There are plenty of reports going around about how the federal government's program to supply coupons for TV digital converter boxes has run out of money while plenty of folks who need them still haven't converted (meaning their TVs won't work next month). Because there's still some confusion about this, it bears repeating: this conversion does not matter in the slightest for anyone who uses cable or satellite TV. It only impacts those who just get over-the-air TV through an antenna. Yet apparently, somewhere around 7% of those people aren't yet prepared for the changeover -- though, assuming they care (i.e., they watch TV) they'll figure out what went wrong pretty soon.

What I'm still trying to figure out, though, is how the program ran out of money. The setup of the program now seems pretty silly. Basically, the feds offered coupons to people to use when buying the boxes, and the feds funded the difference. But why didn't the feds just buy the boxes itself and sell them off at a discount? Part of the problem now is that many of the coupons haven't been redeemed, and no one's sure if they will be redeemed or not -- leaving the amount of money available in question. It seems like there are about 30 different ways that uncertainty could have been averted, such as by just having the sellers report the sales to the Feds and get the "coupon fee" directly. Either way, it seems like yet another program where the FCC didn't do a very good job planning out how this transition would work.

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theodp writes "Astronaut Dave Bowman may have found the HAL-9000 more believable had the Heuristically programmed ALgorithmic computer been equipped with the technology described in IBM's new patent for Generating paralinguistic phenomena via markup in text-to-speech synthesis. In the patent, IBM describes how you can dupe others into believing they're dealing with a real, live human being by using markup language to feign sadness, anger, laughter, filled pauses (uh, um), breaths, coughs and hesitations (mmm). Here's an example that shows how to make a more lovable HAL: <prosody style="bad news">I'm cough sorry Dave sigh, I'm afraid I can't do that.<prosody>"

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There's a moral panic style study being released that claims that many teens "display risky behavior" on MySpace. Of course, when you look at the details, it's not quite so fear-inducing at all. Basically, some kids talk about drinking, drugs and sex online. That's nothing new. But the way this study is being presented, it makes it sound as if the risky behavior is the fact that kids are talking about this stuff. The article doesn't talk about the actual drugs and sex so much as the talking about it, as if that's the problem: Many young people who use social networking sites such as News Corp's MySpace do not realize how public they are and may be opening themselves to risks That seems backwards to me. It would seem a lot better to find out that kids are actually talking about this stuff openly, where they can (hopefully) get good advice to keep themselves safe, rather than keeping quiet and experimenting totally in secret. Yes, there definitely are some risks involved in talking about this stuff publicly. For years, we've wondered what will happen when the MySpace generation runs for office, and we've also seen how social networking profiles can be used against an individual in pursuing a career. Of course, there are some who wonder if this widespread openness will lead to a more accepting population. For example the fact that Barack Obama used cocaine at one point in his life was barely mentioned at all during the campaign -- in part because he had openly admitted to it years earlier. It's only the surprise "gotcha" type info that seems to cause real problems.

That isn't to say that kids today shouldn't be at least aware of the potential consequences of over-sharing information, but I worry that a study like the one being discussed here leads to eventual misplaced blame and worries over a problem that might not be nearly as significant as some make it out to be.

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Reader Darren sent in a link to an "opinion" piece in the UK's Independent by Stephen Garrett, a managing director of a TV production house that apparently makes some popular UK TV shows (he names Spooks, with which I am personally unfamiliar). The article is basically no different than any of the thousands of poorly thought out and badly argued demands from entertainment industry execs for government protectionism in the face of the giant "internet threat." Garrett goes through all of these mistakes pretty early on: comparing file sharing to the theft of physical property, twisting basic logic around to suggest that ISPs bear the responsibility of stopping file sharing (rather than, say, the entertainment companies learning to adjust their business model in the face of a changing marketplace), and playing the old and easily debunked ripple effects card in discussing the "damages" done.

But rather than going through those same old tired arguments again, this seemed like a good opportunity to take on a later argument he makes, which I've heard from others as well: At a time of economic downturn, saving jobs and securing economic activity is more important than ever. Investment in new forms of bringing entertainment to the public depends on legitimate sales of material, whilst lost opportunities of innovation is the tab picked up by those who do pay for content for those who refuse to do so. This, like Garrett's earlier points, shows a fundamental misunderstanding of economics. Saving jobs and securing activity is not more important than ever if those jobs and that economic activity are inefficient, unnecessary or hinder other important economic activity from taking place. Historically, almost every example of government protectionism has been to protect exactly those types of jobs and economic activity, and the end result is disastrous. Rather than adapting to changes in the market, the protected industry holds onto the past, while those industries in other countries adapt, evolve and improve. In the end, the "protected" industry simply can't compete, the jobs are lost anyway, and it's much more difficult for the new industry in those countries to grow and catch up to foreign competitors.

Garrett's suggestion of special protectionism in the entertainment industry in the UK is exactly the wrong solution for the industry and would lead to many more problems down the road. I would hope that people in the government in charge of deciding this stuff would understand this -- but so far, the UK's Culture Secretary has shown himself to have difficulty grasping some basic economic realities, so don't be surprised to see him buy into this sort of argument.

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Joe Mullin is back to let us know about the latest patent insanity, starting with a post about a whole bunch of patent infringement lawsuits based on patents held by Scott Harris. You may recall Harris because he was a lawyer for a big law firm, but was quietly filing patents on the side, and then apparently working out deals whereby other companies licensed those patents to be used in infringement lawsuits against big companies -- including companies represented by the very same firm Harris worked for. Not surprisingly, he lost his job and was sued. A few months back, the lawsuit was settled and Harris's patents have, miraculously, been showing up in a bunch of recent patent lawsuits.

But the real stunner in the latest set of lawsuits is that one of the patents is being used to sue Oprah. Yes, that Oprah. Apparently, Harris is claiming that his patent on enhancing the touch and feel of the internet is violated by Oprah's book club. Yes. Her book club. Violates a patent (according to the patent holder). Now, my critics will be the first to point out that I'm no patent attorney, but reading over the patent, it certainly appears to be a patent on displaying a book online. How is that possibly patentable material? Wouldn't it be great if this got Oprah looking into the ridiculous state of the patent system in the US these days, and how it's often being used in such bogus ways? While it probably won't happen, it certainly could help dispel the old myths of the patent system as promoting innovation and finally get the issue in front of the public in a way that they would realize just how damaging the system has become and how widely it's abused.

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As was rumored last night by Greg Sandoval at News.com, it appears that Apple has worked out a deal with the major record labels (being confirmed as I type) where they will give up DRM (which is the direction they've been moving towards anyway) in exchange for variable pricing of music -- which they've been salivating over for years. This has been a major source of contention between Apple and the record labels. Steve Jobs has stood firmly by the $0.99/song price, while the record labels specifically wanted to be able to price hit songs at higher prices. The dropping of DRM is nice, but hardly that surprising, given that pretty much every other online download store has been going DRM free. This just puts the final nail in the coffin for music DRM. One nice tidbit: you'll apparently be able to upgrade your older DRM'd purchases to make them DRM free. That's a good (and slightly surprising) move.

As for the pricing, there's now three tiers: $0.69, $0.99 and $1.29. Hit new songs will go for the higher price while older, less popular songs will have their prices drop. The announcement isn't that surprising, but it is definitely a shift. What will be worth watching is how this impacts sales. It really may depend on how the record industry plays this. If (as seems likely) they put too many songs in that high priced level, it's going to lead to backlash. However, if they really embrace that lower price, it could encourage more folks to download music. I also wonder if it will push competing music download stores, such as Amazon.com to lower its prices even further as well.

While this definitely is a shift from the way iTunes has always worked, in the end, it's really not a huge shift. The industry was moving in this direction anyway, and killing off DRM was long overdue. The variable pricing is the type of thing that the big record labels will likely screw up, but in the long run is probably a good thing. The $0.99 per song fee has always been too high, and accepting variable pricing will eventually lead to those prices decreasing (not increasing, as the industry expects).

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Last year, we wrote about the absolutely ridiculous limitations placed on the lawyers pushing forward on behalf of the Al-Harmain Islamic Foundation to sue the federal government for warrantless wiretapping. As discussed, courts have thrown out most legal challenges by groups like the ACLU, because those groups have no proof that they were spied on -- thus they have no legal standing in the eyes of the law. The one exception to this is Al-Harmain, because the government accidentally revealed a classified document admitting that it spied on the group without a warrant. Except... even though the government revealed the document, in a bizarre twist, it's demanding that the document is still secret, and it seems that Al-Harmain's lawyers can barely even mention the document's existence, let alone the contents of it. The earlier post goes through some of the ridiculous twists and turns Al-Harmain's lawyers needed to go through (including responding to a Justice Dept. filing that the lawyers weren't even allowed to read).

With all of that to go up against, it seemed quite likely that the government would succeed in getting the case thrown out -- but amazingly, it appears that the lawsuit will go forward and the lawyers in question will get security clearance, and the judge in the case will actually be allowed to see the "secret document" that isn't really that secret any more. This may be the one and only case that can actually challenge the legality of the federal government's warrantless wiretapping program, so this is fantastic news.

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As some of you may know, in a week and a half I'm giving a presentation at the music industry MidemNet conference, focusing on how Trent Reznor's various business model experiments highlight the future of the music industry. I'll be putting the final touches on my presentation this week, and it's great to find one additional data point: the top selling MP3 download on Amazon last year was Nine Inch Nails' Ghosts I-IV album, which you probably know Reznor put under a pretty open Creative Commons license (and even gave away a bunch of the tracks himself). In other words, you could go on pretty much any file sharing system out there and legally download the music for personal use... and yet it was still the top selling downloadable album (this is on top of all the money earned by Reznor's other business models associated with this album). Certainly puts a nice little cherry on top of the theme of my presentation.

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Amidst a number of high profile appointments today was the position of associate attorney general. The high-ranking position has been awarded to Tom Perrelli of the prominent law firm Jenner & Block. By all accounts, Perrelli has led an impressive legal career spanning public service and private practice. However, his most recent tenure in private practice has had him representing the recording industry. Although specifics are hard to come by, according to his official biography, "Mr. Perrelli regularly represents the recording industry in cutting-edge intellectual property, technology, and anti-piracy litigation. He has represented the recording industry in a host of cases arising under the Digital Millennium Copyright Act (DMCA), as well as in copyright infringement and digital piracy litigation. He has also represented the record industry and recording artists in a series of copyright royalty proceedings before the Copyright Royalty Board."

Of course, Mr. Perrelli's job was to represent the interest of his clients, but given the questionable legal tactics the RIAA has pursued in its litigation and the problems with the Copyright Royalty Board, there is reason to pause regarding his appointment. But, as Matt Yglesias writes, since the RIAA has relied so heavily on litigation, it's probably a good bet that they chose the best lawyers they could.

Kevin Donovan is an expert at the Insight Community. To get insight and analysis from Kevin Donovan and other experts on challenges your company faces, click here.

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It's been a few weeks since the WSJ announced that the RIAA was supposedly dropping its lawsuit strategy, in favor of a backroom deal with ISPs, negotiated under dubious circumstances by NY's Attorney General Andrew Cuomo, whereby those ISPs would start cutting off connections from those accused (not found guilty) of file sharing. However, since then, we've heard from a variety of ISPs who don't like the plan, and Wired went on a wild goose chase trying to find a single major ISP that has agreed to the plan and came up empty. Of course, most of them refused to comment. The only one who said anything straight up was Verizon -- who had earlier confirmed that it had no interest in doing a deal with the RIAA. The big cable companies and AT&T have shown some interest in the past -- but now refuse to admit that an agreement has been worked out.

The big question is why?

If this is such a great deal for consumers, as Cuomo and the RIAA insist, then why wouldn't an ISP want to step right up and proudly admit to such a deal? Obviously, it's because they know that such a deal is a sham, based on no legal reasoning, that will harm their position in the market and piss off customers. The RIAA will likely claim that no deals have been announced because the details haven't been finalized -- but again, that makes no sense. We've been questioning from the beginning why these negotiations haven't been more open. And with record labels like Warner Music and EMI insisting that they want to be seen as more open and willing to hold a "conversation" with critics, the fact that no one will talk openly about this backroom deal shows what a bunch of liars they are again. They don't want an open conversation. They want the government and ISPs to protect their business model, and they've convinced Andrew Cuomo to fall for it.

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One of the biggest problems with various "three strikes" or "graduated response" plans that involve ISPs slowing, degrading or removing internet connections from those accused of file sharing is the fact that they're based on accusations of file sharing, rather than actual proof and conviction. One of the most draconian of such plans has shown up in New Zealand, where the country's copyright minister yelled at those who pointed out how problematic the law was -- insisting that ISPs need to be responsible for stopping file sharing. Of course, many musicians recognize how problematic this is as well, and a bunch of them are getting together to protest the law in New Zealand, pointing out that "guilt upon accusation" is a horrible policy, and, even as musicians, they don't want such actions to be taken in their name.

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You may recall that last year, the video hosting website Veoh had a big win when a court ruled that the site was protected by DMCA safe harbors from infringement committed by users. Of course, that particular lawsuit was only one of a few that Veoh is involved in. In a separate case, brought by Universal Music Group, UMG made some somewhat twisted arguments as to why Veoh shouldn't qualify for DMCA safe harbor protections. Basically, it said that Veoh gave up its safe harbors by creating copies of the video in transforming their format and creating copies that were in smaller "chunks" than the original. UMG also went out on a limb claiming that the fact that users could stream videos and download whole videos also took away their safe harbor protections. It's hard to see how those arguments make any sense at all, and it sounds like UMG lawyers were just throwing every possible argument against the wall, knowing they had little to work with.

The good news is that the judge has rejected all of those arguments, saying none of them seemed to mean Veoh gave up its safe harbor protections. The lawsuit isn't over yet, and the court hasn't ruled on whether Veoh (overall) is protected by the DMCA, but in rejecting UMG's weakly reasoned arguments for why Veoh had given up those protections, it suggests that Veoh is likely to prevail here too.

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Phorm is the highly controversial behavioral advertising firm that teams up with ISPs to spy on your surfing habits and deliver targeted ads. The practice has raised a number of legal challenges and protests from users who were "tested on," without their knowledge. While Phorm has been found to be legal in the UK, its practices have still engendered widespread anger. Yet, the company seems particularly deaf to those concerns, and is talking about plans to expand internationally, despite the fact that similar schemes have run into legal troubles elsewhere. Perhaps before looking to expand internationally, Phorm should work on fixing its business model.

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Problems and potential conflicts coming from the bond ratings agencies were well-known well before our financial crisis hit, but still many are pointing the blame finger at those ratings agencies. And, it's certainly tempting to do so. Just as with the famed financial analysts during the late 90s tech boom, the credit agencies appear to have rated certain debt offerings very highly, despite recognizing how intrinsically risky the investments were. Given what happened following the dot com bubble collapse, it's quite likely that the bond rating agencies Moody's and S&P will get slapped down for their "mistakes."

But that would be a mistake. Both Moody's and S&P were merely expressing an opinion on the credit-worthiness and risk of the various debt offerings. An opinion should never be considered illegal by itself. The problem was that people started relying on these opinions as if they were factual realities. And who's to blame for that?

Well, in part, it's the government -- which wrote the rating agencies' ratings into law, requiring certain regulated institutions to maintain a certain percentage of "highly rated" bonds in order to engage in certain activities. That made it so the real focus was on the opinions of Moody's and the S&P, rather than on what investors believed the actual risk was on those bonds. As the link here notes, why not let the market decide what the actual risk is on these bonds, rather than trusting the (somewhat questionable) opinions of individuals who are biased and conflicted?

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I have significant problems with any sort of compulsory licensing scheme, which basically gives the power to a tiny group of people to establish the business models and cost structures for an entire industry. It's as if people who support compulsory licensing don't believe the free market works at all. The latest example of this is that the Copyright Royalty Board, which controls pretty much everything having to do with copyright compulsory licenses (despite often showing little to no understanding of technology) is now saying that anyone who broadcasts music online should have to submit full playlist data on every song they play to SoundExchange, the RIAA-spinoff in charge of "distributing" (if you call what it does distributing) money to copyright holders. While some entities already do this, it does seem like quite a burden for others, but that's what you get when you let a small group of people decide all the rules.

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It's well known that the Great Firewall censorship brigade in China employs tens of thousands of people monitoring what's said across the internet -- but perhaps far more effective has been the fear factor imposed on various ISPs by the government threatening them with punishment, if they don't ban unacceptable content. Of course, the government doesn't define what exactly is unacceptable, leading the ISPs to over-ban in order to protect themselves. Mostly, this effort has focused on internet access providers, but it looks like the government is now expanding it to search engines as well, after the government publicly named and shamed both Google and Baidu for failing to prevent access to "undesirable" content such as pornography.

This may prove to be an interesting test for Google, which was widely criticized for its original move into China, whereby it agreed to block content as designated by the Chinese government -- while alerting users to the fact that the content is blocked. That was Google's way of striking a compromise, while trying to call attention to the censorship (perhaps in the hope that it would eventually cause the policy to be changed). However, if Google is now getting pressure to be more proactive in determining what's "unacceptable," rather than just blocking specific content designated by the government, things could get a lot trickier for Google. Of course, some might point out that this was the slippery slope that Google put itself on when it first made the deal to get into China.

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EMI's lawsuit against Michael Robertson's MP3Tunes has never made much sense. MP3Tunes isn't distributing any MP3s. It just lets you upload and store your own music, or, if the songs are publicly available elsewhere, to access those tunes. EMI threatened MP3Tunes if it didn't remove all EMI music, and then eventually sued. Yet, in MP3Tunes defense, it's pointing out that EMI, itself, has flooded the internet with its own free MP3s, thereby authorizing others to link to those tunes (exactly what MP3Tunes was doing). So, the argument goes, how is it okay for EMI to authorize the MP3s for everyone to link to except MP3Tunes? Given cases in the past that deal with the legality of deep linking, this seems like it could be a pretty strong argument...

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The entertainment industry has a long and sorry history of treating customers like criminals, despite plenty of evidence that suggests that treating customers like criminals makes them more likely to act like criminals, rather than less. SteveD writes in with an example out of the UK, where the proprietor of a small shop decided that his store should be open the day after Christmas, but he didn't want his employees to have to work -- and he didn't want to work either. So, he opened up the shop, put up a note and a box for people to put money in and left the shop entirely unstaffed. It actually worked out well. He made a fair bit of money and didn't find any damage or products stolen.

This reminds me, quite a bit, of the Freakonomics story about the "Bagel Man" who delivered bagels to a variety of office buildings around Washington DC and left out boxes for people to pay. On average, he ended up with around 90% of the money requested, and some interesting lessons in which types of people and companies were more likely to be honest. There's also a scene in the Kevin Smith movie Clerks where the lead character Dante does the same thing -- though his explanation for why it works is: "Theoretically, people see money on the counter, and no one around, they think they're being watched." And, as his girlfriend notes, this is "honesty through paranoia." I'm not sure which it is, but it seems that there's ample evidence that honest people don't need to be "kept honest" and treating your customers like criminals isn't necessarily a very good idea.

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This will come as no surprise to anyone, of course, but the only significant area of the music business that is struggling is, once again, CD sales. Bloomberg has noted that album sales in the US declined 14% in 2008. Of course, digital sales continued to grow, and, as recently noted, the concert business is booming. Oddly enough, sales of vinyl records continue to rise -- a trend we noted last summer. To be honest, the fact that album sales only dropped by 14% seems rather surprising. If I were in the business of selling mostly obsolete plastic discs, I'd be thrilled they only dropped that much.

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I'm still working my way through James Boyle's excellent The Public Domain, but it's chock full of examples of ways that copyright holds back cultural expression -- and that comes to mind in reading the saga of a movie called Sita Sings the Blues. It was brought to my attention by Rich W, who saw the film at a film festival a while back and loved it. After that, the film disappeared off the radar, but was brought back to some attention right before Christmas, when Roger Ebert wrote a glowing review of it. He, like Rich, didn't expect to like it, and didn't even plan to watch it -- but after being convinced to check it out, he loved it. But, what he discovered is that the film was unlikely to get any distribution because, despite being an animated reimagining of a classic Indian love story, it uses the songs of popular jazz singer Annette Hanshaw, recorded in the 1920s.

To clear the rights for the music, apparently more money than the entire movie cost was required. As Ebert noted: "Don't the copyright owners realize they are contributing to the destruction of their property by removing it from knowledge?" Exactly. Meanwhile, the creator of the film, Nina Paley, has been actively blogging about the ordeal. The attention brought about by Ebert's endorsement has resulted in the copyright holders lowering their demands, but including some pretty onerous strings that will make it nearly impossible for her to ever profit from the movie (from which she's already in debt). Basically, if she actually sells copies of the movie, she'll owe a lot more -- but that doesn't apply to promotional copies of the movie. In response, she's worked out a convoluted plan, whereby she'll pay the awful initial fees, but, knowing she'll never get direct profits from it, she's working hard to free the film up as much as possible -- by putting the entire movie up as a "promotion" on the Internet Archive, while putting it under some sort of open and free license.

From there, she goes on to list out a whole bunch of ways that she hopes to still make money, indirectly, from the success of the movie -- even as she's going into further debt to pay off the music copyright holders. Many of her suggestions for business models will sound quite familiar to folks around here (ancillary products, special limited edition signed products, sponsorships, etc.). It's a shame she needs to go to these levels just to pay off the copyright holders on these compositions from nearly a century ago -- who would only be helped by the success of this movie. Hopefully the other business models she's testing out will be able to cover those costs, but she's already in a deep hole, which is a huge shame. Of course, at the same time, this experience appears to have turned her into something of a convert when it comes to understanding the damages brought about by copyright. Separate from the movie, she's decided to copyleft an old comic she created years ago (though, she's asking for help to get them online).

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