The Readings: MBA 600 Multimedia Applications in Business, Fall 2006

The subject matter of this course is happening all around us. There is a wealth of information available that we can't try to do more than take a peek at.

The links on this syllabus will take you on divergent paths. I don't expect any of you to read -- or to need -- all of it. However, if you're going to progress towards the course objectives, I do expect all of you to read -- and to need -- much of it. It's up to you to balance your learning style against these resources.

I want to be careful about how much I ask you to read in common. In addition to the required readings here, there will be all the reading that you do individually for your in-class presentations. Finally, after you decide on your start-up business, you'll have to research your competition and the industry as a whole.

These required readings are designed to give you a critique of the music industry as well as frameworks for thinking about competing by taking advantage of the Internet. Just like the record labels -- and all other information industries -- you, too, will have to deal with intellectual property. Thus, several of the readings give you perspectives on copyright.

What is the Internet?

You've been aware of the Internet for at least a decade or so. At some point, you started participating. You may not like it, but you can't avoid it.

Your mental model of the Internet has developed slowly and as the result of personal experience rather than from learning about it in a textbook like you might learn about the railroad system or the telephone system.

I hope that these first three web pages confirm your mental model. However, I suspect that the vision they present will contradict at least parts of your mental model.

These next three web pages, from Ricci Street's Port 80, are full of links that will take you off in a thousand directions. I'd like you to read the three pages and then to explore as far beyond as you have time and interest.

Influential Thinkers about Public Policy

the loosening of capital markets, aka globally mobile capital

the rise of transnational capitalism.

multinational	shared ownership - a company owned by people or companies from two or more countries
micro multinational	a multinational with under a couple dozen scattered employees
transnational	national or multinational companies which operate in a number of different countries
globalization	the development of global institutions with some independence from nation-state control; inevitably tends to undermine nationalism

Your organization's structure and culture can have a lot to do with the organization's ability to survive, adapt, and even thrive.

However, our society's structure and culture has a lot to do with it, too. Increasingly, that society is a global network.

how laws, institutions, customs, and regulations affect incentive, the creation of new knowledge, and the possibility of profiting from it

Tom Friedman

The World is Flat: A Brief History of the Twenty-first Century
by Thomas Friedman
2005, Farrar, Straus and Giroux

This video is over an hour long, but in it Friedman discusses the ten flatteners that he explains in the first half of his best-selling book. If the video tempts you to read the whole book, great. But if not, the first 45 minutes of the video before the Q&A will give you a good idea of what Friedman has to say.

The playing field is being leveled, says globalization guru Thomas Friedman - from Shanghai to Silicon Valley, from al Qaeda to Wal-Mart.

Rule of (which) law?

We live in a globalized economy where international law should supercede national law (just as national law supercedes state law and state law supercedes local law).

We live in a globalized economy where national law (ex: US's freedom of speech; freedom of press; separation of church and state) should supercede international law or other countries' laws.

Golden Straitjacket

This was the only debate topic where I had to give thought to which side is red and which is blue. Basically, it doesn't matter, as I'll try to explain, so I couldn't use the same loose/tight dichotomy as I did with the others. This becomes the more generalized debate proposition within which the other four find their context.

In The Lexus and the Olive Tree, Thomas Friedman writes (p. 86) that one debate is over, and a winner is clear.

When it comes to the question of which system today is the most effective at generating rising standards of living, the historical debate is over. The answer is free-market capitalism. ... There can be different brands of free-market vanilla and you can adjust your society to it by going faster or slower. But, in the end, if you want higher standards of living in a world without walls, the free market is the only ideological alternative left. ...

When your country recognizes this fact, when it recognizes the rules of the free market in today's global economy and decides to abide by them, it puts on what I call the Golden Straitjacket. The Golden Straitjacket is the defining political-economic garment of this globalization era. ... If your country has not been fitted for one, it will be soon.

Golden Rules

Friedman describes the Golden Straitjacket by the rules it imposes on a country.

make the private sector the primary engine of economic growth

maintain a low rate of inflation and price stability

shrink the size of the state bureaucracy

balance the budget, if not have a surplus

eliminate import tariffs

remove restrictions on foreign investments

get rid of quotas and domestic monopolies

increase exports

privatize state-owned industries

deregulate capital markets

make the currency convertible

open industries and stock and bond markets to direct foreign ownership and investment

deregulate to promote domestic competition

eliminate government corruption, subsidies, and kickbacks

open banking and telecommunications systems to private ownership and competition

allow citizens to choose from an array of competing pension options and foreign-run pension and mutual funds

This op-ed piece in today's Buffalo News won't be available in a week or so, but it explains where Mexico is resisting the Golden Straightjacket and why that fuels the US immigration problem.

It's not that Mexico has made no progress. Its economy was once crisis-prone, inflation-ridden and heavily insulated from foreign trade. Now it has quelled inflation (about 4 percent), controlled government spending and opened up to trade. Before adoption of NAFTA in 1994, tariffs on covered imports averaged 12 percent; by 2001, they were 2 percent. In recent years, its economy has grown almost 4 percent annually.

Far from damaging the economy of the United States, offshoring should enable its companies to direct resources to next-generation technologies and ideas�if public policy doesn't get in the way.

Three Democratizations

Early in his book, Friedman writes about what caused the rise of free-market capitalism: the three democratizations, of technology, of finance, and of information. In short, the Internet let money move freely. The folks who cry "Save America's Jobs" are spitting into the wind, according to Friedman.

The venture capitalists at Parkside Partners are globalists, money movers. However, they live in the real world, where many people are fighting back. In Friedman's terms, those fighting back are more interested in their (local) olive trees than in another (global) Lexus.

Electronic Herd

You and I grew up in a world in which nations ruled and competed. Sure, there was a World Court and a United Nations and many treaties, but the nation-state was supreme. According to Friedman, those days are over. Look at the European Union. The ruler of a country has no more discretion than the governor of any one US state has in the face of the overwhelming superiority of the US Federal government. In this analogy, the Federal Government has been replaced on a global scale by what Friedman calls the Electronic Herd. Gathering in Supermarkets, this Herd has far less accountability than any nation-state ever did. At Parkside Partners, you are part of the Electronic Herd.

The Electronic Herd is made up of all the faceless stock, bond and currency traders sitting behind computer screens all over the globe, moving their money around with the click of a mouse from mutual funds to pension funds to emerging market funds, or trading from their basements on the Internet. And it consists of the big multinational corporations who now spread their factories around the world, constantly shifting them to the most efficient, low-cost producers.

This herd ... is beginning to replace governments as the primary source of capital for both companies and countries to grow. In order to thrive in today's globalization system a county not only has to put on the Golden Straitjacket, it also has to plug into this Electronic Herd.

What does this mean for our public policy debate? Friedman calls it synchronized swimming, which is why I had trouble assigning a red or a blue to these Rule of Law debate positions. According to Friedman, there is no debate.

Unfortunately, this Golden Straitjacket is pretty much "one size fit all". So it pinches certain groups, squeezes others and keeps a society under pressure to constantly streamline its economic institutions and upgrade its performance. it leaves people behind quicker than ever if they chuck it off, and it helps them catch up quicker than ever if they wear it right. It is not always pretty or gentle or comfortable. But it's here and it's the only model on the rack this historical season.

As your country puts on the Golden Straitjacket, two things tend to happen: your economy grows and your politics shrinks. That is, on the economic front the Golden Straitjacket usually fosters more growth and higher average incomes -- through more trade, foreign investment privatization and more efficient use of resources under the pressure of global competition. But on the political front, the Golden Straitjacket narrows the political and economic policy choices of those in power to relatively tight parameters. This is why it is increasingly difficult these days to find any real differences between ruing and opposition parties in those countries that have put on the Golden Straitjacket. Once your country puts on the Golden Straitjacket, its political choices get reduced to Pepsi or Coke -- to slight nuances of taste, slight nuances of policy, slight alterations in design to account for local traditions, some loosening here or there, but never any major deviation from the core golden rules. Governments ... which deviate too far from the core rules will see their investors stampede away, interest rates rise and sock market valuations fall. The only way to get more room to maneuver in the Golden Straitjacket is by growing it, and the only way to grow it is by keeping it on tight.

The only online portal dedicated to the study of clandestine and subversive radio - a field where politics, diplomacy, espionage and broadcast media collide. Clandestine broadcasting is a highly effective weapon in the arsenal of psychological warfare, which, when analyzed, can assist observers to cut through the fog of war and ascertain the strength and capabilities of opposition groups as well as actual on-the-ground military strategies. For the casual Web surfer this site may seem exotic and, at times, conspiratorial. Regular and "professional" users, however, will find an intelligence bonanza.

Most of those stations have online steams, anywhere in the world. If the world is flat, as ClandestineRadio suggests and Friedman's most recent book declares, and indeed, the Internet has flattened it, then what should the US do?

The Electronic Herd and the Supermarkets are fast becoming two of the most intimidating, coercive, intrusive forces in the world today. They leave many people feeling that whatever democracy they have at home, whatever choices they think they are exercising in their local or national elections, whoever they think they elected to run their societies, are all just illusions -- because it is actually larger, distant, faceless markets and herds that are dictating their political lives.

We will debate four public policy areas: technology, intellectual property, spectrum, and internet neutrality.

The Web was the Wild West - until the sheriff rode into town.

The most potent force shaping the future of the Internet is neither Mountain View�s Googleplex nor the Microsoft campus in Redmond. It�s rather a small army of Gucci-shod lobbyists on Washington�s K Street and the powerful legislators whose favor they curry.

After years of benign neglect, the Federal government is finally involved in the Internet � big time. And the decisions being made over the next few months will impact not just the future of the Web, but that of mass media and consumer electronics as well. Yet it�s safe to say that far more Americans have heard about flag burning than the laws that may soon reshape cyberspace.

Chris Anderson

Forget squeezing millions from a few megahits at the top of the charts. The future of entertainment is in the millions of niche markets at the shallow end of the bitstream.

The era of the blockbuster is so over. The niche is now king, and the entertainment industry � from music to movies to TV � will never be the same.

Cory Doctorow

On the disk I passed around, I included an hour-long talk by one of the most articulate promoters of open culture

Cory is also one of the four regular contributors to Boing Boing, a Webby award-winning blog continually taking the pulse of our culture. I recommend it highly.

Lawrence Lessig

Lessig went around the country giving talks about Free Culture while he was writing the book. This Flash presentation would be a good introduction to his ideas and to his voice.

on the current state of intellectual property and its ramifications on creativity and culture timed against the audio of his OSCON 2002 keynote address

He is probably the most influential thinker involved in the copyfight debate because he has been writing about it for almost ten years and his books have been widely read. In addition, he started Creative Commons. The USB drive I passed around the first night of class had a video file, getcreative.mov, that explains Creative Commons.

Lessig is usually thought to be on the side of the "new", but if you read and listen carefully, you'll hear someone who is really on the side of the "old" but trying to prod them to not be so stupid about change.

I would like you to read Free Culture by Lawrence Lessig, lessig_free_culture.pdf. It is a book in terms of length and it may be a severe challenge to you in terms of the major ideas, so don't put off starting it. Lessig means "free" as in liberated or unencumbered rather than free as in no money. He also means "free" as a verb, to free our culture from the constraints being imposed on it. You can also get it online:

http://Free-Culture.cc/freecontent/

http://Free-Culture.cc/remixes/

The multiple versions linked to the remix page demonstrate the concept of "free" as in liberated as well as "free" as in no money. The PDF versions are closest to the look and feel of printed ink on paper. You can format the HTML and plain text versions any way you want to. Printing is always an option. If you really get into these ideas, you will find the Referenced HTML version the richest:

http://eAsylum.net/freeculture/

In addition, you may want to explore Lessig's previous two books, The Future of Ideas and Code Is Law. The best place to start is his personal site:

http://Lessig.org/

and Google is always worth doing. The search phrase "Lessig copyright" (without the quotation marks) will get you more than you can digest easily.

I will be discussing these ideas in class in early February. Those of you who find that these ideas challenge your preconceptions about property and move you out of your comfort zone should take advantage of those February evenings to express yourself. Change is hard.

Economic forces

Music Industry

File-sharing nearly killed the recording industry. Now signs of renewal are everywhere. Fans and bands never had it so good.

The Warner IPO prospectus

The pop music market worldwide is dominated by an oligopoly, four or five companies, most of which are divisions of conglomerates, and none of which is US-owned -- Sony in Japan, BMG in Germany, Universal in France, EMI in England. As of this year, Sony and BMG are marketing jointly, which is why I say four or five companies. The fifth, Warner Music Group, was bought two years ago by a group of Canadian investors. Last spring, they have took it public, for which they issued a prospectus that in detail discusses their business model and its risks. The prospectus provides a view inside these companies that we wouldn't otherwise see -- and that the mainstream media ignores in favor of the official PR provided by the companies.

Unfortunately, this prospectus is not intended for widespread public dissemination, so it is printed on paper. (That's part of what this course is about. We're now in a world where if you don't want information to get widely disseminated, you print it. If you do want it to get widely disseminated, you FTP it.)

I will pass out paper copies of this prospectus tomorrow night in class. Before then, I left a couple on top of the mailboxes on the left inside the back door of 85 Humboldt. If you've never seen an IPO prospectus before, it is very revealing of the finances and risks involved for even established companies in mature industries.

I am giving you almost all of it, except for some of the legal boilerplate. The parts that are most relevant:

section	pages
Summary	1 - 4
Risk Factors	13 - 23
Corporate Structure	41
Cinram Agreements (see below)	43
Pro Forma Balance Sheet	46
Management's Discussion and Analysis	83 - 85, 89
Industry Overview	110 - 114
Business	115 - 130
Management	131 - 133

You're welcome to read all of it, but don't miss the above sections. You will find contextual material about Warner and its competitors on Ricci Street's Pop Music web.

Cinram International, Inc.
2255 Markham Rd.
Scarborough, Ontario M1B 2W3, Canada

Like the music and movies it reproduces, Cinram International has changed with the times. Established in 1969 as a maker of eight-track cassettes, the firm now is a leading provider of DVDs, CDs, and other products for movie studios, music labels, publishers, and software firms in North America and Europe. The company has an agreement with MGM as the studio's exclusive DVD and VHS manufacturer and distributor in the US and Canada. Cinram undertook a global restructuring, shifting its manufacturing plants and boosting its distribution capabilities. Cinram moved decisively into DVD manufacturing following its 2003 acquisition of Warner Music's CD and DVD manufacturing and distribution assets.

US Economic Census

You need to round out the portrait of the industry and its advocates with some more objective data.

Every five years, the US Commerce Department does an economic census. Unfortunately, it takes several years for the information to be compiled and released to the public. The most recent census, done in 2003 of activity in 2002, started to become available in late 2004. Meanwhile, the 1997 Economic Census is reported on Ricci Street's Pop Music web, and I am slowly adding the 2002 census data to this page. If you are not familiar with the NAICS system (formerly called SIC - Standard Industry Classification), now is a good time to do so. Knowing aggregate numbers for the industry in which you want to compete is very helpful in putting outside limits on your business plan.

You must be able to assign your business one of these NAICS codes. You are most likely to fit one of the four dozen lower-level NAICS categories in a long table near the top of that Ricci Street page. You can then research just that category for industry-wide information.

Political / Legal forces

Copyfight

Who's in charge of our culture? Companies that "own" content and control its distribution and use? Or the people who are consuming and increasingly remixing the content, creating and re-creating and distributing content that is not owned by any company?

In this tug of war between the new and the old, the Supreme Court last June ruled for the old against the new in a case called, for short, MGM vs Grokster. The amicus briefs are available on several web sites, including the Electronic Freedom Foundation's.

If you aren't familiar with how the Supreme Court works, now is a good time to learn. Using this case as an example, a group of entertainment companies (MGM and many others) sued a couple of companies (Grokster and others) that were making software that you could download for free and use to exchange music and movie files on peer-to-peer networks. When you used the software, you were shown ads that Grokster and the others charged for.

MGM wanted Grokster to not only stop making the software, but to pay damages for lost sales due to the P2P exhanges. In other words, they wanted Grokster to be liable for the actions of their customers.

The original trial court ruled in favor of Grokster, that is wasn't liable for what people did with the software, and MGM appealed. The Ninth Circuit appeals court ruled in favor of Grokster, and MGM appealed that, too. Last December (2004), the Supreme court agreed to hear the case (writ of certiorari). This is the first copyright / intellectual property case they had heard in twenty years. The last one, usually referred to as "Sony" or "the Betamax decision", is credited for unleashing the devices that let us get media in so many different ways. Think VCR, TiVO, iPod, video on the web. So this case, Grokster, took on huge importance.

Most interesting for our purposes are the amicus briefs. Amicus is Latin for "friends". The Supreme Court invites interested parties to submit written reports to them, usually arguing one side or the other. Because this opportunity is so rare, some serious people spent some serious time last winter explaining their version of reality to the Court. Taken together, these briefs provide us with insight into the forces fighting for control of our culture.

http://www.eff.org/IP/P2P/MGM_v_Grokster/

Going up this page from near the middle, first, on January 24, 2005, came the Briefs of Petitioners (entertainment companies) and the Amicus Briefs Supporting Petitioners. (Amicus curiae is Latin for "friends of the court"). The other side had until March 1 to file Briefs of Respondents (StreamCast, Grokster) and Amicus Briefs Supporting Respondents. Finally, the Reply Briefs of Petitioners were filed on March 18, 2005. You'll also see a link to a summary of all briefs that may help you get an overview.

Read as many as you can, and try to read from both sides, especially the side that you don't support.

You will find some of these readings redundant because the same case is made repeatedly by the various respondents. You may also find some of the references confusing; if so, Google will be of great help. Don't worry about the details, however. Try to get an overall sense of the struggle and the forces on both sides.

Social Forces

The struggle for hearts and minds

Outside the courts, the copyfight rages: press releases of corporations and advocacy groups, TV news shows, blogs, lectures and debates. You'll learn right away that there are more than two sides to this issue, though if we had to group them into only two side, we'd call them "old" business and "new" business.

It helps me to put faces and voices to the words. The first night of class, I will pass around a USB flash drive for you to put the following files onto your laptop.

getcreative.mov - short video about Creative Commons

cory_doctorow.mov - an hour-long talk by one of the most articulate promoters of open culture

Debate of the Century.mp4

The longest video (though not the largest of these files because of the .mp4 compression) presents a debate held at Cornell last April. It has three hours of nationally known presenters and audience Q&A from both the new and the old sides of the fight although you'll see that the six presenters really have six different sides and several people in the audience have their own. This is the best single place I know of outside of the Supreme Court amicus briefs above to get strong representatives of the range of views in this fight.

Learn more about this debate and get excerpts of the individual presenters if you don't want to sit through the whole three hours:

http://headlesschicken.ca/eng204/media/

On the 14th of April 2005, Cornell University hosted a debate between an EFF staffer, a copyfighting academic, and legal heads of the RIAA, MPAA, Napster II and Universal. The three-hour debate raised numerous issues not only to do with peer-to-peer filesharing, but also with the history of expression, with the rights of publishers and distributors, with those of writers and readers, viewers, and listeners, and with the potential futures for digital texts.

If you read the amicus briefs in the Grokster case, you won't get much new information from these videos, but I find it very useful to see the real people doing the talking.

Readings

MBA 600
Multimedia Applications in Business - Fall 2005

What is the Internet?

Influential Thinkers about Public Policy

Tom Friedman

Rule of (which) law?

Golden Straitjacket

Golden Rules

Three Democratizations

Electronic Herd

Chris Anderson

Cory Doctorow

Lawrence Lessig

Economic forces

Music Industry

The Warner IPO prospectus

US Economic Census

Political / Legal forces

Copyfight

Social Forces

The struggle for hearts and minds

Technological forces

Readings

MBA 600 Multimedia Applications in Business - Fall 2005

What is the Internet?

Influential Thinkers about Public Policy

Tom Friedman

Rule of (which) law?

Golden Straitjacket

Golden Rules

Three Democratizations

Electronic Herd

Chris Anderson

Cory Doctorow

Lawrence Lessig

Economic forces

Music Industry

The Warner IPO prospectus

US Economic Census

Political / Legal forces

Copyfight

Social Forces

The struggle for hearts and minds

Technological forces

MBA 600
Multimedia Applications in Business - Fall 2005