A Billion Bucks for YouTube?

by on October 10, 2006

Jim DeLong likes to talk about how strong intellectual property rights are necessary to allow small companies to do business with larger companies. As he put it in IT&T News this summer:

Without IPR, innovators have no way to deal with platform companies, who could simply take any ideas revealed and implement them. And even if the platforms wanted to compensate the innovators, they would be unable to, because any competitor could copy the innovation without payment.

The platform companies know it is in their interest to have innovators protected by strong IPR, because without these, people would not be willing to invest in innovative companies.

It seems to me that Google’s YouTube acquisition is a counterexample to DeLong’s theory. YouTube is an innovative company that secured several millions of dollars in venture capital and used it to create a billion-dollar company in less than a year. Yet as far as I know, strong IP rights have not been an important part of YouTube’s strategy. They don’t appear to have received any patents, and their software interface has been widely copied. Indeed, Google has been in the video-download business longer than YouTube, and their engineers could easily have replicated any YouTube functionality they felt was superior to Google’s own product.

It would of course be silly to claim that copyrights and patents are never important assets for a startup company seeking a corporate buyer. But I think DeLong seriously overstates his case when he says that entrepreneurship would be impossible without these assets. Like all businesses, most of the value in technology startups lies in strong relationships among people, not from technology, as such. Technological change renders new technologies obsolete very quickly. But a brilliant team of engineers, visionary management, and a loyal base of users are assets that will pay dividends for years to come. That’s why Google was willing to pay a billion bucks for YouTube.

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One Step Closer to Legalizing Online Gambling?

by on October 10, 2006

The Economist has an interesting editorial and feature article this week on the online gambling bill passed by Congress recently. The article makes the case–also made here–that the bill will do little to stop online gambling. It goes on, startlingly, to argue that the law could actually make legalization of online gaming more likely. The logic is that the bill has depressed the value of British online gaming firms, thereby making them more vulnerable to takeovers by their American cousins. The feature article concludes:

If such acquisitions come to pass, it seems more than likely that American online gambling firms would begin to lobby American politicians to legalise online gambling. Thus, America’s prohibition may ultimately have the unexpected consequence of moving the country one step closer to legalising online gambling.

I’m not sure this is a likely outcome, but it’s an interesting take nonetheless. Worth reading.

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WSJ Weighs in Against ‘REAL Bad ID’

by on October 10, 2006

This morning’s Wall Street Journal opinion page blasts Republicans for passing the REAL ID Act. [subscription required]

Keyed to a recent report showing the costs of compliance at $11 billion, the piece notes that all Americans will have to reapply for their drivers’ licenses and ID cards if states go along with this unfunded federal surveillance mandate. It also addresses whether a national ID protects against terrorism or provides effective immigration control and finds REAL ID wanting on both counts. My book Identity Crisis shows why.

Sooner rather than later, Congress will recognize its error in passing the REAL ID Act. Most likely it will try to kick the can down the road. Look for a quiet attempt to change the deadline for getting a national ID in everyone’s hands.

But that is not the solution. If Congress wants a national ID, it should have hearings, markup and pass legislation, then fund and implement a national ID itself.

Congress didn’t have a single hearing or up-or-down vote on the REAL ID Act. This much exposure would kill a national ID plan, of course.

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Civil Disobedience in France

by on October 9, 2006 · 22 comments

The New York Times reports on a protest against France’s new anti-circumvention law:

In mounting their protest, members of the group in Paris saw themselves as foot soldiers of the digital generation battling against ever-tighter controls over songs, film and all digitized culture.

Greeted at the police station by almost as many armed riot police officers as there were protesters, they explained their infractions to passers-by.

“Not only did I not use an iPod to listen to an iTunes song, but I transferred the film ‘Blade Runner’ onto my hand-held movie player,” Mr. Martinez, 28, said. “I am willing to face the consequences of what they consider an offense.”

By his own calculation, Mr. Martinez could face a fine of as much as 41,250 euros, or about $52,000, and six months in prison.

Mr. Martinez patiently laid out the case he built against himself, offering details about his infractions, which included switching music from one format to another and transferring the DVD’s to different players.

“They say the law is intended to stop piracy, but I am not a pirate,” Mr. Martinez said. “I support artists with legally purchased works, but I do not want to be forced to use a particular device to play them.”

This is a clever publicity stunt, but the problem is that Big Content is too media savvy to prosecute individual consumers. They focus their legal guns on the makers of third party media devices. As a result, the average consumer just knows his media devices don’t interoperate. He has no idea that laws like the DMCA and EUCD are responsible for the lack of compatibility.

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Microsoft’s New Security Problem: McAfee

by on October 9, 2006 · 12 comments

For years, Microsoft has come under heavy fire for not making its systems secure enough. Now, with the upcoming release of its new operating system (OS), Windows Vista, the company is being unfairly attacked by self-interested competitors for adding more security to protect consumers.

Back in 2002, when Microsoft co-founder Bill Gates announced that the company would be making security a priority, the computing industry responded with a collective, “Finally.” Thomas Greene, writing for the Register, reported at the time that “Bill finally admits that the company has wrongly emphasized whistles and bells over security, and decrees that this shall change.” He went on to say, “Hallelujah. He’s finally arrived on the same page as the rest of the computing world.”

Greene’s analysis would have been more accurate if he had written, “the rest of the computing world except for those who will lose business when consumers’ computing lives become more secure.” But Greene wrote long before McAfee decided to place a full-page advertisement in the Financial Times predicting doom and gloom if Microsoft is allowed to make its own product more secure.

[:]

Read more here.

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The Hits Keep Coming

by on October 9, 2006 · 2 comments

Avi Rubin quotes Walter Mancuso, a Republican Chief Judge in the September 12 primary in Montgomery County, Maryland:

Approximately a week after the primary I received a telephone call from the Montgomery County Board of Elections inquiring as to why one of the eight touch screen voting machines that we used on election day had recorded no votes, even though 55 voters were logged onto the machine. Neither I nor the Democratic chief judge had any explanation. The person at the [Board of Elections (B of E)] told me that they would investigate, talk to Diebold, and get back to me. After a week I called the Board and asked what they had discovered. I was told that at 6:50 AM (prior to opening the polls) that particular touch screen machine had been rebooted, and the memory card had been removed and reinserted into the machine. I was told that removing the memory card activated a security feature of the touch screen unit, and thus nothing was recorded on the memory card. By the way, no error message was displayed to indicate that that machine had been tampered with and thus should not be used. When we accumulated the votes on the zero machine after the polls closed, that particular machine reported than no voters had used the machine during the election. Thus, prior to talking to Diebold we assumed that the 55 votes were lost.

Rubin notes:

Walter goes on to explain the the board of elections used the hard drive of the voting machine to recover the 55 missing votes.

So, according to this, there is a security feature that causes a machine with a memory card that is ejected and then reinserted to not record any votes on that memory card. I don’t understand what security threat this is designed to counter. Even if a rogue memory card is inserted, how does not recording votes on that card protect anything? Furthermore, this introduces a new risk. A malicious poll worker (i.e. a malicious person who decides to become a poll worker to disrupt the election) could insert and remove each memory card at the precinct during setup. If you believe the message from Walter Mancuso, that would cause none of the votes in that precinct to be recorded anywhere except on the hard drives of the voting machines.

These machines are a disaster waiting to happen.

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The End of Movie Theaters?

by on October 9, 2006 · 4 comments

Mike Masnick notes another data point in the great King Kong debate. George Lucas thinks that the era of the $200 million blockbuster is over.

Spending $100 million on production costs and another $100 million on P&A makes no sense, he said.

“For that same $200 million, I can make 50-60 two-hour movies. That’s 120 hours as opposed to two hours. In the future market, that’s where it’s going to land, because it’s going to be all pay-per-view and downloadable.

“You’ve got to really have a brand. You’ve got to have a site that has enough material on it to attract people.”

…Lucas said he believes Americans are abandoning the moviegoing habit for good.

“I don’t think anything’s going to be a habit anymore. I think people are going to be drawn to a certain medium in their leisure time and they’re going to do it because there is a desire to do it at that particular moment in time. Everything is going to be a matter of choice. I think that’s going to be a huge revolution in the industry.”

I’m very reluctant to argue with the man who created three of the top 10 grossing films of all time, but this doesn’t seem quite right. People have been predicting the decline of the movie theater for decades, first in response to the television, and then in response to the VCR. It hasn’t happened yet. The reason, I think, is not only that the big screen makes for a better experience, but also that people like to go out, and seeing a movie is a good excuse for doing that. It’s the same reason that people go to bars when they could buy alcohol and consume it at home for a lot less money. As long as there are thousands of movie theaters, it seems to be there will be demand for big-budget blockbusters to draw people into them.

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Good News

by on October 9, 2006 · 2 comments

Matthew Yglesias notes Michael O’Hare’s prediction that consolidation of the newspaper business will be bad news for an informed electorate:

The traditional business model of a paper newspaper, in which readers’ attention is sold to advertisers by placing the ads next to news on a physical page, is broken. One fracture is a very broad withdrawal of public attention from anything that takes very long or much effort to engage with, from music to books and news; another is the IT-driven transformation of text from a product that can be denied to anyone who doesn’t pay for a physical object to a practically non-excludible public good. Still another is a phenomenon not fully understood, which is the much greater difficulty advertisements have drawing attention on a computer screen than on a paper page, evidenced by the flashing ads that now pop up screaming for attention over content on newspaper web pages. And we may also be seeing an example of “Baumol’s cost disease”, the steady increase of the relative cost of products like expert, competent, writing (music performance, in his example) that can’t take advantage of productivity improvements through technology.

When O’Hare says it’s difficulty for online ads to attract attention, he seems not to have heard of a little company called Google. It’s on track to earn $10 billion in revenues this year almost entirely by selling ads on computer screens. Google’s hundreds of thousands of advertisers don’t seem to be having any trouble getting users’ attention.

Given that most people still get most of their news and entertainment via non-Internet sources, there’s every reason to believe that the total size of the Internet advertising market will be an order of magnitude larger than that in a couple of decades. In a $100 billion market for Internet eyeballs, there should be plenty of room to pay people to do high-quality news-gathering.

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Creative Destruction

by on October 8, 2006 · 2 comments

Tower Records is going out of business. It turns out that in the 21st century, shipping little plastic disks to brick-and-mortar retail stores is not a very lucrative way to distribute music. I expect we’ll be seeing more announcements like this one in the years to come, as the Internet cannibalizes 20th century music distribution and promotional models.

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Property Rights Need Clear Boundaries

by on October 8, 2006

Dating a girl who reads Glamour has many advantages. One is that she always looks cute at parties. More importantly, though, she helps me keep abreast of the latest developments in the copyright debate. For example, she pointed out to me that the September issue has a pro-and-con feature on creating a new copyright for clothing design. The pro-copyright lady complains that “after a runway show, your designs are out immediately on the Internet and can be copied overnight. That means far more manufacturers can make a knockoff of your piece before your original has even gotten into the stores!”

The anti-copyright guy points out that once a fashion copyright was on the books, it would be almost impossible to determine which dresses are copying which other dresses. He points out that retro fashion has become quite common. Today’s hot styles are often imitations of styles from decades earlier. It would radically change the fashion industry if one company held the copyright to a particular style and was able to exclude others from imitating it.

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