March 29, 2011 · 7:27 pm

Amazon Cloud, Lawyers want to make it rain, Cloud already down

Just when it seemed like there couldn’t be any more exciting copyright news in one week, Amazon launches a cloud storage service aimed specifically at music. Copyright and music are simultaneously the best friends and enemies; we need copyright to have music (maybe), but the music industry has been spending more money on copyright infringement lawsuits in the last decade then they could ever hope to get back in the courts.

Amazon’s Cloud will surely lead the music industry back into court. It’s a free, 5 gig storage on the web that can be accessed from any internet device (except for iphones…), or 20 bucks for 20 gigs for a year. You upload your music, and it stays in your Cloud to be accessed wherever. Amazon has no plans to pay any content creators, which, if you ask me, is fine. Everything you upload has to be yours to start with, so I’m not even sure what the copyright claim could be, especially given Cablevision, which allowed essentially the same and more for television shows. But the music industry is apparently stunned by Amazon’s move, and now sitting with lawyers in wait hoping for somebody to find a flaw in a system that Amazon’s own lawyers no doubt spent months examining themselves.

I don’t actually think Amazon will see that much success with Cloud, though I admire their brash entry into a space filled with copyright timebombs. Amazon made a big mistake in not allowing access via an iPhone, though. I’m not sure what motivated that decision: Apple is obviously a competitor in music distribution but denying the value of mobile access to a huge number of your potential users is going to cripple the technology’s adoption rate. And it’s hardly like Google, purveyor of the Android platform on which a Cloud app will be released, is that much less of a threat to enter the mobile music storage space. Anecdotally I’ve heard that the upload client doesn’t work on Linux and the site for it crashes on Chrome, and it doesn’t work at all on Opera, so I’m not too certain this launch isn’t already a disaster. At least the copyright blogs are talking about it!

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March 29, 2011 · 11:19 am

Fair Use in Altering Photographs for Art – Why is this so difficult?

Big story in the copyright world is how a lower court judge recently tried to rewrite fair use, claiming that an artist who took pictures from another artist and altered them dramatically was violating copyright. Tons of blogs that touch on copyright have mentioned it, and Techdirt, overanalyzer of all things, is having a field day.

The basic details are that a prominent artist, Richard Prince, was sued for taking images from a book of photos of Rastafarians and altering them, under the guise of copyright infringement. Here’s a side-by-side, see if you can tell the two apart…:

Did you guess which one was Prince and which was the original? I’m guessing you did, and that’s kind of the problem with the original photographer’s argument to me: No consumer would ever confuse these two pictures, and the market for them is different (one of the prongs of Fair Use, and to me, determinative here). If I’m looking for a great photo of a Rastafarian to use in whatever sorts of things people in the market for Rastafarian photos do, I’m going with the left photo! I specifically do not want the photo on the right. If I’m an art connoisseur, I don’t want the picture on the left: I want the tremendous value added by Prince’s attention and critique.

But that argument leads to a pretty obvious problem: What if the guy making the picture on the right is the ONLY person in the market for the sorts of photos on the left? That’s essentially the larger argument that supports telling Prince to F off and pay a licensing fee, and it isn’t from this case, it’s from the AP vs Shepard Fairey, the case dealing with the Obama Hope picture. If you aren’t familiar with that case then I’ve probably lost you, but basically the guy who made the Obama Hope poster/shirt/bumper sticker/lunchbox based his image on a photo taken by an AP photographer, and the AP wants money as a licensing fee for using it. Their argument is: We pay photographers for their photos, and if 1 in a million is useful, we need to get paid for that useful one to make the system work. If the court analyzed business plans, they’d probably give that one a de no-no review (worst pun I’ll ever go for), but some people think the argument holds water.

My opinion is that, copyright at it’s core is intended to encourage the creation of artistic works without fear that they will be stolen and sold without permission, out of fear that such behavior would ruin the basic incentive to create works in the first place. It isn’t about getting into the market for a good you never envisioned creating yourself because somebody else used your work as source material and altered it completely (this is a view courts have typically supported, such as in the famous Roy Orbison/2 Live Crew case). It also isn’t about supporting crappy business models, such as the AP’s claimed structure of paying for thousands of photos on the prayer that one gets famous and they get a windfall licensing fee. The photographers in both the Prince case and the AP case had no intent to create the base for a work of art, and if you told them that none of their photos would ever yield a licensing fee for a famous work of art, they would take the photos anyway. They aren’t, after all, artists in that manner. The AP presumably made money from the photo as it makes it from all photos: they pay a very small fee to the photographer, and use the photo to add value to their story. The Prince Plaintiff made money as well: He’s selling a book of rastafarian photos like he intended when he took the photo.

I’m trying to think of a profession where you are encouraged to just run around, randomly produce things, with no specific monetization plan whatsoever, simply hoping that somebody else “steals” the thing and makes use of it (besides patent trolls… let’s please not make copyright into patent law!). I can’t think of a good reason to promote that sort of market, and I don’t think it’s a proper use of Copyright to defend works that fall into that unique scenario. Luckily, Prince is appealing, and I can’t imagine he will lose.

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March 27, 2011 · 11:22 pm

Color, Carmelo, blogging echo chamber

I’ve previously mentioned seemingly excessive amounts of money going to startups and briefly noted that it didn’t seem like a bubble to me. Well chalk one up for team bubble: Color, a social photo sharing app, raised over $40 million (from Seqouia and Bain) before launching a product. It’s turning heads because the concept isn’t really that awesome, the team seems above average, and otherwise there’s no explanation for why this crew received more money for a 0 user product than most million user products can raise. The biggest writeup on the deal is on Techcrunch, and their analysis is pretty solid.

Since just about every perspective on this has already been mentioned in the super quick blogging echo chamber since Wednesday, here are my random comments on the situation:

Buying talent. A lot of the commentary on the deals note that it may have been premised on the idea that these founders, no matter what idea they were working on, were going to be successful. This is an argument usually made in support of a big ticket acquisition rather than an initial investment, but obviously if you are an institutional investor looking to get a solid return, you might see a team like this and think that any investment is worth it so long as the valuation stays below the value of the founders to another company. If the talent here is worth $100 million, which it might be close to, then getting in at a $40 million price is a pretty good deal. A strange way to think about investing in companies, but maybe not that unsound given the random nature of startups hitting big anyway. It’s like how the Knicks gave up a ton to get the right to pay Carmelo a max salary: when you get a chance to invest in a big talent, the price is basically anything reasonable. Even if the end result isn’t clear (the Knicks can’t play defense, Color doesn’t have a product), the talent might be worth it.

Buying cache. Bain Capital threw in $9 million in the deal. They’ve had almost no presence in the sillicon valley world, so maybe they just want to make some noise, and nothing made more noise than investing in Color at this moment. Probably won’t really improve their portfolio in the short-term, but it’s probably a strong play if they want to move into more startups. If not, then it’s a really odd move.

Sequoia knows something. This seems like a conspiracy theory, but maybe Sequoia, the one who made the largest bet on Color, simply knows something about the market or the team that changed their normal calculus on making investments.

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March 23, 2011 · 8:25 pm

Anonymous, no more

I’ve always been a fan of the hacker group Anonymous… or at least, until recently. Anonymous, the large group of moralistic hackers who have terrorized the church of Scientology and most recently companies who withdrew support from wikileaks, made more mainstream news when they hacked Gawker and stole millions of email addresses linked to users.

That’s where I lost them as a supporter. I appreciated their hacking of the mega companies as a form of protest against pulling support for wikileaks (a stand that, if illegal, was at least principled). And plus, all it really did was shut down the websites of a few companies with DDoS attacks, which a site usually recovers from pretty quickly and causes little long-term damage. But attacking Gawker and releasing private information of innocent people for no reason? That’s just meaningless harm.

A few days ago somebody may have gotten their revenge for the Gawker hack, and it may have been for the same reasons. A member of the group apparently leaked chat logs and personally identifying information of lead hackers to Gawker in a sort of karmic retribution. The logs, if real, display the paranoia and egocentric nature of a pseudo-hierarchical group of hackers, and basically little else. They reference hacks they’ve made, they freak out once when they think they’ve been made, and that’s basically it. The logs might be fake, sure, but based on how boring most of the chats are, I’m more inclined to believe that a fringe member just scraped up every log they had and thought it might be enough to give him credibility as a snitch.

It’ll be interesting to see if the information purported to identify the hackers pans out, but in the meantime it looks like Anonymous is still alive: They may have just attacked another website today.

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March 16, 2011 · 11:15 am

Luxury goods, virtual goods, and the massive disparity of wealth in the world

Virtual goods are becoming a huge industry, and there’s no reason to think it’s just a fad given the penetration of technology and the internet in our lives. This year, the virtual goods market is projected to reach $2 billion dollars, more than $800 million of it coming from social games [edit: those are U.S. numbers, btw. The entire global market is much larger]. Those are pretty massive numbers, and virtual goods could very well be a $5-10 billion dollar industry by 2020.

There’s a bunch of interesting things about the virtual goods industry:

– It’s got crazy high margins. CRAZY high. Zynga, the most prevalent and dominant company making facebook games, was recently discussed as being the most profitable company ever, with a profit margin of 47% (for context, Apple and Google are around 30%, Amazon is around 5%, and the previous record might have been Chanel at 45%). [http://read.bi/fsBlIJ]. Helps when you sell things that don’t actually exist.

– That’s all we REALLY know about the industry so far. May sound a bit dismissive, but really, it’s a very young industry and the economics of it are still being examined as the market changes, as new competitors arrive, and as the industry grows to new non-facebook non-second life sectors. Part of the reason for this lack of wisdom is:

– It’s unregulated. At multiple levels, this rather large industry is controlled entirely by private funding, but many of the companies are getting big enough to sit in an awkward space of having a near-public secondary market for trading stocks. This is bound to go badly, and most people seem to think it will pretty soon: as you can see in the article linked above, the huge valuations and margins these companies are drawing is leading to a lot of investment in the companies AS IF they were public, but without the oversight or reporting requirements of public companies. Board members are the venture capitalists who invest in all manner of companies to get an edge on the industry, and the information disparity between those professionals and the everyday man who ends up invested through the secondary trading market is massive. One of these companies is bound to tank, leaving regular investors with shares of a worthless, revenue-less internet company after all the sophisticated VCs jumped ship. And that will be quickly followed by regulation.

– It’s a luxury goods market that caters primarily to the middle class. Most of the users of the most successful virtual goods application to date, Farmville, were middle age women. I don’t know the income distributions of virtual goods purchasers across the whole ecosystem, but I don’t imagine they are any more well-off than the average middle-class American. Virtual goods, as I think most would agree, are a luxury good. Maybe a strict economist would point out that we don’t have enough data to know about the elasticity of the demand in the market, but something tells me the first thing most people would cut out of their budgets in a time of crisis would be their virtual tractor oil or new shirt for their avatar. The goods don’t even EXIST, it’s perhaps the most ‘luxury’ good ever. So this is an industry that makes pure luxury goods, selling to the middle class, during probably the worst recession in the history of the United States. And it’s working. Investors will pay anything to get a piece of it.

I originally titled this post as if I was going to make a critique of this pattern in human society, noting the strange disparity in wealth in the world when one society is spending billions of dollars on nonexistent goods while others die of starvation and disease and war… but I’m actually not so sure spending money on nonexistent goods is any more ridiculous than spending money on any other luxury. Is paying $400 for a handbag really much better than paying $2 for a different set of pixels? I’m not advocating either form of discretionary spending really (both seem like a borderline moral wrongs for a society with massive unemployment and legions of medically uninsured), but perhaps the virtual goods are actually better: at least they never go in the dump, and most of the virtual goods are made in America! Maybe that will reduce those unemployed and uninsured numbers by 2020.

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March 15, 2011 · 9:42 am

Domain seizure madness, I hate Time Warner

The hottest topic on a lot of legal/internet blogs centers around the Department of Homeland Security seizing a number of domain names back in February. [http://bit.ly/gXs5ih]. The basics are that the Department, along with Immigration and Customs Enforcement (ICE), nabbed hundreds of domain names and claimed legality under criminal copyright infringement (what are either of these organizations worried about copyright for? great question…). This, not coincidentally, happened right before the Super Bowl, and basically seemed like an attempt to shut down a bunch of sites that were blatantly infringing copyright by streaming sports. Only problem was, they used a rather un-fine tooth comb to pick the sites they were taking down, clearly operating under a “too much is never enough” philosophy. So they basically took down a bunch of sites with no infringing content in a move that obviously lacked sufficient due process, given the scope of the takedowns. Here’s what a seized domain looks like: http://www.atdhe.net/

I’ll admit freely that I found atdhe.net last year when I lived with no cable, and that leads me to the real issue here, because I’m not going to take a stab at every due process, free speech, property and copyright infringement issue implicated by all of ICE’s nonsense (it is all very new territory, and exciting, but there are no clear answers at this point anyway). I’m an avid sports fan, and last year I was presented with a choice: pay 60 bucks a month for cable and more for sports packages (for the NBA and NFL packages, the cost would have been in the hundreds), or search the internet for streaming sites where I could get relatively low quality feeds instead. So I streamed the internet, and basically got better access to the content I wanted for free, at the cost of quality.

This year I decided to splurge on cable with the most basic sports package, and it is absolutely and completely the biggest rip off on the planet. I’m pretty fluent in the moving parts that bring us the cable industry as it stands today: the justifications for the artificial monopolies, the last-mile problems, the copyright issues. If you don’t know what any of those things mean, the bottom line is that cable will never, ever improve its product until we have super bandwidth that can transmit an HD signal wirelessly from outside your home to your television, allowing somebody (google? apple?) to break the monopolies. There’s a perfect confluence of flawed economics, a lack of competition, lagging technology and a sprinkle of copyright law that keeps us stuck with the same operating system on our cable networks that we had in 1998, paying money for 200 channels nobody watches, and trying to justify paying so much to watch only 2 or 3 channels 90% of the time.

Even though I don’t frequent them any longer, I hope streaming sports sites surge back stronger than ever, and I hope somebody audits ICE to figure out how much time and money they are wasting helping make sure the NFL gets it’s ad revenue.

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March 14, 2011 · 4:43 pm

Understanding Rovio, the Amazon App Store, and too many cross promotions

Pretty much every site that reports on social games is saying, today, that Rovio is launching their next Angry Birds (Angry Birds: Rio) game on the Amazon app store.

Venturebeat noted that Rovio has an exclusive deal with Amazon for… something. Fortune is completely off-base in claiming that piracy issues on Android have something to do with it (which would make sense if Rovio wasn’t releasing their next game on Android, but they are), and PC magazine can’t get the proper nouns right in their initial post on the issue, apparently thinking Amazon and Android are synonyms when such a reality would render the story pointless. And a bunch of people retweeted all of these stories for no apparent reason. (Twitter also announced it is seeing one billion tweets a week, today, and at least 30% of them are retweeted, crappy blog posts).

First, Rovio isn’t going to give anybody an exclusive to their next big game. They did just fine making money having all of their apps on all of the major platforms, and there would be no sense to reward a game or feature that might potentially bring them money to a platform with no users (Amazon’s app store). Amazon is the first platform to go after any sort of exclusive (though it’s hard to tell what they actually got based on the “journalism” on the topic so far), but I wouldn’t expect Apple or Google to start going after exclusives anytime soon; exclusives only really make sense in the console world, and that’s because they drive console sales (at a loss for Sony and Microsoft), which then recoup money through selling 2 cent CDs for $60. The mobile platforms just take 30% off the top, and neither have shown too much interest in their games development anyway.

Second, Rovio will probably send their next app to Amazon’s portal for a week, then release it on everything else. They did that for a site with one of their previous games, and I’ve never heard of the site again. Amazon is probably hoping for a bit more success, but I’d be surprised if it works. Mobile apps already struggle with user discovery, so requiring users to go find and install another app market on their phone before installing Angry Birds: Rio is really asking a lot of a fanbase that probably isn’t completely savvy with the debates regarding the best app markets.

Third, this is too many promotions. The next game is Angry Birds, Rio (promoting an animated children’s movie), exclusively on Amazon app store. I wonder how the company behind Rio feels about Rovio releasing on a platform that surely doesn’t cater to their target audience for the movie. How many people who want this game and have an Android phone will be able to find it in that window of exclusivity?

Finally, Angry Birds was one the best games of last year, across all platforms. It was clever, it was hard, and it was capable of being played for 5 minutes or 50 minutes at a time, a truly rare combination of attributes. So I’m prepared for this next game to suck, and I’m already forgiving them and looking forward to Angry Birds 2. (the other best games of last year were Heavy Rain, Limbo, and Mario Galaxy 2, btw.)

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March 12, 2011 · 1:38 pm

Kobe throws a game on purpose to make a statement

I’m a lakers fan, and as such I’m likely to overanalyze the behavior of Kobe Bryant. Here’s my latest theory: Kobe threw the Lakers last game down the stretch. For those who didn’t see, the lakers were visiting the Heat, who had just been widely reported to be crying in the locker room after a close loss to the Bulls. The game was close the whole way, with the Lakers doing a pretty decent job working inside-out through their big men, who were guarded by undersized or untalented players the whole game. Kobe knew that was the way to win, keep feeding the post and pressing their advantage. But, instead, Kobe takes a number of terrible shots down the stretch, hogging the ball and going one-on-one with Wade for most of the 4th quarter. He later tried to justify some of the shots [http://bit.ly/hfPhOW], but Kobe is a pretty smart guy, he knows going one-on-one with an All-Star is not the best approach to attacking a defense.

So my theory is that Kobe did it on purpose. Now, I’m more than capable of admitting that Kobe can just be a ball hog who abandons the offense at points. But this game was different for two reasons: The Heat were getting slammed in the press for crying after the Bulls loss, and Kobe went out after the game and shot around for 2 hours, until midnight when they forced him off the court, because he wanted to work on his shot after the loss. This was Kobe making a statement that he could only make in a loss, and he set it up for himself perfectly. The story now is about how Kobe has a crazy motivation, a drive unmatched in the NBA and its why he has 5 titles. And Lebron is a crybaby. If you told Kobe that all he had to do was shoot 2-11 in the second half of a relatively meaningless regular season game, then go shoot for 2 hours after the game and in exchange he might get a lasting anecdote about his legendary work effort while also making Lebron look like a wimp, he would at least consider it.

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March 11, 2011 · 3:39 am

Startup Bubble, Fetishism, Yuri “Ozymandias” Milner

Lot of talk around the good ‘ole web these days about whether there is a startup bubble, or a valuation bubble, or even if society has developed a fetish for startups. While people have considered these issues for a while (or maybe just since Groupon turned down a multi-billion dollar offer from Google), the real tipping point in the conversation seemed to be when Yuri Milner and Ron Conway offered all Y Combinator startups $150,000 on generous terms (convertible, no cap, no discount). This stood as evidence to many that the startup/VC ecosystem has gone out of whack, and the dreaded word “bubble” started to creep into the conversation.

There’s a great piece profiling Milner on Forbes.com right now, and it generally summarizes Milner’s basic strategy. [http://bit.ly/fVJ8CJ]. In case you couldn’t guess from his multiple, near-blind investments in Y Combinator companies, Milner is taking a bunch of stabs at low-cost high-risk bets. I think it makes a lot of sense that rich investors want to go to startups through VCs and, more increasingly, as angels. As the stock market has yielded bad to really bad returns, why not move in on cheap lottery ticket investments? With about 40 Y Combinator startups, it’s only a $6 million investment for potentially 5-10% in any of the companies that raise money in a venture round. With better systems for moving private stock developing over the last few years, Milner doesn’t even need to see profit from any of the companies to have his bet pay off: if one company is overvalued he can probably get out and recover at least a solid chunk of his investment, and if one of the companies turns into a lolapps or a playfish or an admob, he makes a great return. But that’s only half the story with Milner. He just made friends with the CEOs of 40 hot young companies, a pretty solid friend list for a guy who sits around watching multiple TVs as a means of gathering information about the US economy like Ozymandias so he can make smart internet investments (see the Forbes article, detailing his obsessive research habits). That’s probably worth the $6 million to him alone.

You could argue that Milner isn’t overvaluing these businesses, he is just counting on the market to overvalue them. Is that a bubble? Maybe. But more likely he is just counting on the information he can glean from these 40 companies to make him profit elsewhere, such as helping him decide what to do with the 10-20% he owns in Facebook, Twitter, Zynga, and Groupon through DST. Or think about it this way: if seeing these generous terms in seed funding pushes investors to want proven entities rather than offer deals on Milner’s generous terms, won’t that just drive up the price of stock in companies Milner already owns?

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March 9, 2011 · 3:19 am

Zynga wants to trademark ‘Ville, and why not?

Apparently Zynga filed for a trademark in the name “ville” in Europe. [http://bit.ly/eE0fId]. Probably strikes many as extreme (Techdirt thought so), but I’m in support.

I actually wrote a paper about idea theft in the app market (I included Facebook games, since they are so similar to the things we traditionally think of as apps) for a law school seminar and, for the most part, copying on these platforms is rampant and difficult to stop. Can’t copyright or patent a game concept, and yet consumers are presented with knock-off applications hoping to make a dime on a consumer’s confusion constantly.

A trademark is one of the few routes open to a social game company hoping to prevent a copycat from taking advantage of a brand they spent money cultivating by launching a knock off meant to confuse consumers. And as I’m sure the trademark is only for things classified as electronic games, who would we worry about such a monopoly hurting? Isn’t one of the main justifications for trademark that we don’t want businesses free-riding on a brand developed by another company… which is exactly what a company launching an electronic game named “____ville” would be doing?

To further develop the point, Angy Birds had 3 or 4 knock-offs ripping off customers at any one time at it’s height. I’m sure the ripped-off consumers wouldn’t have been upset if you told them that Rovio had gotten a trademark in “[Emotion] [farm animal]” if it meant they got their money back.

 

 

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