The ArtLab

The week before Christmas, CNET News reported that according to a Universal executive, the company was pulling in "tens of millions of dollars" through YouTube. But just two days later, Warner Music began pulling all of its content off of YouTube, after the two companies failed to negotiate a revenue-sharing agreement. "We simply cannot accept terms that fail to appropriately and fairly compensate recording artists, songwriters, labels and publishers for the value they provide," Warner stated.

So why is everything coming up roses for YouTube and Universal just as negotiations seem to be tanking between YouTube and Warner?

Turns out that the two-year licensing deals reached in 2006 between YouTube and the major music labels are beginning to expire, and YouTube, now owned by Google, is driving a harder bargain. Google wants to scale back pay-per-play royalties and focus instead on ad-supported revenue sharing, which is far less lucrative for the labels; most companies currently receive only about $25,000 per month from YouTube in ad revenue; that's just a drop in the bucket of the "tens of millions" Universal is touting.

Warner was the first of the majors to walk away from Google's offer, though Universal and EMI have agreements that will expire in the next few months. Will the other labels follow suit and be willing to walk away from the revenue available through YouTube?

It's hard to say, but Silicon Valley Insider suggests that they might be more willing than you'd think: turns out the major record labels are now in talks to start a joint venture that would be to music what Hulu is to video. According to the Insider, "The labels agree that their content's future on the Web is ad-supported, but the $25,000 checks have them convinced they could do a better job selling sponsorships, pushing concert tickets, and music sales on their own site."

This could be exactly what the music industry needs to do: take control of its content and integrate its operations on the web so that different aspects of the music industry--CD sales, concert tickets, fan paraphernalia, and online ad revenue--can cross-subsidize one another without a third-party intermediary. The success of Hulu has been pretty phenomenal, and if the record companies can come together and work out the kinks, they can enjoy similar success.

Last week, a number of organizations who often find themselves on opposites sides of some policy debates - including Public Knowledge, Free Press, Google, and some members of Arts+Labs - announced their participation in a Call to Action, a broad policy framework for a national broadband strategy. The statement doesn't get too involved in the nitty gritty details of implementing the goals, but there is definitely some indication that people are coming together on some of the underlying realities and setting aside some former dogmas to create a smart, forward-looking, consensus-driven approach.

Among the items in the "Goals" section of the document are these two important principles...

• Access to the Internet should, to the maximum feasible extent, be open to all users, service providers, content providers, and application providers.
• Network operators must have the right to manage their networks responsibly, pursuant to clear and workable guidelines and standards.

Our friends in the Call to Action coalition deserve our praise and appreciation for this important first step toward resolving disputes and moving forward.

We look forward to working together with them to create a better Internet for all of us - an Internet that is safe, legal and everywhere.

Yesterday I had a piece published online at Real Clear Politics about, well, online publishing. More broadly, the piece was about the future of the newspaper industry in the age of digital delivery. Pretty good timing actually, as it coincides with two pretty big shakeups yesterday in the journalism world: the Tribune Company's bankruptcy announcement and the Pulitzer Prize Board's decision to allow entrants for prizes in journalism from online-only media outlets. From my RCP article...

The future of online publishing is clearly in trouble, but the experience of the entertainment industry makes it seem likely that news outlets will be able to find ways to profitably deliver their content the way consumers want it (usually for free). Consider things like Hulu, imeem, and (increasingly) YouTube, all examples that rely on what Rubin calls the Three Cs: copyright, competition, and collaboration. I add a fourth C to that idea: content.

With collaborative solutions between content providers and content platforms, quality improves, and the need for users to traffic in infringing content is greatly diminished.

High quality content is critical in the realm of journalism, and as the Pulitzer Board's decision shows, much of that quality content is now online. Once the traditional news industry leaders embrace the Four Cs and look beyond site-based revenue streams and the traditional business models, the quality and availability of online content will be even better. As the Trib undergoes its reorganization -- and other papers look to improve their financial operations -- these collaborative solutions are something we need to be thinking about.

The guys from Monty Python have posted a video on YouTube to announce the creation of the Monty Python YouTube channel.  Do I even need to mention that it's funny?  It's Monty Python. Of course it's funny.

If you like geeking out over Pareto and Log normal distributions or gazing at linear curves on XY graphs, Andrew Orlowski has an exclusive over at The Register which is well worth the read and raises new questions about the validity of the "Long Tail" as a business strategy.

The Long Tail is a business and economic strategy first coined by Wired's Chris Anderson back in 2004 which suggests that producers can make a killing selling a large number of unique, hard-to-find items, but that each individual item itself is sold in relatively small quantities. Anderson later published a book about his theory called The Long Tail: Why the Future of Business is Selling Less of More (2006). The theory of "The Long Tail" has been evangelized by digital natives as a way to profit from the Internet.

As Orlowski highlights, economist Will Page and Mblox founder Andrew Bud analyzed the value of the "Tail" in digital music by producing a spreadsheet with an eye-popping 1.5 million rows of data. What they discovered is that instead of a Pareto curve (a graph where the values are plotted and arranged in descending order - think a blob on the left with a really long tail extending out to the right), sales of digital music follow a Log Normal distribution - and in this case one in which 80% of the digital music inventory sold no copies at all.

As Bud explained...

Now we've seen what happens when tens of millions of choices are thrown in the air and land on the floor...There are Tails where the Tail lives as a kind of welfare state. Not this one. You starve in this Tail.

Orlowski also points out that according to Bud's and Page's analysis, 80 percent of the revenue in digital music comes from about 52,000 songs - the typical inventory of a record store.

Why is this potentially significant? It may demonstrate that Internet consumers, and as importantly advertisers, are looking for high-quality content. User-generated content can be remarkably creative and engaging, but to date has been largely incompatible with product advertisers.

It's worth wondering if maybe that's why so many technology companies now seem to be in a mad-dash to cut entertainment deals with the producers of that high-quality content. MySpace Music for instance launched in October with the catalogs of the four major record labels and independent distributors. Ten days later it streamed its billionth song. YouTube and MGM just announced an agreement to show some advertising supported full-length television shows on the video sharing site.

Here's an interesting new revenue model for non-commercial file-sharing. Yesterday MySpace and MTV Networks announced a partnership that will allow MySpace users to continue freely sharing their favorite videos and songs in exchange for revenue-generating opportunities on the copyrighted content being shared.

Here's the short version of how it works: Using technology by Auditude, content from MTV Network's channels--MTV, VH1, Nickelodeon, and Comedy Central--will be identified by its audio and video "fingerprint." Auditude then allows the addition of a video overlay to the content, showing users where to buy or view full versions of the content as well as ads for related goods or services.

This is similar to YouTube's "click to buy" feature except that the MySpace/MTV/Auditude solution is--for lack of a better term--way, way cooler.

Under click to buy, YouTube works with companies to provide links to products or services related to the video. That's a good first step, but since the links only appear below the official video posted by the partner, it doesn't fix the problem of non-commercial but technically illegal use of copyrighted content by your average YouTube users. If you make your own music video for your favorite song, the songwriter doesn't get anything, and your video will probably get yanked when the music label spots it.

Auditude, on the other hand, seeks out the copyrighted content, whether it's officially posted by the network or posted by a user. I can put a funny clip from the Colbert Report on my MySpace profile to share it with my friends, Auditude can sniff it out and add links to buy or watch the whole episode, and MTV Networks gets the traffic or revenue generated by the links. Auditude also has the very cool benefit of detailed analytics. As RWW explains it:

With Auditude ads - and the analytics to monitor them - MTV Networks can build a mini-Nielsen-esque view into how their content is being used on MySpace. They'll be able to see any number of interesting metrics and trends. Who is uploading content? Which shows get posted most? Which shows get watched most? What are the demographics of the people posting the shows? Which users are getting the most click-throughs?

This is a win-win-win situation. MySpace wins because its product retains its value to its users--in fact, it may prove that MySpace becomes even more valuable to its users. Users win because they get to continue sharing files in a non-commercial manner. And MTV wins because it captures revenue for its content that otherwise wouldn't have existed and gets information about the people consuming its content.

The internet is having a profound political impact - both on voters and campaigns, as Mark McKinnon has explained at Internet Evolution. But the New York Times says the media is also aggressively responding to the new culture of the internet, embracing new approaches to content distribution...

Shortly after 9 a.m. on Oct. 19, Colin Powell endorsed Barack Obama for president during the taping of "Meet the Press" on NBC. Within minutes, the video was on the Web. The 2008 race has blurred online and offline media. But the clip was not rushed onto YouTube; it was MSNBC.com, the network's sister entity online, that showed the video hours before television viewers on the West Coast could watch the interview for themselves. [...] But as NBC's decision to release the Powell clip early shows, the networks and their newspaper counterparts have not simply waited to be overtaken. Instead, they have made specific efforts to engage audiences with interactive features, allowing their content to be used in unanticipated ways, and in many efforts, breaking out of the boundaries of the morning paper and the evening newscast.

In the past, there has been a conflict of incentives for creators between "allowing their content to be used in unanticipated ways" and protecting the content they spend a great deal of money to produce. While virtually everybody acknowledges that creators should own, and benefit from, the fruit of their labor, many also acknowledge that people should be able to excerpt content in order to report - or, yes, remix - the original content in non-commercial ways. But where is the line between protecting the rights of creators and giving consumers more access to, and freedom to use, content?

It's an extraordinarily difficult question, and many have wrestled with how and where to draw the line.

However, that knot may finally be untangling and in some rather unexpected ways. Instead of having to choose between the rights of creators and more open content distribution, creators are embracing technology to allow both goals to be achieved. The New York Times describes how NBC is embracing internet distribution, but they're far from alone.

• Viacom, another Arts+Labs member, is also exploring ways to accomplish both goals with MTV.com, "embrac[ing] the consumer-led digital revolution".
• Google, the Authors Guild and the American Association of Publishers are creating a Registry for authors and expand access to books "in ways Google never could have done alone."
• WashingtonPost.com's most popular video programming recently has been its live coverage of this year's political conventions and election night, and The Wall Street Journal is aggressively rolling out new bite-sized video documentaries accompanying their news articles.

These are all entirely new initiatives, new models of distribution and in many cases are blurring the lines between what we've traditionally thought of as separate and distinct industries. Who would have thought for instance that yesterday's newsprint would graduate to online print, video documentaries and live video coverage.

The bottom line is that surprising and positive effects are emerging out of the laboratories of these new distribution models. Creators are developing better content, better methods of content delivery, and engaging internet consumers in entirely new and unique ways.

The financial headlines these past few days are making it abundantly clear that the world's financial markets are still like a non-stop two-week ride on the Six Flags Great Adventure Rollercoaster. The time for hysterical fear, dry heaving and the legalization of trampling is upon us...at least, according to The Onion.

But in Internet land some things continue to move methodically onward and upward; in particular, look at what's happening in the delivery of online entertainment.

In just the past week, we've learned that...

• YouTube is dipping its toe in the water by finally partnering with entertainment companies to begin showing some full-length television programs, in hopes that the new approach will help it increase ad revenues. Despite the Web site's popularity, Google has so far struggled to monetize user generated content despite trying out a range of different advertising models.


• On the heels of YouTube's announcement, Joost said that it, too, was going to make some changes that will make its site easier to use for consumers and, hopefully, attract more visitors to the site. Chief Executive Mike Volpi said Joost would turn to flash video so that users would no longer need to download special software to watch videos.


• SNL looks to be "in talks to develop a new on-demand video Website that would feature an array of comedy clips".

Despite Wall Street's woes, markets haven't yet disappeared. The old-fashioned desire to make a buck - yes, even on the Internet - is leading to scads of new online entertainment options, experimentation and innovations.

For years, YouTube looked the other way while hosting users' unauthorized uploads of movies and TV shows.  Now, they are joining the game as well, as consumers are increasingly clamoring for high-quality entertainment on the Internet that they can find and enjoy easily.  Whether it's Grey's Anatomy or Dr. Horrible's Sing Along Blog consumers want it when and where they want it and they want it to be safe, fast, and reliable.

It's a simple lesson: Business models that work for both the creators of a good and the consumers of a good are the only business models that are self-sustaining. Take either out of the Internet value-chain and the system goes kaput.

Adam Thierer made an interesting point last week over at TLF about the future of online video, especially in light of the explosive growth we're seeing in readily-available, legal online video content. As Thierer points out, video content is available over the Internet in so many ways now - Netflix, Hulu, TV network's sites, YouTube, Vudu, and through gaming consoles like the Xbox 360 and Playstation 3, just to name a few resources - it's clear that the old ways of thinking about the video marketplace simply won't do. He writes:

As Brian Anderson and I point out in our new book, A Manifesto for Media Freedom, policymakers are still trying [to apply] a host of unique regulations to "old media" providers, including: various censorship rules, educational programming mandates, special campaign finance advertising laws, must carry regs, media ownership caps, broadcast "localism" requirements and various other "public interest" obligations, and much more.

Thierer hopes, and rightly so, that these "old media" regulations don't get carried over to "new media" platforms. That's an incredibly important point, because part of what has helped the growth in online video offerings is the relative freedom content owners have to use the Internet to experiment with different models of distribution. Will the Netflix model survive over the Hulu model? Will consumers purchase enough video content through gaming consoles to make that distribution model sustainable over the long term? Will YouTube's new offering of streaming entire television shows be a viable competitor to IMDB's new offering of both television and feature-length films?  Who knows?

But as Thierer aptly puts it, "Internet and digital video delivery is offering society an unprecedented abundance of media riches. They last thing we need to do is screw it up by laying on reams of regulation."