Oliver Roup’s Blog

This week, Microsoft announced that they will be de-activating the DRM Servers that issue new keys for music from the (now discontinued) MSN Music service. In other words, starting June 1st, copying your purchased music to a new PC and expecting it to play will no longer work.

I bring this up because once upon a time, I was in charge of MSN Music and I built the system that Microsoft is now disconnecting.

Ian Rogers has described much more eloquently than I can how many of us got suckered, forced or seduced into spending our time and energy on systems incorporating DRM, convinced that it was inevitable or necessary or not that big a deal. (And let’s face it DVDs, XBOX video games and iTunes rentals are all proof that the right kind of DRM does not neccessarily equal market death.)

I continue to think that designing DRM must have been an interesting intellectual problem, and some pretty big brains came up with some rather clever stuff. It’s easy to see the temptation: The theory was that “big content” would not license their material for playback on a system that did not offer protection from copying and that customers had a strong demand for this content. So implementing DRM was a way to give consumers what they wanted and as a nice bonus, if Microsoft could implement acceptable protections in a way that Linux or Apple could or would not, then Windows would have a sustainable advantage.

It was this shift to “content owner as customer” rather than “customer as customer” that in my opinion started Microsoft down a long dark path from which it has not (and may never) emerge. Once the technology existed, and once Microsoft had displayed a willingness to put their customers second, Pandora’s box had been opened and content owners started to demand all sorts of outrageous things. And thus our own weapons were turned against us.

Unfortunately for Microsoft effective DRM on a PC is fairly obviously impossible without some rather intrusive hardware changes and even the approximate “hard for some people some of the time” roadblocks they managed to implement turned out to be rather cumbersome, never worked reliably and made the entire system less stable, less usable and less useful. One hopes that someone wondered about the wisdom of sinking so much time and effort into an “anti-feature” – work done to ensure that Windows could do less than the version before it, but once promises had been made there was likely no turning back.

Lessons learned for me from this:

• If a large percentage of the work you are doing is for the benefit of someone other than your paying customer, think very hard about whether you’re doing the right thing.
• Committing to do something “forever” is an obligation you should only encumber upon yourself and very thoughtfully – like in the context of a marriage. Committing someone else (like your successors at work) in this manner is almost certainly a mistake.

So my apologies to the customers who bought what I now see as a defective product. And apologies to Rob Bennett, General Manager of MSN Entertainment, who has had to clean up more than his fair share of messes rather than getting to focus on growing his business. There was a time when there was hope and optimism around this business.

If you haven’t seen them, you really must check out the two videos that will.i.am (of the Black Eyed Peas) created about Barack Obama. They both make the hair stand up on the back of my neck.

Doesn’t some part of you still believe that there are special moments in the world? Special people who catalyze and give a voice to a feeling that has been quietly building for years? When Kennedy pointed at the moon, when MLK stood on the steps of the Lincoln memorial, when Reagan talked about morning in America – didn’t these people shift the world around them just a little bit? Didn’t the right speech at the right time change you and how you saw the world? We all have our own: words, written and spoken that for some private reason moved us.

Today is the day where it could be made real. Today could be the day where we know this is really happening. Barack Obama did not grow up in the sixties. He was not shaped by Vietnam or Watergate. He did not come out of the same cohort of boomers that have run our country for so long. Those who scoff, who say that his difference is exaggerated do not understand how differently the world will see us if this man, this bi-racial man with an African father is the man we pick to be our president. How inherently different his perspective has to be. Louder than any policy this would say to the world that we have changed. We know we have made mistakes over the last 8 years (and longer) and there are more we will make but we have changed.

If you need evidence of his leadership, look to the way he has run his campaign – without turnover, without dirty laundry aired in public; just quiet competence. When did we become a nation that looked to time served? Inexperience did not stop Bill Gates or Steve Jobs or Marc Andreesen.

To those who say that this is all just foolishness, that this optimism is just naiveté, that this will all be dashed on the rocks of bitterness and hardball, that what we really need is someone adept with a switchblade and a bank of favors (and there are many I respect who think so) I say maybe you’re right. Maybe tomorrow I’ll know you’re right. But today – like Fox Mulder – I want to believe.

Chairman Kun Hee Lee of Samsung Electronics, as quoted in the HBS case on that company:

At Sumsung, we reward outstanding performance; we do not punish failure. This is my personal philosophy and belief. We need punishment only for those who lack ethics, are unfair, tell lies, hold others back or stand in the way of our unified march.

I’ve been in a lot of cities with crazy traffic. Boston has no lane markers on the roads and few street signs. I once thought that was bad.

Bangkok has congestion that means traffic jams at any hour of the day or night.

Moscow is still the only city I’ve been where I felt as a pedestrian that the cars were genuinely trying to kill me.

But still, nothing quite prepared me for Ho Chi Minh City. Every road has an endless stream of scooters carrying 1-5 passengers. Nobody stops, ever. Traffic merges and splits in a continuous and chaotic process that feels a lot like a river. Trucks and buses ease out into traffic and the little particles flow smoothly around them. Or sometimes they don’t…

Observe.

Ben Smith’s blog (link courtesy Matt Drudge of all places) has a clip of Obama talking thoughtfully about Ronald Reagan. I find the ability to look across the aisle and see the good in the other side tremendously appealing although I’m not so confident that the democratic rank and file will see it the same way. (Obama previously mentioned Republicans he’d consider in a hypothetical cabinet and it didn’t take long for the Edwards campaign to slam him for it. )

Whenever I’m discussing politics with someone I always ask them if they had to have a president from “the other party” (whichever party that is) who would they pick? To me the answer to this question says a lot about whether you can listen to what the other side is saying or are blindly partisan.

My answer to that question by the way is John McCain.

Update: As suspected, the rivals pounce.

I upgraded WordPress to the latest version and my theme seemed to be interacting poorly with the new Schema. So I’ve reverted to the default theme and I’ll find a new one I like at some point soon.

I just got back from 2 weeks in China and Vietnam, travelling with 50 awesome folks from b-school. Amazing amazing places. Travelling with 50 people naturally constrains the kind of trip you can have. The school can basically never let you get into a situation with actual danger on a trip they organize. So the parts of travel where you think to yourself, “Man, I’m really not sure what I’m going to do” (and that really turn out to be a ton of fun) basically don’t happen on a trip like this and getting out of the cities in general was pretty limited. On the other hand, we met with government officials, toured a Nike factory, a Mattell factory and a farm and met with a ton of local business people; all things you could not do traveling on your own.

The pace of change in China truly needs to be seen to be believed and honestly is somewhat frightening. Shanghai just added a Manhattan worth of construction in the last 5 years. Pudong (the famous part of Shanghai with all the iconic looking skyscrapers) just wasn’t there 7 years ago. The relationship of the people and their government is very different than we are used to. When a decision is made to develop a particular area, the people living there are summarily moved or compensated with little dissent. We met with a real-estate firm that has a downtown project measured at 3.5 square kilometers. That size of development downtown is unthinkable in the West.

The pollution is pretty unbearable (bad enough in Beijing that I really wouldn’t want to live there) but I sense that it’s something else that the Chinese will get under control before too long. The same sort of autocratic control that lets them move people will let them just announce new pollution standards that are to be followed. The situation today is a conscious choice.

One is left wondering at the wisdom of the level of investment the West has made. The cost advantages of China create a prisoners dilemma of sorts for Western firms. If you assume your competitors are going to take advantage then you need to as well to stay competitive. And of course the allure of a 1.5B strong market is pretty strong. But investing comes at a high price. The weak state of IP laws seem like no accident. There is a very conscious effort to extract IP broadly speaking (know-how, expertise, etc…) and I have no doubt that China will one day have very strong IP laws, except they will flow the other way. They will protect China from the West. Many of the Western firms we spoke to seemed to have an increasing leeriness, that perhaps they hadn’t gotten as good a long-term bargain out of moving operations to China as they’d initially believed.

One of the most interesting things I saw was a local company called Li Ning. If the products, logo and general positioning seem familar, that’s because they are. Everything is virtually cloned from Nike, including the stores which very much resemble Niketown. They’ve even signed Shaquille O’Neal as a spokesperson. This kind of development represents a new and especially frightening kind of IP infringement because their products are not exactly counterfeit. They are “legitimate” clones that resemble Nike products in almost every way except that they cost much less. I expect we will see a lot more of this type of thing in the coming years.

Obviously lots more interesting stuff to talk about, including wonderful Vietnam, but I’ll have to save that post for another day. A bunch of photos from the trip are here and also on Facebook.

There was a blizzard in Boston yesterday and cabs were impossible to find. A friend of mine was trying to get across town to meet me and a few others at a bar, but he couldn’t find a cab. So he walked down the street to a pizza place and ordered a pizza for delivery to the address of the bar. When the pizza was ready, he asked the driver if for a 50% tip, the driver would let him ride with him to where the pizza was going. The driver said no problem and everyone made out happy; even me, who got some pizza out of the deal…

Although School doesn’t necessarily leave you with any more free time than working does, it does leave you with plenty of “mental space” – room to think about new things, how the world might be changing around you and what opportunities that may present.

One thing that’s been on my mind lately is the writers strike and what it means. A couple of articles have leapt out at me:

• The international herald tribune had an interesting article about the now bleak economics of movie making has become for the major studios.
• Marc Andreesen’s rather excellent blog had a post about Hollywood reforming in the image of Silicon Valley.
• Patrick Goldstein picked up the thread with an excellent article in the LA Times that describes the “entrepeneur artist” and cites Spielberg, Jackson, Lasseter, and Lucas as ahead of their time archetypes.

The theme of all this is that falling production costs, proliferating distribution channels and generally crummy economics weaken the grip big studios have traditionally exerted on the movie business. There may be a coming wave of entrepreneur-artists who make modest budget movies outside of the studio system, take greater artistic risks and get paid like owners rather than hired guns.

More powerful artists suggests that the vertical integration of the industry is going to start cracking. Funding, production, promotion and distribution are all separate functions that may not be operated by the same entity.

A few observations:

• Raising $7M doesn’t seem like a big deal if you think you’ve got the right project. Attaching a known director or actor seems like a good way to convince an investor that you’re on to something. I can imagine funds which invest in a diversified portfolio of projects or “angels” who invest in a single project that appeals to them.
• Production at a lower budget means that costs that used to be insignificant will suddenly start getting scrutiny. Unionized labor that gets paid at least 8 hours a day regardless of how much they work and have all their meals catered seem like low-hanging fruit.
• Setting up and ripping down a production company every time you work on a new project seems incredibly inefficient. I can imagine standing companies that know how to work together and move from project to project.
• The perhaps-apocryphal Disney executive who asked his team to “only make the hits” may have in fact been onto something. In order to keep the machinery of a studio running, it needs to have a pipeline. Rather than funding potential hit movies, studios are really funding the best N projects they can find and perhaps this leads to poor funding choices. The Last Boyscout, The Sixth Sense and The Matrix are all movies that apparently “sold themselves” from the script, suggesting that at least in a few cases a script is so compelling as to suggest that in the right hands it will be a hit.
• Promotion and Distribution still seem like the core difficulty. “On the net” is still not a great venue for watching visual entertainment longer than 10 min and has the nasty side issue that nobody wants to pay. Certainly creating celluloid prints does not seem cost effective.

Things I am thinking about:

• How do we connect investors with projects? How do they sort good projects from bad ones? This process already happens through an informal social network, can one be systematized?
• How does investing in low cost movies work? What financial structures do we use to share the upside without removing incentive? Who has succeeded here before?
• What is really happening to production costs? What are the real cost drivers? How do we accelerate that drop? Not every movie is the Blair Witch Project.
• How do we find an audience for these new works and how do we get our work out to them?
• Many artists enter the business motivated by fame. Some movies really do call out for big budgets and huge promotion. Any re-imagination of the business that eliminates either of these things will not work.

Those of you who haven’t talked to me in a while may not know that I’m currently at business school, going to class, doing homework, eating in a cafeteria and all the other things that students do.

Because I came to business school later than most, I get asked constantly if it is “worth it”. A few thoughts on that:

I don’t want to beat the odds. I want to turn the odds in my favor. Great success always encompasses an element of chance, but when you consider people like VCs and entrepreneurs who have been repeatedly successful across many events normally considered “chancy” you have to consider the idea that there are certain things those people do to change the odds in their favor.

Viewed within the next 3 years, business school undoubtedly leaves me worse off than I would have been without it; but if we’re all going to have 40 year careers, is a 2 years and $200k-ish investment in a key set of skills, a network and a credential a rational investment? I’d argue yes. Am I learning? Absolutely and a lot. Am I meeting interesting people? Interesting does not begin to cover it. Am I having fun? Definitely. Does this degree directly open up new, more lucrative careers than I had access to before? Unclear; But that’s not what I’m looking for.

Subjects like finance, marketing and accounting, are all pretty fascinating to me. (Yes, seriously, accounting! The mechanics of GAAP is not so interesting but the managerial accounting material is really cool.) More importantly, I think having those skills will make the ventures I undertake more likely to succeed. Of course the world is full examples of people who have succeeded without the formal training I’m paying for, but in my mind if success is to be a repeatable event rather than a random land of the dice, deep knowledge of those disciplines is extremely helpful.

Is it ultimately worth it? Time will tell.