition to being an online music service provider/webcaster and thus paying digital transmission royalties since 2001, I had 17 years experience in the record business as a producer and co-owner of an independent label that released almost 150 albums. In that capacity I signed a lot of royalty checks. I like paying royalties. It makes me feel like an honest member of the arts ecosystem, a proper "cultural citizen."

The recent CRB decision to ramp up the rates for digital transmissions have caused another outcry from the webcasting and broadcasting communities, including NPR and satellite radio. It's understandable that everyone in the broadcast business wants to operate with the lowest possible costs, but copyright has always been about finding the proper balance between competing interests. 

The bigger picture is that we began webcasting in the 1990's with a distorted, biased music royalty system that favored music publishers and had been subject only to politically driven reforms and very limited competition since the 1920s. So the system that is now painfully being born for royalties on digital transmissions started from unfair and had nowhere to go but up. The more you know about  the history of the music business, the more certain you will be of this. Nevertheless, the current system still has a long way to go before we see a truly rational scheme for music royalties.

New York attorney Bennett Lincoff has been dissecting this issue brilliantly for years. To my knowledge he was the first to call for a "unitary" scheme for music right in 2002; he won't be the last, since it's the only way to really make it work. Even U.S. Registrar of Copyrights Marybeth Peters called for similar (but more limited) reforms in 2005.  I'm signatory to a new effort calling for this kind of solution that includes many of the progressive voices on the Pho conference email list including Jim Griffin, Gerd Leonhard and others. What we have here, Pogo, is a policy gap.

Bennett Lincoff's most recent paper describes a new system that is astonishingly simple on the licensing side but still fairly complicated on the payment side. Yes, it's just a proposal, yes, it would be highly controversial, and no, it is nowhere near being adopted; but it would be a MONUMENTAL improvement over the current system, which was created for the physical product era and makes less sense every day in the wake of a worldwide digital media network.

The proposal demonstrates that if you free yourself from historical precedent and address the problem directly, fair and feasible solutions can be designed. Bennett lays this all out with admirable clarity in lucid, but not overly lawyerly prose; you will find studying it very rewarding if you really want to understand the stakes of the problem and the solution.

As flawed as the existing DMCA legislation is, it at least recognizes and begins to repair two structural deficiencies in the old music royalty system that operate to the advantage of incumbent radio and TV broadcasters  — lack of payment to owners of the sound recording, and lack of payment to featured recording artists as performers.

Most people do not know that (after costs) the royalties SoundExchange collects on digital transmissions are divided 50% to the owner of the sound recording, 45% to the featured recording artists/performers, and 5% to the musicians unions. None of it goes to the music publishers, songwriters and composers, who are paid via a separate system collected by ASCAP, BMI and SESAC in the U.S.

This is a long overdue correction that directly benefits performers, independent musicians and labels, and for that reason alone I support it. Europe has been way ahead of the U.S. on this; rights collectives like GEMA in Germany have collected and disbursed payments to all rights holders in a combined system for years. 

If you want to understand the rights holder's side of the issue I recommend the interview BRIAN ZISK of the Future of Music Coalition did with JOHN SIMSON of SoundExchange in Royalty Week. (.pdf)   Simson is a very clear, very practical guy as you will see from what he says. One thing he mentions that is sure to be even more controversial is that SoundExchange and the RIAA intend to fight to change the law as it applies to legacy broadcasters so that ultimately...the rates are uniform.

This means that terrestrial broadcasters would no longer have the 'carve-out' they've enjoyed since the 1920's, where they pay only the music publishers, songwriters and composers for use of recorded music. With the radio industry already under pressure from changing advertising models, you can bet the screams about this will be much louder, and the lobbying from the NAB should be nothing short of tactical nukes.

Anybody with even a passing understanding of the history of music royalties knew that the initial rates and policies for digital transmissions under the DMCA were just to get started and would not last. Effectively, webcasters have been paying below minimum wage for the use of music.

There's no doubt that the artificially low rates did support a great deal of innovation online, and today listeners enjoy tens of thousands of free webcast services as a result. But the low rates have come at the expense of the creative community, and allowed both radio stations and web-only services to put off the hard work of creating "real" business models to support their services. This is exactly the same issue I've been nagging my public broadcasting colleagues about in earlier posts here and here.

Even so, the CRB-proposed rates are supposed to ratchet up gradually and there should be enough time for serious webcasters to phase in the changes they need to make. Of course, they will do everything they can to fight and delay the actual application of the CRB decision, which is what is happening right now.

Are the proposed rates fair? Perhaps they are — in the long run. No doubt they would be disruptive to the status quo, so they may need to be implemented more gradually, or we may need additional policies that help existing webcasters through the transition to a more equitable rate.

As far as Hearts of Space is concerned, we are a "new subscription service," not a "non-interactive webcaster," and are subject to a slightly different set of rates and policies. Nevertheless, we ran the numbers as percentage increases immediately in the wake of the CRB announcement and found that we could probably absorb a doubling of the current rate before we'd have to raise our prices. After that, they would go up incrementally — but not enough to dissuade anyone who really wanted access to our material. The "user value decision" to pay for content is more complex than just the price.

My point is that if you have rational business model to start with, paying more — even multiples more — for your basic source material is not a major problem. After that, increased rates are likely to be reflected in higher end user prices. To me this is inevitable and desirable, since it means that significant new income streams will go to the musicians and small labels on whom Hearts of Space largely depends. By "significant" I mean capable of sustaining continued activity by those artists and labels. A SoundExchange check that won't buy a pizza dinner for two is not going to cut it.

What about the "innovation" argument? Clearly, today's low rates and liberal policies have supported this. If you look across the range of webcasting services online today, you'll find an array of free and paid services supported by hosting providers ranging from ordinary ISPs to specialty webcast providers like Live365.com, MySpace and YouTube. You'll find innovations in community features, recommendation engines, and customization options.  Would these features exist if royalties were higher?  I think they would have taken longer to become commonplace, but would still have been developed because they serve real needs for end users.

The majority of these webcast services raise subsistence-level income from placement of text ads by Google or banner ads from various advertising networks. A few of the more established and popular services like SomaFM also raise money via the public broadcasting model of direct appeals for user donations. And public broadcasters have extended their existing business model and fundraising techniques to the web as well.

These two business models are better than nothing, but with usage now spread out across tens of thousands of webcasters, it's obvious that only the most popular ones at the steep head of the Long Tail will be able to raise enough money to survive this way. Ultimately webcasters will have to consider other ways of monetizing their services.

This is the sticking point and the heart of the challenge: to add enough value to a free service to build substantial traffic and thus appeal to advertisers, OR, to charge users access fees they consider fair and are willing to pay.

The sooner webcasters absorb this realization and start working to achieve it, the sooner reasonable amounts of money will start flowing to the musicians, labels, and other rights holders who deserve it. At worst, it will force the more marginal web players to get serious...or get out.

I realize that sounds hard, but if you're a musician or a niche label trying to make a living, it's a very real issue. And as the old product-based music business morphs into a licensing-based business over the next several years, it will increasingly be the case for everyone who makes recordings.

:: SH

Calling the Question

Yesterday I spent about an hour pulling together and reading all the blogs written by public radio people or about public broadcasting into one folder on my Bloglines account. As a result, I've acquired an overview of the state of the things as seen through the writings of Dennis Haarsager, Rob Paterson, Todd Mundt, Mark Fuerst, Current, Jake Shapiro, Andy Carvin, John Sutton, Sue Schardt and yours truly.

By definition, most of these bloggers are the activists in the system. Each have their own perspective, prejudices and goals. In aggregate you could say they represent the progressive edge of the system feeling its way into the future. In stark contrast, the power brokers within the legacy system don't blog and keep their communications private and proprietary — which tells you something about the difference between the old and new cultures. Those who are colonizing the net operate more with the ethos of the net: open communication and transparency.

In trying to get a feeling for the state of the transition between broadcast media and digital media in the public service area, you need to look not only at what the progressives are saying — you need to look at what the establishment is actually doing...or not doing. Add it up, and you get the impression of a ship inching forward in the dark.

The most significant statement emerging from the activity of the last few years is Dennis Haarsager's "Public media content online: calling the question."  In this epic post Dennis reviews a dozen different efforts to respond to the digital distribution challenge since 2000. Bottom line? We're still nowhere, at least nowhere significant, despite six years of talk. Below I'll condense the main points of Dennis's post, both to get an overview and to comment.

What's the question?

In his post Dennis says that one result of all the talk is that there is at last! a shared feeling of urgency, based on the aggregate disruption from Internet radio, satellite radio and downward trends in listenership, fundraising, and production money within public broadcasting. He also reminds us that public media content distribution is happening without us, and lists seven significant new initiatives already operating in public mediaspace, including C-Span.org, Conversations Network, Democracy player, OurMedia, the Internet Archive and Open Media Network.

Dennis then takes on some of the models that are being pursued. Of these the most pervasive has been the idea of some kind of integrated content delivery network for public media, or CDN. This is the model that NPR, PRI and APM (read: the public radio establishment) have been pursuing with their Digital Distribution Consortium (DDC) project.

He also levels some pointed criticisms at a number of rationales that are common to many of these efforts: the tendency of proposers to position them as "servant to their legacy services," the corresponding focus on unilateral services for radio or television, rather than "collaborative" services that include all media types and sources from across the public media spectrum; and finally, the promise of new revenue as one of the driving reasons for creating new media services.

Developing these points under the heading Building a CDN only to super-serve our audiences risks failure, Dennis effectively criticizes the various plans offered to date by pointing out that the web is a new medium with its own rules, and a single medium CDN (one organized around radio or television content, stations or networks) does not respect how people use the web (they use search, recommendations, referrals, heuristics, and syndication/aggregation to find media by subject, not by type.) These truths are apparent to everyone who uses the web intensively, but still seem a bit shocking when stated this baldly in the face of persistent efforts to ignore them.

Dennis then heads for the moral high ground under the headline We should hold mission high among the benefits of doing a public media CDN. Who could disagree? In fact, I thought this was more or less a common feature of all proposals to date, but it seems to be a matter of emphasis.

He goes on to comment that the revenues generated by a presumptive public media CDN would be unequally distributed among the players in the public media system we know today, pointing out a criticism I have also made of the DDC proposal — that it can only produce substantial financial benefits for the currently popular, large audience national program brands, and not for the small producers or stations. In fact under the DDC revenue estimates from their proposed centralized underwriting system, even these shows would not realize anywhere near enough new income from online underwriting to replace losses from the legacy system if it starts to decline or crash.

The heart of the economics issue is this paragraph:

Success will require that most players in the system believe they are benefiting from a CDN, not just the content owners at the fat end of the power curve.  Most local stations and small independent producers know they aren't going to make enough new money online to shore up their declining legacy revenue.  But even though the direct revenue from new media sources is compelling and benchmarks exist, relatively few players will share in the benefits in a compelling way -- at least if you just look at payments to producers.  The potential of revenue from retailer roles for stations is untested, without benchmarks (arguably, income from NPR productions or from PBS distribution might benefit stations more democratically), and likely less than stations achieve by retailing national programming to members and underwriters.  The distribution of direct revenue is likely to vary in significant ways from the distribution of needs, so I think we need to look beyond direct revenue to other benefits.

What are the other benefits? The ball finally lands on the concept of local service and the relationship between stations and their communities:

So if there is a misdistribution of salable on-demand content versus financial need, one thing that's not maldistributed is the connection that exists between stations and their communities.  Every station, especially in radio, operates as the Godzilla of community service, dwarfing the delivery of contact hours with our true competitors -- other non-profits, governmental and educational institutions in our communities.  In public radio, not quite half of our revenue comes from other than listener-sensitive sources — sources that give us money because of our social or educational mission.  We've focused for years — rightly — on monetizing our listener-sensitive and viewer-sensitive revenue, but the archival value of new media distribution is, I think, a very powerful tool for improving (and in some cases just keeping) revenue from tax-based and foundation sources. It's here that the distribution of benefits becomes more equitable.

This is worth pondering, because understanding what Dennis is saying not only requires an understanding of the income structure of the current public radio/television system, but also requires a crystal ball for the future.

What is the mission of public broadcasting?

We should probably have a conference just to clarify that in the wake of the Internet, but for now and in a few words, public service, expressed in programming plus the attendant public-facing activities of the local and national institutions.

If the Internet is ultimately going to level all media types by subsuming them into a common platform as web multimedia (see VOX and The New Gravity), then Dennis is arguing that it will also level all types of public service media, essentially putting media organizations in direct competition with other NPOs for the attention of the public. In fact this is already happening, as all the major NPOs are now producing blogs, podcasts, video feeds and web content to promote and deliver on their own missions.

[For example, one of my favorites from here in San Francisco, the Long Now Foundation. They produce and record public lectures of very high quality material, then put them online as seminars. They're building an archive that reflects their educational mission.They've even started a membership program, just like public broadcasting.]

Dennis's second point — that just under half public broadcasting's current aggregate income does not come from listeners, but from taxes and foundation grants tied to our social or educational mission — leads him to see the potential of new media from a perspective that no one has previously expressed: as a means to ensure not only the continuity, but the potential for expansion of revenue from tax-based and foundation sources.

This comes down to what seems to me a false set of choices: either offer new media for free and monetize it via advertising/underwriting (the DDC "solution") or, use it as a lever to obtain tax, foundation and institutional funding. I think both kinds of support can and will co-exist, and that the real potential for monetizing new media services — by which I mean integrated, aggregated platforms that support subscription relationships directly with the audience — has still not been fully appreciated.

I keep coming back to this point not because I'm just that pig-headed, but because  1) integrated service platforms offer substantial benefits for the public, and  2) even the most casual estimates of the income potential of subscription services place them in a completely different category than the kind of wish fulfillment that passes for vision in public media.

The most brilliant example of this I've ever seen is Wick Rowland's fascinating piece in the Feb. 12, 2007 issue of CURRENT "Shadows in the Corridors: A Capitol Hill Day dialogue."

In a kind of literary tour de force (at least for CURRENT) Rowland puts the truth about public broadcasting's position in the political food chain in the mouth of a "senior committee staffer" who delivers the message in terms so stark that even the most dewy-eyed optimist for more tax-based support has to wonder if it could ever happen in 21st century U.S. of A.

I've never met the author (he's the president of Colorado Public Television) but his words have the distinctive tang of reality. Despite the odds, he seems to be hopeful that under the Democrats, a major reform of tax-based support for public media and what he calls the "policy nexus" — "the entire inter-linked regime of national media and culture policy — of communications law, federal regulation and money" — could be accomplished.

It's a terrific insight, and his article functions as a high level call to arms for the lobbyists who tend "the nexus." (Obviously the sequel to The Matrix...) I ardently wish them well, but you know? I wouldn't want to bet on it, especially when there are alternatives that can produce far more revenue without anyone — much less fickle species like legislators and bureaucrats — having to get in line.

I've tried to develop this theme since the beginning of this blog, so I won't reiterate any of it here, except to say that really, WE NEED TO DO ALL THESE THINGS AT ONCE if we hope to materially change the position public media occupies in American, and now, international life.

If we don't, we will have to be satisfied to continue to exist in a kind of low/mid income twilight zone: loved by many, ridiculed or hated by others, "independently poor" or the neutered pet of regulatory, government and foundation decision makers.

And just think: if the conservative Republicans were still on their game, the future of the tax and regulatory picture would be completely different, and we might be talking instead about how to deal with the defunding of public broadcasting.

Rx for the future

Dennis concludes his post with a call he has issued before to "just do it" (meaning the CDN) but this time he qualifies it in several important ways:

1.    for the CDN, take a loose confederation approach; don't try to get everyone to agree on everything beforehand

2.    use OMN as the distribution engine or pull one together from existing open source parts

3.    make it a broad coalition across television, radio, other public interest/public service media, and podcasters

4.    pray for a 1969 moment all over again

5.   for stations, keep the core value of local service uppermost

It's a good vision and good advice, but I'm cynical enough about the consistent failure of this generation of public broadcasting executives to even understand, must less respond intelligently to the revolutions happening around them to ask the next question:

WHO, EXACTLY, IS GOING TO RUN THIS REVOLUTION??

Dennis calls for "a few hundred stations and producers participating under multiple brands — their own, a collective one, and the brands of their public service partners."  Well, fine, but EXACTLY HOW IS THAT GOING TO HAPPEN?? It sounds like a recipe for barely controlled chaos, and in my opinion we have quite enough of that already, thanks.

Call it radical decentralization — it sounds better. Would this serve the public better, or be even more confusing than now? Would it result in a net increase in stability for stations, in sustainable income for producers, in convenience and quality for users?

 

Somebody needs to articulate the scenarios for this. Looks like that'll be the subject of my next post.

:: SH

VOX and The New Gravity

As the web insinuates itself into our daily lives, we are participating in an transition that will utterly change our notion of media, along with the media types and institutions they've created over the last 600 years.  VOX, the latest offering from pioneering blog software company Six Apart, makes this process visible and public, but it has been going on for several years.

Modern "media" began with the invention of printing in the 15th century, and was extended to become a mass medium in the 19th century as improvements in transportation created the possibility of communicating with large audiences in short periods of time. The "periodical" was print publishing on a schedule plus mailing as the delivery technology; the blockbuster book was publishing plus modern marketing, backed by warehouses, trucks, and an organized distribution system.

When radio was commercialized in the 1920s, audio communication became instant and regional, defined by the range of the transmitter. As radio stations joined into networks, national communication became possible, both via "bicycled" recordings and real-time interconnections.

Television arrived in the 1950's when the radio networks were mature, and extended the network/local affiliate model, eventually replacing radio's former dominance over mass entertainment. The drive for bandwidth was on; VHF begat UHF and channels multiplied. Cable solved both the fringe reception problem and the bandwidth problem because broadcasting used very limited electromagnetic spectrum and could only support a small number of simultaneous signals.

Cable allowed new channels to bloom, but was itself limited to tens, then a few hundred channels. However it did begin a process of "leveling" other media types, when cable services began to carry local radio stations and background music services during the 1980s along with television channels.

The arrival of the Internet marks a quantum leap in both bandwidth and the leveling process. Here is a medium with effectively unlimited aggregate bandwidth, thus the well known ability to support all kinds of niche audience subject matter: The Long Tail.

A dozen years into the Internet era, The only limitations left are the speed of broadband connections, and the ability to hit users in motion with wireless services. Both are the subject of intensive development and will be eliminated in time.

More important, the Internet levels ALL previous types of media: text, pictures, graphics, animation, audio of all kinds, and now video.  So great has been our focus on the old organizing centers of media that print, audio and video still remain largely separate online — a result of differing skill sets, craft traditions, unions, rights regimes and audience habits.

Nevertheless, we now have an emerging paradigm which still lacks an elegant one-word name. The closest would be "web multimedia."  This paradigm is now emerging on blogs. At 50 million and counting, blogs are the first web mass medium that allows individual creators to engage audiences online with a common multimedia format.

The original blogging "platforms" were built around print, but have rapidly expanded to include other media types. First images, then audio and video can now be embedded in blog posts. The latest blogging platforms like the recently launched VOX by Six Apart, will only accelerate this transition.

VOX integrates writing, photos, audio, videos, and books, with social networks of individuals and groups, plus the ability to split access into public and private. VOX encourages individuals to quote, include and juxtapose media they find online. By including simple tools to do this, it radically levels all component media types and reflects the diverse media experiences we enjoy online. As a creature of the network, it effortlessly integrates media from Amazon, YouTube, flickr, iStockphoto, photobucket, and iFilm — for openers.

So too, a new class of omnitalented multimedia creators are emerging. Equally at home with writing, photography, audio, video, web design and publishing, they embody the native competencies of the new order, which uses the entire web as a platform.

Print reverts to writing; radio to audio; television and film to video. Web multimedia is the New Gravity, pulling old media types into its orbit. What will be the Citizen Kane of this medium?

:: SH

The DDC Decloaks

This week the Digital Distribution Consortium (DDC) decloaked after six months silence and released a carefully written proposal, not only for a new distribution system for digital public media, but for a new business model for the public media network of the future. The full proposal is available as a .pdf file at the DDC Wiki here or the IMA site here and is worth reading carefully if you want to understand the full scope of these ideas.

It's a serious piece of work by well-intentioned professionals with some of the best new media experience in the system, so I'm unhappy to report that it is deeply prejudiced in several of its core assumptions.

Most significant issues: the DDC was charged with developing a new business model for public media, but if the DDC business recommendations are followed, they will cost the system billions in potential income over the next ten years alone, as well as a net loss of independence from corporate and political influence. Those are the most serious problems; there are others on operational and policy levels.

First, there are two prejudices that influence everything else, both based on ideologies that require serious reconsideration before they are applied to any reform:

One is a prejudice toward free, "open syndication" of web content (i.e. podcasting and open streams) with the goal of maximizing usage, which drives the decision to base service revenue overwhelmingly on advertising, with minor additional revenues from content licensing and ancillary sales commissions. I argue that we need an intelligent mix of free, ad-supported, and subscription services supported by an integrated service platform.

Two (ironically) is a prejudice against direct engagement with the public. For a system that trades on the name "public" broadcasting, the DDC framers seem to consider a direct relationship with the public as a liability to be avoided if a machine can't do the job. I argue that this is actually the single most significant relationship in the system, a powerful asset that should be nurtured and developed as a means of stabilizing and maximizing system income long-term.

These two prejudices have resulted in a flawed model, with features that are necessary but not sufficient — and led the DDC to avoid or ignore several of the hardest business issues in conceiving a centralized service platform.

Problems:

The DDC proposal turns public broadcasting into commercial broadcasting by applying the commercial broadcast advertising model to public service content. This would ultimately mean the end of "non-commercial" media, in favor of centralized ad and underwriting sales + barter exchange of programming for local advertising slots.

Call me old-fashioned, but there should be one damn place to go in the mediasphere where one can escape the pervasive influence of advertising. That's idealistic, but on a business level I believe that this scheme would devalue the association with public service media by pricing it at market ad rates. I argue that public media can be monetized at significantly higher levels overall by combining free, ad supported, and subscription services.

The revenue potential of the DDC proposed ad-based system is only a fraction of achievable subscription revenue, and will cost the system billions in lost income.  Only 700,000 subscribers at $10/month would surpass DDC revenue estimates of $80M/year from advertising in a mature service. Does anyone doubt that a system with 30 MILLION current listeners and a history of support for voluntary subscriptions can do much, much better than this in the long run by offering a powerful new online subscription incentive?  2 million subscribers would produce $240 million/year in income. It's the difference between tens of millions and hundreds of millions of dollars a year.

It doesn't even make enough to support the participants. Income distribution is proposed as proportional to measured traffic via streams and downloads, but DDC's own projections indicate expected income is not even enough to provide truly significant support to the major program brands, much less the smaller content providers or what they call "presenters" (aggregators) like stations.

The DDC system assumes a high level of web competence at the edges of the network. This may be true for a new class of online program and service aggregators, but is certainly not true for the existing base of public stations, who actually need a turnkey solution with simple customization options in the short term, and lots of hand holding and support in the longer term to develop truly effective web operations.

Editorial operations to vet content and ensure consistent quality are underestimated and unfunded. The proposal makes a fashionable nod toward user-generated content and admits that "editorial guidelines, content reviews and policies are required to ensure high quality," but there is no mention of the actual cost and staff impact of this in the operations estimate. I argue that this is actually a significant cost center for any content network and would become a serious problem if there is not adequate revenue to support it.

Conclusions:

As presently conceived, the DDC proposal would make the system more dependent on advertisers and external funders, rather than strengthening the direct connection to the end user. It would result in a net loss of financial autonomy, immunity from political manipulation, and income for the system.

Though I believe unintentional, the DDC proposal would result in a further centralization of power and money in the major program producers and distributors in the current system.  Some of this is inevitable, but a truly equitable system would help level the field and incentivize all participants, not worsen the inequalities.

A digital system for public media needs to support BOTH open, free distribution and subscription models, by making effective distinctions between underwritten, ad-supported, and value-added services to incentivize subscriptions. By choosing to ignore this, the DDC proposal condemns the system to dependent status in the digital economy, when it could be advancing and solidifying its position.

Subscription income is the blood plasma of public media. It maintains and supports the life of the host. Expanded web services provide a perfect vehicle for current and future users to ratify their relationship with the system's mission and actual service delivered.

:: Stephen Hill

Seize the Day

I wrote the following in response to the request from the Station Resource Group (SRG) below. It synthesizes several years of thinking and discussion about these topics with other members of the Public Service Publisher group, especially Dennis Haarsager. All these issues and more are sure to be discussed at the upcoming IMA Conference in Boston Feb. 20-24.

Comments are welcome and encouraged.

Thanks :: SH

On Feb 12, 2007, at 12:44 PM, Terry Clifford wrote:

Later this week, about fourteen executives from public radio programming
and distribution organizations and major content-producing stations will
gather to discuss the feasibility of a shared digital distribution
infrastructure. 

The concept has been around for some time, and the subject has been a
hot topic for about a year or so.

We would appreciate getting your most recent thinking on this.  Nothing
long - the equivalent of a few paragraphs.  It doesn't need to be a
comprehensive piece - just the most recent bullet points that come to
the forefront for you.  Especially given the long-term efforts all of
you have made to contribute to this subject.

We're also just asking for comments that reflect your own personal
thinking. 

Thanks in advance.

Terry Clifford
Station Resource Group
6935 Laurel Avenue #202
Takoma Park, MD 20912
301.270.2617
301.270.2618 (fax)

Colleagues:

Thank you for inviting my comments on this issue. I'm very gratified to see serious meetings like this one happening at last. It means we are past the denial stage and ready to plan for change.

A shared infrastructure for digital distribution of public radio programming is a necessary technical component of what needs to be done, but fails to frame the problem broadly enough. Distribution is the easy part. Business and policy issues are more difficult, and more critical to success.

What we need is a comprehensive online service platform that joins together producers (independent, station and network-based), stations, national program distributors, a new class of public service web affiliates, and the public -- for the mutual benefit of all participants.

What I'm suggesting is not some nebulous "vision" but a rational, practical, co-operative method of expanding and modernizing the historic mission of public service broadcasting, while fully embracing the new possibilities offered by online delivery.

If the effort you are meeting to plan falls short of this — or worse, is designed only to advance the interests of the current system stakeholders — I believe it will fail, not only to protect the current franchises, but to gain critical mass.

Public broadcasting can no longer trade on spectrum scarcity and its former monopoly on public service programming in the abundance economy of the web: it must create a world class, competitive service offering based on its mission, values and content.

From a business perspective, there is a one-time opportunity to substantially increase the pathetic 9% level of voluntary listener support now considered normal via an integrated national + local subscription offering, along with a much expanded range of free programming. To be successful, it must offer an overwhelming user value proposition.

To achieve this, the core business relationships between the existing stakeholders must evolve and change. The relative percentages of total system income from tax, grant, underwriter, and listener funding must also change.

Developing a powerful new online subscription incentive will strengthen the system at its core relationship: between publc service media providers and the public. It will provide the only realistic source of new income, at levels that are potentially revolutionary. Only 2 million new subscribers could provide over $200 Million yearly — the equivalent of a Kroc gift every year.

It will also enhance the value of investment in the system by institutional funders. With government funding a political crap shoot, we should not depend on it. Enhanced membership incentives allow us to insulate ourselves against losing it completely.

DESIGN A SERVICE

It all comes down to creating practical services.

To paraphrase a computer industry maxim ("Real men ship.") : 
"Real service providers create services."

The place to start is by specifying the levels and types of new services to be offered to the public and to affiliates — services that go far beyond the embarrassing, chaotic mess of balkanized web sites, partial and incompatible services we see today.

In its place should be an integrated platform with an enterprise class infrastructure that supports:

1.    COMPREHENSIVE DIGITAL DELIVERY (streams and downloads) of an expanded array of programming and archival content through station web sites and large national portal sites, including NPR.org, Yahoo, Google, AOL, MSN, et al, a new class of non-commercial public service web affiliates, and eventually, Internet Service Providers (ISPs) like Comcast who offer content bundling incentives to their customers.

2.    NATIONAL MEMBERSHIP for end users, promoted and sold by stations as well as the national portals. The national membership gives listeners access to an expanded content offering, archives and special services. Income would be shared by participants via an equitable system of revenue splits, commissions, royalties and fees, to incentivise all participants. The challenge of harmonizing local and national memberships must be met on both technical and policy levels.

3.    TIERED SERVICE OFFERINGS: including free on-air and online, selective paid access, and subscription/national membership.

4.    USER ACCOUNTS: the system must scale to support tens of millions of active users as well as tens of thousands of suppliers, affiliates, underwriters and copyright owners, and support comprehensive personal profiles and preferences. The days of a 91% anonymous audience are over: a public radio membership should signify common values and willing engagement with a trusted service of incontestable value.

5.    EASY CUSTOMIZATION to allow stations of all sizes to expand their traditional editorial and local service roles without having to achieve full web development competencies. The same system would allow web-only affiliates to create custom service offerings:  essentially, a much expanded syndication system for public service audio content.

6.    INTEGRATED NATIONAL UNDERWRITING opportunities across the entire system, with a central sales office and links to online advertising networks like Google where appropriate. Many of the smaller advertisers that Google enables are a natural fit on a public service platform. National underwriting income would be shared.

7.    UNIFIED PROMOTION AND MARKETING: an integrated service platform is a vehicle that can lift all boats, but to do this the system must agree on common elements of branding, language and service offerings for the benefit of all supply-side participants.

The unique value propositions underlying this offering are the public service mission, programming quality standards, and the goodwill and support the system has earned in the last 60 years. If we do not effectively leverage these values, Yahoo, Google, Real Networks, Apple, Microsoft and others will create far broader digital distribution services on their own terms, and public service producers seeking national and international audiences — including NPR — ultimately will have no choice but to join them.

In the wise words of Mike Homer of Open Media Network: "there is no reason why public broadcasting should give up a significant portion of its income from users to any other service provider." Amazingly, Mike has already financed the development of a significant portion of the necessary technical infrastructure to deliver these services with OMN, and has offered it to the system for free. If we don't take him up on the offer, OMN will become another competitor.

WHAT IF WE DON'T?

If we don't agree to work together to seize this opportunity with meaningful cooperative action, some of the broad consequences are already predictable:

• a slow decline in system revenues as new competitors arrive that will force consolidation of the weaker stations into regional networks at the expense of true local service

• loss of hundreds of millions in potential new income per year at the expense of system independence from political and corporate influence

• relegation to 'content vendor' status in the digital media ecology of the near future.

This is the turning point. We seize the day...or we suffer the consequences.

:: Stephen Hill

NOW can we talk about business?

The title is a riff on a Hillary Clinton's famous remark about health care. Like reforming our medical delivery system, the effort to reform public broadcasting's content delivery systems is fraught with big issues, entrenched stakeholders, and lack of action.

I have a bit of history about the business question. Within public radio circles I pass for an entrepreneur because I have co-created several businesses to augment our barely break-even income from syndication of our national program. And ever since I started thinking about the impact of the Internet on niche radio formats, stations, programs and producers, it's been clear to me that it was ultimately going to change the way we did business — with each other and with the community.

Since the demise of the PRC, the once a year omnibus Public Radio Conference, the Integrated Media Association (IMA) conference has emerged as the best place to discuss these issues. At the 2006 conference in Seattle I was on a panel and was surprised to find the moderator steering the discussion away from what I considered the burning questions. At the time, I described the avoidance of the business discussion as a "third rail" that everybody seemed afraid to touch. I even recalled Camus' remark that "there is only one truly serious philosophical question and that is suicide." To my mind, there was only one truly serious issue on the table and that was related to business models and business relationships within the system. Everything else was details. True to form, the discussion was tabled. Now another year has passed, and as far as I know, it's still not being seriously considered. Man, that third rail must be really scary.

Recently I raised the question again in email with two of my colleagues from the Public Service Publisher (PSP) group, Dennis Haarsager of Northwest Public Radio, and Tim Olson of KQED in San Francisco. Here's an edited version of that discussion, which started with Dennis bringing the group up to date on the developments announced at the CES show involving Open Media Network (OMN), the Kontiki peer-to-peer distribution technology, and VeriSign, which bought Kontiki last year. Since nobody is more aware of new technologies that affect broadcasting AND has more goodwill and contacts within the existing system, I asked Dennis for more:

STEPHEN HILL: Thanks for the update, Dennis. Indeed, exciting stuff. Makes you wonder (in the light of Rob Paterson's recent post about HBO) if anybody in public broadcasting besides you, Rob and a handful of others are paying any real attention.

In that regard may I ask for further updates?

1.   What's happening with the DDC (Digital Distribution Consortium) project and all the high-level backroom activity aiming to build a new distribution architecture? I haven't heard a thing about it since a meeting in San Francisco I attended last summer.

2.   When will there be any real, substantive discussion of the the business changes that are needed to support all of this pie-in-the-Internet-sky visioning? I'm referring (as I'm wont to do) to revenue sharing, subscription and syndication models.

3.   Any chance of these issues being raised at the IMA?

DENNIS HAARSAGER: My understanding is that Tim's group [ed: the DDC] did have such discussions that that the group felt optimistic about what their analysis showed.  Ditto the work that Mike H. commissioned on the video side.  But there hasn't been a larger discussion of which I'm aware.  There's a Thursday session at IMA called "Hybrid Business Models" with Doug Kaye, but it would appear that's the closest IMA gets to it.  The Thursday dinners look to be for various BoF sessions, so maybe we could start one on the subject - though of course that's not necessarily the "real, substantive discussion" you correctly are calling out.

TIM OLSEN:  There isn't a DDC presentation at iMA that I'm aware of.  There may have been thing moving without my knowledge, but a couple notes.. Business plan is written, for radio side at least seems to come down to a few key items.

- will NPR be the "DDC ASP" or other?
- NPR is moving ahead with phase II of podcasting, including producer sales availability
- MPR is rumored to be putting in many more podcasts into NPR podcasting, which signals potential ground for more MPR/NPR deals.  In my opinion, MPR and NPR deal is the make or break it one.  Others would follow if those two worked it out.
- If folks want someone besides NPR to be the DDC, then there needs to be a push for that.  The trouble is PRX, and PI, the two that could push for such, are busy with their "day jobs".

I'd be interested in pushing the discussion again.  Just been busy.

STEPHEN:  Here's what worries me in a nutshell: the DDC is only half the battle, and the easier half at that. MPR, PI, and PRI may quite rationally have decided that building, staffing and operating an IP distribution infrastructure is beyond their job classifications. If so fine; anything that gets these organizations to cooperate on building the machinery needed to support future services is progress, and I will be the first to applaud them for it.

However...without confronting the larger issue of the business relationship(s) between producers, production organizations, stations, networks and the national portals to public service content — I just don't see the DDC effort delivering the kind of comprehensive changes that will be needed to secure (let alone improve) the overall status of public broadcasting in the new mediascape. This kind of thinking, I believe, is exactly what Rob Paterson was trying to engender in his work with the system leaders in the New Realities workshops.

It's not that whatever they build won't get used by stations — I'm sure it will, to one degree or another. The problem is not in the back-end machinery, but in the public-facing side of things. What's the equivalent of HBO On Demand for public service content? Is it something different for every station? Or something that has a core repertoire of programming that's shared by the entire system, and is the very thing that differentiates it from a growing list of other public service programming providers? Or is is going to be happening on other portals and services?

The advantage of doing something comprehensive and highly publicized comes down to position in the new mediascape and the money from underwriting, grants and membership dollars that relates directly to that position. I just hate to see such a golden opportunity to improve the overall status of public broadcasting go by while we're talking about next generation deck chairs — sorry, distribution infrastructure.

It's overdue to be talking about service offerings: how to configure them, promote them, monetize them, and do the revenue-sharing and syndication deals of the future. It's frustrating to see a great opportunity wasted on even the best-intentioned but insufficient efforts.

TIM: so you are arguing for a aggregated portal page of all public media content, with all the bells and whistles (promotion, community rating/ranking, independent presenatations,  and for business ads, paid subscriptions... etc)?

NPR is making a play for this on music with NPRMusic.org.

You would advocate the same for news?

STEPHEN:  The PSP group discussed all the different possibilities for how a broader on-demand content offering might work. If you recall, there was no single model that emerged from those visionings as being clearly better.

Mark Fuerst seemed to prefer a central portal and argued for doing it, either at NPR.org or a newly created site; my original 'pitch' was for a distributed system (closer to what DDC seems to be talking about being the back end for) where the individual stations could easily add web content and services to their sites and use their broadcast signals as way to promote their web offerings for their own benefit as well as the brand and identity of the whole system.

And it seemed clear that there would a significant number of new aggregation points in the future at the other major Internet portals and services (like OMN) where public broadcasting content would be offered. In the end, the PSP group took a "both/and" position as far as how the system would be configured: both at station sites and portals. That's where it was left before the DDC effort.

One of the problems in dealing with a federated system like public broadcasting is that even if you could design a perfect solution, you could never get the states/stations to agree to implement it universally -- at least under normal circumstances. Only a major external threat or a clearly declining trend in market share and revenue might have the power to change that, but I wouldn't put money on how it would play out. Worst case -- the "death spiral" scenario of declining market share, advertising, and product quality now facing the newspaper industry would happen even more slowly and excruciatingly in public broadcasting.

My real 'pitch' is that there is a substantial amount of accumulated goodwill, both in brand and business terms, now shared by individual stations, programs, and the public radio system as a whole. (Public Television is another story.) There is an opportunity to build on this goodwill, combine it with a much more extensive and flexible service offering, and create a new national membership level for public radio that complements and enhances local memberships. Think of it as a paid upgrade. Public broadcasting is ideally positioned to do this because its users already are invested in its mission as well as its current service.

The question for the networks is how to aggregate a competitive digital service offering; the question for the stations is how to be part of an up-to-date public media service, whether delivered via station sites, portals, wireless b/b, preloaded iPlayers or brain implants.

The business discussion I'm pushing for is the one that would be required to support all of that -- defining classes and levels of membership, what the associated content offering(s) would be, how the system handles national and local underwriting and ancillary revenue streams -- and then the really contentious bit: how the manage the revenue splits, shares, commissions and royalties and fees to incentivise all the participants.

If NPR is doing some part of this for NPRMusic.org, it's a good example of continuing to focus on narrow opportunities, rather than imagining and implementing a broad, comprehensive solution.

The thing that bothers me most is what Paul Marzalek said in his blog a year ago: there will only be one chance to pull off anything like this and then the opportunity will be lost forever, and the system and its component entities will pay the price for years to come.

Something like what I'm talking about will be created, because it's simply the most user-friendly and efficient way to deliver a broad array of digital services. OMN should be enough evidence. At least they are a friendly potential competitor — so far. The question is whether public radio will take the opportunity and use it to better its position and secure its financial future, or whether it is content to be just another syndicator, pushing its programming to other aggregators for a royalty and/or scratching for donations. That scenario would not be a disaster, but it would be sad loss of position and potential.

OK, I'm stirring the pot here. I'd just like to know if there is any desire to seize this opportunity, have a constructive discussion, and do something about it. If not, fine. I'll gladly give this a rest and tend my own garden.

Comments are open, please post or write on your own blog and link back.

:: SH

HD Radio: too little, too late

Mark Ramsey must be a really nice guy. While he's critical of various aspects of the HD Radio situation, he has tried hard to make his criticisms constructive and not alienate radio colleagues who are working on it. His latest effort over at Hear 2.0 is a list of things that are wrong with the $200 million HD marketing and promotion campaign. I think he is missing the core issue. I posted this along with the comments:



The problem lies not in the details of the marketing campaign, but in the deficiency of the value proposition for listeners.

Satellite has succeeded (sort of) not because they spent $200M on promotion (they did) or executed the rollout perfectly (they didn't) but because the service itself offered listeners a better value proposition: a cable system sized banquet of radio channels (including dozens of neglected music formats), little or no advertising, 100% coverage of areas that were underserved by terrestrial radio, and a truly national service.

So the cost of the new hardware and the subscription was compensated by a strong, unambiguous value proposition: more content, desired content, uninterrupted content, national coverage. It all adds up to being worth the $12.95 a month for many millions of people.

What about online radio? Now you have tens of thousands of channels: a mind-boggling array of niche and specialty content in addition to deep choice of mainstream formats. In many cases, you have fewer or zero commercials. You have on-demand access and deep archives. You have asynchronous subscription delivery, aka podcasting. And you have ubiquitous wired access, with wide-area wireless Internet rolling out starting last year on the 3G cellular nets. And now the hardware cost is rolled into your smart cell phone, which is being upgraded every 2-3 years on average anyway.

One more benefit that's not user-centric but should get the attention of broadcasters: online provides a more flexible, more powerful platform for delivering advertising. Ask Google.

Face it, folks...when you add it up, HD Radio as a platform will never be competitive with satellite or Internet radio on a value for value basis for the end user.

All you can hope is that AM and FM will decline slowly enough that radio stations and producers can adapt to new media delivery methods while they continue to operate their old franchises. HD radio is not a new method: it's good old single channel point to multipoint local broadcasting in digital drag. It can barely provide time-shifting of favorite shows, much less the other listener/viewer value enhancements that are driving the Internet media explosion.

HD will fail to get a meaningful level of uptake, and it will waste more time and money in the process. Incumbents are stubborn that way. Broadcasters who access the situation correctly already have better places to put their development energy. I'm really sorry for the folks at iBiquity. They've worked long and hard, but the bar has been raised beyond the ability of conventional broadcasting to compensate.

HD radio is just too little and too late.

HD is DOA

Over at Hear 2.0 (aka Radio Horizon), Mark Ramsey is asking the hard questions about HD radio.

I posted this comment:

Mark,

Your observations about the strange disconnect between industry spin and the realities HD radio is facing are all correct, but you politely stop short of the obvious conclusion: HD is DOA.

The only reason it has gotten this far is that such an amazing amount of time and money has been invested in it by iBiquity, with support from radio industry stakeholders and receiver manufacturers.

Many radio folk were skeptical from the beginning. Promoting HD as a quality upgrade (source of the HD moniker) was obviously bull — the typical Internet music stream is already higher quality than HD and can be upgraded easily as deliverable bandwidth gets cheaper. HD reminds me of DCC (Digital Compact Cassette), another attempt by a mature industry to administer life support to a sunset format. That didn't work either, and today almost no one even remembers it.

Promoting the increase in channels on HD sounded good until the usage reports came in and it became clear that with an IBOC system there really wasn't enough additional bandwidth on AM and FM to do the job properly. The U.S. really needed microwave digital radio spectrum like they got in Europe, so new radios could simply add a band. And nobody really figured out where the money would come from to staff and operate those new channels at an effective level, even if they actually worked technically.

And then there was the little matter of the hardware upgrade...it might have had a shot if the Internet wasn't evolving several orders of magnitude faster, the FCC approval happened three times faster, the manufacturers were more agile, and the public had a clear reason to do it. But of course none of these conditions were met and today we still have the ~$500 standalone HD radio and the ~$250 upgrade fee for a new car radio.

Of the major usage trends that are driving the growth of Internet radio -- new "long tail" niche and alternative content, on-demand delivery, user-created content, podcasting (subcriptions and portability), and time-shifting -- only time-shifting is even doable with HD, and then only in a relatively crippled way due to memory and interface constraints. Even this undermines the one incontestable advantage of conventional radio: ease of use.

Your observation that HD is "distracting broadcasters from focusing on obvious web opportunities" is also true but only partially. Pumping up the station workflow to produce multiple audio streams and additional content is worthwhile whether the output is HD or web; and learning how to use the legacy air channel to promote web features and services is already being done by many stations with varying degrees of success.

I work mainly in Public Radio, where these issues have been conscientiously debated for the last five years, while progress in both HD and web delivery has been (with conspicuous exceptions like NPR.org, KCRW Santa Monica and handful of other large stations) painfully slow and scattered.

But system thought leaders and power players are finally united in the realization that digital delivery will happen most powerfully online and will do a far better job of supporting the underlying public service mission of the industry. They are now actively working on a comprehensive plan to do it by aggregating both infrastructure and content to support emerging composite business models. These will include memberships, underwriting, grants, and paid services with a sophisticated revenue-sharing model that involves all the participants and gives a powerful new role to the stations, who would otherwise face slow, painful dis-intermediation.

Sound familiar? Commercial broadcasters actually have the greater distance to go in unlearning the old rules of the road and meeting the challenge of the digital transition. The process is retarded by the understandable imperative to operate their current franchises until the last dollar is earned. Public broadcasters have only their survival at stake, not billions of dollars of sunset ad revenue.

Aggregation and Consolidation, Pt. 2

Addendum to the previous post:

Dennis Haarsager has posted a particularly useful “Content Flow” diagram at his indispensible blog Technology360. Referring to it will help to focus the discussion of business models.

The post: Public Media Strategies

The diagram: Content Flow

In schematic form this diagram shows the growth of new bi-directional distribution pathways from “producer” to “listener or viewer” and back, and the rise of a new class of online “aggregators” or “bundlers” where programming is or will be available.

The new business model(s) are implicit in this diagram. They include commissions, royalties and syndication fees on content performances and downloads, and revenue shares of advertising, underwriting, subscription and membership income (and others not yet invented) in a greatly expanded syndication environment. The next step is to annotate each box and show how each activity on the path to the listener/viewer is being or will be supported.

Of course this diagram refers only the to the public media infrastructure. To get the full picture, the entire diagram must itself be placed in the larger context of all online, audio and video media and delivery options for the public.

Aggregation and Consolidation

Todd Mundt (working with Mark Fuerst) has posted a long and well-argued rationale at Converge for moving the system toward an aggregated, consolidated service offering. It's really good but has one serious blind spot. Here's my comment:

Todd, Mark:

I couldn’t agree more with the spirit, the tone and the specifics of of what you've written here. I've been convinced of the absolute necessity of offering an aggregated, consolidated, listener-centric, hybrid broadcast and web service since the full dimensions of the digital challenge became clear several years ago.

The main thing I have to add to your worthy list of imperatives is to point out the curious avoidance of the core issue at stake here: it is not just the structure and service design of public radio that needs fundamental transformation — but the existing business model.

What is that model? While the proportions vary, most public broadcasters have diversified and hedged their income portfolio over the years to include a combination of listener contributions, grants, underwriting, and tax-based (CPB) revenue.

The problem is that every one of these income streams is vulnerable to disruption and decline in the world we are moving into.

I’ve developed this point in more detail (right here) but the main reason is that for the first time in its history, public radio will have significant competition for both its chosen content areas and for general “attention share.” This will have the effect of reducing listenership (it's already started), which will inevitably reduce income from underwriting, foundations, and the public. What will happen to CPB funding is anybody’s guess, but is not something that we can trust, at least in the current political climate.

So I would add to your list of “why aggregation makes sense”

(d) the need to provide a truly competitive value proposition and level of service

and

(e) the need to build a financial platform that can support the mission and the system in the digital era.

The implication of these two points is that the current value proposition underlying public radio — as expressed in fundraising, underwriting and grant pitches that say essentially “support us because we are the only place where you can get this kind of programming” (or this particular program) — will be devalued or rendered obviously false.

In one of his essays, Camus said “There is only one truly serious philosophical question and that is suicide.” Similarly, there is only one truly serious issue at the core of this challenge, and that is how we design our infrastructure and business proposition to pursue our mission.

As far as I can see, this is the primary reason to build the kind of aggregated, consolidated, mission and listener-focused services you and other system progressives are proposing. If the resulting services cannot provide a competitive value proposition for both listeners and funders, the public radio system as we have known it is in for a long, unpleasant decline. Public television since cable provides an all-too-instructive example.

Yet real discussion of how we would revise the core business models in the system is still a “third rail” issue: approached, but never actually touched. Or perhaps it is a Pandora's box. Regardless, we have to get past this to move forward, and I'm eager to participate in that conversation.

:: Stephen Hill