“Open” vs. “Closed” Distribution

I am beginning to view citizen’s media and other long tail content in the context of “open” and “closed” distribution networks. In doing so, I have become increasingly aware of how differently “open” network economics seem to function from traditional “closed” networks (and firming opinions on how this will impact “closed” systems.) But I’ve also been impressed with the lack of clarity in the definition of “open” distribution (other than “you’ll know it when you see it.”) I did a quick Wikipedia search and came up relatively empty handed, but found their entry on open systems theory most closely related. So, the point of this post is to ramble about the evolving economic model of “open” networks and how they will challenge legacy “closed” distribution methods, but I think I must first be clear on what I in fact mean by “open” and “closed.”

Part I: A Definition of “Open” Distribution

Perceived lack of openness has earned a few people some pretty harsh words. Over the past couple of days, Hilary Rosen got slammed a few hundred times (deservedly), for having her head up her ass when it came to (finally) understanding the implications of the RIAA’s lobbying efforts. Even Andreessen’s new venture, Open Media Network (OMN), seemed to get a few black eyes over their integration of tight DRM controls into their video publishing platform. (I guess the Netscape pedestal eroded pretty quickly. Sorry Marc… but I’m sure you’ll do fine anyway.) It seems clear that openness is highly valued, but does the inclusion of DRM really make your network that closed?

What Exactly Makes a Distribution Network “Open”?

It seems that the fundamental difference between “open” and “closed” distribution is similar to the difference between the file attributes “read only” and “read and write.” Closed media distribution networks, like Barnes and Nobles, XM Radio, iTunes, and Comcast are based on unidirectional communications; they’re basically “read only.” Open media distribution networks, such as Blogger, Flickr, and Ourmedia are based on bidirectional communications; they’re basically “read and write.” But, as evidenced by the criticism of OMN, further criteria can affect the perception of the relative “openness” of a network.

1. Regulatory Framework

One primary criterion is a network’s rules and regulations. Ourmedia, for example, provides simple tools to publish and consume. However, before user content becomes available, it goes through a review process. Content identified as inappropriate for the network (such as porn or clear copyright violations) are rejected. Ourmedia is a very open system, but it is still lightly regulated.  CurrentTV, on the other hand, solicits contributions from viewers, but tightly controls which content makes it to broadcast. It is theoretically an open system, but regulations governing contributions cause it to operate as if it were essentially closed.

2. Rights Management

Another primary criterion is DRM. Flickr, for example, uses Creative Commons licensing mechanisms to provide various degrees of intellectual property protection.  The underlying assumption when someone posts photos to Flickr is that they are going to be made widely available and, frequently, fall within the public domain. OMN, on the other hand, appears to be focused on providing content contributors with a greater level of rights protection through a platform called Kontiki. OMN is an open network, but digital rights can limit the portability and reuse of the content making it feel more closed.

3. Proprietary Standards

Related to DRM, yet another criterion is the ability to play media on any device. MP3tunes, for example, provides the ability to purchase and download MP3 files without DRM. By doing so, MP3tunes ensures that their content is compatible with the maximum number of devices and can be moved around easily. On the other end of the spectrum, Sony Connect (the archetypal closed distribution network) uses its own proprietary music format, ATRAC 3, which is only compatible with Sony devices.

Then why be “Closed”?

Given all the apparent advantages of being open, it would seem that having an open network would be preferable. Well, yes, from a consumer perspective, but not from the distributor’s perspective (at least right now).

“Closed” networks can be enormously profitable. If a distributor can gain sufficient market share to develop a dominant (or even better, monopolistic) position, they’re going to make oooodles of money. Amazingly, Apple managed to do just this after many other companies had established the market, essentially by getting the labels to buy into his “closed” network architecture. Jobs has enormous incentive to keep the network closed in order to keep people using iTunes to find tracks (hopefully on a Mac) and iPods to play them. (Given Jobs’ penchant for tightly closed systems, it’s always funny to me that Apple is such a darling of the open source community, but that’s for another post.) “Closed” networks are great for distributors once they have achieved scale precisely because they can lock consumers into their network and make switching that much harder (not to mention squeezing additional profits in the process). The only problem is that building scale at the beginning is very difficult. If given a choice, most consumers generally prefer “open” networks to “closed” networks as long as the content available is similar in quantity and quality.

Why Won’t Closed Networks Continue to Dominate?

Common belief appears to be that “open” networks, while easier to scale, are actually less profitable and harder to defend than their “closed” counterparts. Much of this stems from the idea that the more valuable the content (ie. able to draw large audiences that will pay to consume it) the more likely the content owner is to turn to a closed distribution mechanism to deliver this valuable asset to consumers. This belief has merit, but there are several trends that are gradually causing this assumption to lose currency.

Next Post | Part II: The Ongoing Ascendance of “Open” Media Distribution Networks

Tags: hilaryrosen, omn, flickr, opennetwork, kontiki, ourmedia, currenttv, mp3tunes, sonyconnect

Comments

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Given all the apparent advantages of being open, it would seem that having an open network would be preferable. Well, yes, from a consumer perspective, but not from the distributor’s perspective.

Ben Cliff

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Is that much of this stems from the idea that the most valuable content more likely the content owner is to use a closed distribution mechanism to deliver this valuable resource for consumers.

[Terry Heaton]

This is good stuff, Alex, and I appreciate your perspective. Of course, the $64,000 question is how one makes money in an open distribution system, especially when that system allows the user to eliminate disruptive messages in the form of advertising.

Conventional thinking assigns value to open distribution, because it's free. But I think that's only a part of the reality. Free, yes, but free from what? I don't think people are stupid -- they realize it costs something to produce all this content -- and I don't think they're opposed to paying for it. The issue, I think is one of control and passivity. Give users control over what ads they see, and they'll respond favorably.

But I digress.

Cheers,

Terry