Are Media Companies Missing the Boat?

Following the mass popularity of the now-defunct peer-to-peer network
Napster, major media companies began taking the prospect of digital media
seriously, but the choice of how to address the new technology has been a
source of debate among all sides.

A new report released Wednesday is adding fuel to what critics of
media companies have been saying for years: companies are wasting too many
resources fighting digital piracy while overlooking potential opportunities
the technology offers.

The study, released by New York-based KPMG in association with the Economist Intelligence
Unit, was conducted to gauge the media industry’s progress in managing and
delivering digital content.

“You see the rhetoric of media companies in the press, but what you don’t
see is them taking a holistic or multifaceted approach to tackling the
issue,” Ashley Steel, a global executive partner with KPMG’s
Information, Communications, and Entertainment practice, told

While the study found that media execs are upbeat about their revenue
prospects for digital content, the data reveals that relatively few are
putting their money, or efforts, where their mouths are. Digital-content
optimists, those who believe that digital content is a promising source of
new revenue rather than a threat to existing ones, outnumbered skeptics two
to one. Despite this, 43 percent make only “some” of their content
available in digital format, with another 43 percent making “most” of their
content available. Only 14 percent indicate that their content is available
exclusively in digital format.

Another major roadblock for the industry is defining and taking stock of
their intellectual property and the opportunity their digital content holds.
Fifty-seven percent of the media executives surveyed admit to not having a
formal content-review process in place and only 16 percent of media
companies have their legal, business and technology teams participate in the
content-review process.

“The companies are sitting on a goldmine and they take it for granted,” said
Steel. “There is value that the media companies are missing.”

The value of the opportunities missed, is in fact significant, with KPMG
estimating a loss of potential revenues at between $8 and $10 billion

“How can you strategically move forward if you have not evaluated your
on-line assets?,” she asked. “Digital intellectual property needs to be valued
properly, just like any other asset on the balance sheet. And its protection
needs to be treated as a key issue of corporate governance and given
sustained and dedicated board-level attention.”

Despite the lagging progress, some movement to innovate is being made. Many
artists have set up their own Web sites offering “free samples,” to promote
their work. Others have begun to offer additional perks to those legally
purchasing the music. New Jersey Rockers Bon Jovi are offering customers
who legally buy their new CD “Bounce” a unique serial
with which the purchaser can register in order to receive such
exclusives as prioritized concert ticket purchases and unreleased music.
Likewise, house music moguls Daft Punk included a credit card size insert
inside their CD with a unique number were you could download MP3 singles of
remixes and live versions of the song from a special website.

The Recording Industry Association of
, the trade group representing the top recording companies in the
world that has been responsible for most of the litigation against digital
media piracy, points out that there are also a number of subscription sites
that are now up and running. The sites, including CenterSpan/Scour,’s Rhapsody, MusicNet, and Pressplay, however, have not been remotely as
popular as other P2P sites, such as Kaaza, that have emerged to replace Napster.

Steel noted that while these small efforts are a positive step, there needs
to be more.

“Media companies can’t just do one thing, its about making sure that the
boards of the companies have proper business plan on multiple fronts to
tackle the issues,” said Steel. “And here’s a key message to the media
companies: not putting material online is not the answer”

Many of the major media companies have employed this technique as part of
their focus on fighting privacy, which they still view as the major obstacle
to overcome before they are able to fully recognize the opportunities the
technology can offer.

KPMG’s survey shows that media companies are using a wide range of weapons
in their fight against digital piracy, although encryption, which is relied
on by more than four fifths of respondents, is by far the most popular and
reflects the industry’s emphasis on blocking unauthorized content usage.

They also rely heavily on law enforcement and the judicial system. They post
prominent warnings and threaten violators with legal action, and nearly
three quarters of survey respondents said they gather their legal teams and
actually take violators to court. About one in ten firms seem to have given
up in despair.

Steel might be the last person to say that companies should ease up on
their battle on piracy, but insists that the emphasis on encryption and
picking off kids downloading music is the wrong approach.

“If anything I would rump up the litigation, but they have to do it with the
right people and need to go cross-boarder,” said Steel. “They are playing
at the fringes, and they need to start attacking the big commercial

International pirating, Steel noted, should also be a much more significant
concern to the industry. Half-jokingly, she even went so far as to note
that in Hong Kong, where it is estimated that up to 90 percent of the music
sold is pirated, it would probably be more profitable for an artist to make
a deal with bootleggers than to keep the cut off the legitimate sales.

The RIAA has continued to veraciously pursue legal action against online
piracy, recently winning a lawsuit
against file-sharing firm Aimster.

Repeating the rhetoric, Hilary Rosen, chairman and CEO of the RIAA, said in
a statement: “This decision helps to support the continued development of
the legitimate on-line music market for fans, which is, of course, our goal
in all of our on-line enforcement activities.”

KPMG’s survey, conducted in July of 2002, posed questions to 38 high ranking
executives representing 33 of the worlds largest media organizations,
including six of the ten largest global media companies in the US, UK,
Germany, Netherlands, Japan and Australia.

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