Thomas C. Rubin: 2008 Leadership in Media Forum

Remarks by Thomas C. Rubin, Chief Counsel for Intellectual Property Strategy, Microsoft Corporation
“Can Anyone Survive in the New Media Environment? Building a Healthy Ecosystem Through Stewardship”
2008 Leadership in Media Forum
Harmonie Club, New York, NewYork
May 7, 2008

TOM RUBIN: Thank you for that kind introduction and good morning everyone.

As a former card-carrying member of the Newspaper Guild, and counsel to media companies and now Microsoft, I take great pride in being a part of the tremendous flowering of culture that the media and entertainment industry has driven over the past century.

During that time, the copyright industries, such as movies, TV, radio, music, book, newspaper, and magazine publishers, and, yes, software, have grown into a global cultural and economic powerhouse. We’re talking about nearly a trillion dollar business in the U.S. alone.

Unlike some smokestack industries, the media and entertainment industry has undergone tremendous change in that time. A hundred years ago, our grandparents marveled at phonograms and moving pictures. Our parents spent nights in front of the radio and witnessed the birth of television. And in our lifetimes we’ve enjoyed the growth of cable and VCRs and recorded movies.

In retrospect, these technological developments were like small meteor strikes. Each altered the media environment and forced the rewrite of business plans and a redistribution of resources. The incumbent species were challenged, but they generally adapted to accommodate these changes. And importantly, new species and business models emerged to broaden the diversity of the media ecosystem. In broad terms, the technological changes were not “extinction events.”

Exactly 15 years ago this spring, the first graphical Web browser, named Mosaic, was developed, an event that was so historic that it’s marked by this bronze plaque on the campus of the University of Illinois.

The birth of the multimedia Internet, unlike previous technological changes, has been more like a giant comet strike upon the media ecosystem. The scale of disruption, the scope of the challenges to resources and to incumbent species has been far more profound than anything that preceded it.

Will the Internet, as some suggest, prove to be an extinction event, at least for certain sectors of the traditional media industry?

We know what some members of the industry might think. Certainly the record labels and newspaper industry, to take two examples, are facing serious challenges resulting from the changes wreaked by Internet technology, changes that range from relentless piracy to newfound competition.

Digital piracy is, of course, a very real problem. But it’s one that’s discussed extensively elsewhere, so I’d like to leave it for another day. Instead, what I’d like to focus on this morning are the other challenges to the viability of online media.

So, the real question is: Are we creating a healthy and sustainable new media ecosystem for anyone, old or new?

To help answer this question, it might be useful to step back for a moment and look at some of the most dramatic changes, some positive, some more worrisome, that this Internet comet thrust upon the media landscape.

On the plus side the most dramatic result of the multimedia web has been the flowering of new technologies and new species of content creators. That technology gives creators the means to deliver new, high quality experiences to the public.

The growth of multimedia web has brought tremendous investment by Microsoft and others in new technologies that enliven old media, technologies such as Microsoft Reader, which is used by the New York Times and others, and Silverlight, which will be used by NBC online for the Olympic Games this summer.

In addition to technological breakthroughs, millions of new voices have been added to the cultural mix, adding competition to incumbent industries while enhancing the diversity and vitality of media in new and unexpected ways.

In just the last few years, for example, bloggers have not only reshaped news and opinion-making in America, they’ve also altered the political process itself.

And other forms of user-generated content, such as mash-ups and other amateur video, has given birth to new cultural themes and voice to artists who might never have been heard in previous times.

Much of this amateur content is certainly banal. How many videos of cats flushing toilets or lip-synching high schoolers does the world really need? But let’s be honest, a fair amount of professionally created content is no better.

In any event, what cannot be denied is that this flowering of new content has for the first time enabled grassroots creators, including many of our children, to bypass traditional distribution channels and attract broad audiences for their work. OK Go, JibJab, and lonelygirl15 would never have had their success in the old, traditional media environment. These and a few other grassroots phenomena signal the emergence of online consumers not just as purchasers of content, but as powerful forces in creating, shaping, and marketing it as well.

This flowering of new species of creators and content has enhanced the diversity and vitality of the whole media ecosystem. But a handful of high profile stories, while making good copy, are actually masking some troubling symptoms.

Consider, for example, the warning issued by Doug Liman, the director of Swingers and The Bourne Identity, to the NAB last month. Discussing content produced for the Web, he said, quote, “The reality is that quality content isn’t there yet.”

His words should remind us, of course, that whatever the liberating promise of new technology in enabling the emergence of diverse new voices, the fact is that there are only so many Shakespeares or Scorseses or Springsteins out there.

Now, some leading Internet pundits have given their views on the challenges faced by creators in the new online environment. Chris Anderson, the editor of Wired, says that zero is the future price of everything. Michael Arrington, the founder of TechCrunch, similarly writes that the declining marginal cost of content distribution means that the only appropriate price for digital content is free. And Kevin Kelly, the founding editor of Wired, has coined the concept of “1,000 True Fans,” which holds that the low costs of marketing and distribution online mean that an artist need only attract a small but targeted audience to sustain herself.

All three argue that the new media ecosystem is fully able to support and sustain grassroots creators through nontraditional means.

But are they right? Well, the facts suggest that the new media ecosystem as presently configured is, in fact, not able to adequately sustain grassroots creators. No sooner had Kelly written “1,000 True Fans” than a talented but non-mainstream musician named Robert Rich, who’s one of Kelly’s success stories, brought it down to earth in an Internet minute. Quoting from Rich’s poignant blog post, “I make about as much money as our local garbage man,” end quote. And this despite spending half his time not making art but attending to marketing and distribution.

British musician Billy Bragg raised a related point in a New York Times op-ed in which he criticized the fact that musicians whose work attracted huge audiences to the social networking site Bebo received not a penny of the $850 million payout that the company received when it was sold to AOL.

Now, of course, Bragg invested only his creativity in Bebo and not his capital, and he signed away his rights, so he had no actual claim to money. But Bragg’s fundamental concern, and I think there is some justice in it, is the lack of an economic model online that compensates creators. Quote, “Both the corporations and kids it seems want the use of our music without having to pay for it. If musicians are to have a chance of enjoying a fruitful career, then we need to establish the principle of artist rights throughout the Internet and we need to do it now,” end quote.

And let’s not forget the great Radiohead experiment of 2007. Last October, the band announced that they’d offer their new album as an Internet download, and let customers decide how much they’d want to pay for it. The New York Times noted that the decision had, quote, “incited talk of a revolution in the music industry,” end quote. Hardly. It’s not even the future of Radiohead. Just last week, without releasing sales figures, the band called the experiment “a one-off moment in time,” and then they announced that they’d never do it again.

The problem is not confined to the music scene. Blogging site ValleyWag recently cut the pay of bloggers by a third.

And as for the creators of amateur video content, seemingly the web’s favorite medium, they’re learning that while being an online video star is certainly fun, the reality is it just doesn’t pay.

Take online video creator Yuri Baranovsky, whose “Break a Leg” video got two million page views on YouTube. YouTube sent him a check in the amount of – hold on to your seats – $1,600 for two million views. YouTube’s own share was somewhat higher, but still way below the $20 CPM that it says it tries to get for its video ads. According to BusinessWeek, quote, “There are high level concerns inside Google that the excitement around YouTube isn’t readily translating into sales and ad dollars,” end quote.

And this problem isn’t confined to YouTube. The site Revver was recently sold for less than half of what its investors had sunk into it. That company learned the hard way that Mentos and Diet Coke may be explosive, but they don’t pay the bills.

Then there is Isabella Rossellini, who’s producing short films for Internet and cell phone distribution. At the Tribeca Film Festival a few days ago, she said that she can only afford to do so because of the money she had saved from her modeling days. Quote, “I do feel sorry for the people who are trying to make a living out of this, because the money is not there,” end quote.

So, overall when we look at grassroots Internet video, perhaps this brief segment from a recent episode of South Park says it best.

(Video segment.)

TOM RUBIN: Theoretically indeed. (Laughter.)

As for traditional media businesses, they’re not doing much better in the new media ecosystem. Newspapers are seeing a decline in the average duration of online visits to their sites. They’re becoming less a primary destination than an episodic stop where “drive-by surfers,” to quote Alan Mutter, view a single article, having been referred by a search engine or a blog.

Last year, the publisher of the Arkansas Democrat Gazette explained the disastrous economic consequences of the newspaper’s transition online. “Print versions of newspapers can generate between $500 and $900 in annual revenue per subscriber, Walter Hussman wrote, “compared to the $5 to $10 generated online per unique visitor.” His conclusion, quote, “It may be that newspaper Web sites as an advertising medium and free news just can’t generate the revenue to sustain a valued news operation,” end quote.

In this new world who’s going to pay for the social goods of investigative reporting and staffing bureaus in war zones?

When you sum up this data, you can see that all these participants in the new media ecosystem, and even South Park, are telling us something important. But we need to connect the dots between them.

Liman observes the lack of quality on the Web. Rossellini, Baranovsky, Mutter and Hussman help explain that observation by noting the lack of an economic return for creators in the new environment. And Bragg and Rich hint at why the economic return is not forthcoming, a lack of concern for the plight and respect for the rights of creators.

Taken together, this data is ominous, but is there reason to be optimistic? I think there is. I think we can build a sustainable new media ecosystem.

How? Well, that’s a tough question that I suspect will be addressed by media leaders throughout today’s conference. Certainly it will take hard work and some change in perspective from all of us.

But let me propose a starting point, a fundamental principle that seems so obvious when you hear it, but it has apparently not yet become conscious in our respective industries. And that is the idea of stewardship, acting for the interests of the ecosystem as a whole rather than just our own narrow businesses.

The leaders of the media and technology industries, represented by many of us here today, are more than just singular firms churning out new products and services. We, along with others, are also guardians of our cultural future. In times as disruptive as these we need leaders who focus beyond their parochial interests and have regard for the ecosystem as a whole as we undergo the metamorphosis into the digital world.

Stewardship requires embracing the fact that, like it or not, technology is forcing change upon us and everyone must adapt. History shows that the progress of technology and society offers no safe haven or Incumbent Protection Act, and those who cannot adjust their thinking, practices, and business models to the new conditions will inevitably fall behind. That’s as it should be, that’s life in the ecosystem.

This requires businesses to be quicker to experiment with new forms of content and new business models that take advantage of the tremendous potential of the online environment. It took far too long for the recording industry to respond appropriately to the challenge represented by Napster in 1999. The industry saw in music downloading only the threat to its business model instead of the opportunity to provide customers with easy and affordable access to music. So it dragged its feet for four years until finally licensing content to iTunes, too late to save itself. The concept that you reap what you sow is no less true in the virtual world.

Fortunately, incumbent firms are getting somewhat better at turning new technology to their advantage. It took three years from the birth of YouTube to the launch of, a great site co-founded by NBC Universal and News Corp. that features free high-quality TV and movie content.

But on the Internet even three years is too long. A lot of damage can be done in that time. Just ask Viacom.

Stewardship also requires adaptability on many levels. It means big media asking the web’s grassroots creators to the table so that we can all help build a consumer-friendly environment where everyone can flourish.

It also means being flexible about the ways in which content owners employ their intellectual property rights. To unleash the full potential of the digital age, we should ensure that the principle of fair use is robust. We should promote easier content licensing across borders. We should support beneficial reform like orphan works, and we should embrace projects like Creative Commons for those who choose to use it. And we should act responsibly in the enforcement of our copyrights. As stewards, we need to ensure that copyright in the digital age is an engine of creativity and not an inhibitor.

How about the technology industry? What can we do as a steward of our cultural future? Perhaps most importantly, we need to be mindful of the consequences of our actions.

You know, many people believe that we’re merely passive observers to the process of technological change, that technology is something that just happens to us, like a mythic force beyond the reach of human control, like the weather or God’s will, like there’s really nothing we can do about it.

But this techno-fatalist mindset simply isn’t true. Historians of technology have shown us that human beings have consistently intervened in the spontaneous forces of technological change to shape them in ways that they considered most socially beneficial. In short, the design and use of new technology has always involved contests over competing visions of what sort of future should be built.

Put another way, megabits and gigabytes don’t make history; people do. People and the choices they make.

So, what decisions will we make? Will we take a path based on mutual respect that builds towards a future filled with both rich content and innovative technology, or will we seek only the unilateral enhancement of our own narrow and short term interests to the detriment of the ecosystem as a whole?

Unfortunately, some of my colleagues in the technology industry seem to have taken the second approach. I call it the “not my problem” approach. The attitude of these companies seems to be: “I’ve got my precious spot on the life raft and it’s every man for himself. So what if media slowly sinks under the rushing waters of creative destruction?”

Well, my response to that is: “You know what? You should look beyond yourself. Without investment in and production of quality content, you’re stuck floating on a life raft in a big, empty sea.”

So, stewardship means appreciating the impact of one’s actions on others and on the media ecosystem as a whole. It means making sure that new species of individual creators can thrive and survive, and that new technology is given room to flourish, even if they both challenge your traditional ways of doing business.

Taking examples from the headlines, stewardship also means appreciating the concerns of studios about web sites that turn a blind eye to infringement; or the concerns of newspapers that are slashing coverage because they feel their web traffic is being siphoned off by news aggregators; or the concerns of trademark owners who fear dilution of their brands through the sale of keywords to competitors; or the concerns that retailers and publishers recently raised when a search engine started diverting their traffic and revenue by usurping the in-site search experience.

A search engine can find all sorts of ways to make a buck, but the question is, at what cost to the health and sustainability of the ecosystem?

Now, I’m an optimist but also a realist. Getting the media and technology industries to collaborate for the common interests of all will not always be easy. We do at times have different interests. But the point is that we need each other. Neither party can survive alone without the critical contributions of the other. So, we need to embrace our duty as stewards of our collective future and develop policies and practices that enhance the sustainability of the new media ecosystem as a whole.

I’d like to share a quick anecdote along these lines with you in which we at Microsoft face a situation that requires some stewardship on our part.

When we announced plans last year for MSN Soapbox, which is our user-generated video site, we heard content owners’ concerns about the prevalence of infringement on other video sites. Rather than turn a blind eye and forge ahead with a vow to test the limits of the law, we instead opted to lead an effort based on collaborating with others, in both the media and technology industries, to solve this significant problem.

First, we worked quietly with the Walt Disney Company to discuss technological solutions and other principles designed to eliminate infringement and to foster true grassroots creativity. We were joined in that effort not only by media companies like NBC Universal, Viacom, Fox, and CBS, but also by technology companies like MySpace, Dailymotion, and Veoh.

To be clear, these principles were not just meant for others. Our engineers re-architected Soapbox to accommodate the solution, and our business has made it a priority to prevent infringing content from being uploaded.

The voluntary principles we launched last fall set a new standard for how even competing interests can band together to tackle tough but important problems. And looking ahead, we look forward to continuing the dialogue we’re having today. We hope to partner with media and technology companies on other such initiatives that strive to benefit our collective customers by bolstering the health of the online ecosystem.

So, there it is. A new media ecosystem is being born, but its survival to maturity is by no means assured. What kind of ecosystem will it be? Will it be healthy and robust, a place where users have access to high-quality content? Where creators of that content, including new voices bubbling up from the grassroots, have the means and the incentives to keep creating? And where media companies continue to invest in the development of new talent?

This, ladies and gentlemen, is for us to decide. It won’t happen by itself. It will require leadership, which is what this conference is all about. It will require us all, whether in media or technology, to act as stewards in the development of a vibrant and sustainable new media ecosystem. Only then will we be providing an enduring benefit to the most important of all the ecosystem’s inhabitants, the public we serve.

Thank you very much. (Applause.)

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