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Delivering the (Digital) Goods or
The Canary in the Coal Mine
Jim Noble Warner Music Group
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There is nothing more powerful than an idea
whos time has come
Victor Hugo
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Being ahead of your time is as bad as being
behind the times
Tim Berners-Lee WWW - 1992
Guglielmo Marconi Radio - 1901
John Logie-Baird TV - 1925
Thomas Edison Elec Light - 1907
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Dot Coms and Making Money
The wild fling between a young promising
technology and impetuous financial markets is
ending in an acrimonious separation. The only
outstanding question what can be salvaged from
the break up?
Financial Times, October 13, 2000
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Business on the Internet
10 Leading Internet Companies Financial
Results (excluding Cisco and AOL)
( billion)
Losses as a of sales
(36)
(28)
(52)
Source Mercer Management Consulting
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Business on the Internet
Advertising Balance of Trade( Billion)
Source Mercer Management Consulting
Competitive Media Research Internet Advertising
Bureau Advertising Age Forrester
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However. The rebound is coming soon as the
Internet matures from metadata to product
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MOORES LAW
Pages on the World Wide Web(Billion)
Source Cyber Atlas IDC Industry Standard
Exponential curves are most interesting at the
knee
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MOORES LAW
1990
1995
2000
2005
Exponential curves are most interesting at the
knee
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Technology Drivers

• 1) Compression
• 2) Broadband
• 3) Internet peer-to-peer file sharing
• 4) Wireless

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1) Compression
in real time
For audio / video
51 4001
1984

• Sony ATRAC 1
• ADPCM / FFT
• Motion Picture Experts Group 1, Layer 3
• MP3
• DTS
• Sony ATRAC 3
• Dolby AAC
• Real Networks RealAudio
• Microsoft Windows Media Technology 4.0
• MPEG 2, 4, 7
• ..etc.

2000
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2) Broadband
Time for Typical MP3 File Transfer (4 Mb)
Broadband
Narrowband
37 Min
19 Min
10 Min
4 Min
20 sec
8 sec
3 sec
1 sec
lt1 sec
lt1 sec
1 Min
Kbps
300 - 1965 14.4k - 1985 56k - 1995
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2) Broadband
Time for Typical MP3 File Transfer (4 Mb)
Broadband
Narrowband
37 Min
19 Min
10 Min
4 Min
20 sec
8 sec
3 sec
1 sec
lt1 sec
lt1 sec
1 Min
Kbps
Mbps
300 - 1965 14.4k - 1985 56k - 1995 DSL - 2000
T1 - 2000 Cable - 2001 OC - 2005
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2) Broadband
U.S. Broadband Adoption( Total)
Broadband Households
Narrowband Households
Source Goldman Sachs (11/15/1999)
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3) File SharingMP3.com Centralized Model
User
User
User
User
User
User
Source Deliotte Touche
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3) File SharingNapster Decentralized Model
User
User
User
User
User
User
Source Deliotte Touche
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3) File SharingGnutella Peer-to-Peer Model
User
User
User
User
User
User
Source Deliotte Touche
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3) Emerging P2P
AIMSTER 3.3 million Packages delivered by Federal
Express 224 million Bulk rate letters delivered
by the USPS 280 million Phone calls on the ATT
network 851 million AOL instant messages 2.1
billion Personal e-mail messages sent in the
U.S. (average daily rate in January 2000)
FLYCODE From the creators of Napster Legal file
sharing, with Rights Payments
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4) Wireless (with XML)

• Cellphones with microbrowsers
• PDAs (Omnisky, BlackBerry)
• Airports
• Spaceway (GM Hughes)
• Teledesic (Microsoft)
• etc.

Internet in the Sky
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4) Wireless (with XML)
How many users will access the Internet worldwide
via devices other than a PC this year?

• A) 1/2 million
• B) 3 million
• C) 7 million
• D) 12 million

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Global Wireless Market(Millions)
Source Industry Standard (May 22, 2000)
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The Canary in the Mine
Digital Source Available?
Easily Uploaded/ Downloaded?
Easy for Consumer?
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Delivering Digital Goods
CONTROLS
PRODUCT
COMPRESS
ENCRYPT
CONTAINER
META DATA
TRANSMIT
RIGHTS
UNWRAP
DECRYPT
DECOMP
PAYMENT
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Music Channels to Market
U.S. Music Industry Sales (Billion)
Online Sales
41
Retail Outlet Sales
59
Source Goldman Sachs 11/15/1999 Forrester
Research
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THE INTERNET IS NOT A ZERO SUM GAME
Digital Downloads
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16
14
Online Sales
12
10
8
Retail Outlet Sales
6
4
2
0
91
92
93
94
95
96
97
98
99
00
01
02
03
Source Goldman Sachs 11/15/1999 Forrester
Research
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Strategy to Compete
This has extraordinary implications for
Information Systems
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Lessons Learned

• Internal I.T. must become expert on Internet
  service providers (not just ISPs and ASPs, but
  DAM, DRM, DGM.)
• If you dont get it, the business will outsource
  I.T. by the back door
• The CIO must be seamless with the CTO

Music has one year to get it right - how long do
you have?