Deconstructing #Digital Obsolescence

Remember the video format wars of the 1980s? At one point, VHS and Betamax were running neck and neck in the consumer market, but VHS eventually won out (although the also-ran V2000 was technically superior to both). Since then, we’ve had similar format battles for games consoles, video discs, computer storage, CD’s and e-books. It’s the inevitable consequence of operating platforms trying to dominate content – a continuing trend which has probably reached its apotheosis with the launch of Apple’s Beats 1 streaming service. This convergence of hardware and software is prompting some contrary trends and, if nothing else, proves our suspicion of hermetically sealed systems…

about-format2

Trevor Jackson embarks on a format frenzy….

1. Digital Divergence

Earlier this year, UK music producer Trevor Jackson released a collection of 12 songs, each one pressed on a different media format: 12″, 10″ and 7″ vinyl; CD and mini-CD; cassette; USB; VHS; minidisc; DAT; 8-track cartridge; and reel-to-reel tape. Of course, he could have also used 78 rpm shellac records, digital compact cassettes, Digital8 tapes, 3.5 and 5.25 inch floppy disks (still available, I kid you not) or any of the multitude of memory cards that proliferate even today.

While Jackson’s “Format” project might seem gimmicky, it does demonstrate that many digital formats are already obsolete compared to their analogue counterparts (and until very recently, I could have played 8 of the 12 formats myself – but I’ve just donated my VHS player to our local DVD store).

As I have blogged previously, there is an established body of digital/analogue hybrids, especially in data storage, and I can only see this continuing as part of the creative tension between operating systems and content formats.

2. Digital Archeology

Each new hardware/software upgrade brings a trail of digital obsolescence (and a corresponding amount of e-waste). It’s also giving rise to a new discipline of digital archeology, combining forensics, anthropology and hacking.

Back in 2002, it was discovered that a 15-year old multimedia version of the Domesday book was unreadable* – yet the hand-written version is still legible, and available to anyone who can read (provided they can decipher 1,000-year old Norman English). Apparently, it has taken longer to decrypt the 1986 video disc than it took to create it in the first place.

More digital archeologists will be needed to mine the volumes of data that reside in archival formats, if we are to avoid losing much of the knowledge we have created since the advent of the personal computer and the public internet.

3. Digital Provenance

We’re used to managing our data privacy and computer security via password protection, network protocols and user authentication. If we think about it, we also question the veracity of certain e-mails and websites (phishing, scamming, malware, trojans etc.).

A while ago I blogged about the topic of digital forgeries, and the associated phenomenon of digital decay. Just as in the art world, there is a need to establish a method of digital provenance to verify the attributes and authenticity of content we consume.

We are already seeing this happen in the use of block chains for managing cryptocurrencies, but I believe there is a need to extend these concepts to a broader set of transactions, while also facilitating the future proofing and retrofitting of content and operating systems.

4. Digital Diversity

In response to closed operating systems, sealed hardware units and redundant formats, there are several interesting and divergent threads emerging. These are both an extension of the open source culture, and a realisation that we need to have transferable and flexible programming abilities, rather than hardwired coding skills for specific operating systems or software platforms.

First, the Raspberry Pi movement is enabling richer interaction between programming and hardware. This is especially so with the Internet of Things. (For a related example, witness the Bigshot camera).

Second, Circuit Bending is finding ways to repurpose otherwise antiquated hardware that still contain reusable components, processors and circuit boards.

Third, some inventive musicians and programmers are resuscitating recent and premature digital antiques, such as Rex The Dog‘s re-use of the Casio CZ-230S synthesizer and its Memory Tapes to remix their first single, and humbleTUNE‘s creation of an app that can be retrofitted to the original Nintendo Gameboy.

These trends remind me of those Radio Shack and Tandy electronics kits I had as a child, which taught me how to assemble simple circuits and connect them to hardware. (And let’s not forget that toys like LEGO and Meccano started incorporating motors, electronics, processors and robotics into their kits many years ago.)

 5. Salvaging the Future

Finally, as mentioned above, built-in digital obsolescence creates e-waste of the future. A few recycling schemes do exist, but we need to do a better job of reclaiming not just the data archives contained in those old disks, drives and displays, but also the materials from which they are made.

* My thanks to Donald Farmer of Qlik for including this in his recent presentation in Melbourne.

Next week: #FinTech – what’s next?

Will streaming kill the music industry?

The resurgence in vinyl sales is certainly not enough to save the music business. But will streaming finally cook the goose that once laid Gold Discs?

statistic_id273308_music-album-sales-in-the-us-2007-2014

US album sales (in all formats) are in decline. (Source:  Statista)

What can we learn from the music industry based on the apparent rebound of vinyl sales in recent years? Is streaming doing enough to halt the decline in total music revenue? Will CD’s soon disappear altogether? What future for LPs in a world of “Album Equivalent Sales”, “Track Equivalent Albums” and “Streaming Equivalent Albums”?

Are there parallels here with other content, publishing or entertainment sectors?

Back to Black

Last month the 8th annual Record Store Day was launched with a fanfare of upbeat data for vinyl sales. It was a good news story in an otherwise depressing saga of declining album sales, stagnating revenues, and mixed messages about the impact of digital downloads and streaming services on the music industry.

Coming off a very low base (like, near-extinction levels), the extraordinary sales growth of vinyl (especially in Australia) can be attributed to a combination of factors, although it is difficult to see how any single trend is responsible for this growth:

  • The growing popularity of Record Store Day itself (although it’s not without its problems – see below)
  • Baby boomers buying their record collections all over again
  • Hipster interest in analogue technology
  • Record labels mining their back catalogues
  • Niche market interest among audiophiles, collectors and the cool kids
  • New approaches to packaging vinyl with downloads and other bonus content
  • DJ culture
  • Secondary markets via E-bay and Discogs
  • Retailing switching from megastores to specialist shops

Infographic: Vinyl Comes Back From Near-Extinction (Source: Statista)

Where Is The Money Coming From?

Latest industry data suggests that digital sales (downloads and streaming) are now on a par with physical sales (CD, vinyl and the rest). Overall revenue has stabilised, having fallen from a peak in 1999. And streaming services are enjoying huge growth.

But the true picture is harder to establish:

First, while the IFPI provides global aggregated data, each local industry body (RIAA, BPI, ARIA etc.) likes to tell a different story from its national perspective. So it’s difficult to compare like with like. (For example, while Taylor Swift is supposed to be a worldwide phenomenon, she does not figure at all in the BPI data for 2014…..) One brave soul has tried to compile data for the past 20 years.

Second, because of the changes in distribution and consumption, music sales have to be counted in different ways:

  • Wholesale revenue vs retail sales
  • Physical sales vs digital sales
  • Per unit download sales vs streaming equivalents
  • Product revenues (e.g., album sales) vs licensing revenues (e.g., soundtracks)
  • Subscription fees (e.g., Spotify) vs per download revenue (e.g., iTunes)
  • Advertising income from video streaming vs royalties from broadcasting and soundtracks

Third, when more and more music is accessed via video platforms like YouTube, Vimeo, and Vevo, streaming platforms like Spotify, Pandora and Omny, or apps such as Bandcamp, Soundcloud, Mixcloud and Shazam, “sales” data starts to become less and less relevant. (And some people are still hanging on to the ailing MySpace platform….).

The bottom line is that despite the growth in streaming services, digital sales (in whatever format or media) are not yet enough to compensate for the continued decline in album sales in particular, and music overall:

The peak era of CD sales is over. (Source: Talking New Media)

Record Store Day Woes

The success of Record Store Day has divided opinion as to whether it is actually a “good thing” for the industry. It started as a campaign by independent record labels, distributors and retailers to revive the habit of buying records in-store. Labels produce limited edition and often highly collectible items for the occasion, and there are rules as to how, when and where these releases can be made available to the public.

At first, it really was driven by the independent labels, many of whom brought out interesting product that otherwise wasn’t available, such as label samplers, unreleased material and one-off artist collaborations.

Now, the major labels have jumped on board, meaning the market is flooded with unnecessary re-releases (do we really need Bruce Springsteen‘s ’70s and ’80s albums reissued on vinyl?) drawn from their extensive back catalogues (no need to pay for recording costs or new artwork!).

This means that smaller labels who release new vinyl records on a regular basis (not just once a year) get bumped from the production line, as the major labels exert their purchasing power over the pressing plants.

In addition, some Record Store Day releases are so badly distributed that stores are unlikely to take delivery of the items in time for the event. Or bad decisions lead to over-supply of certain items, which end up in the bargain bins (major labels again especially guilty of this offence).

Some store owners appear reluctant to participate because they feel embarrassed about the prices they may have to charge for many of the limited releases, which get bought by speculative customers, rather than collectors, fans and enthusiasts – a fact borne out by the immediate listings and inflated prices on E-Bay and Discogs….

As one store owner I talked to commented: “Every day should be record store day…”

What Else Does The Data Reveal?

For all the new young pop stars that the industry keeps churning out, there’s nothing like longevity and back catalogue to prop up the sales numbers. For example, Barbara Streisand was in the Top 10 for US album sales (and with new material!), and the likes of Pink Floyd, Led Zeppelin, Miles Davis, Bob Marley and Oasis feature in the top-selling vinyl records. Will Record Store Day 2025 herald the vinyl release of Justin Bieber’s pre-pubescent “demos”?

The decline of album sales has been particularly steep in the genres of Hip-Hop and R&B, while rock and pop continue to dominate the market. Some industry commentators have suggested that music sales are merely “in transition” as consumers switch from buying CD’s and downloading music to subscribing to streaming services. Meanwhile, in the US, country music’s #4 position by overall consumption reflects substantial album sales, as streaming is still a small component for the genre.

And those vinyl sales numbers? They’re simply a blip on the chart and largely driven by avid fans willing to shell out for deluxe editions….

The future is streaming?

Apple and others certainly believe (or hope) that streaming will save the music industry. Having demolished the market for CDs, iTunes is in a battle for its own survival among competing streaming services, where Apple itself is about to lead the charge having acquired the Beats platform.

But others are not so sure, predicting that streaming is already in decline, along with download sales:

First, the streaming platforms are yet to make a profit. Part of this is due to the cost of content that has to be licensed from the record labels and artists. Part is also due to the cost of acquiring customers, even if this can be done via social media, because the decline in music buying has been so abrupt, so the industry may be permanently damaged that streaming cannot bring back paying customers.

Second, even though streaming may overtake downloads by next year, there’s still nothing certain that teen pop fans (the target audience) will pay $7.99 – $9.99 per month to listen to music via so-called “freemium” services. Evidence suggests that consumers are happy with the free services, even if they have to put up with ads.

Third, while I agree that the freemium model is a fixture in the digital economy, the problem with Spotify et al is that they are not growing the market for music, but simply cannibalising it by displacing existing platforms (commercial radio, digital downloads, physical sales), while being tied to third-party distribution channels (the internet) and devices (smart phones, tablets and computers).

Anyway, subscription-based music streaming is nothing new, and was first launched over 100 years ago (and thanks to Mark Brend’s “The Sound of Tomorrow”, I learned that Mark Twain was the first subscriber).

If the “old” record companies are charging streaming services too much to license their content, then the streaming services should just find other sources – there’s plenty out there – but then, just like the major record labels, they are not really interested in music, only in shifting product and promoting “artists” (even if they are still figuring out how to make digital pay). The record labels don’t help themselves with their reliance on back catalogue, and their archaic territorial licensing practices either – forcing customers to circumvent geo-blocking barriers (legally or otherwise…).

Unfortunately, file sharing, illegal downloads and “free” streaming have meant customers don’t feel compelled to pay for digital music content. Personally, I prefer to curate my own listening, and not let someone else dictate what I hear, even if the service “knows” my preferences…

And the moral of the story is…?

More distribution platforms, more formats and more content may not be enough to save ailing industries, whether it’s music or television, newspapers or movies. These businesses will have to learn to live with lower margins and/or smaller market shares. The quality of a home-made movie uploaded onto YouTube may not be anywhere near that of a Hollywood blockbuster, but if cat videos are what grab punters’ attention (and by default, pull in the advertisers), the studios may have to find alternative strategies. And if music fans prefer to use free streaming services, the industry has to do a better job of producing content that consumers may be willing to pay for.

Ironically, in publishing, one sector that has been written off ever since the arrival of CD-ROM’s and the internet, teen consumers are still happily buying and reading print editions, alongside e-books. More so than other content industries, publishing has rapidly adapted to the new user-defined model: aspiring authors find it easier to self-publish (e.g., via Tablo and dedicated crowdfunding platforms such as Pubslush and Unbound); they can easily connect with an audience (especially in the realm of fan fiction); and a platform like Wattpad allows writers to test material before they commit to formal publication, and lets readers vote for what they’d like to read more of.

Next week: Making connections between founders and investors

 

 

 

Taxing the Intangibles – coming soon to a screen near you!

No sooner had Netflix launched in Australia than Treasurer Joe Hockey announced the imposition of GST on “intangibles” purchased from overseas vendors. The Treasurer has also indicated that the GST-free threshold for on-line imports will be lowered from the current $1,000. Dubbed the “Netflix tax”, Australian consumers should now expect to pay more for their digital content such as video, music, software and e-books, even though on most evidence, we are already charged more for comparable products than in other markets.

Geo-blocking is already an obstacle for Australian consumers…

Backdrop

We all know why the Treasurer has proposed this scheme: the Government has to make up for declining tax receipts, and appease the States who are squabbling over the allocation of GST revenue between them. Plus the current Senate inquiry into corporate tax avoidance by companies like Apple, Google and Microsoft (who divert locally sourced income to offshore entities to reduce their income tax liability in Australia) is driving the public and political agenda on global tax minimization schemes (which are nothing new, of course).*

But it’s not as simple as slapping an extra 10% on the price of a movie download, even though GST is a relatively easy and cost-effective way of generating tax revenue. For one thing, there is little consistency in how vendors currently sell their digital products in Australia. Secondly, geo-blocking is already an obstacle for Australian consumers, leading to the sort of content piracy infringement that will now make local ISP’s and their subscribers more vulnerable to legal action, following the recent “Dallas Buyers Club” court ruling. Thirdly, local retailers who have long campaigned to have the GST-free threshold removed or lowered fail to acknowledge why customers prefer to shop from overseas vendors.

Goods & Services Tax

GST (similar to VAT in Europe) is a simple consumption tax. It applies to the sale or supply of most items (except things like fresh food and health services) at a flat rate of 10%.

Even better, the Government and the tax authorities rely on businesses to collect, report and remit GST receipts, making it relatively cheap to administer (when compared to other taxes) via the Business Activity Statement process managed by the Australian Taxation Office.

The GST is a key topic of the current review of the tax system – likely to result in a higher rate (or different rates), and/or broader application to items not currently included.

Vendor Inconsistency

In principle, I don’t have a problem in paying GST on digital items I buy from overseas vendors – but there is so much inconsistency that there is a risk of consumers having to pay two lots of sales tax.

For example, every iTunes receipt issued by Apple Pty Ltd (an Australian entity) states that the sale amount already includes GST – in which case, Apple should be remitting that component to the ATO, and no need for a price increase.

However, Adobe chooses to invoice me from Ireland, and as such no GST (or VAT) is applied, but I am charged forex fees, even though the invoice amount is expressed in Australian dollars, because my bank treats this as a foreign transaction.

Meanwhile, although some UK vendors I buy from direct do not apply GST/VAT on my orders (Amazon UK included), others do – meaning I risk having to pay both the GST and VAT. As a further sign of vendor inconsistency, Amazon’s US store does not appear to deduct US sales tax for foreign customers; neither the UK or US Amazon stores sell music downloads to Australian customers; and Amazon’s Australian store only sells e-books and apps.

Geo-blocking

The decision in the “Dallas Buyers Club” IP infringement case brought by Voltage Films, has again drawn attention to Australia’s poor reputation for copyright piracy as evidenced by the number and frequency of illegal downloads.

Some journalists have commented that distributors often delay the local release of imported content (for various reasons) although this was not seen as a justification for piracy (and quite rightly so).

While foreign films are frequently released later in Australia, it’s interesting that TV (even free to air channels) has woken up to this, and now broadcasters rush to fast-track imported shows to keep audiences happy.

It’s also interesting to note that the Productivity Commission, as part of its competition policy review of IP laws, has suggested that if local rights holders and distributors choose not to exercise their commercial rights, under a “use it or lose it” model, third-party distributors would be able to step in. This also has the potential to undermine the archaic industry practice of geo-blocking, whereby sales of music, film and TV content (physical and digital) are restricted by territory.

Local retailers and distributors need to lift their game

Does the absence of GST really encourage consumers to buy from offshore retailers? I would beg to differ.

Local rights holders often do not bother to make content and products available in Australia. And local retailers won’t usually stock products if they are not readily available from wholesalers or distributors.

I recently had to contact an overseas artist, the UK record label and its Australian distributor several times to make their music available online in Australia. The local distributor had not bothered to release the content, even though they had the rights, but geo-blocking prevented me from accessing it legally from overseas suppliers.

It’s the combination of inadequate local distribution, non-availability, higher prices and lacklustre service that encourages Australian consumers to buy from overseas, even if that means circumventing geo-blocking. In many cases, I doubt the addition of GST will be a serious deterrent to online overseas shopping.

In my own case, I once found that the local branches of a global retail brand chose not to stock the item I wanted, and their US parent geo-blocked me from ordering on-line. So I resorted to buying in the “grey” or parallel imports market, from an offshore vendor willing to ship direct to Australia. It was still cheaper, even after shipping costs, and even if GST had been added (I probably paid US sales tax on the transaction anyway), than if I had bought from a local retailer (assuming they bothered to stock the item).

Hopefully, this debate on GST and the Productivity Commission’s review of competition policy will finally give local retailers an incentive to do a better job of serving their customers.

* The debate on corporate tax minimization might want to look at where “value” is created, and where the revenue is booked, that gives rise to a tax on the resulting profits. For me, the retail value of intangibles such as digital products is created when someone pays to download them, at the point of sale – i.e., in the consumer’s geographic location.  Although the vendor may argue that the IP is owned by an offshore entity to whom they must pay royalties, the individual download itself does not have any standalone value, until it is accessed by the consumer. Even a high rate of royalty repatriation could not be more than the retail price, so logic might suggest that local profits should be taxed accordingly.

Next week: What can we learn from the music industry?

F for Facsimile: What are ‘Digital Forgeries’?

Last week, I attended the 2014 Foxcroft Lecture, given by Nicholas Barker, entitled “Forgery of Printed Documents”. The lecture prompted the question, what would we consider to be a ‘digital forgery’?

Make Up

The lecture was an investigation into a practice that emerged in the 18th century, when reproductions (‘fac similes’ – Latin for ‘make alike’) of early printed texts were created either as honest replicas, or to enable missing pages from antiquarian books to be restored to ‘make up’ a complete work. In some cases, the original pages had been removed by the censors, for others the pages had been left out in error during the binding process, and mostly they had simply been lost through damage or age.

Other factors created the need for these facsimiles: the number of copies of a book that could be printed at a time was often limited by law (censorship again at work), or works were licensed to different publishers in different markets, but printed using the original plates to save time and money.

Despite the innocent origins of facsimiles, unscrupulous dealers and collectors found a way to exploit them for financial gain – and of course, there were also attempts to pass off completely bogus works as genuine texts.

Replication vs Authentication

Technology has not only made the mass reproduction of written texts so much easier, it has also changed the way physical documents are authenticated – for example, faxed and scanned copies of signed documents are sometimes deemed sufficient proof of their existence, as evidence of specific facts, or in support of a contractual agreement or commercial arrangement. But this was not always the case, and even today, some legal documents have to be executed in written, hard-copy form, signed in person by the parties and in some situations witnessed by an independent party. For certain transactions, a formal seal needs to be attached to the original document.

Authenticating digital documents and artifacts present us with various challenges. Quite apart from the need to verify electronic copies of contracts and official documents, the ubiquity of e-mail (and social media) means it has been a target for exploitation by hackers and others, making it increasingly difficult to place our trust in these forms of communication. As a result, we use encryption and other security devices to protect our data. But what about other digital content?

Let’s define ‘digital artifacts’ in this context as things like software; music; video; photography; books; databases; or digital certificates, signatures and keys. We know that it is much easier to fabricate something that is not what it purports to be (witness the use of photo-editing in the media and fashion industries), and there is a corresponding set of tools to help uncover these fabrications. Time stamping, digital watermarks, metadata and other devices can help us to verify the authenticity and/or source of a digital asset.

Multiplication

In the case of fine art, the use of digital media (as standalone images or video, as part of an installation, or as a component in mixed media pieces) has meant that some artists have made only a single unique copy of their work, while others have created so-called ‘multiples’ – large-scale editions of their work. (The realm of ‘digital works’ and ‘digital prints’ produced by photographers and artists is worthy of a separate article.)

Making copies of existing digital works is relatively simple – the technology to reproduce and distribute digital artifacts on a widespread scale is built into practically every device linked to the Internet. Not all digital reproduction and file sharing is theft or piracy – in fact, through the wonders of social media ‘sharing’, we are actually encouraged to disseminate this content to our friends and followers.

The song doesn’t remain the same

Apart from the computer industry’s use of product keys to manage and restrict the distribution of unlicensed copies of their software, the music and film industries have probably done the most to tackle illegal copying since the introduction of the CD/DVD. At various times, the entertainment industries have deployed the following technologies:

  • copy-protection (to prevent copies being ripped and burned on computers)
  • encryption (discs and media files are ‘locked’ to a specific device or user account)
  • playback limits (mp3 files will become unplayable after a specific number of plays)
  • time expiry (content will be inaccessible beyond a specific date)

Most of these technologies have been abandoned because they either hamper our use and enjoyment of the content, or they have been easy to over-ride.

One technical issue to consider is ‘digital decay’ (*) – mostly, this relates to backing up and preserving digital archives, since we know that hard drives die, file formats become obsolete and software upgrades don’t always retrofit to existing data. But I wonder whether each subsequent copy of a digital artifact introduces unintentional flaws, which over time will generate copies that may render nothing like the original?

In the days of analogue audio tape, second, third and fourth generation copies were self-evident – namely, the audible tape hiss, wow and flutter caused by copying copies, by using machines with different motor speeds, and by minor fluctuations in power. Today, different file formats and things like compression and conversion can render very different versions of the ‘same’ digital content – for example, most mp3 files are highly compressed (for playback on certain devices) while audiophiles prefer FLAC. Although this is partly a question of taste, how do we know what the original should sound like? With a bit of effort, we can re-process an ‘original’ downloaded mp3 into our own unique ‘copy’ which may sound very different to the version put out by the record company (who probably mastered the commercially released mp3 from studio recordings created using high-quality audio processing and much faster data sampling rates).

So, would the re-processed version be a forgery?

(*) Thanks to Richard Almond for his article on Digital Decay which I found very useful.