Posts filed under ‘Audio’
Art Fraud?
The band Pink Floyd won a court case in Britain yesterday over EMI. The judge ruled their contract–written years ago–applied also to digital downloads. This gives the band the ability to prevent the sale of individual songs on venues such as iTunes.
Many music artists claim that an album is designed as a single work that cannot be fully enjoyed in parts. They must be appreciated as a whole. According to the Wall Street Journal,
“This is an art debate, not a commerce debate,” said a band spokesman, who added that Pink Floyd plans to see to it that the albums are sold only as whole pieces. He added: “The court has upheld our contractual rights that those tracks should not be unbundled.”
Sorry, but this is hogwash.
Don’t get me wrong. I agree with the court’s decision. Upholding Pink Floyd’s claims seems consistent with the intent of the original contract. Nor do I disagree with the band’s rights to sell their wares as they see fit. (Though I think it’s bad business, for reasons I’ll save for another time.) I even think many albums are better appreciated in their entirety.
Nonetheless, this strikes me as being more about bands that have already made it big, now throwing their weight around.
I don’t recall Pink Floyd (or any one else) having such qualms about breaking up their albums when it came to marketing the music in the first place. How far would they have gotten as a band, or as a business, if they didn’t allow individual tracks to be “unbundled” to be played on the radio?
Now maybe as a young, unsung music act, the band members agonized over such a decision. Perhaps they felt they were betraying their principles by allowing their label to push individual tracks to radio stations. Maybe they lost sleep for years, because their concert promoter convinced them to play live shows that weren’t performances of an entire album.
Maybe.
To its credit, Pink Floyd has led the way in doing these sorts of single-album concerts over the years. But the fact remains that most bands have built their following, and their music sales, on the back of listeners appreciation of individual songs. Having once “sold out” their artistic principles, it seems somehow disingenuous to get back on the high horse now that they are successful.
Not that they don’t have the right, mind you. Obviously they needed to press their case in court to protect their legal rights. Fine. Let’s just not take it for something it isn’t, hmm?
Disclosure: I hold no position, either long or short, in any stocks mentioned here.
Close to the Edge
With the New Year upon us, and a possible rally (well, sometime this year we hope), it may be time to think about dipping your toes back into the market. But how to put your money to work?
For technology stocks, I think it’s important to have an “edge”.
Over the past few years, I’ve been following a trend that–while not new–still has plenty of legs. Particularly coming out of this bear market. It’s not a stock screen, but it helps me see which technologies could be viable investment candidates, and which might instead require swimming against the current.
Things like control, intelligence, and value creation have long been shifting away from the center. Moving from large, centralized bodies towards the edge. The edge of markets, networks, locales. There are exceptions, of course, but this movement is still happening.
So I always check first to see whether any new technology–or its market–supports this trend towards decentralization and democratization.
“Uh, gee Scott, that’s great. I have no idea what the hell you’re getting at.” Fair enough. Let’s look at a few examples.
Healthcare
Lots of innovation here. Doctors interacting with patients and each other at a distance. Sending X-Rays to specialists abroad for review. Doctor-patient consultations over videophone instead of in the office. Glucose testers and home dialysis kits let measurements occur at home, not the hospital. Portable ultrasound machines and defibrillators allow diagnosis and treatment in remote areas.
Consumers are rating doctors, sharing treatment experiences, and finding health information via social networks and the Internet. Doctors themselves are forming “expert” networks to vet new research and treatments according to the wisdom of crowds thesis.
All of this is related to distributing power or value creation away from traditional central facilities and control.
Companies such as Sonosite (NASDAQ: SONO), HealthGrades (NASDAQ: HGRD), WebMD (NASDAQ: WBMD), Vital Images (NASDAQ: VTAL), and American Well (private) are among many in this space.
Manufacturing
Here’s a favorite.
Computer Aided Design (CAD) made it easier for companies to decentralize or even outsource much of their product design. But now they’re actually outsourcing the fabrication, and in some cases the end product manufacture can be done outside of a factory.
3D Printing (often more formally termed Rapid Prototyping or Rapid Manufacturing) has come of age, with machines that can take computer files and fabricate plastic or metal objects from nothing more than raw material and software. Before, even simple prototypes had to be fabricated over the course of weeks. Now, companies can turn a design into a marketing concept model within hours, and make needed changes much quicker, shortening design cycles. They also can avoid expensive tooling, since short-run items can be “printed” instead of made with traditional manufacturing processes.
Companies like Stratasys (NASDAQ: SSYS) and 3D Systems (NASDAQ: TDSC) make large industrial grade fabricators, as well as less expensive versions suitable for office use. Soon, they (and others like Desktop Factory–private) will make consumer versions cost effective.
Why have a replacement part for that lawn mower or kitchen mixer shipped from the factory, when you could simply download the file and print it at home?
Municipal Networks
While many think this is an idea that went bust, there’s still a huge demand for municipal networks. FCC statistics on broadband penetration are quite misleading, and plenty of Americans have either pokey DSL-like speeds, or no broadband at all. Towns and public utilities, often in partnership with private enterprise, are filling the gap.
True, many of these projects have not fared well–but that was usually due to faulty business models, not the underlying tech. Many ideas have been tried, and people are getting much smarter. There are many thriving wireless and Fiber-to-the-Home projects.
Instead of one giant centralized “mother of all” (Ma) Bell owning your phone or Internet connection, the end piece is owned locally. And its often faster, with more capacity, than many parts of the Internet. This is recapitulating what happened years ago to television in underserved areas, as Community Antenna Television (CATV) gave birth to today’s cable networks.
And it’s happening with energy generation too.
Others
Here’s a partial list of other innovations that are benefiting from “the edge”:
So how do we wrap our minds around this explosion of innovation? I think of this trend as occurring in 3 distinct ways:
Decentralization–moving utility to the edge
The basis for this first one is hardware, and typically some kind of disintermediation. It’s driven by things like the availability of leading-edge technology, shrinking hardware sizes, falling costs, and the Internet.
Examples–3D printing, TiVo, municipal networks, distributed energy generation
Authoring–tapping users to create
Here the basis is centered more around software, the demand for mass customization, and hobbyists. You know, that class of people with time, passion, interest, and the willingness to work for nothing but recognition and/or personal satisfaction. The availability of software tools, Broadband, and the Long Tail (everyone’s a hobbyist in something) are drivers.
Examples–Blogs, mashups, personalized ad streams, podcasts, YouTube
Emergent Systems–enabling collective/cooperative effort
This last is typically facilitated by an enabling service. Often with the existence of an intermediary to provide a control or filtering function. But while the result mimics a more centralized function, the value is created on the edges–a true “whole is greater than sum of parts”. Here the driver is simply networks of people in easy, rapid communication. I think they call that the Internet. 
Examples–Wikipedia, open-source software, eBay, prediction markets, grid computing
Then according to the man who showed his outstretched arm to space,
He turned around and pointed, revealing all the human race.
I shook my head and smiled a whisper, knowing all about the place.
Yes, “Close to the Edge”
Of course, like all classification systems, the answer you get will depend on which consultant you talk to. The concept is pretty general, and sometimes unwieldy. Regardless, I find the edge idea to have a lot of merit, and hope you do too.
The key is to find companies that create, use, and benefit from the technologies that are fostering these trends. Or the markets that they enable. It might be tool, a marketplace, an ad platform, a device, a network, whatever. Then do your research.
Once you get down to individual companies, it’s caveat emptor. Picking stocks based on trends alone is what cost people so much money investing in the likes of Webvan (another “edge” play) or Pets.com.
I have done research on some companies that are emblematic of this trend–including a few mentioned here–to a greater or lesser extent, some more recent than others. In fact many I covered as an analyst fell into this mold–and not by coincidence. But do your own due diligence before investing, or hire someone to do it for you.
Let me know if you think of other ways this idea might be manifesting in technology markets.
Disclosure: I currently hold no positions, either long or short, in any stocks mentioned here. However, I do consult with companies in some of the markets discussed.
Up And Down Vote
The Wall Street Journal had an article out yesterday that has created a real firestorm of controversy. It’s about how some of the large Internet players (such as GOOG, MSFT, and AMZN) are backpedaling on their previous Net Neutrality stances.
Moreover, they’re variously negotiating with telecablecos to gain “favored nation” or preferred treatment status on their networks.
Holy Turnaround, Batman!
Some writers quickly noted–here, and here–that Google at least is simply caching content closer to customers, just like Akamai (NASDAQ: AKAM) and other CDNs do. And that much of the Journal article reflects the kind of sensationalism many feared would appear once Rupert Murdoch (NYSE: NWS) bought the paper.
[As an aside, when I was doing research a year or two ago on Akamai, top management there vehemently denied my suggestions that they would ever be in competition with Google. Heh.]
If any of this is true, it’s a sad development, but hardly unexpected. As competition heats up for everything from ad serving to video downloads to cloud computing, everybody wants an edge. And they’re willing to pay for it.
Those that can afford to will get better services, better access, better distribution. Which means the little guys get shafted again. If you want to buy from Amazon, you get speedy page refreshes (not to mention faster access to things like S3). Google apps will work faster than, say, Zoho.
The rich do, indeed, get richer.
This plays right into telecableco hands. It’s what they’ve been lobbying for, after all. (I can almost see the big, fat, spider sitting there in the middle of its web inviting them all in. ) The result will be a vertical model, with only a few players controlling the entire value chain, up and down.
If this was just about commerce, I’d be less concerned. But it’s also about access to information. And about control of content. Ultimately, it’s about exclusion and higher costs for everyone. As well as a loss of the kind of innovation that has made this country successful.
Imagine if TV stations were free to broadcast good signals from those advertisers (or news programs) that spent more. Everyone else, they deliver fuzzy pictures with the sound continually dropping out. Pay to play. Eventually, everyone gets their news and entertainment from a few large companies. Welcome to the 50′s. There’s progress for you.
Critics argue: “But as businesses they should be allowed to offer different levels of service”. If there was true competition at the last mile level, I’d be inclined to agree. However, most of the large telecablecos built their networks–and their competitive advantage–on the revenue streams from exclusive franchises and government mandated monopolies.
You and I paid for their broadband networks through our monthly TV and telephone bills, mostly at a time where we had no choices. Or they used the proceeds from bonds whose attractive terms were based on the existence of those same “guaranteed” payment streams, which is basically the same.
Now that the moats around them have been fortified, we shouldn’t think that they’re entitled to operate as normal businesses. Monopolies (or even duopolies) don’t get the same rights as firms in a free marketplace. It’s not that I believe Network Neutrality should be regulated. (I agree about the principle but not the solution.) It’s last mile competition where the natural monopoly lies, and that’s what should be regulated. Until it’s no longer a monopoly, or until the telecablecos no longer have insurmountable market power.
Or until there’s structural separation.
Many thinkers (at least the ones whose salaries don’t depend on the success of telecablecos), have long recognized the most efficient market structure is to go horizontal–one company does the infrastructure, one does the content. Each competes within its own level, but not up and down the stack.
The PC industry helped this country thrive with the same model. Some companies built chips, some sold computers, some provided software. This drove innovation and helped keep costs low and falling. (Even the emergence of intra-level monopolies like Microsoft couldn’t halt the effect–some argue the standardization even helped.)
But now the big players are changing the game, in order to become even bigger. The Internet guys want to differentiate on performance, because they’re finally getting into each others businesses, and have to compete–some for the first time. The pipes guys want a piece of the content pie, because as network usage grows their costs go up, and they face resistance in trying to charge consumers more money for Internet access, especially as they’ve been billing flat rates for so long. But we will pay, one way or another.
Not everywhere, thankfully. Much of the rest of the world actually has competition in the last mile. They’ve created a more horizontal model, with providers competing “across” levels. If we fail to adopt this kind of structural separation in the U.S., we can watch our innovative spark and competitive advantages slowly drain away.
And just as many around the world laughed at us for voting to re-elect George Bush, they’ll laugh at us again, for voting to go “up and down”.
Disclosure: I hold no position in any of the stocks mentioned here.
Can You Hear Me Now?
Don’t you hate your movie having a greater dynamic range than your hearing? Is that explosion too loud and the dialogue too faint? Getting tired of having to increase your TV volume for DVDs only to reduce it again to watch TiVo?
Me too. Now there’s hope.
Dolby Laboratories (DLB) this morning announced the first market availability of its Dolby Volume technology. Dolby Volume automatically adjusts for differing volume among separate video sources, which means that video streamed from your PC will be the same loudness as your TV, which will be the same as the DVD you’re playing. Should help with commercials blaring at you, too.
What’s more, it also adjusts the frequency response at lower volumes to optimize the sound and account for what’s happening on the screen. So for example it can boost the midrange so those explosions on Iron Man won’t drown out the concurrent dialogue.
Dolby continues to find ways to make itself indispensible to CE manufacturers. It’s business model is sound, and I have a bias for IP models with big moats that generate lots of cash. It’s going to have to come up with a bit more growth, however, to justify its current valuation. At 35x Free Cash Flow, it’s not exactly trading in the nosebleed seats, but it doesn’t leave much room for error.
Still, Dolby Volume should help. Good stuff, coming to your TV soon.
Disclosure: I hold no position in any of the stocks mentioned here.
Music Fees Sound Flat
Warner Music Group (WMG) has announced they’ve hired industry vet Jim Griffin to take a look at whether collecting fees from ISPs will rescue the music industry. The idea is that users would be assessed a fixed amount (included in their monthly internet bill) and would then have unlimited access to music. They hope to cover losses from illegal music sharing.
We already have numerous versions of this plan that are optional: Yahoo Music, Rhapsody, Napster, etc. We also already have many similar fees that are not optional. They’re called taxes.
You don’t have to be a libertarian to see this is not an “essential service” that ought to be subidized by all. Yes, we’ve all said the music industry’s business model is dead, and it has to wake up and search for new, innovative methods to survive. But this ain’t it.
Imagine you’re a retail bank. You and your competitors, from time to time, lose money to thieves who hijack your armored trucks and drive them away down the interstate. In order to cover your losses, you lobby for a new highway toll that collects compensation from every driver using the interstate system.
Silly, isn’t it?
Beginnings (apologies to the Allman Bros.)
Well, here we go. After several years, and numerous suggestions by friends and colleagues, I’m taking the plunge. Guess I’ve got things to say, and need a rooftop to shout from. Wish me luck.
by Michael Mauboussin
