Where does your entertainment dollar go?

Where does your entertainment dollar go? How much should you be paying for music, movies and cable television? You would be surprised to find out how much of it is not going to the places you want it to go.

This article proposes a new method of distributing media that benefits the people that matter the most: the content creator and you, the customer. It is called Collaborative Content Distribution and it could save US citizens $85.4 billion dollars a year in cable and Internet fees…

Understanding Collaborative Content Distribution

Regardless of your nationality, race, gender, or political views, at some point you have the need to sit down and unwind. Whether you unwind by reading a book, playing games, listening to the news, watching a television show or experiencing a movie for the first time, you do so with your hard earned money. You are also, whether you realize it or not, putting food on somebody’s table. In fact, you are putting food on hundreds if not thousands of tables with one flick of the TV remote or one nod of your head while listening to a song you purchased. This has been a largely one way process for centuries. It is the standard producer-distributor-consumer model and it is changing. We can see the change clearly through how we use the Internet and software today versus ten years ago. We are at the beginning of a fundamentally world-changing shift in media dissemination – the birth of collaborative content distribution.

To understand collaborative content distribution it is important to identify how we got here – how did the Internet and software help us make working with each other easier? We communicate far more often with each other than we did a decade ago. Rather than go into the technical details, let us focus on the Internet and software at a high level. Namely the Free Software Movement, Collaborative Content Editing and finally Collaborative Content Distribution.

So, why do we collaborate? …

The Economic Advantages of Specialization

Communities have collaborated for the greater good for millenia – specialization is fundamental to a society that wants to become more productive. At first, it was about survival which gave way to more complex economic incentives. You only need one good blacksmith, doctor and bread maker in a small village. As the village grows, you still need but a small fraction to specialize in performing a specific task. These specializations grow as a society expands its capabilities. For an example of this, you need only look at the numerous types of accounting, law and technology firms that exist today.

Specializations come and go, what was difficult to accomplish ten years prior may become common place over the course of a decade. Creating a simple electronic commerce website was an expensive enterprise in the mid 1990s requiring tens of thousands of dollars in investment. Today, you can put an online store together for a fraction of that thanks to eBay and PayPal.

The specializations that are of value are usually backed by a strong economic reward for specializing. Typically, if you can do something better than anybody else, you are rewarded in some financial way for providing this service or good to others.

Financial rewards, however, are not the only way to reward individuals and groups. Sometimes, social rewards are far more effective…

Social Rewards – The Free Software Movement

In the case of the Free Software Movement the economic reward is expressed as a social reward – not a financial one. The Free Software Movement is a good example of a social reward system and has been around for the better part of 20 years. Its roots can be traced back to the early 1980s [1].

The word “Free” in Free Softare Movement means something very specific. Free means the freedom to view and modify the product. Most Free Software Movement product is not sold, but given away at no cost. This includes everything, documentation, source code, any intellectual property – it is a very open process.

In this movement, software developers from around the globe collaborate on thousands of projects involving millions of lines of code to create programs to help others. Sometimes the Movement creates a vital piece of software, sometimes the creation is more representative of a bowel movement.

In either case, this software is usually given away for free (as in cost), and anybody is welcome to modify the product and re-distribute it (Free as in Freedom). You use software from this Movement, even if you are unaware of its presence in your daily life. This website, along with many more on the Internet, is running on a very stable base of free/open source software… the GNU/Linux operating system.

Most websites are running at least one piece of free/open source software – the Apache web server [2]. Who pays for the Apache web server’s development? Nobody pays for it directly, however it still does have a positive financial impact on business. I can assure you that open source development has a very big social impact as well – the people that work on high profile open source software are as close to heroes as you get in the software world [3].

But, who is paying for it? Nothing happens at no cost – and in the end, it is the software developer’s employers that are paying for the development of free software. The software companies are the ones writing the developer’s checks. This is a good thing as far as most employers are concerned, the more free software that can be utilized to build their business, the more competitive advantage they gain. Some businesses are built on providing services around free software – IBM is a good example of this model. In the end, it is the employers that pay for free software development because they do eventually see a return on their investment.

Most of this collaboration happens over the Internet. In fact, the Free Software Movement would not have gained as much traction as it did without the Internet.

This movement, along with several others like it, gave rise to a new form of Internet-based collaboration…

Collaborative Content Editing

The second stage of Collaborative Content came about when collaborative editing became mainstream. Sites like Slashdot, launched in 1997, were instrumental in pushing collaborative content editing systems to the mainstream. Shortly thereafter blogs started to become main stream, which has started to shift how people get their news. These base set of features were further enhanced by sites like Friendster, MySpace, YouTube and Digg. In each example, the core content for the website is created not by the site operators, but by the community surrounding the website. For example, personally created videos are uploaded to YouTube. MySpace and Friendster are websites dedicated to a personalized web pages and friend networks. Digg’s entire submission and moderation process is run by their community of readers.

So, who is paying for and benefitting from the Collaborative Content Editing sites? This is where it starts getting tricky. In general, these sites do not share revenues with their content contributors and editors. There are some that are starting to share revenues. Sites such as Revver and Metacafe are showing great promise, but we think there is more to this whole collaborative creation and editing landscape than giving away your content. The content is worth something – in some cases, such as YouTube, the content is worth a great deal of something. To the tune of $1.5 billion dollars.

That something is advertising – the bread and butter of most Internet-based sites. This concept is not new – wherever there are eyeballs there is a stream of advertisers standing in line, waiting to pitch their product to all of those eyeballs. Take away the content and those eyeballs disappear. A clear example of this happening was when MySpace crushed Friendster’s user numbers in a matter of months – the eyeballs follow the content and the community. Hold on to this thought, it is important to understand how eyeballs translate to cash.

Super Distribution

Blogs and news sites are one thing, but what happens when the content is too large to be distributed by a single website? What happens when we want to send movies, television and high definition video over the Internet? YouTube, Metacafe and Revver is not what I’m talking about – I’m talking about REAL HD video – entire DVDs in a single transfer.

Super Distribution has been around since Napster 1.0, but no one company has truly figured out how to capitalize on this and make it fair to everybody involved in the process. Kazaa, GnuTella, eDonkey, Morpheus, BearShare, Limewire, BitTorrent and other such companies fall into this continuously churning tumult of copyright issues. Some of them tried selling advertising to stay afloat – they had the eyeballs. The only wrench in the works was that most of the content that they were using was not properly licensed. They were all violating copyright law. That is not fair to the content creators, and so most of the first generation of super distribution services that did not comply with copyright law were shut down.

The Methods of Internet-based Media Distribution

Currently, there are two different methods of creating content and distributing it via the Internet. In each method, there are three important roles: the content creator/owner, the content distributor and the content customer.

In Collaborative Content Editing, the content creators can be anybody, including you. The content distributors are the website where the content resides, such as MySpace or YouTube. The content customer is anybody that visits the website. Collaborative Content Editing does not remunerate the content creators but it does reimburse the content distributors via advertising revenue.

In Super Distribution, the content creators are usually professional artists or teams of artists, but can be anybody with talent (talent being a relative term). The content distributors are regular people on the Internet, people that are running programs like BitTorrent. The content customer is anybody that downloads content from the network. This method does not remunerate the content creators nor does it remunerate the content distributors.

In both cases, somebody is being shortchanged. So what are fair distribution terms and how do you ensure fairness throughout the process? Is it possible to be fair to everybody involved in the process, and what would that cost? Would it be more expensive or less expensive?

Enter a third method, Collaborative Content Distribution…

Collaborative Content Distribution

Collaborative Content Distribution ensures that all parties are treated fairly – something that is lacking in today’s current environment. This is where we get down to the nitty-gritty and for that we will need to compare and contrast a traditional distribution channel with a distribution channel that uses Collaborative Content Distribution, such as Bitmunk.

Basic cable television is a classic example of a traditional distribution channel. A large television network acquires and produces content. This content is streamed to affiliates and then broadcast to viewers. This is a very uni-directional process – it is corporation to affiliate to consumer.

Let us start looking at some numbers. As of October 2005, there are 92 million homes in the USA that subscribe to expanded television of some sort (cable or satellite)[5]. A ballpark average monthly basic cable bill for television content is around $50[6]. This means that the cable industry makes around $55.2 billion dollars a year on basic cable packages alone. The advertising industry dumps close to $36.8 billion dollars a year into cable and network television[7]. Combined, that is $92 billion dollars per year to deliver basic cable television content to the United States of America. That means that each cable TV household spends roughly $1000 per year on television. That figure includes advertising subsidies. When you buy a bottle of shampoo, part of that money is going back into selling you more shampoo via television advertisements.

The average American spends 2.58 hours per day watching television[8], the average American household contains 2.55 people [9], so the average number of hours viewed per household per day is around 6.58.

All those numbers are great, but what does it mean? If you are the average American household, you are paying roughly $392 per person, per year for television ($1000 per household per year on television/2.55 people per household = $392 per person per year). Breaking that down further, you spend about $0.42 per hour of entertainment ((2.58 hours per day x 365 days per year) / $392 per person per year). Paying $0.42 per entertainment hour sounds pretty good, doesn’t it?

Let’s really see where that money goes…

Follow the Money Trail

We now know that you spend roughly $0.42 per hour of television that you watch. Keep in mind that the content that you see is riddled with commercials. You don’t have any rights to the content other than recording the program and watching it at a later date. You do not get to keep the content unless you have a TiVO-like device.

One figure that we do not have yet is how much the content creators are getting paid. In other words, what are the artists getting paid? Unfortunately, I couldn’t find that figure but we can safely assume that the television content creation industry is not as large as the movie box office and rental industry, at $27.7B/year [10,11]. This would mean that the artists get around 30% of what you pay – the remaining 70% is devoured in distribution costs ($27.7B per year / $55.2B per year + $36.8B per year). In other words, of the $1000 each cable television household spends on entertainment per year, $300 gets split between all of the artists and a whopping $700 goes to the cable company.

Collaborative Content Distribution questions whether this is fair. It is true that the cable industry has invested billions of dollars in distribution infrastructure for cable television. Then again, so have the telecom companies that provide your Internet connection.

As of June 2005, a typical DSL connection in the USA was priced around $32 per month [12]. If you have basic cable at $50 and a cable modem, the price of your cable service jumps to around $91 per month[12]. Of that $91 per month, only $15 go to the creators of the television programs that you watch (30% of the $50 basic cable fee). It will eventually be possible to legally stream all of your television shows via the Internet, therefore you could save $44 per month by ditching your cable service entirely ($91 for basic cable and modem – ($32 for DSL + $15 for content royalties) = $44 in savings per month).

Let me repeat that – you could save $44 per month or $528 per year by getting your video content via the Internet instead of via basic cable. That is a savings of $48.5 billion dollars a year for all cable television based US households.

If there is no cable television provider, who is going to distribute the content? This is where Collaborative Content Distribution comes in – in the CCD model, it is you that distributes the content. You get the content either directly from the content creator or a distribution source for the content creator. Legal peer-to-peer distribution takes care of the rest.

In the end, how much do you end up paying? Well, there is $32 per month for DSL and there is $15 per month for the content creators. We have not set a price yet for the content distributor because that price could vary widely – your download would be provided via a free market. The content distributor, who is another peer on the network, could charge anywhere from nothing (if they are one of your friends) to $15 per month. Let us assume an average price of $15, although this price would be cancelled out if you provided the same service to other peers on the network. Which puts us back at your total cost being $47 per month instead of $91 per month.

There is one last thing, we haven’t factored in advertising yet. The price above is for commercial-free downloads. If you agreed to have commercials integrated with your downloads, advertisers could pay you directly. If we average advertising on a per household basis, it would provide you with a $33.33 credit towards your television watching ($36.8B per year in advertising / 92M households with cable television / 12 months = $33.33 credit per household per month).

Your monthly television AND data services bill would total $13.67 instead of $91.00 ($47 per month for data services and television content – $33.33 credit per household per month due to advertising = $13.67 total cost for data services and television content).

The US economy could save $85.4 billion dollars per year under this scenario. More importantly, you would save $77.33 per month on your data services and cable bill. This outlines a very clear advantage to transition to Collaborative Content Distribution models…

The short road to Collaborative Content Distribution

There are several things that are needed for Collaborative Content Distribution to become successful:

  • The content providers must start offering their content to more than just the cable providers. Exclusivity is no longer in the best interest of the content creators.
  • A technology platform, Bitmunk being a prime example, must be created that can remunerate the proper parties accordingly. These parties include content creators, content distributors and content customers.
  • Services must be launched via the Internet that allow television-like shows and lineups. When it comes to television, content is king.

Let us review what Collaborative Content Distribution achieves:

Service Traditional Cost CCD Cost
Television Content $50.00 $15.00
Data Services $41 $32
Advertising Credit $0 -$33.33
Total Cost $91 $13.67

We can clearly see that

  • Collaborative Content Distribution is far more efficient than traditional content distribution models.
  • There is no advertising required to make Collaborative Content Distribution more cost effective than basic cable services.
  • All of the technological hurdles have been successfully navigated.
  • The only remaining issues are ensuring that the older business models and corporations can have a smooth transition to the new Collaborative Content Distribution models.

I hope you have enjoyed reading this analysis on Collaborative Content Distribution as much as I enjoyed writing it. The world has entered a brave new frontier in digital content distribution and the industry is not as far from the goal as it may seem.


About the Author:
Manu Sporny is the CEO and President of Digital Bazaar, Inc. – creator of the Bitmunk digital content distribution service. He spends most of his time trying to make the world a better place through Digital Bazaar. December 2006 is here. Being an avid snowboarder, he is spending an increasing portion of his time wondering how many inches of snow will fall this winter – as he longs to shred some sweet, sweet, powder.

Creative Commons License
This work is licensed under a Creative Commons Attribution 2.5 License. If you would like to post the story in full or in part, including modifications, on your website, magazine, blog, or any other form of media, make sure that you state that this was an article written about Digital Bazaar and Bitmunk by Manu Sporny, CEO and President of Digital Bazaar, Inc. If possible, include a link to the original article.

References

  1. The Free Software Movement
  2. Netcraft Web Server Survey
  3. Time Magazine: Rebels and Leaders: Linus Torvalds
  4. Reference Deleted
  5. Cable Programming Reaches 85% of All Television Households
  6. Expected Consumer Benefits from Wired Video Competition in California
  7. TNS Media Intelligence Reports U.S. Advertising Expenditures Increased 3.0 Percent in 2005
  8. American Time Use Survey – Average House Per Day Spent on Primary Activities
  9. Average Home Has More TVs Than People
  10. NATO Statistics for Box Office Grosses
  11. Video Rentals and Sales Revenue Statistics
  12. DSL strikes a chord with frugal shoppers

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