The 2014 Emergent Technologies Report

The 2014 Emergent Technologies Report It’s Gutenberg Time

By Douglas Atkinson

The 2014 Emergent Technologies Report

TABLE OF CONTENTS Chapter Introduction: The Gutenberg Scenario Blockbuster: Poster Child for Failure in the Digital Age Optical Disc Numbers & Forecasts Libraries’ New Competition Digital Video Piracy Technology: Items of Note The Digital Future Glossary of Terms and Acronyms

page 03 05 07 13 18 23 37 45 51 54

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Introduction The Gutenberg Scenario: A medieval case study “The 180 Bibles produced by Johannes Gutenberg in 1455, printed, and then hand illuminated, took a year to produce—roughly the time a monastery scriptorium1 took to produce a single copy.”2 In Europe in the Middle Ages, the vast majority of documents were created by monks in scriptoriums, who laboriously hand-wrote and illustrated bibles and other books. As a result, the Church, which controlled all access to this information, held a de facto monopoly on knowledge, and thus enormous power in affairs of state. Then, in 1455, a new technology appeared which could create books and manuscripts at almost two hundred times the speed of monastic scriptoriums. To put it another way, in one year Gutenberg could make as many bibles as a monastery scriptorium could create in six generations.3 The most significant event in a millennium The invention of movable type is commonly considered to be the most significant event in human history in the last thousand years. Almost overnight, a new technology for duplicating and disseminating information swept through Europe, and in due course, the rest of the world. With the advent of the printing press, books could be mass-produced, and it was no longer a simple matter for the ruling class to suppress ideas. As a result, the invention completely revolutionized the world, and not only in the figurative sense.

“It [movable type] played a key role in the development of the Renaissance, [the] Reformation, the Age of Enlightenment, and the Scientific Revolution and laid the material basis for the modern knowledge-based economy and the spread of learning to the masses.”4 In the short term, however, it was not all positive. Movable type was a disruptive technology in the most extreme 21st Century sense of the word. Human civilization was shaken to the core. Ways of life which had existed for millennia vanished overnight, replaced by new industries and vocations which had been undreamed of by previous generations; in short, it changed the world.

It’s Gutenberg5 time… again We are now on the edge of a digital age, and our civilization is undergoing the most significant changes in information reproduction, storage, and access technology since the invention of movable type. Physical media still has a ways to go, but, like the scriptoriums in medieval monasteries, I don’t think anyone would disagree that its days are numbered.

1

Wikipedia, search Scriptorium: “Scriptorium, literally ‘a place for writing‘, is commonly used to refer to a room in medieval European monasteries devoted to the copying of manuscripts by monastic scribes.”

2 http://www.rosarychurch.net/bible/making.html 3 A human generation is commonly assumed to be 30 years.

4 Wikipedia: search “Johannes Gutenberg” 5 Also sometimes (mis)spelled “Guttenberg.”

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And yet, the good news for libraries is that the future doesn’t just happen, it’s made. And it is within librarians’ power to effect the changes necessary to ensure that their libraries not only survive the coming changes, but thrive.

So what libraries require now are some relatively reasonable predictions concerning the emergence of disruptive technological forces, coupled with the fortitude and courage to make critical decisions – decisions that are tempered, of course, by reason.

Disclosure The author is a managing partner in the company Canadian Video Services Inc. (CVS), which is in turn involved with Midwest Tape LLC in the strategic entity known as CVS Midwest Tape, and its digital library streaming and downloading offering: hoopla.

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Blockbuster: Poster Child for Failure in the Age of Information Case study One of the most spectacular oversights in the history of business 6—the epitome of exactly what not to do in advent of the digital age—is provided by one Blockbuster; yes, I am referring to the Blockbuster, the mighty home movie rental colossus which dominated the consumer video industry from 1985 to 2008, virtually annihilating all competition in the process.

“At its peak in 2004, Blockbuster had up to 60,000 employees and more than 9,000 stores…”7 Fast forward a mere six years, and…

“Due to competition from companies such as Netflix and Redbox, Blockbuster lost significant revenue and filed for bankruptcy on September 23, 2010. On April 6, 2011, the company and its remaining 1,700 stores were bought by satellite television provider Dish Network at auction for $233 million and the assumption of $87 million in liabilities and other obligations. The acquisition was completed on April 26, 2011. Dish closed 200 branches in July 2011, 500 more in the first half of 2012 and another 300 in 2013. In November 2013, it was announced that all remaining 300 company-owned stores would close. The company's DVD-by-mail rental service [would] cease operations as well.”8 The single most important scene in the hubris-infused story of Blockbuster’s epic fall takes place in the year 2000, as the titan was approaching the zenith of its power. At that time it had a glorious opportunity, one which would have changed the dynamic of the home video rental industry planetwide: it actually had the chance to purchase Netflix. For a measly $50 million dollars.

Now we all know that hindsight is 20/20, but to Blockbuster, which was at the time worth more than 5 billion dollars, the purchase of Netflix would have been a mere pittance; at the very worst, if it had gone nowhere, it would have been a paltry outlay on a digital video trial balloon. By comparison, Blockbuster owner and CEO Wayne Huizenga’s hobbies included a $77m yacht, which sported a helipad for his 12-seat helicopter.

But Blockbuster turned down the offer, citing that it saw no future in the fledgling subscription mail-order business. And on November 6 2013, some nine years and change later, the New York Times ran the following article9 in its Business Day section: “Blockbuster, which had more than 9,000 retail stores across America just nine years ago, is closing the few hundred video-rental store that it still has, the company’s owner, Dish Network, said.”

But by then, it was long-forgotten anyway.

This is an object lesson for everyone in a position of responsibility in this new Age of Information. If possible, try everything, experiment with everything, field test everything, choose what works and discard what does not and then move on. Assuming that the 6

Fast Company: “Blockbuster: A Decade of Decline”, by Austin Carr, September 22 2010.

Ibid.

8 Wikipedia: search Blockbuster LLC 9 Obituary, more like.

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status quo is safe is a one-way ticket to doom, and “waiting to see what’s going to happen” is not an option.

Because if we wait to see what’s going to happen, some other force or entity, be it business, social, or evolutionary, is going to make things happen for us…or, more probably, to us.

Speaking to this point, the two most prominent antitheses of complacency are respectively embodied by Google and Apple. Google is constantly making big changes even though the internet giant is “arguably at the peak of [its] power”10, while Apple’s commitment to innovation and its refusal to compromise on quality have created record value and profits for any technology company. The secret of these two colossi’s cumulative success is a relentless entrepreneurial spirit dedicated to creating the future they will inhabit. There is literally nothing preventing libraries from doing exactly the same, and they would do well to emulate this spirit.

Because, get ready, Google and Apple are libraries’ new competition for the ultima thule of global digital enterprise: mindshare.11 It’s important to know what we’re up against.

10

TechCrunch: “Snoozing and Losing: A Blockbuster Failure”, by MG Siegler, April 06 2013 The portion or percentage of human local, regional, or even global consciousness “owned” by a particular celebrity, business enterprise, or other individual or entity. In the case of sales organizations, the ultimate goal of acquiring mindshare is to make the name of one’s product or service synonymous – and thus interchangeable – with the generic category of the product/service one is marketing; for example, Coke is generally synonymous with cola worldwide, as Kleenex is for tissues, Hoover for vacuum cleaners, Google for searching (“Google it”), amazon.com for online books and media sales, eBay for online auction, and increasingly, Netflix for streaming. Once this objective is acquired, the successful company is extremely difficult to supplant.

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Optical Disc Spin Pundits the world over, particularly those who are clearly allied with the digital media camp, have been trumpeting the demise of physical media since 2008, when digital media’s legendary originators initiated their agenda for streaming and downloading movies and TV shows. The non-stop rhythmic basso chanting: “disc is dead…disc is dead…disc is dead” has been heard rumbling ever since in the shadowy catacombs of the worldwide virtual monasteries, mainly because Wall Street, sensing an epic opportunity, soon took up the mantra. And even though digital media’s share of home entertainment revenue at the time was microscopic—less than a tenth of a percent of Hollywood’s total revenue12 —the “disc is dead” meme quickly spread, and soon the online media was propagating it worldwide, even though at that time there was absolutely no basis in fact for the claim.

There still isn’t. In 2013 the American home entertainment industry’s highly profitable physical media sales and rentals represented 64.53% of its revenue. And optical discs are not going anywhere soon. Because if Hollywood had to survive solely on digital, which still represents only one third of the studios’ home entertainment revenue—and a very low-margin 35.47% at that—the kind of films we are used to seeing would instantly cease to exist.

In light of this rather obvious fact, one might reasonably question why anyone would begin supporting a prediction that a format which generated 99.993% of an 18 billion-ayear industry’s total revenue was already finished. But the answers (there are actually two them) are simple.

In the first place, there are individuals and groups in positions of great power and influence in the technology world who have a vested interest in a very specific outcome, and who understand better than anyone that the future doesn’t just happen, it’s made.

But in order to make a future in the Age of Information, first you need a meme.13 Apple, for example, never equipped the disc drives of iMacs and MacBooks with Blu-ray capability, and while Steve Jobs famously said that Blu-ray was “just a bag of hurt”14 at a keynote address, it was not hard to make the connection that in 2008 Apple was heavily invested in its soon-to-be dominant iTunes platform. But just in case anyone had missed this rather obvious connection, Jobs’s associate Phillip Schiller—who was sitting right beside Jobs at the time—not quite as famously added: “We [Apple] have the best HD 12

Digital Trends: “The Death of DVD” by Molly McHugh, March 08 2011 Wikipedia, search “meme”: “A meme…is an idea, behavior, or style that spreads from person to person within a culture. A meme acts as a unit for carrying cultural ideas, symbols, or practices that can be transmitted from one mind to another through writing, speech, gestures, rituals, or other imitable phenomena with a mimicked theme. Supporters of the concept regard memes as cultural analogues to genes in that they self-replicate, mutate, and respond to selective pressures…”

“Proponents theorize that memes may evolve by natural selection in a manner analogous to that of biological evolution.

Memes do this through the processes of variation, mutation, competition, and inheritance, each of which influence a meme's reproductive success. Memes spread through the behavior that they generate in their hosts. Memes that propagate less prolifically may become extinct, while others may survive, spread, and (for better or for worse) mutate.

Memes that replicate most effectively enjoy more success, and some may replicate effectively even when they prove to be detrimental to the welfare of their hosts.”

14 Engadget: “Apple’s Steve Jobs Calls Blu-ray a Bag of Hurt” by Darren Murph, October 14 2008 13

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movie and TV options in iTunes.”15 Now, the management of Apple had the right to take their company in any direction they like, including what optical disc players they decide to include in their laptops and desktop computers. They also have the right to their own opinion…but that’s all it is.

And to reiterate, digital media’s total revenues at the end of 2008 were 130 million out of an 18 billion dollar plus industry, or 0.07% of revenue. To quote one of the oldest axioms in business, money talks, and optical disc’s 99.93% share of the consumer entertainment market in 2008 makes a rather convincing argument. So who in their right mind would even dream of implying that optical disc wasn’t even worth the bother?

The answer to that question speaks to what’s at stake here, which is nothing less than global domination, and in the virtual sense, at least, this is well within the realm of possibility. Because now we have memes, thought viruses which can be seeded into the worldwide communications infrastructure and which then spread like wildfire through the human group consciousness. This is the power of global digital media, which hangs on every word, every thought. If a meme like “disc is dead” comes from an authoritative, iconic source and is promulgated through enough channels, the population will start believing that it is true, no matter improbable that meme may be; in fact, there will be a significant hardcore segment of that population which will adopt the mantra with a religious fervor immune to reason or fact, and bordering on fanaticism (99.93% of the market be damned—disc is dead!).

And along with these people (which Lenin would have referred to as useful idiots), there are other powerful and opportunistic entities lurking in the infrastructure which have proven only too willing to spread a meme to serve their own unrelated agendas. Without pointing the finger at anyone in particular, there’s no one who would be more interested in spreading the old “disc is dead” mantra than someone who’s planning on shortselling16 stock in digital-based entertainment companies and is just waiting for—to paraphrase John Cougar Mellencamp—the walls to come tumbling down.17 As we will discuss later in this whitepaper, there are currently eighteen digital video companies competing for the global home entertainment market. Many of these companies are trading at stock prices that are inflated, to say the least; indeed, the market will get even more crowded before the smoke clears, and not everyone is going to be a winner.

Netflix’s performance in particular has confounded analysts as investors line up to buy what seems to be a hugely over-valued stock. And whenever that stock inflates or contracts, Wall Street blows the horn of Gondor18, and makes more millions as the investors stampede in and out. And even if financial market darling Netflix, with its 7.1 billion dollars in content liabilities, collapses under its own weight…well, folks, that’s what short-selling is for.

15

Engadget: “Apple’s Steve Jobs Calls Blu-ray a Bag of Hurt” by Darren Murph, October 14 2008 http://www.investopedia.com/terms/s/shortselling.asp: “The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit. Short selling may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one.” “…the risk of loss on a short sale is theoretically infinite…”

17 “When the walls come tumblin’ down”, from the chorus of the song “Crumblin’ Down” by John Cougar Mellencamp.

18 Everyone knows this, but anyway here goes: in The Lord of the Rings: The Fellowship of the Ring, the horn of Gondor was carried by the warrior Boromir and used for purposes best described as unsubtle. Credit for coining the phrase in this context goes to my colleague Nicholas Anderson at hoopladigital.com.

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And how Wall Street loves Netflix The following quotes speak for themselves.

“The day (Sept 10) Netflix shares set an all-time valuation record (above $311) based on news Virgin Media would enable its subscribers to separately access the streaming pioneer, a pair of Wall Street analysts declared… Redbox’s disc rental service model [dead].” 19 “Both extremes underscore the effects of Wall Street’s war on packaged media, including movie sellthrough and rental, and its desire to declare digital distribution [the] winner – however prematurely.”20 And the winner of this premature crowning of the digital distribution victor is…

Netflix Why am I including Netflix in a discussion of physical media? Lest we forget, Netflix invented the whole idea of mail-order subscription physical media, an extremely successful enterprise which both bankrolled its digital aspirations and contributed greatly to the demise of video rental giant Blockbuster.

Netflix CFO David Wells wins the “Optimist of the Year” award In April of last year (2013) Netflix reluctantly admitted in public that its disc mail-out business was funding its far less profitable streaming service. But management still gave no indication that they were going to offer the physical media division anything more than nominal support.

“Netflix’s pioneering by-mail disc rental business is so well-entrenched, it should remain profitable for years to come, CFO David Wells told analysts…” during a fiscal call. Wells said: “…the service has taken a more pro-active21 approach toward its 8 million disc subscribers than it did 18 months ago.”22 And blah, blah, blah.

But even though it was basically ignored, Netflix’s physical media division contributed 68% of its first quarter profit in 2013.23 The profit ratio between the company’s physical and digital divisions may have been even higher. Netflix bear24 Michael Pachter “believes that Netflix understated ‘other operating expenses’ [on the streaming division] by not applying the general & administrative and technology costs proportionally to the two separate divisions.”25 To quote Pachter directly: “The company’s lack of concern about declining DVD subscribers is baffling, and management optimism about contribution profit from domestic streaming growth is misguided.”26 19

Home Media Magazine: “Wall Street (Again) Fumbles Movie Rental Story”, by Erik Gruenwedel, Sept 10 2013 Ibid.

21 The unnecessary hyphen is not mine.

22 Home Media Magazine: “Netflix Eyes Profitable Disc Rental Future”, by Erik Gruenwedel, April 23 2013 23 Ibid.

24 Wiktionary: bear (finance) An investor who sells commodities, securities or futures in anticipation of a fall in prices 25 Home Media Magazine: “Netflix Eyes Profitable Disc Rental Future”, by Erik Gruenwedel, April 23 2013 26 Ibid.

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Indeed. Still largely ignored by Netflix management, the physical media business, unpromoted and unloved, has now sunk into steady decline, a decline precipitated three years ago by the unbundling of the physical and digital offerings in 2011, and ownership’s near-official and very public disdain of the disc mail order component ever since. Both the unbundling and the elimination of certain convenient features (primarily the disc queue) from the disc mail order portal were clearly intended to push users over to the digital side, and while this caused a significant loss of subscription holders (subs), it was a clearly a loss that Netflix management was prepared to absorb on the road to dominating the digital video landscape in the virtual world.

This has all been discussed in previous reports, and exhaustively online by media pundits. Suffice it to say that certain analysts—primarily those who see disc as lasting longer than the media predictions—are convinced that this was a fatal error on Netflix’s part. That may be, but Netflix’s stock continues to rise to record levels.

Redbox Redbox kiosks are slowing the decline of physical media Redbox ended 2012 with a surprising 45.3% share of the U.S. disc rental market, generating record Blu-ray disc revenue in the process. Blu-ray accounted for 12.5% of Redbox revenue for Q4 2012.27 Moreover, the company is continuing to expand in Canada. At the time of the article it already had 350 kiosks in Canada by virtue of its agreements with Walmart, Safeway, Loblaw’s, and Shoppers Drug Mart, and is in the process of installing another 1500-2000 kiosks across the country, which its management described as “the third-best rental market in the world.”28 Redbox continues to grow At the annual J.P. Morgan Global Technology, Media and Telecom Conference, the CEO of Redbox’s parent Coinstar (J. Scott Di Valerio) stated that he expected Blu-ray to continue growing and anticipated overall rentals to increase 5-10% annually over the next 3 years.29 In May 2013 the company owned more than 47% share of the physical rental market, and Di Valerio said he “doesn’t expect to see a significant drop in physical rentals for another 7 to 10 years.”30 “The physical market has certainly had a bit of a decline from the [sellthrough] perspective, and a decline in revenues as the brick-and-mortar stores charged a higher price per night for rentals,” Di Valerio said. “People have shifted to Redbox and our $1.20 and $1.50 price point.”31 At any rate, Blu-ray brought in 14.2% of revenue in Q1 of 2013. Di Valerio is looking for the HD format to bring in 16% in the second quarter.

27

Home Media Magazine: “Redbox Market Share Hits 45%; Kiosks to Hold More Discs”, by Erik Gruenwedel, Feb 07 2013 28 Ibid.

29 Home Media Magazine: “Coinstar CEO: More discs, Blu-ray to Lift Redbox”, by Chris Tribbey, May 16 2013 30 Ibid.

31 Ibid.

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In September of 2012 Redbox posted a 4.5% revenue increase.32 And this in the face of a disc rental market that is declining dramatically.

Respected analyst Eric Wold explains this surprising development thusly: “Analysts have made a false assumption that declining disc rentals are due to consumer migration to digital.” He contends that it’s “not due to a technology switch from discs, but rather a switch from older rental channels [Blockbuster, video stores, etc.] to the comparatively smaller [meaning less expensive, and so generates less total revenue] Redbox channel.”33 “As disc rental revenue declines due to shrinking physical access, the number of rental transactions should remain unchanged. That’s because Redbox doesn’t care what people used to pay for disc rentals. It only cares that people rent a movie from a kiosk [my italics].”34 To quote Wold: “For the population base that could not afford renting discs for $5, offering VOD for $5 and also requiring broadband access (vs. a $20 DVD player) doesn’t make their lives any better.”35 It’s also not going to hurt Redbox that Walmart sold Blu-ray players on “Black Friday” for $38 (USD).36 Indeed, Blu-ray player sales were up 20% in the States in 2012, and sales still remain strong. This is considered to be because of “the device’s ability to cater to both physical and digital media.”37 According to the NDP group, more people watched discs than SVOD in 2013 “Despite all the buzz around Netflix, more people watch movies and TV shows on DVD and Blu-ray Disc, according to new data from the NPD Group.” 38 There was a very good reason for that.

2013 theatrical releases enjoyed a third and fourth quarter for the ages In mid-2013 Wedbush Securities analyst Michael Pachter contended that Redbox and home video stores would see an improved third quarter with the slated release of eight titles with box office grosses of $100 million each. 39 He was right, as the second six months of 2013 created one of the biggest six-month sales periods in optical disc history. Indeed, 2013 Q3 results alone were up 43% over the same period in 2012, prompting Pachter to state: “We believe that the bull thesis40 is correct. DVDs are going to be around a long time, and a large percentage of the

32

Home Media Magazine: “Wall Street (Again) Fumbles Movie Rental Story”, by Erik Gruenwedel, Sept 10 2013 Ibid.

34 Ibid.

35 Ibid.

36 Home Media Magazine: “Wal-Mart Selling $38 Blu-ray Player on Thanksgiving” by Erik Gruenwedel, November 08 2012 37 Home Media Magazine: “NPD: Black Friday Blu-ray Disc Player Sales Up 20%”, by Erik Gruenwedel, Dec 04 2012 38 Home Media Magazine: “NPD: More People Watch Discs Than SVOD”, by Erik Gruenwedel, June 25 2013 39 Home Media Magazine: “Analyst: Rental Discs to ‘Be Around’ for Years”, by Erik Gruenwedel, May 01 2013 40 Wiki dictionary: “bull: (finance) An investor who buys (commodities or securities) in anticipation of a rise in prices” 33

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population will seek to rent at the lowest possible price”41 …and indicated that Redbox would be the primary beneficiary of this sales bulge.

Blu-ray has propped up the home entertainment industry for the last 5 years “DVD sales continue to decline, but Blu-ray Disc and digital sales continue to post impressive increases, with the biggest lift, in terms of sheer dollars, always coming from Blu-ray.”42 “If it hadn’t been for Blu-ray, the home entertainment industry easily could have nosedived when our entertainment options proliferated like mushrooms…”43 “…instead of looking back on the heyday of DVD when the packaged media business was booming, we should marvel at BR’s own success story, coming of age in the Great Recession amid a storm of legal and illegal digital noise, and consistently posting significant gains, quarter after quarter, year after year.”44 Q3 2013 plusses and minuses “Digital sales make the fiscal highlight reel, even if the revenue pales in comparison to physical.” 45 “Rental flourishes at low-margin kiosks, and all-you-can-stream subscription services generate buzz and dazzle Wall Street.”46 Walmart and Target reported disappointing financial results as both “posted same-store declines and drops in net income [in package media].”47 Highlights from the 2013 DEG Consumer Home Entertainment Report.

“Consumer spending on EST climbed close to 50 percent compared to 2012 representing $1 billion in consumer spending dollars. Overall spending on digital content rose 17 percent in 2013. Blu-ray Disc spending remained consistent, up about five percent for the year. The number of Blu-ray homes continues to grow, with total household penetration of all Blu-ray compatible devices (including BD set-tops, PS3s and HTiBs) now at more than 72 million U.S. homes according to numbers compiled by the DEG with input from retail tracking sources. There are now more than 15 million UltraViolet accounts and most major retailers support UltraViolet. Consumers purchased more than 38 million HDTVs in 2013. HDTV penetration is now at more than 96 million U.S. households according to numbers compiled by the DEG with input from retail tracking sources.”48

41

Home Media Magazine: “Analyst: Rental Discs to ‘Be Around’ for Years”, by Erik Gruenwedel, May 01 2013 Home Media Magazine: “Blu-ray saves the Day – Again, and Again, and Again”, by Thomas K. Arnold, Aug 08 2013 43 Ibid.

44 Ibid.

45 Home Media Magazine: “Retailers Cautiously Upbeat Following a Soft Summer”, by Erik Gruenwedel, Aug 08 2013 46 Ibid.

47 Ibid.

48 Digital Entertainment Group: “The 2013 Consumer Home Entertainment Report” 42

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Numbers & Forecasts U.S. Detailed Consumer Home Entertainment Spending from 2010-2013 A. Four-year detailed review49 2010

2011

2012

2013

10,321.07

8,951.80

8,462.18

7,779.19

--32.68%

-8.94%

Bricks and Mortar Rental Subscription (disc only) Kiosk

2,309.32 2,272.14 1,269.10

1,648.83 2,366.14 1,663.23

1,216.02 1,258.09 1,937.77

1,042.54 1,018.18 1,918.05

-121.51% -123.16% 33.83%

-23.04% -20.59% 15.51%

Total Physical Media Rental

5,850.56

5,673.19

4,411.88

3,978.77

--31.99%

-8.68%

16,171.63 14,624.99 12,874.07 11,757.95

-27.29%

-12.31%

Physical Media Sell-Thru Packaged Goods

Total Physical Media Revenue

+/- 2010-13 yearly +/-

Digital Media Electronic Sell-Thru VOD (Video on Demand) Subscription Streaming

508.08 553.67 1,751.66 1,869.10 50 ----.-993.57

808.42 2,012.30 2,394.73

1189.31 2,108.72 3,164.22

134.08% 20.38% 218.47%

34.03% 6.39% 57.72%

Total Digital Revenue

2,259.74

5,215.45

6,462.25

185.97%

42.58%

18,431.37 18,041.33 18,089.52 18,220.20

-1.15%

-0.46%

Total U.S. C.H.E. Spending

Current Market Share by Format in 2013 Physical Digital

3,416.34

64.53% 35.47%

Notes on the numbers What obviously jumps out when we look at the numbers above is the steep decline of both “Bricks and Mortar” Rental (-121.51%) since 2010, and “Subscription Disc Mail Order Rental” (-123.16%) for the same period.

Digital media’s EST (134.08%) and SVOD Streaming (218.47%) growth over the last four years is also impressive, but as of the end of 2013 digital is still only 35.47% of total entertainment revenue. Further, digital media margins are significantly smaller than physical media margins. The industry in its current form—increasingly relying on expensive blockbuster films and the post-theatrical DVD revenues that pay for them— could not survive on 2013 digital revenues alone.

And there are two other items of note which jump out. The first is the unlikely and incredible performance of kiosk disc rentals (primarily driven by Redbox), an almost 34% gain in the face of an otherwise near-catastrophic decline in physical media rentals.

Even though kiosk rentals basically flatlined in 2013, just holding the line at this stage in the industry is a major accomplishment.

49

Information provided through the Digital Entertainment Group’s U.S. Consumer Home Entertainment Spending Reports: 2010-2013.

50 Streaming totals were not broken out of subscription revenues in 2010.

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The second item—and I’m sure the telecoms51 have duly noted this—is that while their video-on-demand revenues have increased incrementally since 2010, growth is weak in comparison to the over-the-top streaming and downloading services. VOD posted a feeble 4.97% growth in 2013 versus SVOD’s 32.13%, and if I was NBC or CBS or Fox or HBO, I’d be worried. Finally, it is almost uncanny that the total U.S. home entertainment sales in the overall $18 billion home entertainment sales total has remained basically unchanged52 over the last four years. What physical media has lost has been made up almost exactly by digital media.

Prediction models If we wish to forge predictions which will have any hope of being realistic, we cannot just use a conventional 10, 20, or 30% decline formula on the current 2013 numbers and watch that deterioration play out. Consumer electronic products, beset by forces both known and hitherto unanticipated, simply don’t decline in that orderly a manner. Once a format like DVD begins to decline, it does so with ever-increasing momentum; the rate of this decline is completely open to speculation, but the bottom line is that it will finally and suddenly “fall off the cliff.”53 Describing three futures Let’s assume that current sales of physical and digital media combined hold at 18 billion per annum (by no means a given, but it has—remarkably—held at almost exactly that figure since 2008). Now, some pundits have predicted that physical media will be finished by 2016. Others (like Redbox management) have stated publically that it will still be around for the next 7-10 years.54 So to emulate these predictions we will counterintuitively require a yardstick which is even more straightforward than a conventional percentage decrease. We will calculate the three declines by subtracting a fixed amount from the 2013 physical media revenue total (11,757.95 million). For the slow decline predicted by conservative analysts, we will simply subtract 10% of 2013’s physical media revenue (1175.80 million) from each succeeding year until the format hits zero. The projected decline may not accurately describe the curve, but it gets us there in the end.

For the rapid decline predicted by the digital camp, we will subtract 30% of the 2013 disc revenue total (3527.39 million) from each succeeding year, and for the median prediction (my preference), we will use 20% (2351.59 million), as follows: Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

slow decline 11757.95 10582.15 9406.35 8230.55 7054.75 5878.95 4703.15 3527.35 2351.55 1175.75 0.00

median decline 11757.95 9406.36 7054.77 4703.18 2351.59 1175.79 0.00 0.00 0.00 0.00 0.00

rapid decline 11757.95 8230.56 4703.17 1175.78 0.00 0.00 0.00 0.00 0.00 0.00 0.00

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Conventional television companies like NBC etc.

According to statistical science, anything under 4% is within the margin for error. The change in total revenue for the industry from 2010-2013, which is -1.15%, is therefore effectively zero.

53 Historical precedents for the accelerated decline of home media formats are the videocassette and the audiocassette.

54 Home Media Magazine: “Coinstar CEO: More discs, Blu-ray to Lift Redbox”, by Chris Tribbey, May 16 2013 52

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So we can see that, based on a 10% per annum shift from physical to digital, physical media does not become extinct in the consumer home entertainment market until sometime in 2022. At a 20% shift per annum, physical media ceases to exist by 2018.

And finally, at a 30% loss per annum (a rapid sales collapse), physical media is finished sometime in 2016. We consider the rapid scenario highly unlikely.

Still, some prognosticators (the digital bulls) are predicting exactly such an exponential sales collapse; others (the disc bulls) are championing a gentle tail-off scenario which extends well into the next decade, even longer than our “slow decline” scenario. For our own part, we consider the median forecast (20%) by far the most likely of the three, which predicts that optical disc’s overall share of the home entertainment market will fall to below 20% (the event horizon of oblivion for consumer electronic formats) by 2018.

But these days it’s not even necessary to set one’s course according to vague predictions, and hope for the best. Now the tools exist to enable us to track the performance of various forms of media on an almost real-time basis, and those tools are just as available to libraries as they are to everyone else.

Librarians have a tool to independently monitor the decline of physical media While I may have my opinions regarding the likelihood of the extinction models presented above, they remain simply that: opinions. This writer does not professionally subscribe to any one scenario over the others. I assemble numbers, extrapolate into the future, and then monitor the data as it presents itself. I advise my readers to do the same And the very good news is that there is a great tool available which will allow concerned librarians to monitor the decline of physical media, independent of the dubious musings of prognosticators and pundits, very few of whom write without an agenda.

The “Digital Entertainment Group” (DEG) has provided outstanding and highly reliable quarterly consumer home entertainment spending reports since 2006. These reports are provided free of charge and consistently impartial (as the DEG, despite its name55, has no vested interest in the success of either physical or digital media at the expense of the other56). The DEG tracks home entertainment spending on an ongoing basis and produces reports four times a year; in addition, the organization archives reports dating back over the last seven plus years.57 They are available to everyone.

These ongoing reports will allow libraries to track the decline of physical media, and the rise of digital, without recourse to any biased source.

Reviewing the numbers According to the 20% model, by 2018 physical audiovisual media will be a completely spent force in the commercial marketplace, though it may—and probably will—still endure for years in the library.

55

The “digital” in “Digital Entertainment Group” stands for digital physical media (DVD and Blu-ray) as well as “digitally delivered” virtual media.

56 New quarterly Home Entertainment Reports can be found at degonline.org via the “News and Events” tab on the top banner of the home page. Reports are provided as they become available, which is generally one month after the end of each calendar quarter.

57 Archived Home Entertainment Reports dating back to 2006 can be found at degonline.org via the “Resources” tab on the top banner of the home page.

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Now, even this conservative estimate predicts a significant decline for physical audiovisual media towards the end of the decade in the consumer electronics marketplace. But as to the pace of that decline, the jury is still out; meanwhile, DVD’s gradual slide in the home entertainment sector (Blu-ray actually gained 5% in 2013)58 has produced nothing but more film circulations in public libraries.

The reasons for the current disc-use surge in libraries are many and varied, and have been discussed and analyzed exhaustively in previous ETRs as well as in many other publications, so we won’t get into the whys and wherefores again. The fear now, however, is that this DVD surge will not, cannot last. And that fear is justified. But not for the reasons most people assume will take shape.

There is no practical reason for disc use to decline in libraries in the 2020s Why should there be? After all, the hardware will last well into the next decade and maybe even until the 2030s, and for the discs, they will endure far longer than that—until well into the latter part of this century. Supply will not be a problem, not for libraries.

Even when the commercial market for optical disc has withered to a shadow, or completely dried up, library vendors with manufacturing-on-demand (MOD) capabilities will remain well-positioned to supply the format as long as the libraries require it. And if the videocassette phenomenon is a historical precedent which will repeat itself, the older patron demographic will still be coming into libraries looking for feature films on DVDs and Blu-rays until well into the 2020s.

Continued demand for disc Indeed, the erosion of the optical disc format in the consumer marketplace has not negatively affected the demand for DVD and Blu-ray in public libraries. On the contrary, as everyone in the library field is aware, libraries are still experiencing the storm surge of disc circulations resulting from the somewhat premature death of the North American “bricks and mortar” video store. Nor do we predict the demand in libraries to significantly decline for some years to come.

Software and hardware lifespan The lifespan of both the software and hardware of optical disc media is prodigious. DVD and especially Blu-ray are relatively hardy formats, and under optimal conditions and depending on manufacturing quality are expected to last anywhere from 30-100 years.

No longevity problems there. And the players? Well, my 2007 vintage Sony DVD machine—which like Harry Potter has been consigned to the cupboard under the stairs—still plays DVDs perfectly well; my family only graduated to Blu-ray in order to obtain films that are now only available in the new(er) format. And the lifespan of the average Blu-ray player is similar to that of my inextinguishable cupboard-dwelling DVD player; easily 7 to10 years. So let’s conservatively estimate for the sake of argument that optical disc players—used with a relative degree of moderation—will last on average 8.5 years.

Now, further for the sake of argument, let us assume that the last Blu-ray players will be manufactured and sold in 2018. So if the machines have an 8.5-year lifespan, there will still be millions of disc players well into 2027, thirteen years from now. And a significant

58

The Digital Entertainment Group Q4 2014 Home Entertainment Report: “Among the Highlights for 2013”, by Lyndsey Schaefer, Jan 07 2014

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number of the discs which exist right now will also still be around at that time. But what about new releases?

The studios will migrate their primary business online It is inevitable that as optical disc sales decline to the levels predicted for 2017 or 2018, the studios will have migrated their business almost completely online, and will no longer make optical discs of anything but the most popular movies (i.e. Avatar 2, 3, and 4, slated for release in 2016, 2017, and 2018 respectively).

We anticipate that library vendors will be able to provide new release and back catalogue titles in disc form through manufacturing on demand. Certainly, the security challenges will be stringent, but a trusted library vendor with good relationships with the majors should be able to acquire the rights to independently create and sell optical discs, provided the studios’ security requirements are met. And it’s hard to envisage the major movie studios turning down a hundred and fifty million in additional physical media sales a year to public libraries.

But none of this will save optical disc from inevitable extinction.

The real threat to library physical media collections None of the practical challenges above are the real concern. Left alone, library disc collections would probably extend into the 2030s. But the primary threat to library DVD and Blu-ray circulations is not existing or future supply, nor is it current demand; it is the question of future demand, of whether or not disc use will remain a part of daily life. And the answer to that question can already be found in the viewing habits of the children of the present day. They don’t watch disc, and they don’t watch “appointment television.”

So the real threat to the format comes from large-scale external social forces; in essence, the long term dehabituation of the libraries’ future patron populations to using physical media. The baby boomers who oversaw the proliferation of home media technologies from the videocassette to BitTorrent are even now passing into retirement, and the succeeding generation is comfortable with both physical and digital media. The generation after that, the future library patrons who are currently in mid-to-late childhood, to whom the optical disc is a curiosity of a bygone age, will all reach adulthood in the 2020s. And this generation hardly needs to be habituated to using a whole host of digital services. It is the libraries themselves that will have to turn themselves away from physical media, and embrace an increasingly virtual future.

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Libraries’ new competition: commercial digital services A crowded marketplace In these slowly waning days of physical media, it is incumbent upon libraries to brand themselves as digital entities, and to do so expeditiously, because if the collective global management of public libraries just think they can just wait until 2020, then blithely turn around and suddenly brand themselves as a primary consumer (patron) resource for digital media, be warned: the digital media ecosystem is already crowded with ferocious competitors, and these are not the same old video and book stores from days of yore; that is, the few that are still left standing. No, in the scary new digital universe ruled by Emperor Mindshare, the competition is on another level of magnitude. Libraries are entering the domain of monsters bent on nothing less than global domination of the entertainment industry.

Four advantages But even though it might seem that libraries are faced with impossible odds, it turns out that they possess four (4) unique decided advantages, as follows: 1.

2.

3.

4.

Library content is free.

Libraries have the element of surprise.

There are new digital lending models which are available only to libraries.

Libraries are already own significant permanent global mindshare.

1. Free content I don’t think anyone needs this one explained to them. How would you like to compete with an organization that not only doesn’t need to make money, it doesn’t even have to charge for its services?

2. The element of surprise In business as in warfare (and trust me, this is a war, both commercial and ideological), the element of surprise has a powerful shock value that can quickly neutralize seemingly insurmountable advantages of numbers and resources. And the fact is that North American public libraries have quietly purchased billions of dollars worth of VHS, DVD and Blu-ray in the past three-odd decades and circulated them without fanfare, effectively beneath the radar of both the studios and the commercial vendors who are even now trying to make the same transition from physical to digital media.

In other words, if libraries act expeditiously, the competition will never see them coming.

But time is of the essence. Reed Hastings, the CEO of Netflix, has already very clearly defined what he considers to be Netflix’s competition59, and that definition does not stop at Google, Amazon Prime, and Redbox. Hastings considers every single human recreational activity to be his company’s competition, and that definition would include library use. And it won’t be long before he’s correctly assessed the covert threat libraries pose to his bottom line.

The very successful directors of Google, Amazon, and Redbox are no slouches either, so it’s fairly safe to say that where these parties are collectively concerned, the element 59

See Netflix’s long-term view, page 27.

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of surprise has a definite sell-by date, which makes it all the more urgent for libraries to get on board as quickly as possible with digital services.

3. The hybrid digital distribution model Virtual services make it possible to offer an entirely new lending model, the “simultaneous per-circ model”, in which every title in the catalogue can be circulated simultaneously, and the library pays the rights holders on a per circ basis. The library controls expenditures with a patron circ cap and—if required—an overall expenditure cap. While this approach is a radical departure from the established “one copy/one circ” model currently used in the eBook realm, the simultaneous model provides libraries with the opportunity to make holds a thing of the past: in the digital age, every patron gets what they want when they want it.

Further, from the user’s point of view, this is a subscription video-on-demand model— and a free one at that—and the only restrictions are those applied by the library, such as a monthly patron circ limit and a daily library expenditure limit. The studios and producers, on the other hand, are remunerated on the preferred transactional model (like iTunes). It’s only a matter of time before the rights holders realize the true value presented by the library business, at which point the quality and currency of the material they make available to libraries is going to rise exponentially. In fact, the music industry has already figured this out. Today’s library digital music offering is fully mature.

4. Libraries already possess significant mindshare The fourth and final advantage, which while always overlooked is probably the most significant by far, is that libraries already own 100% of human mindshare. Everyone’s heard of libraries. Their existence and impeccable reputation for impartiality is firmly embedded in the global consciousness, and has been since Hammurabi four thousand years ago. Nothing can gainsay the power that this confers. Granted, the libraries are not yet branded as significant providers of digital services; not yet, at any rate. But that’s the easy part. Their goal now should be to take this existing imprint and inexorably link it to digital services worldwide.

Summary of action plan Obviously, here at the outset, libraries have to leverage their advantages, which are significant but highly time-sensitive. 2018 is not very far away, and the clock is ticking.

Libraries need to move quickly to take advantage of the element of surprise, capitalize on the fact that their content is free, take advantage of a commercial model which is not yet available to any of the competition, and capitalize on the highest level of global mindshare in human history.

But there’s competition out there, and some of it is ruthless and nasty, and when some of them can’t play fair…well, there’s always unfair.

The main competition Everyone’s heard of Netflix and iTunes. And a significant portion of the population is familiar with Amazon’s Prime’s Instant Video, which is putting pressure on its more established streaming rival Netflix. As well, Google is now ramping up a digital video pay service which could be dominant in the not-too-distant future. But there’s a whole pack of other entrants out there, all vying for share in the digital ecosystem. Most of these “wannabes” won’t survive the years of early adoption, and many of their parent companies will vanish along with them. But until such time as the ranks thin and the

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major players are more or less established, libraries are going to have to contend with an entire array of “noise-makers.”

The Noise Now, if you’ve heard of all of the following digital video streaming and downloading services listed below, congratulations: You have no life.

I hadn’t heard of most of these, and I write about this stuff every year. That fact alone should provide some perspective on just how difficult it is for new entrants to garner a share of human attention, and carve out a slice of the global virtual pie. I have assembled a list of the contenders and the wannabes in convenient alphabetical order, as follows: Amazon Prime Instant Video Amazon offers both subscription video services and individual purchase options. The Instant Video service is tied to an Amazon Prime membership which among other things features a two-day shipping service, and which costs $79 a year. Amazon Prime Instant Video claims to carry 33,000 movies and TV episodes.

Apple iTunes In addition to being the world’s premier provider of music-for-sale, iTunes is the dominant iconic deliverer via download of a huge catalogue of movies and television shows for sale or rental. This is a transactional VOD service (that is, material is downloaded on a transaction by transaction basis, whether sold or rented).

CinemaNow “CinemaNow is an Internet-based digital video distribution company founded in 1999.

The CinemaNow library contains approximately 3,000 feature-length films, shorts, music concerts and television programs from more than 250 licensors, including 20th Century Fox, ABC News, Disney, Endemol, MGM, Miramax, NBC Universal, Sony, Warner Bros., Sundance Channel, Koch Entertainment, and Lions Gate Entertainment. Video from CinemaNow is available for electronic sell-through which includes DVD burning permission, as well as rental time-limited viewing in the pay-per-view window.

In November 2008, CinemaNow was acquired by Sonic Solutions. In January 2009, Sonic and Blockbuster, Inc. announced an alliance to provide digital content delivery under the Blockbuster brand, essentially merging CinemaNow and its erstwhile competitor, Movielink, which was acquired by Blockbuster in 2007. In November of that year, Sonic Solutions and Best Buy announced a strategic alliance which resulted in Best Buy acquiring the CinemaNow trademark.”60 Crackle “Crackle (formerly known as Grouper) is a digital [service] featuring commercially supported [meaning that advertisements are included] streaming video content in Flash Video format. It is owned by Sony Pictures Entertainment, and its content consists primarily of Sony's library of films and television shows.”61 60 61

Wikipedia, search: “CinemaNow” Wikipedia, search: “Crackle (company)”

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Just another one of those doomed (in my opinion) single content-provider virtual video stores.

Digital HD A digital sellthrough platform launched in September 2012 by 20th Century Fox to market its own properties (again, it’s just another one of those doomed single content-provider virtual video stores).

Flixster Flixster was a social movie site which had been the parent of website Rotten Tomatoes since January 2010 until it and Rotten Tomatoes were acquired by Warner Bros. on May 4 2011. The site now provides movie VOD and EST. FlixFling A subscription video-on-demand (SVOD) service with “thousands” of movies.”62 Hulu/Hulu Plus Hulu, a joint venture of NBC Universal, 21st Century Fox, and Disney, is a free, adsupported on-demand streaming service of TV shows and movies. Hulu Plus, the subscription-based version of Hulu, charges $8 a month for unlimited streaming of the same. Hulu is currently only available in the United States, in US territories overseas, and in Japan under the separate moniker Hulu Japan. Hulu reports 63,000 TV episodes and 3,700 movies.

Netflix Netflix charges $8 a month for unlimited movie and TV shows streamed through the web; more recently, it has produced and globally streamed highly regarded television series such as House of Cards, Orange is the New Black, and From Dusk to Dawn, the latter a TV spin-off of the 1996 Robert Rodriquez/Quentin Tarantino film. Netflix will not divulge catalogue numbers.

Nook Video Platform “Nook has content license agreements with 20th Century Fox Home Entertainment and NBC Universal for its pending Nook Video platform…which will include video-on-demand and electronic sellthrough (but no subscription VOD)”63.

Popcornflix Popcornflix is an ad-supported streaming service with more than 650 lower-profile catalog movies…“offering free movies to Bravia televisions, Blu-ray Disc players and home theater devices.”64 Redbox Instant by Verizon This streaming-only service, launched on March 14 2013, features two price plans: the first charges $8 for unlimited streaming plus four rental DVDs per month, the second price is $9 if the user wants the disc rentals in Blu-ray. Rental discs can be reserved 62

“Thousands of movies”—would that be 2,000 movies, or 999,999 movies?

Home Media Magazine: “Nook Video Gets Fox, NBC Universal Content” by Eric Gruenwedel, Oct 30 2012 64 Home Media Magazine: “Popcornflix Coming to Sony Bravia TVs, Blu-ray Disc Players”, by Chris Tribbey, Erik Gruenwedel, March 14 2013 63

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online and picked up at kiosks. Unlimited streaming including titles from pay-TV service Epix. There are sell-through and transactional VOD options for Lionsgate, NBC Universal, Paramount, Relativity, and Sony Pictures titles. Digital rentals would be priced as low as 99 cents for catalogue titles. The service will be available on iOS and Android devices, Xbox 360 and Samsung Blu-ray players and TVs, LG Smart TV and connected Blu-ray players, and Google TV.65 Redbox’s latest figure is 8,000 movie titles. No TV. Target Ticket Target Ticket offers users instant access to 15,000 titles, including new releases, classics, and TV shows.

UltraViolet UltraViolet is a studio-backed initiative to boost disc sales by providing disc buyers with a “digital locker” to access their purchased content in the cloud, and is “seen by many as the ultimate ’added value‘ to disc purchases, allowing consumers to watch their purchased content anytime, anywhere, on a wide variety of devices.”66 Vudu Vudu, purchased by Walmart in March 2010, offers movies for sale or rent through download to U.S. and U.S. territories Xfinity Streampix Available only to Comcast customers. Priced at $4.99/month, it boasts “thousands” of TV shows and “hundreds” of movies.

YouTube Pro Google initiative. Launched with 53 paid channels @ 0.99 per month, with discounts for a yearly subscription.

Note: all of the above are digital video providers, and while they employ proprietary players/technology to deliver audiovisual works to the consumer marketplace, they are distinguished by the fact that they are digital content aggregators.

By contrast, Chromecast, Roku, Sony PlayStation 3 & 4, Xbox Live (and Xbox One Live), and Blu-ray players themselves are pure digital streaming technologies/devices.

We can easily see from the above that any company or organization which is looking to get into the digital video online business (and that includes libraries) is facing serious competition in an already crowded market.

65

Home Media Magazine: “Redbox Instant Bowing Beta Launch This Month”, by Chris Tribbey, Erik Gruenwedel, December 12 2012 66 Home Media Magazine: “2012 Home Entertainment Revenue Stabilizes” by Thomas K. Arnold, Jan 08 2013

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Digital Video This chapter tracks the major stories regarding digital media companies in the past year, and the activities of some of the significant players in the new industry.

Apple iTunes Dominates Movie, TV show Sellthrough At the beginning of 2013 Apple occupied its usual spot on the gold medal podium of the digital content delivery games.

“Apple’s iTunes remains the top-selling platform for movie and TV shows—despite the emergence of players such as Best Buy’s CinemaNow, Walmart’s Vudu, Amazon Instant Video and Microsoft’s Xbox Video, among others…”67 Apple continued to dominate the transactional digital video market through the first quarter of 2013, particularly in the electronic sell-through (EST) department. As of its 10th anniversary on April 28 2013, iTunes owned 67% of the episodic TV show electronic sell-through market and dominated movie EST68 with a 65% market share.69 In terms of sheer unit sales, it also dominated movies with 45% market share versus Amazon (18%), Vudu (15%), Xbox Video (8%), and all others combined (8%).70 Customers remain happy with the iTunes store, which has retained its market share year after year.

Russ Crupnick of the NPD Group said: “Apple has successfully leveraged its first-mover advantage of iTunes, iOS and the popularity of iPhone and iPad to dominate the digital sale and rental markets for movies and music. While worthy competitors have come along, no other retailer has so thoroughly dominated its core entertainment product categories for so long.” 71

Netflix Netflix sheds less subs72 as 2012 progresses On October 30 2012 Netflix announced that it had dropped 634,000 disc subscribers in Q373 0f 2012. This was 25% less than the 849,000 disc subscribers lost in the second quarter of 2011, which was hailed as something of a triumph in the Netflix quarterly report, primarily because Netflix bet huge on digital in the fourth quarter of 201174, when it split its streaming service and disc rental business into two separate offerings, and 67

Home Media Magazine: “NPD: iTunes Dominates Movie, TV Show Sellthrough”, by Erik Gruenwedel, December 12 2012 68 EST is the anagram for“Electronic Sell-Through”, the process by which customers purchase a digital “copy” of a film, as opposed to renting a digital copy for a specific time period, or streaming it.

69 Home Media Magazine: “NPD: iTunes Dominates Movie, TV Show Sellthrough”, by Erik Gruenwedel, December 12 2012 70 Ibid.

71 Ibid.

72 Sub: the short form for a subscriber.

73 The July-September quarter of the calendar year.

74 Home Media Magazine: “Netflix Disc Sub Loss Slows”, by Erik Gruenwedel, Oct 30 2012

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promptly lost almost 3 million customers. Since then, it has been slowly making up those subscriber losses, all the while steadfastly repeating the digital mantra, and effectively ignoring its uber-profitable physical business.

Apparently, as Amazon did with the online sale of books, DVDs, and CDs in the first decade of the 21st century, Netflix is prepared to sacrifice short-term profitability in exchange for entrenchment as the leader in a revolutionary new industry. And despite the fact that the profitability of the company’s mail-order disc business still continues to exceed that generated by streaming, the company remains resolute: the future is digital.

Netflix gets a Disney deal Even though this agreement dates all the way back to December 4 2012, and doesn’t even kick in until 2016, we are very, very interested in this one.

It’s that significant.

In that year (2016) Netflix will gain access to “Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios and Disneynature titles.” As well: “The agreement also includes Disney’s direct-to-video new releases, which have [actually] been available to Netflix U.S. since 2013.”75 There are so many jokes about Netflix US versus Netflix Canada that I won’t even bother. It is interesting, however, that 2016 is the year that many pundits predict that optical disc will go into serious decline, so the timing of the deal may not be entirely coincidental.

The two companies also signed “a multi-year catalogue deal to stream features like Dumbo, Pocahontas, and Alice in Wonderland as of today [December 04 2012].”76 This is significant, insofar as Disney, which is the most iconic and powerful children’s television producer, just “legitimized the over-the-top77 [digital video] distribution model.”78 Netflix offers Super HD At the beginning of 2013 Netflix announced a new “Super HD” 1080p (in the US only, for now [of course]) 79 and 3D streaming, “but only on certain devices plugged into Open Connect partner ISPs. The hardware list includes PS3, WiiU, Windows 8, Roku, and Apple TVs, as well as Blu-ray players and smart TVs with 1080p support.80 Netflix demonstrates the new realities of digital delivery versus archaic regionality “Netflix has become something of a poster child for internet and media issues in Canada.”81 Netflix’s “chief content officer Ted Sarandos”82 actually said: “It’s almost a 75

Home Media Magazine: “Disney Inks Streaming Deal with Netflix”, by Erik Gruenwedel, Dec 04 2012 Ibid.

77 The over-the-top model refers to a web-based service as opposed to delivery through the conventional cable TV model.

78 Home Media Magazine: “Disney Inks Streaming Deal with Netflix”, by Erik Gruenwedel, Dec 04 2012 79 Engadget: “Netflix launches ‘Super HD’ and 3D streaming – but only through certain ISPs”, by Richard Lawler, January 08 2013 80 Ibid.

81 CBC News: “Canadians stuck with Netflix lite for foreseeable future”, by Peter Novak, Jan 10 2013 82 CBC News: “Canadians stuck with Netflix lite for foreseeable future”, by Peter Novak, Jan 10 2013 76

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human rights violation what they’re charging for internet access in Canada.”83 Online streaming service has introduced new features, including 3D streaming, only not in Canada. The situation gets complicated because permission has to be entirely renegotiated with a whole different set of rights holders.84 “This model was created for a jigsaw puzzle world based on geographically restricted broadcasters. That kind of model only helps piracy, it doesn’t help anyone…” said Netflix spokesman John Evers.85 The CRTTC last year “estimated that about 10% of [Canadian] adults”86 are Netflix subs.

“Analysts believe that number is actually [20%].”87 Netflix, Redbox, and Amazon Prime: revisited The SVOD models were summarized by media writer Lauren Goode as follows: Netflix charges $8 a month for unlimited movie and TV shows streamed through the web. Hulu Plus, the subscription-based version of Hulu, charges $8 a month for the same. Amazon and Redbox instant offer both subscription video services and individual purchase options. Amazon’s subscription service is tied to Amazon Prime, the company’s two-day shipping service, which costs $79 a year.88 These three are shaping up to be the main competitors for the home entertainment SVOD sector.89 Hastings: Hulu, Amazon, Redbox no SVPD substitute to90 Netflix Netflix CEO Reed Hastings dissed his competitors: “When it comes to competition, we not only have a superior content offering due to our larger budget, but we are further along the experience curve when it comes to improving our user interface.”91 He’s actually right about that.

Netflix predicts that streaming margins will be more profitable than disc in 2013 “Like it or not, Netflix’s domestic SVOD service generated a contribution margin of 16% compared with 47.3% for by-mail in 2012. In the fourth quarter of 2012 alone, rentals of DVD and Blu-ray accounted for more than 50% of Netflix’s operating income.” 92 The company said its mail order rental service will be negatively impacted by a 2-cent increase in first class postage.93

83

Ted… dude… high internet access charges are not a human rights violation. High internet access charges are what is commonly referred to as a first-world problem.

84 CBC News: “Canadian stuck with Netflix lite for foreseeable future”, by Peter Novak, Jan 10 2013 85 Ibid.

86 Ibid.

87 Ibid.

88 All Things D: “Netflix, Redbox and More: What You Need to Know” by Lauren Goode, Jan 21 2013 89 Ibid.

90 The erroneous use of the infinitive “to” instead of the adjunct “for” is Mr. Gruenwedel’s error, not mine 91 Home Media Magazine: “CEO Hastings: Hulu, Amazon, Redbox No SVOD Substitute to [sp] Netflix”, by Erik Gruenwedel, Jan 23 2013 92 Home Media Magazine: “Netflix Expects Streaming Margins to Overtake Disc in Q1”, by Erik Gruenwedel, Jan 29 2013

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Netflix’s liabilities As of December 31 2012 Netflix had more than $5.6 billion (USD) in streaming content obligations, including $2.3 billion due in less than a year.94 Six months later that figure stood at over 7 billion, 40% higher.

Netflix’s $100 Million New Show Netflix is intent on spending 100 Million for two seasons of House of Cards and Hastings announces that he wants to do five new similar shows a year. At the end of 2012 Netflix reported that it had 33.3 million subs, and they need to increase that sub base by 10% per year to pay for this kind of investment on an ongoing basis. In 2012 Netflix saw 13% sub growth (24m to 27m), and the company seems to be slowly moving away from widespread content to draw “addicts” to great shows, who will renew their subscriptions just to keep up with their favourites.95 How Netflix knows what you want to watch before you do Data has been the secret of Netflix’s success since its very beginnings as a disc mailorder company. Netflix’s revolutionary Cinematch algorithm “recommended movies based on what users were renting”, which made it more likely that “they would return their discs and keep using the service.”96 Over the years, Netflix has created 76,897 film “microgenres” which the company uses to generate recommended lists for its patrons.97 “They have 14 years of customer data now. Very little emotion goes into the decisions they make.” – Gina Keating, author of Netflixed.98 Netflix’s stock rises again “Analysts didn’t see the symbiosis with the new kind of television profit centre, the longform arc series, where you can’t just crack into it. Netflix provides for ‘binge viewing’ which allows viewers to get current with highly-regarded long-form series.” 99 Netflix’s “Revolving Door” Content “Netflix dumped and added 500 titles the same day it ended license agreements on more than 1700 movies from Epix, Universal and MGM.”100 “Netflix spokesperson Joris Evers said churning content underscores a dynamic service that is continually updating TV shows and movies to lure and retain subs.” 101

93

Home Media Magazine: “Netflix Expects Streaming Margins to Overtake Disc in Q1”, by Erik Gruenwedel, Jan 29 2013 94 Ibid.

95 Theatlanticwire.com: “The Economics of Netflix’s $100 Million New Show” from Reuters, January 30 2013 96 The Globe and Mail: “How Netflix knows what you want to watch before you do”, by Steve Ladurantaye and Chris Berube, March 05 2013 97 theatlantic.com/technology: “How Netflix Reverse Engineered Hollywood” by Alexis Madrigal, January 02 2014 98 Ibid.

99 Ibid.

100 Home Media Magazine: “Content Revolving Door, Netflix Dumps, Adds Hundreds of Titles”, by Erik Gruenwedel, May 01 2013 101 Ibid.

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Jeff Bewkes (Time Warner CEO) said “Netflix’s decision meshes nicely with Warner content channels. Bewkes believes SVODs will increasingly focus on back seasons of current long-form library titles and their own original content. Warner is the biggest supplier of back seasons of current shows, and the number one TV producer.”102 Netflix prepares for TV company onslaught Netflix must “survive an onslaught from the country’s traditional television companies, who are scrambling to get their own streaming services to market.”103 The company is “earmarking increasingly higher amounts to produce original content.”104 Netflix continues to pursue television content “Netflix and CBS Corp. said they have extended a multiyear license agreement to include more TV shows no long airing on the primetime network.”105 “The network, along with Warner TV, is considering creating original programming for Netflix going forward—a tact already taken by Lionsgate and DreamWorks Animation.”106 Netflix goes big The company’s “largest-ever streaming deal with DreamWorks and related pacts with Cinedigm and ZDF underscore willingness to spend on specific content.”107 In the first half of 2013 the company added 700 million USD more in content liabilities to the bottom line, for a stratospheric mid-year total of 7.1 billion dollars. And this liability was incurred before the recent DreamWorks announcement.

On the other hand, the company added 2 million more domestic subs in the first quarter of 2013.

Tom Gara, Wall Street Journal Corporate Intelligence Blog, believes Netflix will bypass offering every TV show and focus on specific programming, including originals.

“Netflix is trying to be more like HBO.”108 Netflix’s House of Cards has increased both sub numbers and stock value Netflix got plaudits this week with Emmy nominations. Over the past year or so, Netflix has been shaking up its catalogue of movies and television shows and even dropping classics like Bond films and SpongeBob. For example, House of Cards got 14 Emmy nominations.109 Subscription numbers are way up, and the company’s stock has almost tripled in 2013, as Netflix’s streaming customers spent 80% of their viewing time watching its TV shows.

102

Home Media Magazine: “Content Revolving Door, Netflix Dumps, Adds Hundreds of Titles”, by Erik Gruenwedel, May 01 2013 103 The Globe and Mail: “Netflix Rearms for a Canadian onslaught”, by Steve Ladurantaye, May 14 2013 104 Ibid.

105 Ibid.

106 Ibid.

107 Home Media Magazine: “Netflix Content Spending Not Slowing Down”, by Erik Gruenwedel, June 26 2013 108 Ibid.

109 The Exchange: “Netflix Dropped Your Favorite Movie? Get Used to It”, by Aaron Pressman, July 19 2013

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Netflix’s long-term view In June 2013 [Netflix CEO Reed Hastings] said that HBO is likely to be Netflix’s biggest competitor, but also mused that: “We compete very broadly for a share of members’ time and spending, against linear networks, DVDs, other internet networks, video games, web browsing, magazine reading, video piracy, and much more. Over the coming years, most of these forms of entertainment will improve. Consumers will choose and consume from multiple options.”110 In other words, Netflix acknowledges that it also competes for attention with virtually any kind of leisure activity. This company is expanding its view of the competition while everyone else in the industry views themselves as competing with each other.

According to Bob At the Goldman Sachs Communacopia on September 24 2013 in New York, Disney CEO Bob Iger admitted that while: “There’s no doubt Netflix has a running start in the business” 111, the streaming company had not won yet. He stated that the technology has created the most dynamic media space we’ve ever seen, which will continue to power the front-runner’s growth, and described the proliferation of digital video services as “a boom generating incremental revenue from content licenses.” 112 Price Waterhouse survey PW found that 63% of viewers use Netflix to access online video “compared to alternative sources such as TV network websites and competing over-the-top platforms.”113 The survey also noted that Netflix’s highly touted original series (i.e. House of Cards) were more important to the under 35 demographic, as opposed to the over 50 age group.

Netflix stock goes up again The company was projected to end 2013 with 32.7-33.5 million subs, and was “the biggest gainer in the S&P 500 in 2013”114, reflecting the popularity of its original programming. The company also stated that it would “double investments in original programming in 2014”115 which apparently made Wall Street very happy indeed.

Netflix announces more original programming “The Walt Disney Co. (NYSE: DIS) and Netflix Inc. (NASDAQ: NFLX) today announced an unprecedented deal for Marvel TV to bring multiple original series of live-action adventures of four of Marvel's most popular characters exclusively to the world's leading Internet TV Network beginning in 2015. This pioneering agreement calls for Marvel to develop four serialized programs leading to a mini-series programming event.”116

110

Quartz: “In a year, Netflix’s competition shifted from Hulu to HBO to everything” by Zachary M. Seward, September 16 2013 111 Home Media Magazine: “Disney CEO: Netflix Not a Monopoly”, by Erik Gruenwedel, Sept 24 2013 112 Quartz: “In a year, Netflix’s competition shifted from Hulu to HBO to everything” by Zachary M. Seward, September 16 2013 113 Home Media Magazine: “Survey: 63% of Viewers use Netflix to Access Online Video” by Erik Gruenwedel, Sept 24 2013 114 Reuters: “Netflix Customer gains reinforce growth hopes, shares jumps”, by Lisa Richwine, October 21 2013 115 Ibid.

116 Marvel.com: “Disney's Marvel and Netflix Join Forces to Develop Historic Four Series Epic plus a Mini-Series Event” November 07 2013

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Netflix shares crested at $454.98 on March 4 2014 before returning to something approaching its realistic value, and when we last checked on May 7 2014 the stock had closed at $320.54, representing a 30% drop in company value in a mere 60 days.117 Nonetheless, the stock price is still trading at more than a hundred times its earnings.

Nook Video Platform “Barnes and Noble…said it signed content license agreements with 20th Century Fox Home Entertainment and NBC Universal for its pending Nook Video platform…which includes video-on-demand and electronic sellthrough (but no subscription VOD).”118 “Customers will be able to sync their UltraViolet accounts to the Nook Cloud, allowing them to view their previously and newly purchased UltraViolet-enabled movies and TV shows across the Nook HD and Nook HD+ device and free Nook Video apps…”119 which are “coming soon.”

As repeatedly stated, it’s getting ever more crowded out there in the world of digital video.

Amazon Prime Instant Video Amazon Prime gains on Netflix…sort of…

“More people, percentage-wise, watched Amazon Prime Instant Video than Netflix in September [2012]...”120 According to research firm ChangeWave, Netflix had an 82% share of the SVOD market in September 2012, after their market share had dropped 2% between February and August 2012. Amazon Prime’s growth over the same period was from 17-22%. This prompted strange conclusions in this rather bizarre article, such as: “More people, percentage-wise, watched Amazon Prime Instant Video than Netflix in September…” prompting the obvious question: what ChangeWave can possibly mean by this. Maybe I’m missing something here, but from what I understand, the article basically summarized the digital video market share as Netflix at 82% and Amazon at 22% of all online viewing.121 First of all, I think we would all agree that 82% is more—percentage-wise—than 22%.

Secondly, 82% + 22% = 104% of the market, which is of course impossible; further, the 104% doesn’t even include percentages from all the other streaming companies, which one would assume also held some portion of market-share, no matter how minimal.

Maybe something just got lost in translation, in which case I invite the reader to glance over the article and get back to me if I’m wrong. And even if I am, the one thing the article does confirm is that the possibilities for sewing erroneous impressions and incorrect conclusions online are virtually limitless.

117

https://ca.finance.yahoo.com/q/hp?s=NFLX Home Media Magazine: “Nook Video Gets Fox. NBC Universal Content”, by Erik Gruenwedel, Oct 30 2012 119 Ibid.

120 Home Media Magazine: “Survey: Amazon Prime Instant Video Slowly Gaining on Netflix”, by Erik Gruenwedel, November 02 2012 121 Ibid.

118

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Anyway, according to the article, iTunes still had the highest customer satisfaction rating of all the companies studied, and that much is perfectly believable.

CBS moves further into a streaming future On February 13 2012 CBS and Amazon “expanded a content licensing agreement to bring classic series and TV shows from CBS and Showtime to A-Prime Instant” 122, which represented “an ongoing change in strategy of sorts for CBS”123 at the time. This was a significant event, as it signaled a sea change in the attitude of the entire conventional television industry.

Amazon’s digital growth begins to increase versus physical In an April 25 [2013] fiscal call, [Amazon] CFO Tom Szkutak said digital media sales were growing 30% faster than comparatively flat physical media.”124 Szkutak also reported that “digital media sales from 3rd party sellers increased 40%.”125 Amazon Prime gets bigger—a lot bigger

By July of 2013, thanks in part to a 700-title streaming deal with Miramax, Amazon now included more than 41,000 movies and TV episodes.

“HBO Inks Exclusive 10-Year Deal With Universal to Keep Content Out of Netflix’s Hands”126 There’s a very good reason I’ve included this January 16 2013 article in the Amazon section of this chapter. I’m not doubting that HBO wanted to keep its extremely highvalue content not just away from Netflix, but from every so-called Over the Top (OTT)127 service, because OTT services threaten the very existence of cable TV128, which is far more profitable than SVOD129 services.

At first glance, the deal seemed to make perfect sense. But then, only sixteen months later…

HBO and Amazon sign a deal (?)

“Customers of streaming service Amazon Prime in the US will be able to watch TV shows including The Sopranos and The Wire as part of a licensing agreement with subscription channel HBO.”130 “It is the first time HBO programming has been licensed to an online-only subscription streaming service. Before this deal HBO did not allow Netflix, Hulu, Amazon Prime or

122

Home Media Magazine: “CBS Ups SVOD Stake in Amazon Prime”, by Erik Gruenwedel, Feb 13 2013 Ibid.

124 Home Media Magazine: “Amazon CFO: First-Quarter Packaged Media Sales Increased Slightly”, by Erik Gruenwedel, April 26 2013 125 Ibid.

126 Techcrunch.com: “HBO Inks Exclusive, 10-year Deal with Universal to Keep Content out of Netflix’s Hands”, by Ingrid Lunden, Jan 06 2013 127 Digital video available through the web-based services, as opposed to through conventional television broadcasting 128 See “Telecoms Beware”, page 33.

129 Subscriber Video on Demand 130 BBC News - Entertainment and Arts “Amazon and HBO Sign Streaming Deal” [no author attributed], April 23 2014 123

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other US streaming services access to its programmes, restricting them instead to its own HBO Go streaming service.”131 I’m confused. Where I come from, signing a 10-year exclusive deal with someone means that neither party can do the same deal with anyone else…for 10 years. So how can HBO have an exclusive deal with Universal and Amazon at the same time?

To misquote (with apologies to all concerned) Inigo Montoya in the film version of The Princess Bride: “You keep on using that word [exclusive]. I do not think it means what you think it means.”

Redbox Instant The Redbox Instant hybrid Redbox began making announcements about the planned 2013 launch of its Netflix-like movie-only streaming service, Redbox Instant by Verizon, in December of 2012.132 Touted as “the first real contender to Netflix’s lucrative hybrid streaming-disc-rental option”133, it was deemed to be a threat to Netflix because of its “significant embedded customer bases” from both Redbox and Verizon, and a variable plan that featured a combination of streaming and disc rentals included in the subscription price, even though “Netflix still [had] a significantly larger streaming offering than Redbox”134 at the latter’s launch, and [Netflix] also has its own “highly-coveted TV shows.”135 The launch, which took place in April 2013, focused on movies and was available through the usual panoply of technologies and operating systems.

Respected Riley & Co. analyst Eric Wold observed that: “Redbox Instant doesn’t need to displace Netflix as the subscription VOD leader to be disruptive or profitable”, and added that: “If the only negative issues have been content availability and device support, we view that as a positive…”136 Just a question: what else is there to a streaming service besides content availability and device support?

Netflix sub loss a gain for Redbox Instant Netflix’s mail-order disc rental service lost 470,000 disc subs in the second quarter of 2013. Even so, disc rentals still generated $109 million in profit for the company, more than twice the profit generated by Netflix’s streaming-only service.137 This prompted Redbox bear138 Eric Wold to speculate that “the increased reduction in Netflix subs suggest consumers are gravitating toward Redbox Instant by Verizon.”139 131

BBC News - Entertainment and Arts “Amazon and HBO Sign Streaming Deal” [no author attributed], April 23 2014 132 Home Media Magazine: “Analysis: Redbox Instant vs. Netflix Hybrid”, by Erik Gruenwedel, Dec 04 2012 133 Ibid.

134 Ibid.

135 Ibid.

136 Home Media Magazine: Redbopx Instant Gears for Launch” by Chris Tribbey. January 09 2013 137 Home Media Magazine: “Analyst: Netflix Disc Sub Loss a Gain for Redbox Instant”, by Erik Gruenwedel, Chris Tribbey, July 23 2013 138 See “bear” footnote, page 9.

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And that: “We (B. Riley & Co.) continue to believe that the [Redbox] $8 combo disc/ streaming sub plan will represent an attractive option to Netflix DVD-only subscribers that [should be who] are paying the same price for disc access only.”140 Wold “believes Redbox will significantly increase SVOD marketing efforts beginning Q3 or Q4…”141 and that… “we take this trend reversal…[as a] sign that Redbox Instant is already having a competitive impact on the industry.”142

Hulu Classic TV makes a comeback On November 7 2012 CBS announced that it had signed an exclusive licensing deal with Hulu to host 2,600 TV shows, including previous seasons of current shows as well as classic TV shows such as “Star Trek, I Love Lucy, The Twilight Zone,”143 and so on.

This is significant because it signals a dramatic shift towards digital platforms by the most conservative of all the big US networks, though admittedly Hulu is a relatively safe haven, since it is actually owned by NBC/Universal, 20th Century Fox, and Disney.

YouTube Google wades into the fray In the 3rd week of January 2013 “Google launched 30 pay channels on its YouTube service that allow rights holders to sell their content directly to consumers”.144 “The headlines are ominous about our industry,” said Bell Media president Kevin Crull.

“Netflix streamed four billion hours in April. Google’s YouTube says the battle with TV is already over and TV lost. Intel expects to launch a virtual cable service by year-end.

These trends are rocking the foundation of our industry.”145 And on May 9 2013...

“YouTube officially launched a subscription video-on-demand pilot service, with monthly fees starting at 99 cents per content channel. Google states that it has 1m third-party content channels generating incremental ad-supported revenue.”146 “The new platform, which competes against…Netflix, Amazon Prime, Instant Video and Hulu Plus, targets about 50 of its content channels, with subscription revenue split between YouTube and third-party content partners.”147

139

Home Media Magazine: “Analyst: Netflix Disc Sub Loss a Gain for Redbox Instant”, by Erik Gruenwedel, Chris Tribbey, July 23 2013 140 Home Media Magazine: “Analyst: Netflix Disc Sub Loss a Gain for Redbox Instant”, by Erik Gruenwedel, Chris Tribbey, July 23 2013 141 Ibid.

142 Ibid.

143 readwrite.com, “Why the CBS-Hulu Deal is The Future of Old and New Media”, by Adam Popescu, November 07 2012 144 The Globe and Mail: “Netflix rearms for a Canadian onslaught”, by Steve Ladurantaye, May14 2013 145 Home Media Magazine: “Netflix Expects Streaming Margins to Overtake Disc in Q1”, by Erik Gruenwedel, Jan 29 2013 146 Home Media Magazine: “YouTube Bows SVOD Platform”, by Erik Gruenwedel, May 09 2013 147 Ibid.

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But just to be clear about what Google brings to this endeavour, peruse the following bullet list of the social media giant’s titanic capabilities:      

“More than 1 billion unique users visit YouTube each month.

Over 6 billion hours of video are watched each month on YouTube.

100 hours of video are uploaded to YouTube every minute.

70% of YouTube traffic comes from outside the US. “YouTube is localized in 53 countries and across 61 languages.”148 “In 2011, YouTube had more than 1 trillion views or around 140 views for every person on Earth.”149

Not much going on there.

Other Items of Note BBC to trial selected shows on the BBC iPlayer In February of 2013 the BBC reported 2.32 billion requests to content online, versus 1.94 billion in 2011. Currently, the BBC iPlayer accounts for only 2% of the network’s views.150 In November of 2013 Virgin Media launched TV Anywhere, a British-based Netflix-like service.

Telecoms beware “The number of ‘tuned-out’ Canadians, those who don’t subscribe to conventional TV, has doubled in recent years and now represents eight percent of the population, suggests a new report [by The Media Technology Monitor].”151 This phenomenon echoes similar results being reported in the United States, and does not bode well for the telecoms’ advertising-heavy business model. As reported in previous ETRs and elsewhere, users are beginning to abandon the cable TV entertainment model, which offers customers a viewing experience composed of 25% advertising time, versus an average of less than 2% on “commercially supported” overthe-top streaming services, and zero advertising time on paid subscription services that cost a miniscule fraction of the price of cable services.

“Canadian television providers are planning to cut their own cords, with several of the country’s largest media companies developing subscription-based services to compete with online rivals such as Netflix Inc.”152 “…cable and satellite companies are increasingly concerned that customers will find content elsewhere…” and are “reinventing themselves for a digital future.”153

148

www.youtube.com/yt/press/statistics.html: (first 5 bullet points), May 11 2014 www.dailymail.co.uk: “YouTube to Charge for Watching Videos” by Victoria Wollaston, May 07 2013 150 BBC News: “BBC to trial selected shows online”, February 08 2013 151 The Canadian Press: “Canadian TV ‘cord cutters’ reach 8 per cent of population: poll”, by Michael Oliveira, April o3 2013 152 The Globe and Mail: “Rogers determined to butt heads with Netflix”, by Steve Ladurantaye, May 07 2013 153 Ibid.

149

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Fox starts offering digital new releases of movies before they come out on disc As of June 04 2013, Fox began making new post-theatrical new releases available on its digital download service “Digital HD” up to four weeks ahead of physical media (DVD & Blu-ray). The digital versions “include bonus material depending on the platform.”154 Digital HD Fox has seen a 400% growth in electronic sell-through (EST) since it began the early-release program. Industry-wide, EST grew 51%+ in the first quarter of 2013 from $152.6m to $231m, proving that “early release is vital to digital content ownership.”155 The studios may have finally figured out how to sell digital versions of movies.

Target Ticket Target Ticket launched in beta in August 2013, and not much was heard from it. The plan was to induce current customers to use the service by tying it to the company’s RED card discount program. It all looked promising enough at first. The service as advertised had a clearly family-oriented focus, including a feature that allowed parents to “create profiles, then limit access not only by MPAA and TV parental guidelines, but also optionally by Common Sense Media’s more fine-grained controls.”156 But Target was late to the “big-box store turned online movie-seller” game. Walmart was already established with Vudu, while Toys ‘r’ Us had had its own digital media provider in place since late 2012. Also, the scoop was that “watching [Target Ticket] on Apple devices [would] be problematic.” But that’s okay, no one uses iOS…right?157 Then came the firestorm. Target lost a cool billion in a woefully unsuccessful Canada launch, and got hacked on an epic scale, something that their own security software had notified them was taking place…only no one was paying attention.

“The story they tell is of an alert system, installed to protect the bond between retailer and customer, that worked beautifully. But then, Target stood by as 40 million credit card numbers—and 70 million addresses, phone numbers, and other pieces of personal information—gushed out of its mainframes.”158 Anyway…uh…good luck with the new service, Target.

The television cable industry bleeding continues 1.8m Americans cut the cord in the second quarter of 2013 alone.159 Clearly, the number of users of any type of TV service is in decline. A full “911,000 US homes have cut the cord in the past year [and]…as the availability of free wireless increases, people whose primary access to video and the web is on mobile devices and tablets—the young and the poor, in other words—have a less urgent need for [cable] services…”

154

Home Media Magazine: “Fox to Offer Early Digital, UltraViolet Access on All New Releases”, by Erik Gruenwedel, May 06 2013 155 Ibid.

156 TechCrunch: “Target Ticket, Target’s Video Download and Rental Service, Nears Launch” by Sarah Perez, Aug 30 2013 157 Ibid.

158 BloombergBusinessweek: “Missed Alarms, and 40 Million Stolen Credit Card Numbers: How Target Blew It” by Michael Riley, Dune Lawrence and Carol Matlack, March 13 2014 159 Business Insider: “Another 1.8 Million People Just Ditched Cable TV”, by Jim Edwards, September 04 2013

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Declining post-theatrical physical media sales Comcast CEO Michael Angelakis, speaking at the Goldman Sachs Communacopia conference in New York on September 24 2013, said that the “slowdown in packaged media sales has resulted in structural challenges at the studio, both at the marketing and creative levels.”160 Angelakis went on to say that “the challenge at first was recognizing that there were issues around the deterioration of [post-theatrical] DVD sales.”161 Potential symbiosis between conventional television and streaming services During a Digital Hollywood panel, well-known Wedbush Securities analyst Michael Pachter decried the studios’ archaic approach to TV windows: “The studios feared TV because they were worried people wouldn’t go to the movie theatre ever again so they held content of TV for 14 years. Here we are more than 60 years later and it’s still a 14 year window.”162 Speaking about “carriage deal squabbles between pay-TV operators and content distributors,” Guy Finlay, Executive Director of the Media and Entertainment Alliance, said: “When these things happen, the second screen is a path around it. I think it’s silly that we as an industry, in this platinum age of television, are going through these growing pains.”163 Pachter used the 7.5 million viewers of the live episodes of the last season of Breaking Bad as an example of the power of Netflix to allow people to “catch up.”

He “also pointed to the sharing of production costs for limited window exclusivity with Netflix and its original series having a huge impact on the content creation world, and predicted”164 that Microsoft would do it next.

Cindy McKenzie of Price Waterhouse opined that: “People are fine with ads, as long as it’s in lieu of fees. And people like the idea of targeted ads. They’re willing to give up some personal information, and that’s a shift. Part of it is the quality of the ads as well.

The big issue is how to track the numbers. Who’s watching what? Better metrics…is the holy grail.”165 I don’t completely disagree with Ms. McKenzie, except that I would say that the people who are watching content online now are fine with ads. But stick around. My field experience (based on observations of my children, now 8 and 12 years old respectively, and all of their friends) tells me that the next generation will not be fine with the so-called commercially supported (free with ads) subscription services.

My wife pre-recorded an episode of the highly regarded Wild Canada series to watch with our 8-year-old, a huge animal-lover. When the commercials came on, our daughter—a digital subscription service veteran—was astounded that anyone would sit through a single one of them. She did not even have the patience to sit through conventional commercials even when they were fast-forwarded.

160

Home Media Magazine: “Comcast CEO: Declining Disc Sales Alter Theatrical Slate” by Erik Gruenwedel, Sept 24 2013 161 Ibid.

162 Home Media Magazine: “Digital Hollywood Panelists Talk Changing Models” by Erik Gruenwedel, Oct 22 2013 163 Ibid.

164 Ibid.

165 Ibid.

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Good luck selling 25% of viewing time in commercials to this generation.

The studios continue to “not get it” Pursuant to Disney’s February 27 2014 announcement that it would not join Ultra-Violet, the major studios’ digital content locker, Wedbush Securities analyst Michael Pachter observed that “Disney’s refusal to join UltraViolet undermines the platform and the industry’s attempt at conformity—the latter key to wider consumer adoption of cloudbased storage of entertainment.”166 On the other hand, you can’t completely blame Disney for not jumping on board UltraViolet. After all, Target Ticket is involved with the service, and Target’s recent cyber-security failure over the holidays, which resulted in millions of consumer credit card transactions being compromised, “doesn’t help Target Ticket’s association with UltraViolet.”167 “Of all things Target and Walmart are known for, custodians of the things consumers own in the cloud is not one of them.”168 Nonetheless, Pachter was critical of Disney’s refusal to help UltraViolet present a unified studio front.

“It’s silly. People don't want several cloud-based storage lockers segmented by the provider of content; that’s like having one refrigerator for Coke and another for beer.”169 Pachter has a point. Aggregation is critical to success in marketing goods, and digital video is no different. And yet the studios have been ignoring this salient fact since 2006.

You see, Disney, Warner, Universal, 20th Century Fox, Columbia, and Paramount still think that the movie-watching populations of planet Earth know which studio made every movie, when in actual fact no one but uber-geeks and insiders know these things.

Go ahead, Reader, answer this one (and no cheating!).

Which studio made Avatar?170 Now, given that this is the most famous and successful movie ever made, this should be easy…right? And yet at my last talk on this subject, in an audience of forty librarians, no one knew the answer. This isn’t a knock on the audience. Even I didn’t know the answer, and I’ve been in the business for 26 years. So if the studios keep on insisting on independently creating what amounts to online video stores which each feature only one studio’s content, they will continue to fail at the digital delivery game.

For example, it is extremely unlikely that anyone ever walked into a video store and said: “Hey, where’s your Universal new releases?” So why should we expect people to shop that way just because they’re online?

166

Home Media Magazine: “Analysts Chime in on Disney Digital Service”, by Erik Gruenwedel, February 28 2014 Ibid.

168 Ibid.

169 Ibid.

170 20th Century Fox. 167

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Piracy I have to confess: I find pirates kind of likeable, in a weird way—at least, the breed that are honest about what they do. They’re just pirates. They steal other people’s stuff, like Long John Silver and Israel Hands171, and who didn’t like them? Well, okay, Israel Hands was a scary, homicidal psychopath, but Long John was all right. Okay, now that I think of it, Long John and especially his parrot were kind of creepy too. But anyway, the point I’m trying to make is that these modern-day buccaneers are so clearly having fun poking the Big Corporate Entertainment Bear (and then running away giggling) that their naughty amusement is quite infectious.

Less inherently likeable are the hypocrites, those rip-off artists who see themselves as the new Robin Hoods—only they don’t just steal from the Sheriff of Nottingham and Prince John. Sure, they’re hurting the big bands, the movie studios, and more recently the popular authors, but the people who have really been eviscerated by piracy are the “little people”, the independent artists, musicians, and filmmakers (see The People Hardest Hit by Piracy on page 38).

Copyright law is a sign of a civilized society Pirates have a hilariously skewed opinion of the critical necessity of attribution, and zero concept of the rule of law which—incredibly imperfect as it is—is the only thing that’s holding all of this together. I would invite anyone who defends piracy to access the available information on which countries on Earth are signatories to the Berne Convention (1886) and the Rome Convention (1961). What becomes instantly obvious is that the countries which have strong copyright legislation are—not so coincidentally— countries in which everyone wants to live. Countries which do not have strong copyright legislation are—without naming any names—usually places where no one wants to live.

Very simply, artistic cultivation, protection, and attribution are signs of civilization.

172

171

Long John Silver and Israel Hands are unforgettable characters from Treasure Island by Robert Louis Stevenson..

Wikipedia: Search “Berne Convention.” the cartoon itself is: “The Pirate Publisher—An International Burlesque that has the Longest Run on Record, from Puck, 1886, which satirizes publishers who take works from one country and publish them in another without paying the original authors.”

172

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Pirates themselves don’t contribute all that much to global art I also can’t help but remarking that pirates themselves don’t ever seem to make anything; at least, anything worth reading, watching, or listening to. They’re just really familiar with the technology that makes it possible to steal other people’s stuff. And they didn’t even invent that.

The people hit hardest by piracy It isn’t the mega bands and the Hollywood moguls who are really getting hurt, it’s the independent artists. With the advent of the Compact Disc, legions of musicians rejoiced, as it was no longer necessary to secure often onerous contracts with one of a mere handful of dominant record companies in order to record one’s music. The CD made the home recording studio possible, which in turn allowed excellent musicians who did not fit into the record companies’ prescribed mold to gain a modest (by record studio standards) following and—equally importantly—earn a decent living without having to create music dictated by a music industry which was primarily interested in promoting a very limited stable of artists.

No one grieved when the record oligarchs were rocked by viral online piracy and fell on hard times, but there were legions of wonderful musicians who suffered in the bargain, and thousands of brilliant composers and songwriters whose music will probably be never heard.

Still, some of them are hard not to like But let’s face it, the pirates who don’t mind just being pirates, as opposed to those who insist on wrapping themselves in the myth of crusaders bent on taking down the Man, are an essentially jolly crew of likeable scalawags. My absolute top favourites are the two insouciant “Swedish dudes” from The Pirate Bay. Even when they got hauled in front of a judge, convicted of theft, and sent to the slammer for a year, they stayed pretty jolly.173 And when they got out? Business as usual. Only now, to stay one step ahead of the authorities, they’re constantly migrating their service through virtual machines in the various clouds. I don’t know exactly what that means, but it even sounds incredibly cool.

Pirate apologists On the other hand, we have the pirate media, like the writers who scribble for TorrentFreak and use only their own first names; for instance, “ernesto”, who flips the bird at the Establishment by not even capitalizing the first letter of his first name. Now that’s daring (in your face, you capitalist, money-grubbing evil robber barons!). I have for our collective bemusement included immediately below a baffling example of pirate illogic: Pirate Moral Relativism This article just might be among the top ten best examples of moral relativism174 in my experience. At any rate, Mr. Green (the author) begins as follows: “The way piracy works is that one person or group purchases a work, and then shares it with millions of other people. This supposedly deprives the author or artist of those millions of people’s money. One group has acquired over 50 million media items, and 173

Well, it was a Swedish jail, after all. I think the inmates’ main complaint was that the par 5 on the prison golf course wasn’t challenging enough.

174 A philosophical position that maintains that there is no objective prescription for right and wrong.

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makes each of them available to approximately 20 million people—which must be a tremendous hit to creative professionals’ wallets. This notorious institution is called the New York Public Library.”

But seriously, every point in this argument is refutable.

In the first place, there’s the matter of consent. In the case of libraries, either the rights holder (for example, an author) or the rights holder’s authorized agent (for example, a publisher) has given the library permission to circulate said work to its patrons. Piracy is defined by the fact that a copyrighted work is used without this consent and/or any form of compensation to the creator; and further, global simultaneous use of the rights holder’s work without that same consent (though whether it’s to one single other person or to seven billion others is irrelevant) simply increases the severity of the offense.

Secondly, wild exaggerations that are easily disproved do nothing to further one’s argument. I’m quite sure that the New York Public Library would be thrilled to learn that they have 20 million users, which is what Mr. Green is implying. The last time I checked NYPL had 3,457,523 patrons, and New York City, which the aptly named New York City Public Library serves, has a core population of 8.4 million. Mr. Green, there’s this thing called Wikipedia. I recommend you use it to check your “facts”—such as they are— before you write your next ethically ambiguous article.

Okay, maybe I’m being a bit rough on the guy…but at least I’m giving him credit for having written the article!

Copyright trolls On the other side of odious, we have firms that cross the line, whose business model is based on threatening individuals or companies which use their copyrighted materials without permission.

Canipre, the only anti-piracy enforcement firm providing forensic services to copyright holders in Canada, has been monitoring Canadians’ downloading of pirated content for several months on behalf of Voltage Pictures and is now in Federal court requesting customer information for over 1,000 IP addresses on behalf of their client.175 IP addresses flagged by Canipre link back to Teksavvy’s users. If the court orders Teksavvy to hand over customer info, it could be a new chapter in the anti-piracy battle in Canada.176 Bill C-11 imposed a limit of $5,000 on damages awarded for non-commercial copyright infringement.177 “Parliament didn’t want the courts to be used in that way [extorting large settlements out of court]” – David Fewer, director of the Canadian Internet Policy and Public Interest Clinic.178 175

The Canadian Press: “Anti-piracy firm targeting Canadians who download illegally”, by Pierre Chauvin, May 12 2013 176 Ibid.

177 Ibid.

178 Ibid.

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Canipre states that they understand the culture of piracy. “… people know it is illegal but they continue to do it. It’s a pervasive sense of entitlement. [Pirating] content should be socially unacceptable.”179 The final riposte comes from a first-year computer science student at Ryerson University…and TekSavvy customer: “Five-thousand dollars for a first offence without any strikes or warning is overkill. Yes, it is illegal but it’s like jaywalking — a crime that nobody enforces.”180 There’s that moral relativism again, rearing its ugly head.

Norway virtually drastically reduces digital piracy “Quietly behind the scenes, music piracy has collapsed to less than a fifth of the level it reached 5 years ago, while movie and TV show piracy has been cut in half.”181 As “Andy” from TorrentFreak writes: “Between 2008 and 2012 piracy of music, movies, and TV shows collapsed in Norway. In 2008 almost 1.2b song were copied without permission; however, by 2012 that figure plummeted to 210m, 17.5 % of its 2008 level.”182 “With the introduction of [attractive] legal alternatives, unauthorized copying is down more than 72%.”183 IsoHunt shut down The operator of isoHunt, a popular site which was clearly an illegal file-sharing conduit, settled with the MPAA184 for $110m and immediately went out of business.185 “The San Francisco circuit court rejected the operator’s defense, which was based on the Safe Harbour provision in the Copyright Act, and ruled that infringement legislation is applicable to sites which ‘induce’ unlawful file sharing.” 186 “IsoHunt claims 44 million peers, 13 million active torrents, and is ranked the 426th most visited site in the world.” 187 And…wait for it…IsoHunt rises from the dead…all of two weeks later The site is back online as isoHunt.to, and the new website is in Australia. Author Ian Paul compares the studios’ attempts to curtail piracy like a giant game of “Whack-aMole.” Every time you think you’ve knocked an illegal file-sharing site down it pops up somewhere else on the planet.188

179

The Canadian Press: “Anti-piracy firm targeting Canadians who download illegally”, by Pierre Chauvin, May 12 2013 180 Canadian University Press: “Copyright Infringement No Worry For Students”, by Leah Hansen, March 21 2014 181 Torrentfreak.com: “Piracy Collapses as Legal Alternative Do Their Job”, by Andy, July 16 2013 182 Ibid.

183 Ibid.

184 Motion Picture Association of America 185 Home Media Magazine: “MPAA Claims Victory as file-Sharing Service IsoHunt Shuts Down”, by Erik Gruenwedel, Oct 17 2013 186 Ibid 187 Ibid.

188 PC World: “Vanquished piracy site IsoHunt rises from the dead”, by Ian Paul, October 30 2013

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The Pirate Bay, for example, says it is now using encrypted virtual machines hosted on several cloud service providers around the world.189 “These efforts, along with the newly instituted isoHunt, show that while content providers may get the upper hand in skirmishes with specific sites, it will be nearly impossible to completely stop people from trading copyrighted content. So instead of legal action, perhaps Hollywood big shots should take a page from iTunes and Netflix. Offer an alternative to piracy that’s so good (and reasonably priced) that people will be more than willing to pay for it.” 190 Of course, Hollywood’s idea of what constitutes a “reasonable price” isn’t the same as the new breed of web consumer’s idea of what that might be, and “therein lies the rub.”191 Popcorn Time One of the saving graces preventing Hollywood from being completely ripped off by pirates was the fact that the bitTorrent process—while essentially simple—is still just a teeny bit outside the comfort zone for the average noncom192; in fact, it was virtually the only thing that Hollywood liked about Netflix, whose ease of use made streaming cooler and more pervasive than torrenting.193 But it was only a matter of time before the relentless tide of pirate ingenuity caught up to them. Enter “Sebastian”, a Buenos Aires developer who generously developed a bitTorrent-powered Netflix knock-off movie streaming app because: “I have a lot of friends who don’t understand torrents and I wanted to make it easy and effortless to use torrent technology.” 194 Check it out.

195

189

PC World: “Vanquished piracy site IsoHunt rises from the dead”, by Ian Paul, October 30 2013 Ibid.

191 From Hamlet, by William Shakespeare.

192 A technologically illiterate computer user.

193 There nerds wail and gnash their teeth (to paraphrase Matthew 13:42).

194 torrentfreak.com: “Popcorn Time”, by “ernesto”, March 08 2014 195 http://www.time4popcorn.eu 190

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Torrents for Dummies “Popcorn Time…is a tool that allows users to stream popular movie torrents with the click of a button. Popcorn Time offers instant access to hundreds of films, in various qualities and complete with subtitles if needed.”196 “Popcorn Time now has 20 collaborators on Github and continues to expand at a rapid pace. Developers from all over the world have added new features and within 24 hours it was translated into six languages.”197 “…Popcorn Time uses node-webkit and is available for Windows, Mac and Linux. It’s basically a browser that uses HTML, CSS and JavaScript to serve the movie streams.”198 “The technology behind the app is very simple. We consume a group of APIs, one for the torrents, another for the movie information and another for the poster. We also have an API for the subtitles. Everything is automated, we don’t host anything, but take existing information and put it together…”199 “Since Popcorn Time links to a lot of copyrighted movies, Hollywood is not going to be happy [duh… you think?] but according to Sebastian [who may be in the top ten most optimistic people I’ve ever heard of] the developers don’t expect any legal issues. They inform users that sharing copyrighted material is not allowed everywhere, and other than that they are just repackaging existing content, without a commercial angle.”200 Good luck with that one. And sure enough…

Son of Popcorn Time It only took about 36 hours before they kicked in the door—so to speak—of the Argentinian developers who originally designed it and who ran like proverbial rabbits. We don’t know where “Sebastian” is now, but wish him well. As for the intervention of the authorities, it was already too late. The following unedited missive from TechCrunch tells the tale: “Popcorn Time’s evolution continues. A popular fork of the original software is launching on Android as soon as tomorrow barring any unforeseen delays, one of the developers tells TechCrunch. The software also recently gained TV shows from HBO and others, making it a one-stop-shop for all your pirating needs.” 201 “Like the original, this version of Popcorn Time makes it a watching pirated movies a trivial task. It’s essentially Netflix with content you actually want to watch. And it’s free— and a bit shady since, you know, it’s pirated content. Since TechCrunch first covered Popcorn Time, the software has become more stable and gained additional content and

torrentfreak.com: “Popcorn Time: Open Source Torrent Streaming Netflix for Pirates” by “ernesto”, March 08 2014 196

197

Ibid.

Ibid.

199 Ibid.

200 Ibid.

198

torrentfreak.com: “Popcorn Time Shuts Down, Then Gets Resurrected by YTS (YIFY)”, by “Andy”, March 15 2014 201

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features including TV shows.”202 “The developers of this fork of Popcorn Time tells TechCrunch that they have yet to receive any legal flak from the MPAA or others. But they’re prepared if it comes. And with the Android app soon launching, the increase in attention might catch the eye of Hollywood’s legal hounds.”203 “True to its original mission, the source code for the Android version will eventually be available on Github. Transparency could be Popcorn Time’s best defense.”204 The proverbial genie is out of the bottle, as per the following ominous inscription which appears on the resurrected, new and improved Popcorn Time’s homepage: This Popcorn Time service will never be taken down. Download and enjoy.

The Pirate Bay punks the world On March 3 2014 the infamous Pirate Bay announced to the world that they had received an offer of “virtual asylum” from North Korean dictator Kim Jong-un.

“The Pirate Bay insiders said they believe that the offer of asylum from North Korea is a ‘first step’ of possibly the country's changing view of internet freedom. The Pirate Bay says they've been offered ‘virtual asylum,’ but haven't taken it yet. Nonetheless, they say they are using the North Korean network to connect to the rest of the globe.”205 The hoax didn’t last long. Within 24 hours geeks worldwide tracked the Pirate Bay servers’ traceroutes and determined that one hop from Frankfurt to New York would have had to move faster than light to get there in the time indicated.206 Unperturbed, the “two Swedish dudes” steadfastly maintained their fiction, going so far as to post the following shopped photo of them consorting with the dictator as “proof” of the server move:

207

torrentfreak.com: “Popcorn Time Shuts Down, Then Gets Resurrected by YTS (YIFY)”, by “Andy”, March 15 2014 202

203

Ibid.

Ibid.

205 Business Insider: “Torrent Site Pirate Bay Claims to Have Moved Servers to North Korea”, by Geoffrey Ingersoll, March 04 2013 206 InfoPolicy: “Evidence the Pirate Bay Move to North Korea was a Prank, in Understandable Terms” by Rick Falvinge, March 05 2014 207 Ibid.

204

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See? Just a couple of crazy pirates having a good time (check out Swedish Dude #2 – slightly right of centre in the back—pulling a move a la Jerry Lewis peeking over-theshoulder in The Errand Boy).

Game of Thrones sets dubious record “According to a report on TorrentFreak, just a few hours after episode 5 of season 4 appeared on torrent sites, Demonii tracker showed a whopping 207,054 people sharing one single torrent at the same time with 163,496 acting as seeders (having a complete copy of the episode) and 43,558 leechers still downloading. The previous swarming record was held by Game of Thrones season 4 episode 2 with 193,000 people sharing a single copy of the latest episode hours after the episode was aired on TV. The file reported by Demonii isn’t the one available for the latest episode and if a cumulative value of all the people sharing the latest episode is considered, it was downloaded an estimated a whopping [their grammatical error] 1.5 million times within a few hours of going online.”208 Yes, it’s illegal, but pointing the finger and screaming “Crook!” doesn’t seem to be working. HBO and its ilk had better figure something out. And fast. May I suggest the studios take a cue from Redbox’s hardy survival model. To re-quote Eric Gruenwedel of Home Media Magazine: “Redbox doesn’t care what people used to pay for disc rentals.

It only cares that people rent a movie from a kiosk.”209 So maybe the studios should stop caring about what people used to pay for a season of Game of Thrones on disc, and start thinking about what they can reasonably expect consumers to pay for the digital version of the same.

208

TechieNews: “Game of Thrones Season 4 Episode 5 Sets New Torrent Swarming Record”, by Ravi Mandalia, May 6 2014 209 Home Media Magazine: “Wall Street (Again) Fumbles Rental Story”, by Erik Gruenwedel, Sept 10 2013

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Technology: Items of Note Computer touch screens David Pogue points out in unflattering terms that “every major Microsoft initiative can be traced back to a successful predecessor”, as evidenced by Windows imitating Mac, Internet Explorer imitating Netscape, Bing imitating Google, and Zune imitating iPod.210 He also rather pointedly notes that the touch component of Windows 8 was the first attempt at real innovation in Microsoft’s history, and was also an epic failure, in great part due to a condition described as “gorilla arm” a painful condition which results from a person having to stretch across the keyboard to the computer screen to use the touch feature.211 Windows 8 is considered by most media pundits to be an epic failure.

2013 will be the Year of the Tablet The author points out that PC sales to US consumers are flat, speculating that “many activities that took place on PCs in the past” can be performed on smartphones and tablets, and that “PCs are now just one of several internet devices.” 212 It is difficult to see how desktop and laptop computers will disappear completely in the near future, seeing as the phone and tablet experience is horrible, and that mobile devices are neither powerful nor flexible enough to meet the demands of more advanced professional activities like graphics, music production, and film editing. Nonetheless, the routine daily functions like email, texting, and to a certain extent digital video viewing and so on are migrating to the smaller devices.

“Thin” Clients “Ophelia is as big as a USB thumb drive, yet it’s a complete, self-contained PC. It allows access to Windows, Mac OS, Google’s Chrome OS, Dell’s custom cloud solutions, Citrix cloud software, and even Google’s Chrome OS, using virtual instances of those operating systems running in the cloud. The stick itself runs Google’s Android operating system in order to handle tasks that are processed locally, like decoding and encoding voice and video streams. The entire device draws 2.1 watts of power; for comparison, the microprocessor in the average smartphone draws 1 watt, and the average PC draws 20 times as much electricity.”213 “To use Ophelia, you plug it into a flat-panel monitor or television. That’s it: It connects to the internet via Wi-Fi and to a keyboard and other peripherals via Bluetooth. It’s the PCas-parasite, a device that offloads most tasks to servers in the cloud so that the user is left with barely a token, a nearly ephemeral, solid-state key connecting to their cloudbased ‘computer,’ wherever they are.”214

210

Scientific American: “Why Touch Screens will not Take Over”, by David Pogue, December 18 2012 Ibid.

212 Marketingland: “If 2012 was ‘The Year of the Mobile,’ 2013 will be ‘the Year of the Tablet’”, by Greg Sterling, Jan 02 2013 213 Quartz: “How a leveraged buyout could actually turn Dell into the tech success story of the decade”, by Christopher Mims, January 15 2013 214 Ibid.

211

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5D optical memory “Using nanostructured glass, scientists have, for the first time, experimentally demonstrated the recording and retrieval processes of five dimensional digital data by femtosecond laser writing. The storage allows unprecedented parameters including 360 TB/disc data capacity, thermal stability up to 1000 degrees C and practically unlimited lifetime.” 215 “…the data is recorded via self-assembled nanostructures created in fused quarts, which is able to store vast quantities of data for over a million years. The information encoding is realized in five dimensions: the size and orientation in addition to the three dimensional position of these nanostructures.”216 “The self-assembled nanostructures change the way light travels through glass, modifying polarization of light that can then be read by combination of optical microscope and a polarizer, similar to that found in Polaroid sunglasses.”217 The scientists say that 5D optical storage could allow for densities as high as 360 terabytes per disc, and unless you crush it in a vice, these discs are so non-volatile that data stored on them should “survive the human race.”218 Whatever that means.

FOMO (Fear of Missing Out) Syndrome “…a new survey conducted by MyLife.com revealed 56% of people are afraid of missing out on events, news and important status updates if they are away from social networks.”219 “…51% [more] people visit or log on more frequently to social networks than they did just two years ago. And users want their updates first thing in the morning.”220 “…27% of people [go] to social sites as soon as they wake up.”221 I have personally witnessed one of my twelve-year-old daughter’s friends sitting there refreshing Instagram on her iPad every fifteen seconds or so, for fear that she would miss responses to her last post.

Security concerns are only just beginning.

There has been much hay made over federal and provincial government concerns regarding the provision of digital services to libraries, in particular the safeguarding of patron information. And while it is no secret (now) that “the U.S. National Security Agency…has been compelling communications companies to build secret vulnerabilities

215

Science Daily: “5D optical memory in glass could record the last evidence of civilization”, July 09 2013 Ibid.

217 Ibid.

218 ExtremeTech: “Five-dimensional glass memory can store 360TB per disc”, by Sebastian Anthony, July 10 2013 219 Mashable: “Report: 56% of Social Media Users Suffer From FOMO”, by Samantha Murphy Kelly, July 09 2013 220 Ibid.

221 Ibid.

216

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into their systems, otherwise known as ‘back doors’ it is a proven fact that “…our own security agencies also prefer the back door.”222 As it turns out, “…for nearly two decades, Ottawa officials have told telecommunications companies that one of the conditions of obtaining a license to use wireless spectrum is to provide government with the capability to bug the devices that use the spectrum.”223 “Such a scheme is like building a house with a permanently unlocked door and then hoping that only those who have built the house and have the plans will know about it.”224 And as we all know, there is software which can be easily found online which allows “…users to do the equivalent of automatically checking millions of door handles across thousands of neighborhoods in a split second to see which doors are locked, and which are not.”225 “An Indifferent Apple”226 Total PC shipments are down yet again in 2013 (8%), prompting more calls for the imminent death of the technology. That is unlikely. While there is “a high probability that we will see another decline in worldwide shipments in 2014”227, the PC is almost certainly here to stay until the advent of affordable home-use virtual machines, for reasons already cited earlier in this chapter (see “The Year of the Tablet”, page 50).

Tablets are being blamed, and while “correlation doesn’t equal causality…Clayton Christensen’s Theory of Disruptive Innovation will recognize tablets as low-end disruption.”228 And while they are “clearly ‘worse’ than PCs, offering lousy typing experiences, inferior multitasking, horrible cut-and-paste…yet they are clearly disrupting the PC business.”229 “In the meantime, Microsoft is struggling with the new Windows [8], spinning a narrative around touch and PCs that few people are finding compelling.”230 In essence, Apple has a chance to be the dominant seller of tablets and seems intent on expanding its offerings to fight for share there.

“What it [Apple] hasn’t done so far is seized on the weaknesses of HP, Dell and others… to build a world-class corporate sales organization to push its tablets and PCs aggressively into thousand of organizations worldwide…[while]…the software side of Apple’s computer division seems more motivated.”231 Indeed, Apple seems to have the same relationship with its computer division that Netflix has with its disc mail-order business.

222

The Globe and Mail: “To protect Canadians’ privacy, telcos must shut the back door”, Ron Deibert, Sept 16 2013 The Globe and Mail: “To protect Canadians’ privacy, telcos must shut the back door”, Ron Deibert, Sept 16 2013 224 Ibid.

225 Ibid.

226 Forbes: “In a Declining PC Market, Opportunities for an Indifferent Apple”, by Mark Rogowsky, Oct 10, 2013 227 Ibid.

228 Ibid.

229 Ibid.

230 Ibid.

231 Ibid.

223

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3D is dead…again 3D is gone. For now. But there is confidence that it will be back, maybe even thanks to Netflix. The only thing is, current 3D technology is inadequate. Too much friction. No content. Dorky glasses. 232 LiFi “A group of Chinese scientist have successfully produced internet signals sent exclusively through light bulbs (LiFi) instead of Wi-Fi. In the tests, four computers hooked up to one-watt LED light bulbs with embedded microchips connect to the web using light-waves as a carrier instead of traditional radio frequencies as in Wi-Fi, the smart LEDs can produce data rates as fast as 150 megabits per second, faster than the average broadband connection in China.” 233 “Wherever there is an LED light bulb, there is an internet signal,” said Chi, a scientist from the Shanghai Institute of Technical Physics of the Chinese Academy of Sciences.234 Phablets “There are several explanations as to why PC sales are so dire. Users have few compelling reasons to upgrade—existing systems can still run all the latest software, and touch really isn’t the major selling point that manufacturers believe it to be.” 235 Tablets themselves aren’t doing so great either, as “the International Data Corporation [is] lowering its tablet shipment forecasts, predicting growth to start slowing…next year.”236 The reason for this is phablets (the new buzzword for oversized smart phones). People “don’t want to double up on data plans or lug around both a phone and a tablet.” 237 “The Market has trended toward small tablets in a big way over the last 24 months, but the rise of large phones could well push consumers back toward larger tablets as the difference between a 6-inch smartphone and a 7-inch tablet isn’t great enough to warrant purchasing both.”238 Mobile Phone Use Now Widely Outpacing PC Use [A new Nielsen] report shows that “in December 2013 American smartphone owners spent an average of 34 hours and 21 minutes using their devices, spread out amongst an average of seven daily sessions each. American online usage, meanwhile, was a cumulative 26 hours, 58 minutes per month.” 239 232

The Verge: “It’s Official, 3D is dead” By Vlad Savov, Jan 08 2013 Designboom: “internet connections through LED bulbs + light waves (LiFi)”, Oct 22 2013 234 Ibid.

235 Betanews.com: “The PC is dying, and the tablet’s future isn’t looking so bright either”, by Wayne Williams, Dec 04 2013 236 Ibid.

237 Maxthon: “What’s next for tablet technology?”, by Michelle Smith, November 19 2013 238 Ibid.

239 Techlicious: “Mobile Phone Use Now Widely Outpacing Online PC Use”, by Fox Van Allen, February 27 2014 233

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“The report also shows that Americans spent 185 hours per month watching TV in December. This suggests the average American spends nearly half of his or her waking day (246 hours, 19 minutes) with eyes glued to one screen or another.”240 “[Americans spend the most amount of their] smartphone time using social media apps like Twitter and Facebook (29%), while just 12% of screen time is devoted to more traditional communications. Productivity apps (11%), games (9%) and entertainment (6%) round out the top five.”241 Apple TV is Apple’s fastest-growing product Apple TV generated more than $1 billion in hardware and content sales last fiscal year; further, the company has sold 28 million Apple TVs since it was launched in 2007.242 In comparison, nearest competitor Roku sold a mere 8 million set-top boxes since 2008.

“These devices… have long been viewed as an interim solution in the evolutions towards fully internet-connected TV sets. But set-top boxes have proven surprisingly popular as streaming video services like Netflix have improved and cable television hasn’t. That’s in part because the software on internet-connected TV sets, which should preclude the need for a set-top box, is generally hard to use.”243 “Apple is said to be working on an update to Apple TV this year, with better hardware…”244 It’s no secret that Apple’s eventual goal is to create a proprietary television brand, but until then this trusty little box seems to be doing a pretty good job, all on its own.

They just keep getting smaller Roku’s $50 HDMI streaming stick is now available, as of April 2014, with access to more than 1,000 different channels. Unlike Google’s Chromecast, it works with a remote, and the user can also stream from a phone or tablet, as well as send pictures to a TV screen.245 War of the operating systems: Apple versus Android Despite Android’s overwhelming popularity (the fastest-growing operating system in history), the world’s dominant operating system is not that profitable. While “Samsung [has] made billions from Android-based phones and tablets,” Google doesn’t make “nearly as much money from the software it invented.”246 Mobile industry consultant Chetan Sharma postulates that Google’s strategy “was that if you have more smartphones on a network, people are going to use the browser more, and use of the browser translates [into] search revenue.”247 240

Techlicious: “Mobile Phone Use Now Widely Outpacing Online PC Use”, by Fox Van Allen, February 27 2014 Ibid.

242 Quartz: “Apple TV is Apple’s fastest-growing product”, by Zachary M. Seward, February 28 2014 243 Ibid.

244 Ibid.

245 Gizmodo: “Roku’s New HDMI Streaming Stick”, by Leslie Horn, March 04 2014 246 The Globe and Mail: “Does Android dream of profit?”, by Omar El Akkad, March 09 2014 247 Ibid.

241

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“But instead of using the browser, Android users are more likely to use apps.”248 “…the smartphone and tablet industry is today controlled by…Android and iOS.”249 “Google allows anyone to use and customize Android for free, and Samsung owns the high-end Android market, but Apple refuses to license iOS at any price.”250 Google owns an 80 percent share of the market, Apple owns half the profit. As a result, there is a perception that “Android users are less likely to spend money under any circumstances, especially compared to [iOS users].”251 In October of 2011 the “ad-buying firm Nanigans released a controversial study that seemed to confirm these suspicions, [showing that] Facebook ads that ran on iOS were 1,790 times more profitable than those that ran on Android.”252 Dumb data A Nielsen study shows that “smartphone and tablet computer owners represent heavier moviegoers than the average non-connected consumer, spending 9% and 20% more going to the movie theatre and on home entertainment.” 253 The article did not include any metrics on home income which may or may not have been included in the study, and since it stands to reason that smartphone and tablet owners are statistically more affluent—and can obviously afford more entertainment— the result could easily have more to do with disposable income than technology use as a factor in going to the movies.

248

The Globe and Mail: “Does Android dream of profit?”, by Omar El Akkad, March 9 2014 Ibid.

250 Ibid.

251 Ibid.

252 Ibid.

253 Home Media Magazine: “Connected Consumer Spending More on Movies @ Home”, by Erik Gruenwedel, Feb 18 2013 249

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The Digital Future Patron behavior in 2025 It is highly unlikely that patrons will still be flocking to the libraries to take out feature films on optical disc by the middle of the next decade. That leaves us with a predominantly digital library audiovisual future. But it is equally difficult to imagine that brand new post-theatrical feature film releases will ever be made digitally available to libraries, for simple reasons of economics. Studios generate the majority of their dollars through brand new post-theatrical releases. And as is so often the case, to best anticipate what the future may hold, we need to examine the past.

The videocassette era Veteran librarians will recall the videocassette new release/backlist purchase model, which was the standard consumer home entertainment sales model until the turn of the century. Aside from rare, extremely high-profile mega-blockbusters (i.e. Titanic) which went straight to sell-through, almost all new feature film post-theatrical titles were initially released on VHS at the so called “rental price” of $100+. These titles were invariably rereleased about six months later at the so-called “sell-through” price (in the $20-30 range). To purchase new post-theatrical releases at $100/copy was simply unsustainable; as a result, libraries waited six months until the price drop to purchase a blockbuster like Fargo, for example. That was as current as a library collection got. With the rare exception of mega-blockbuster titles such as the aforementioned Titanic, library film collections contained films no newer than about six months old. Nonetheless, film and TV videocassette collections more than pulled their weight in the circulation department.

The DVD era As we all know, library audiovisual DVD collections generate an even greater level of circs relative to the size and cost of the collections, the central reason for this being the draw of brand new post-theatrical DVD releases. Even though only a very small percentage of any library’s patron population has immediate access to these titles, the fact that the library acquires these titles, and that these titles will be eventually be available to all, is a major driver of audiovisual circulations.

Since the inception of DVD the libraries have had it good, insofar as there was no longer a two-tier system. The optical disc sell-through market was so strong that Hollywood was content to keep brand new post-theatrical releases highly affordable. More so, the studios were quite willing to treat the libraries as glorified video stores; after all, since Hollywood never really shared in the post-sale rental revenues of their DVDs, and the sell-through market was powerful enough to provide record revenues for Hollywood, the studios were content to just let it ride.

Brand new releases in the digital age It is, unfortunately, an entirely different story in the digital age. In this new universe, the studios get a share in every transaction, and they are already marketing their new releases in electronic form through telecom channels, iTunes, and many other venues, even their own proprietary marketing services, for $6-7 per circ. And certainly at this point in time, since it is inconceivable that studios would undercut the telecom VODs254, iTunes, and other streaming and downloading services, the enormous costs of brand 254

Video on Demand available from conventional telecoms like Rogers, Shaw, and Telus.

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new Hollywood releases currently borne by the home entertainment retailers would be simply unsustainable for libraries. So barring a major shift in the entire dynamic of the industry, it seems unlikely that in the near future libraries will be able to offer digital versions of brand new post-theatrical new releases in the same way they have with DVD and Blu-ray. The cost of doing so – at this juncture at least – would seem to be unsustainable.

The physical/digital hybrid era Where we see this going in the mid-term is a strong, immortal, invincible, entirely digital back-list audiovisual catalogue, with brand new post-theatrical releases being supplied in the DVD and Blu-ray formats, either from the studios themselves or—when the intent to buy physical media drops to unsustainable low levels for the consumer market and the studios stop making DVDs and Blu-rays altogether—from dedicated library vendors with manufacturing-on-demand capacity.

Library audiovisual collections will come full circle in the digital age In the long-term, probably by the mid-to-late 2020s, the digital offering will almost certainly have come of age, and DVDs and Blu-rays (and any other successor physical format) will have probably become extinct due to the simple but powerful force of global de-habituation to disc use. At that point libraries themselves will probably have evolved into a very different form from their mid-20th Century predecessors; but ironically, we predict that library audiovisual digital collections will have come full circle, until they eventually bear an uncanny resemblance to the physical media collections of the late 1990s, at the height of the videocassette era.

We predict that digital video collections will eventually replicate this model. Once the studios are satisfied that library digital collections will not cannibalize their commercial business (always a hard sell initially), and especially once the studios realize the clear economic advantages of the library delivery model over commercial subscription services like Netflix, we will see better and new content made available to libraries. But again, from the admittedly limited vantage point of 2014, this is unlikely to include brand new post-theatrical releases.

In conclusion As I have repeatedly stated in past reports, the future is made, it doesn’t just happen.

Standing here in 2014, libraries have a chance to be a significant part of an essentially non-physical future. But the competition is gathering like a storm, to paraphrase Winston Churchill255, and the window of opportunity will only stay open for a few more years.

Things are moving quickly here in the advent of the Digital Age, and there are many companies which are heavily invested in shaping that future who don’t give a fig whether libraries make the transition or not; in fact, from their perspective, these companies may well begin to see libraries as a potential competitor, and it’s entirely likely that in their ideal future, libraries will be either completely marginalized, or simply not around at all.

The problem that libraries seem to be having at the moment is that they don’t like the look of that future. But the image of the monastery scriptorium, sitting unwittingly in the path of revolutionary technological change in 1545 AD, is an important one to keep in mind. With a commitment to digital, libraries will continue to exist—even though they 255

Winston Churchill: “The Second World War”

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may exist in a form that may be virtually unrecognizable by early 21st Century standards—and remain a vibrant part of the fabric of civilization in the new age.

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Glossary of Terms & Acronyms AACS (Advanced Access Content System) The copy protection system for high-definition (blue-laser) optical discs.

API (Application Programming Interface) An application programming interface (API) specifies how software components should interact with each other.

“When used in the context of web development, an API is typically defined as a set of Hypertext Transfer Protocol (HTTP) request messages, along with a definition of the structure of response messages, which is usually in an Extensible Markup Language (XML) or JavaScript Object Notation (JSON) format. While ‘web API’ historically has been virtually synonymous for web service, the recent trend (so-called Web 2.0) has been moving away from Simple Object Access Protocol (SOAP) based web services and service-oriented architecture (SOA) towards more direct representational state transfer (REST) style web resources and resource-oriented architecture (ROA). Part of this trend is related to the Semantic Web movement toward Resource Description Framework (RDF), a concept to promote web-based ontology engineering technologies.

Web APIs allow the combination of multiple APIs into new applications known as mashups.”256 BitTorrent A peer-to-peer (P2P) distribution tool which breaks files into small fragments and distributes them throughout a network. The file fragments are reassembled randomly on requesting computers. Each machine uses the quickest connections to the pieces they are still missing while making the pieces they already have available to the rest of the network. 257 Bluetooth An industry specification for a short-range radio link allowing digital devices such as computers, mobile phones, printers, etc. to connect and exchange information.

CCS (Content Scrambling System) The copy protection system for standard-definition (red-laser) optical discs.

CDN Content delivery network.

CE Consumer Electronics.

Chromecast A Google digital media device which uses Wi-Fi to stream content on HDTV.

256 257

Wikipedia, “API” Wikipedia, “BitTorrent”, April 18, 2005

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Codec A portmanteau describing a device or program (i.e. MPEG) which encodes a data stream or signal for transmission, storage, or encryption and decodes it for viewing or editing.

CRI Encryption System An extra security system for optical discs developed by Cryptography Research Inc. CRTC (a.k.a. CRTTC) The Canadian Radio-Television and Telecommunications Commission.

DECE Digital Entertainment Content Ecosystem.

DRM (Digital Rights Management) A term referring to a technology used to control access to and monitor the use of digital works on behalf of copyright holders. It is sometimes referred to as digital restrictions management.

DMCA Digital Millennium Copyright Act. U.S. legislation which, in particular, focuses on banning devices which are deliberately designed to circumvent copyright protection.

DVD (Digital Versatile Disc) Red-laser optical disc technology (the current predominant audiovisual playback and recording format).

DVR Digital Video Recorder.

EVD (Enhanced Versatile Disc) EVD, the product of Beijing E-world Technology, is a standard red-laser MPEG-2 based technology which delivers both HD and SD images.

EST Electronic Sell-Through.

FCC The United States Federal Communications Commission.

FOMO A newly diagnosed mental disorder associated with the recent proliferation of social communications technologies, especially among those with complementary constellations of related disorders. “Fear of missing out or FOMO is a form of social anxiety—a compulsive concern that one might miss an opportunity for social interaction, a novel experience, profitable investment or other satisfying event. This is especially associated with modern technologies such as mobile phones and social networking services. A study by Andrew Przybylski found that the condition was most common in those who had unsatisfied psychological needs such as wanting to be loved and respected. The condition is also

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associated with social networks such as Facebook and LinkedIn, which provide constant opportunity for comparison of one's status.”258 FPR 3D Film Patterned Retarder technology. Designed to solve the problems of SG (Shutter Glass) technology: “twinkle”, vertigo, and sheer bulk.

Frankendisc A complicated and uncomfortable combination of unlikely elements to produce a disc with expanded data storage and/or performance capabilities.

Grokster A P2P file-sharing network found guilty by the U.S. Supreme Court of actively inducing the swapping of copyrighted feature film files.

HD High Definition.

HD DVD (High Definition Digital Versatile Disc) A blue-laser optical disc format featuring a 15 GB single-sided or 30 GB double-sided memory capacity. HD DVD was developed by Toshiba and is backward compatible with conventional (red-laser) DVD technology.

HDCP (High-bandwidth Digital Content Protection) HDCP is a specification developed by Intel Corporation to protect digital entertainment content across the DVI/HDMI interface.

HDMI (High-Definition Multimedia Interface) HDMI provides an interface between any audio-visual source (i.e. a DVD player) and an audio or audio-visual monitor (i.e. digital television).

HSD Holographic System Development, usually tagged to produce “HSD Forum.”

HVD (Holographic Versatile Disc) HVD is an optical disc technology (still in the experimental stage) which utilizes “collinear holographic” technology, in which two lasers—one red and one blue-green—are used in combination. HVD has a vastly increased storage capacity (now up to 6 TB/disc) and a much higher ITR (rumoured to someday approach 1 GB/sec) than even blue-laser technology.

ICT (Image Constraint System) A digital flag within the AACS that determines how Blu-ray and HD DVD players output high definition video signals through the player’s outputs. iHD iHD is a format developed by Microsoft and Toshiba for providing interactive features for HD DVD, the now-defunct next-generation high definition disc format.

258

Wikipedia: “FOMO”

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IFPI International Federation of Phonogram and Videogram Producers.

ISP Internet Service Provider.

ITR Information Transfer Rate. iVOD Internet Video on Demand, delivered via the internet either on a pay-per-view basis or by online subscription services such as Netflix.

LC Liquid Crystal, the technology used in 3D “shutter glasses.”

LED (light-emitting diode) “LEDs present many advantages over incandescent light sources including lower energy consumption, longer lifetime, improved robustness, smaller size, faster switching, and greater durability and reliability.”259 Meme “A meme…is an idea, behavior, or style that spreads from person to person within a culture. A meme acts as a unit for carrying cultural ideas, symbols, or practices that can be transmitted from one mind to another through writing, speech, gestures, rituals, or other imitable phenomena with a mimicked theme. Supporters of the concept regard memes as cultural analogues to genes in that they self-replicate, mutate, and respond to selective pressures…” - Wikipedia MPEG Moving Pictures Experts Group. This acronym refers any one of 14 current standards of audio/visual compression and transmission (i.e. MPEG-1, MPEG-2 etc.).260 MVPD (Multichannel Video Programming Distributor) An MVPD “is a service provider delivering video programming services, usually for a subscription fee (pay TV). These operators include cable television (CATV) systems, direct-broadcast satellite (DBS) providers, and wireline video providers including Verizon FiOS as well as AT&T U-verse and competitive local exchange carriers (CLECs) using IPTV.”261 ODD Optical Disc Drive.

OEM Original Equipment Manufacturer.

259

Wikipedia: “LED”.

Wikipedia: “MPEG” 261 Wikipedia: “MVPD” 260

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OTT (Over-the-top) OTT refers to the delivery of internet-based multimedia content to the TV over a broadband connection.

P2P Network A peer-to-peer computer network.

RWD Responsive Web Design (RWD) is a web design approach aimed at crafting sites to provide an optimal viewing experience—easy reading and navigation with a minimum of resizing, panning, and scrolling—across a wide range of devices (from mobile phones to desktop computer monitors).262 SEO Search Engine Optimization (a process which improves the visibility of a website).

SD Standard Definition.

SD Card Secure Digital Card.

SDK (Software Development Kit) An SDK “is typically a set of software development tools that allows for the creation of applications for a certain software package, software framework, hardware platform, computer system, video game console, operating system, or similar development platform.”263 SG 3D 3D technology which uses Liquid Crystal (LC) glass to display the left and right image alternately. “When the projector displays the left eye image, the glasses block the right eyes image, and vice versa.”264 SPDC The Self-Protecting Digital Content system, incorporated into Blu-ray to enhance the AACS copy-protection system, verifies the integrity of the disc and the hardware before playback.

Sub(s) Subscription(s).

UDF (Universal Disc Format) UDF is a format specification of a file system for storing files on optical media.

UHD Ultra High Definition.

262

Wikipedia – Responsive Web Design (RWD) Wikipedia – SDK or Software Development Kit 264 Wikipedia – “FPR (Film Patterned Retarder)” 263

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UMD The Universal Media Disc (UMD) is an optical disc medium developed by Sony for use on the PlayStation Portable. It can hold 1.8 gigabytes of data, which can include games, movies, music, or a combination thereof.

USTR The United States Trade Representative, an office of the U.S. Government responsible—among other things—for evaluating various trading partners.

VOD Video on Demand: commonly delivered by cable providers.

VMD (Versatile Multilayer Disc) A multi-layered optical disc format of European origin, VMD offers increased storage capacity and is adaptable to both red- and blue-laser technologies.

WAN Wide Area Network.

Wi-Fi I know, I know. Who doesn’t know what Wi-Fi is? Well, as it turns out, almost no one but comes and simooms know what Wi-Fi really is. It is actually a trademark for “a technology that allows an electronic device to exchange data or connect to the internet wirelessly using microwaves in the 2.4 GHz and 5 GHz bands.” Most people, when referring to Wi-Fi, are actually talking about WLANs (see below); however, since most modern WLANs are based on these standards, the acronym "Wi-Fi" is routinely interchanged with “WLAN” in common English-language usage.

WIPO World Intellectual Property Organization.

WIPO Copyright Treaty An international treaty on copyright law adopted by the WIPO member states in 1996, it provides additional copyright protections which account for recent advances in information technology.265 WLAN Wireless local area network.

265

Wikipedia – search “WIPO Copyright Treaty”

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