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The Future of Digital Content Distribution…enabling the controlled distribution of digital content
An SAIC Company
Stan MoyerExecutive Director
Applied ResearchTelcordia Technologies, Inc.One Telcordia Drive 1A-361Piscataway, NJ 08854Voice: +1 732 699 2966Fax: +1 732 336 7014
E-mail: [email protected]
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Talk Outline
Background dataThe problem with current content distribution offeringsThe Digital Content Mediator solutionAlternative business modelsSummary
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Current State…
In October, 2004, content became the leading U.S. online activityNetwork operators would like to monetize both illegal and legal digital content trafficAmount of (legal and illegal) digital content traffic is expected to increase much more — includes music, movies, games, ringtones, photos/image, software, …*
*Multiple sources**Source: Nielsen/NetRatings
Oct. 200316.5%
45.2%
35.3%
3.0%
CommerceCommunicationsContentSearch
Oct. 200415.8%
39.8%
40.2%
4.2%
CommerceCommunicationsContentSearch
Share of Time SpentOnline in the U.S.**
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$224$556
$945$1,314
$1,826
$2,538
$3,528
$-$500.0
$1,000.0$1,500.0$2,000.0$2,500.0$3,000.0$3,500.0$4,000.0
mill
ions
2003 2004 2005 2006 2007 2008 2009
U.S. Online Music Market
Online Music Market DataMusic download market:
US online music market expected to grow 148% to $556M and 70% to $945M in 2004 and 2005*EMI predicts 39% CAGR in digital download market and 32% net growth in consumption from online music**Digital download music market expected to be $2B by 2008***$359.1M worldwide market in 2003 expected to be $14.7B by 2009†
*PiperJaffray, Sept. 1, 2004**Bear Stearns, July 19, 2004***London Financial Times, Nov. 20, 2004 (also Forrester)†WinterGreen Research, May 2004
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Music Downloads Usage
0
1
2
3
4
5
6
7M
illio
ns
Aug Se
pO
ctN
ov Dec Jan
Feb
Mar
Apr
May Jun
Jul
P2PLegal
Households with a member downloading music
Source: NPD Group, Inc., Oct. 13, 2004
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Peer-to-Peer “Market” Information
*Bear Stearns, July 19, 2004
Source: http://www.cachelogic.com/research/index.php
Peer-to-peer traffic– single largest consumer of data on ISP
networks — varies from 55% in Europe to over 80% in Asia
– continuing to increase — contrary to some reports
– consists of mostly “illegal” content downloads — one study shows six times as many peer-to-peer music downloaders vs. legal music downloaders
At any given instant, 7M people are using P2P networks in the U.S.“iTunes 100m downloads is paltry compared to 1 billion files available through file-sharing-networks”*
– P2P executives argued that the music industry needs to embrace P2P networks and monetize them*
The problem with current content Distribution Offerings…
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Today’s Limitations
CustomerCustomer
ContentRights
Holders
ContentRights
Holders
99¢
65¢
contentcontent
Operating Cost: 35¢Profit: nil
Operating Cost: 35¢Profit: nilcontentcontent
ContentDistributorContent
Distributor
P2P UserP2P User P2P UserP2P Usercontentcontent
0¢
0¢
• Content distributors not making (much, if any) money• Network operators not receiving revenue from digital content distribution over their network
• Content rights holders and distributors receive no income from peer-to-peer file sharing
Source: NY Times, Dec. 2003
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Store-front
DCM Overview and SummaryEnables network operators and service providers to enter the content distribution business without having to host large volumes of content or provide large amounts of access bandwidth
– “Mediates” the exchange of digital content between two parties
– Does not get involved in the actual content transfer or any DRM steps
ContentContentInfoInfo
Billing/Payment
ContentTransfer
Authenticate
Verify
Source Info
Authorize/Bill
UserUser
DCMDCM
DRM Server(optional)
DigitalContent
PeerPeeror
Browse/FindContent
Content Acquisition Steps:1.User searches for and
locates content2.DCM authenticates user
and verifies authenticity of content source
3.DCM provides encryption key for content source
4.User downloads content5.DCM verifies downloaded
content is authentic, bills user, and provides decryption key
6.User decrypts and accesses downloaded content
Content Acquisition Steps:1.User searches for and
locates content2.DCM authenticates user
and verifies authenticity of content source
3.DCM provides encryption key for content source
4.User downloads content5.DCM verifies downloaded
content is authentic, bills user, and provides decryption key
6.User decrypts and accesses downloaded content
GUI
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DCM Overview — Key Attributes
Balances the rights of the content owner with the demands of the consumer — e.g., enables a legal peer-to-peer content sharing network that is attractive to all stakeholdersOpen and flexible architecture that simultaneously supports different:
– Payment models (e.g,. Prepay, postpay, micropay, 3rd party pay) as a modular, back-end option
– DRM schemes– End devices and applications– Content transfer networks
Ability to prove condition of the content elementProvides the ability to offer incentives for onward forwarding of contentSystem is “select” — i.e. people not in the system can not receive the same benefits as those who are in the system
– Encourages people to “stay in the system”
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Digital Content Mediator SolutionCentralized Distribution Model
CustomerCustomer
verifies
ContentRights
Holders
ContentRights
Holders
contentcontent
88¢
65¢OperatorOperator
3¢
Operating Cost: 15¢Profit: 5¢
Operating Cost: 15¢Profit: 5¢ Operating Cost: 1.5¢
Profit: 1.5¢ Operating Cost: 1.5¢Profit: 1.5¢
DCMDCM
• Enables network operators to offer digital content services• Reduces operating costs for content distributors
Network Operatorw/DCM solution
CustomerCustomercontent
contentcontent
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Ntwk. Op.NtwkNtwk. Op.. Op.
Digital Content Mediator SolutionPeer-to-Peer Distribution Model
ContentRights
Holders
ContentRights
Holders
65¢
OperatorOperator3¢
Operating Cost: 2¢Profit: 5¢
Operating Cost: 2¢Profit: 5¢
Operating Cost: 1.5¢Profit: 1.5¢
Operating Cost: 1.5¢Profit: 1.5¢
DCMDCMDCM
P2P UserP2P User P2P UserP2P Usercontentcontent
verifies 85¢
• Enables revenue generation from P2P transactions(for network operators, rights holders, and distributors)
10¢
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DCM Value Proposition Content Distributors
– Won’t have to anticipate demand for titles, manage massive server farms, or pay for them and their associated bandwidth
– Can use choice of any DRM scheme or none, as believe customers will accept them
Rights holders —additional revenues– Will get paid (and have tracking reports) for peer-to-peer content
transfers– Can get paid for niche or back catalog material distributed over
P2P that is not profitable in other distribution channels Consumers/Users
– Downloaders — cheaper content and better qualityP2P content that is known to be authenticPotential benefits: restoration of collections if hard drives failGreater variety at lower cost than the I-tunes model can provide
– Uploaders — incentive to stay “in the system”Converts a legally risky activity into a potentially profitable business
Network Operators — new revenue stream– Participate in content distribution, not just transport– Ability to offer a service beyond their physical footprint– Analogous to PSTN 800 and 900-type services
Alternative Business Models…
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Subscription Business Model
Many in the digital music industry are advocating a subscription model for online music (as opposed to the pay-per-download approach)
– E.g., User pays $15-20/month for unlimited downloads– User value proposition is compelling — e.g., it would cost
~$10k to fill an iPod with music with pay-per-download, but would only cost $15-20/month with a subscription model
– User does not “own” the music anymore — i.e., when they stop paying the subscription, they “lose” the music
– Microsoft’s Janus DRM that supports portable subscriptions should increase the popularity of the subscription model
It’s likely that multiple business models will exist and will need to be supported
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Summary
The digital content wave is just beginningNow is the time to create and deploy the necessary technological solutionsWe need to re-evaluate what’s been done to date — e.g.,
– Do we need DRM– What business models need to be supported
All stakeholders in the value chain need to be flexible during this evolution