Digital Media in Italia

An initiative aimed at examining the role of Italy and planning our future

  

Proposal for intervention aimed at giving Italy a leading

position in the “digital media” sector

 

   

This document was drawn up by Digital Media in Italia (dmin.it), an interdisciplinary, open, non-profit group, which aims at defining and proposing areas of intervention which will allow Italy to gain a leading role in the exploitation of the ‘digital media’ phenomenon.

The professionals who are taking part in dmin.it are making available their own skills, views and experiences of their own free will; any information included in this document is therefore not binding for the companies within which such professionals work. 

Digital Media in Italia: http://www.dmin.it

 

 Granted with Creative Commons licence Non-commercial Attribution 2.5
13th September 2006
 

 

Executive summary

In this first document by Digital Media in Italia (dmin.it), we are setting out a proposal aimed at maximising the circulation of digital media[1]. If put into practice, this proposal could lead to the enjoyment of the benefits inherent in the process of digital convergence but would also contribute to make Italy a country of reference within this sector.

The document identifies three areas of intervention: broadband network services, services for the distribution and use of content, and online payment services. Specific courses of action are specified for each area, their technological, economic and regulatory aspects are analysed, and their potential advantages for the national community are identified. 

Dmin.it’s proposal is based on two principles: (i) to preserve the correct dynamics of competition in those markets where suppliers of services, content and payment systems operate, which should maintain ample freedom in adopting those technological solutions which mostly suit the development of their business and (ii) to facilitate the widest use of content and services by everyone through suitable access and interoperability criteria and adequate regulatory and co-operative tools.

Said criteria can basically be described as follows:

In our opinion, a co-ordinated implementation of the proposal could lead to a strong and evolved national market of production, distribution and use of digital contents.

To implement the proposal, an operative plan must be defined by the representatives of all the Country’s social, political and economic components, to which other economic and regulatory interventions can also be added

Table of contents

Executive summary................................................................................................................................. 3

Table of contents.................................................................................................................................... 5

1      Introduction.................................................................................................................................... 7

2      Digital media today: a great development opportunity for Italy.......................................................... 9

2.1       The context into which this proposal is integrated..................................................................... 9

2.2       The value chain for 'non digital media'.................................................................................... 10

2.3       Digital media value chains: the current situation....................................................................... 11

3      Why act in Italy now..................................................................................................................... 12

4      Nature of the proposed course of action........................................................................................ 13

5      Open system for the management of content.................................................................................. 18

5.1       Introduction.......................................................................................................................... 18

5.2       Relevance of this subject....................................................................................................... 19

5.3       Current situation.................................................................................................................... 20

5.4       Proposal of interoperable DRM system................................................................................. 22

5.5       Course of action required to implement the proposal.............................................................. 23

5.5.1        Technical aspects.......................................................................................................... 23

5.5.2        Economic aspects......................................................................................................... 23

5.5.3        Regulatory aspects........................................................................................................ 25

5.6       Advantages arising from the proposal.................................................................................... 27

6      Open network.............................................................................................................................. 28

6.1       Introduction.......................................................................................................................... 28

6.2       Relevance of this subject....................................................................................................... 29

6.3       Current situation.................................................................................................................... 30

6.4       Open network proposal........................................................................................................ 31

6.5       Course of action needed to implement the proposal............................................................... 32

6.5.1        Technical aspects.......................................................................................................... 32

6.5.2        Economic aspects......................................................................................................... 32

6.5.3        Regulatory aspects........................................................................................................ 34

6.6       Advantages arising from the proposal.................................................................................... 35

7      Open payment system................................................................................................................... 36

7.1       Introduction.......................................................................................................................... 36

7.2       Relevance of this subject....................................................................................................... 36

7.3       Current situation.................................................................................................................... 37

7.3.1        The problem of micropayments..................................................................................... 37

7.3.2        The difficulties arising from the young bracket of the population...................................... 39

7.3.3        Paypal limitations.......................................................................................................... 39

7.4       Proposal of open payment system......................................................................................... 40

7.5       Course of action required to implement the proposal.............................................................. 41

7.5.1        Technical aspects.......................................................................................................... 41

7.5.2        Economic aspects......................................................................................................... 42

7.5.3        Regulatory aspects........................................................................................................ 42

7.6       Advantages arising from the proposal.................................................................................... 43

8      Conclusions.................................................................................................................................. 44

Annex A – Miscellaneous...................................................................................................................... 45

a.     Bibliography............................................................................................................................. 45

b.     Glossary................................................................................................................................... 46

 

1          Introduction

The more economically, socially and technologically developed countries encourage a thriving market of content, not only because of the obvious economic advantages this brings, but also because it represents a tool which inevitably promotes their citizens’ cultural growth and social participation, results in reinforcing a Country’s cultural identity and its promotion in the world.

With the introduction of digital techniques applied to the mass market and, particularly, with the digital distribution of content, the influence exercised by technology on information and cultural consumption, on related businesses and, therefore, on society itself has grown considerably. Here we aim at identifying and proposing the conditions which are necessary in order to guarantee such balanced development of the digital media sector as to allow the maximisation of the benefits arising from technological developments for the benefit of all the parties involved.

To take full advantage of the development prospects inherent in digital convergence, the most suitable actions which need to be undertaken must be identified in order to overcome the critical factors present in the three key sectors of digital distribution of content:

The analysis of these three factors is made particularly difficult by the influence of technology, which is constantly changing both context and assets, and by global economic competition which, if on the one hand often triggers immeasurable economic expectations for the future, on the other hand leads traditional operators to oppose change by adopting protective measures which slow down the market’s development. Within digital media the following critical factors can be highlighted:

Digital technologies seem to expose the conflicts between the users’ interests (those of end users in particular) and the interests of the suppliers of network services, content and payment systems. Paradoxically, the convergence risks becoming a collision. This conflict among the various subjects is particularly dangerous with relation to the circulation of content, which necessitates by definition both inclusion and participation.

Dmin.it’s proposal, which identifies three areas of intervention, is based on the principle of a balance of interests. Service suppliers maintain their freedom to adopt those technological solutions which they deem more suitable to their offers relative to network services, content and payment systems.

They must, however, guarantee the users of their services minimum interoperability conditions, which can be summarised as follows:

In our opinion, a co-ordinated implementation of these three actions could lead to strong and evolved national market of production, distribution and use of digital content. The initiative’s success would make Italy an international reference model.

To implement the proposal, an operations plan must be defined by the representatives of all the Country’s social, political and economic components, which can also accompanied by other economic and regulatory interventions.

This document examines in detail some of the mentioned critical aspects (Chapter 2), identifies the system advantages which may derive from the proposal, keeping in view the current situation in the world and in Italy (Chapters 3 and 4), describes the proposal in detail and lists the actions required for its implementation (Chapters 5, 6 and 7). Chapter 8 comprises the general conclusions.

2          Digital media today: a great development opportunity for Italy

2.1        The context into which this proposal is integrated

Digital media offers several advantages, some of which are already tangible, others still potential, to the various parties involved in the value chains connecting those who produce content and those who use them.

At the same time though, the production and distribution techniques of digital content substantially modify the roles and traditional operative methods of the chains themselves, by reducing the relevance of some components, by developing others and by allowing new subjects to become part of the chains covering new roles.

Technology and economic market powers can only act better if they are accompanied by adequate regulatory interventions. To this purpose it should be noted that, within the temporal succession of the action of modifying factors (technological development, subsequent adaptation of business models and, finally, the issuing of norms and regulations aimed at stimulating and protecting the market or some of its players), regulating interventions can either have a highly balancing or a highly distorting effect; so far as they have at any rate been obliged to follow the evolution of the other factors.

The exploitation of the legislation currently in force by the owners of the rights (and, above all, the use of some rather outdated aspects of the regulations on copyright linked to a pre-digital world) has prevented the success of the various attempts of innovation of value chains made during the first years of digital media. Nowadays the main trend is to maintain the operative procedures of traditional value chains as unchanged as possible, even by adopting ‘control’ procedures enabled by some proprietary technology which not only neutralises the open aspects brought about by digital techniques, but even suppresses some conditions of normal use and interoperability which used to be guaranteed by traditional value chains.

On the whole, the phenomenon is amplified and strengthened by the Internet’s global size. The globalisation of digital production and distribution, together with a pervasive internet, enables the emergence of global operators who can attain a power up to now unknown, even though they are somehow conditioned by the technological choices made by other operators either upstream or downstream.

In this global scenario, Italian economic realities in this sector are not strong enough to emerge and some national cultural traits are destined to be obscured by external, non-Italian phenomena. This is unless a national policy for the sector identifies an area for Italian initiative which naturally does not oppose market forces and the obligations arising from international treaties. To this purpose, dmin.it proposes the above-mentioned actions, which are detailed in chapters 5.4, 6.4 and 7.4, which, on the one hand introduce the possibility of giving space to Italian culture and contents and, on the other hand, allow consumers to avoid the negative aspects of a strictly limited relationship with few global service suppliers.

2.2        The value chain for 'non digital media'

For the contents created by an author to reach an interested end user, the existence of a business model – in the shape of a 'value chain' –is necessary, resulting from a process which has been developed and consolidated in time (for hundreds of years, as is the case with publishing, or even just for a few decades, as is the case with videogames).

Despite the differences due to the specific type of content produced, distributed and sold, in each value chain there are typically the basic functions shown in the picture below, which is also valid for traditional media: authors and consumers are the chain’s end parts, whereas the intermediaries are the economic parties operating between said end parts.

Fig. 1 – A value chain for 'non digital media'

In some instances the functions of the value chain are divided into sub-functions, whereas in other cases one single intermediary can carry out more than one function, for example production, packaging and distribution (vertical integration).

Value chains can be more or less extended, depending on the level of complexity of the intermediate functions of production (for example an agent, a recording studio, a record company) or distribution (a logistics company, a wholesaler and a retailer).

The lengthening of the chain of intermediaries is positive whenever this is the outcome of a specialisation in different phases of a production process, which introduces a specific value in each new stage of the chain. Conversely, whenever the technical, financial or regulatory conditions promote lack of choice (monopolies or oligopolies) in some stages of the chain, the product’s final price can increase with no corresponding increase of added value. Even when the product’s price does not increase, the general dynamics of the competition of the market in question can decrease, with a consequently reduced drive towards innovation. This can happen whenever there are several phases concentrated around a few large companies, as is the case of content production and distribution, which are traditionally characterised by high initial plant/planning costs and low marginal operative costs.

The sector of content creation, namely the sector of authors, is on the other hand characterised by an extremely high fragmentation of the parties involved. Sometimes, under such conditions, the resources of the value chain mostly go to those few ‘creative operators’ which are chosen by production companies (which tend towards concentration, as is the case with music or cinema) on market grounds. For example, within the record industry with physical distribution of supports, only the ‘superstars’ reach a level of royalties of 15% or more on retail prices, whereas in most cases such levels are much lower.

The content offered for use can be paid for through different mechanisms, not necessarily alternatively: advertising, subscriptions, pay per use, service fees, etc. The author of the content is usually paid by an intermediary (publishers, record company, producer or a credited institution, such as SIAE [Italian Authors’ and Publishers’ Association]) according to consolidated market mechanisms.

2.3        Digital media value chains: the current situation

The diffusion of digital technologies has an impact on all the stages of the media’s value chains: production, distribution and use. Indeed:

In this process of change, some significant traditional forms of intermediation become non-remunerative or even tend to disappear and this induces traditional intermediaries to try and expand their role to other functions within the value chain. Alongside the expansion towards new activities, a search for new and more promising forms of business pushes some intermediaries to try and ‘protect’ a section of the value and chain by creating the so-called ‘walled gardens’, in which customers can only access an offer for content and services by using the specific devices supplied by the operator. This process is practiced both by suppliers of content services and by the operators of telecommunication networks and cable TV by using network technologies and, if necessary, by creating ‘bundles’ between network services (access) and content services. In both cases results are also obtained by using, for the sole purpose of protection, technologies which are collectively (and incorrectly) known under the name of Digital Rights Management.

As a matter of fact, although the use of DRM technologies of proprietary protection does enable the creation of digital media value chains almost similar to traditional value chains, it also causes important alterations within the whole business ecosystem.

Said alteration could entail some drawbacks, such as:

  1. Each DRM of proprietary protection creates a univocal and almost indissoluble tie between content and (proprietary) technology for its use
  2. Because of the differences among the proprietary DRM systems utilised, authors and/or producers are obliged to adopt several technologies in order to issue their work, which entails an increase in distribution costs;
  3. The costs relative to the introduction of a DRM platform are high because of the lack of open and industrially accepted DRM standards which could reduce supply costs;
  4. The proprietary DRM could entail high customer acquisition and maintenance costs for those who control the final part of the value chain, as it is the latter’s responsibility to guarantee to consumers the availability of equipment suitable for using the content (although in some instances customers themselves pay for such equipment).
  5. Whenever certain distribution stages are concentrated because of the use of non-interoperable DRM systems, those who control such systems can influence both the stages uphill and those downhill of the whole value chain.
  6. The use of a proprietary protection DRM can have a negative effect on the end user in several ways:
    1. Limitation of content use because of the fact that the proprietary protection DRM ‘prevents’ some legitimate actions the user would want to carry out because he/she has the right to do so in conformity with a mandatory rule;
    2. Economic penalty because of the fact that a specific content, which has been legitimately acquired, cannot be listened to/watched on any equipment other that that provided for by the supplier, as said content has not been ‘technically’ devised to be used on different devices;
    3. Filtering of content distribution as their transmission on some platforms could not be allowed;
    4. Need to use several pieces of equipment to be able to have a wide range of content, which are in any case less than those available;
    5. Feeling of frustration and uncertainty, which slows down the adoption of new techniques by consumers.;

Although possibly bearable in the short-medium run, in the long run these problems lead to the danger of rejection by end users and therefore require a counterbalancing action.

3          Why act in Italy now

The drawbacks identified in the previous chapter cause a certain number of side effects, which cause damages on several levels: from those relative to the economic cycle, to those relative to cultural plurality, to the impacts of systems on the development of our Country.

For example:

  1. A proprietary DRM offers to those who possess it an unprecedented powerful control tool on the value chain
  2. Due to the high costs involved in the creation of a value chain, the proprietary protection DRM can be used to create a very few commercial entities, mostly on the global scene, which can distribute content in protected mode and then has the possibility of monopolising the processes of authorisation to handle content, which are attributed an economic value by the public who use them
  3. With the exception of few, very lucky cases, the role of authors is therefore further marginalised and limited to ‘work for hire’; being obliged to link their work to a proprietary DRM system, authors will have no other possibility but to rely on the few big names in world distribution
  4. End users run the risk of being unable to access the source of their own choice to satisfy their need for cultural pluralism
  5. On top of this, the so-called ‘walled gardens’ oblige, or at any rate limit, content users’ choices and therefore generate bottlenecks along the value chain

Many of these elements can be found in the business approach of one or more sections of industry in connection with the production, the distribution and the use of digital content as a normal reaction of the industry to the challenges and opportunities of digital technology.

In our opinion, their extension in the medium and long run, could reduce those collective social benefits the digital revolution could bring and could further marginalise the role of our Country in this market.

So many conflicting signals suggest that a turning point has been reached, a change of pattern, the practicality of which can be verified by experimenting with the way those new business models even finance – both Venture Capital and the more prudent ones – or seem nowadays willing to support.

The purpose of this proposal is therefore the creation of those conditions necessary for the development of solutions which can combine the need to communicate, without restraints, with the need to inform and be informed without restraints. Those who find these solutions will be able to enjoy remarkable competitive advantages, of which the ‘system-country’ to which they belong will also be able to benefit.

Those countries with bigger internal markets than Italy’s could perhaps explore all options. According to dmin.it, Italy should on the other hand focus its resources on a limited number of promising directions in order to gain a favourable position within the evolving digital world. For this reason dmin.it’s proposal can both maximise the social benefits of the new digital technologies and offer new and significant market opportunities.

4          Nature of the proposed course of action

Dmin.it’s proposal, which aims at optimising the circulation of digital media, stimulating and extending the market by creating the right conditions for the development of established businesses and the creation of new ones, requires the concurring and co-ordinated realisation of actions in three different areas:

As far as relationships with the suppliers of different services are concerned, the proposal is based on two driving principles:

For this purpose, entrepreneurs can use for their business both interoperable types and proprietary and interoperable types of network services, content and payment; consumers will be able to access these services and to use any content of the digital world in a simple and economical way

In particular, as far as the technologies for the management of rights are concerned, the proposal requires that the ‘closed and non interoperable DRM protection systems, which are undoubtedly effective in terms of protection of interests of some parties of the value chain but cannot protect the interests of all the players, be supported by systems based on a nationally-adopted standard of interoperable DRM (which we shall call iDRM) which can offer several levels of security in order to satisfy the various requirements of the operators.

The use of an iDRM offers several specific and system advantages:

  1. it will be easier to satisfy end users’ wish to use, as they can access a great range of content and services by using the – standard – devices they already own; this would broaden the market’s potential in terms of content use;
  2. any content can be accessed with a single device; as a consequence, obtaining and using content illegally becomes less likely;
  3. non blocking value chains can be created, such as the one shown in the picture below, for which the control of rights is exercised strictly yet flexibly and fairly with iDRM technologies;
  4. the technological and economical threshold to gain access to value chains is lowered; this is a particularly suitable context for the development of authors’ creative activities and it also promotes business innovation through the creation of intermediaries which can link to the chains introducing new functions;
  5. in terms of a broader use (see point 1 above), the maximum reutilisation of content and digital media is enabled and their decomposition/re-composition and aggregation/integration is allowed, in order to create new products and derivative work;

Fig. 2 – Value chains with the iDRM

In other words, the iDRM is a solution which, on the one hand reduces a single operator’s control over the whole value chain and, on the other hand guarantees a higher satisfaction for end users and ultimately enables the growth of the whole market.

We are thinking of an innovative model to be implemented in Italy, but which could be potentially exported which, thanks to the development and use of an interoperable DRM system together with open systems for accessing and distributing content such as those described above, would enable the entrepreneurs acting within the various segments of the values chain to compete on equal terms with the large global media company.

Dmin.it would therefore propose to adopt some specifications which must have the following characteristics:

  1. they must public
  2. they must be easily implemented by ‘anyone’ who wants to build equipment
  3. they must be easily usable by ‘anyone’ who wants to offer services

The use of inverted commas before and after the word anyone denotes that, by using the platform with safe technologies, the access by any party to the value chain must be subject to some form of qualification of products/services by Certification Authorities. Please note that the above-mentioned specifications must however provide for one or more modalities of controlled distribution of digital media in keeping with said specifications even without the use of protection technologies – the so-called Technical Protection Measures (TPM) – for example for the distribution of works under the Creative Commons licence.

The availability of said iDRM platform represents a necessary condition for the creation of a horizontal market accessible to any equipment manufacturer, content/services supplier or of content/services consumer. In order for this to also become a ‘sufficient condition’, it must be necessarily (and simultaneously) integrated with the proposals relative to network and payment systems, as will be detailed below.

From a practical point of view, the dmin.it’s proposal implies that for each digital distribution platform, each operator supplying content to end users through a proprietary system should also at the same time make available content for which he holds an exclusive platform also through a nationally-adopted iDRM system with open and publicly defined access and protection standards, which is able to offer a variety of safety levels in order to satisfy the various needs of the operators. The whole arrangement is without prejudice to said operator’s faculty to select the most suitable mechanisms of iDRM offer, with offer conditions comparable to and non discriminatory towards those relative to the proprietary system.

Depending on the areas to which the proposal can be applied, several scenarios can be identified.

DTT, content on payment

There are two main subjects: A, a TV viewer who owns the equipment which can receive channels broadcast via terrestrial digital; B, content suppliers/integrators with exclusive right over content x, who intend to offer them on terrestrial digital which they support; C, network operators or integrators/suppliers of content on the market of DTT.

The service is implemented as follows:

To make this possible an interoperable DRM must be defined which allows the identification of all business models (PayTV, PPV, etc.) and interoperable devices must be present on the market.

Satellite: content on payment

The subjects are the same as those of the DTT case: A, a TV viewer who owns the equipment which can receive channels broadcast via terrestrial digital; B, content suppliers/integrators with exclusive right over content x, who intend to offer them on terrestrial digital which they support, C network operators or integrators/suppliers of content on the market.

The service is implemented as follows:

The requirements are the same as those of DTT.

IPTV

In this case the subjects will be: A, subscriber of B’s connectivity and IPTV services, the network operator; C, network operator with exclusive rights over content x who supplies to his clients (of which A is not part) in IPTV mode.

According to service procedures, C should initially requests interconnection from operator B for IPTV services. Following interconnection, customer A accesses content x via the same forms and the same device he/she uses when utilising the IPTV content supplied by B. The quality of the service supplied will in any case be given by the minimum between the quality of service of the two operators, B and C.

A requirement of the service is that the device used by customer A must be interoperable with regards to any IPTV offer.

WebTV

Generally speaking, 4 subjects can be identified: A, customer; B, network operator, of which A is a customer for connectivity services; C, Content Provider with exclusive rights over content x; D, network operator, of which C is a customer.

In this case operative procedures must be differentiated on two aspects:

Besides the necessary presence of devices based on interoperable DRM, some form of interconnection between B and C must exist (through peering agreements, or through Internet and third party operators). The quality of the service of access chosen by A must be suitable to the type of content supplied by C. C must be able to obtain what he/she needs to publish his/her content on the network under market conditions. In the case of content for payment, the economic relationship is in any case between A and C.

Finally, within broadband a homogeneous market would be created which, covering the whole national territory, would comprise as many potential consumers as there are broadband subscribers on the whole, thus developing an innovative Italian model, potentially exportable, which would give consumers plurality of offer specifically enriched by a relevant presence of medium and small national suppliers.

Within broadcasting, this would be equivalent to achieving a situation of simultaneity in which content suppliers distributing media on a proprietary platform (for example through their own Set Top Box) must also at the same time make available their own content through open Set Top Boxes which can be purchased on the market according to the same business rules they have defined.

For each transmission technology there would therefore be content also usable with a user terminal purchased on the market and interoperable with regards to the encryption systems provided for by the protocols of the iDRM platform adopted at national level.

As mentioned above, there are two other qualifying technological elements which are needed in order to support the horizontal market of digital media which will be opened by the introduction of iDRM. For the specified scenarios to be possible, both elements must be realized jointly and must be introduced simultaneously.

These elements are :

The following chapters further expand on these three areas.

5          Open system for the management of content

5.1        Introduction

Within the wider market of communications there is a particularly strategic area which deals with content available on broadcasting and Internet digital broadcasting.

Because of the nature of the goods exchanged within the market of content which, thanks to their use, generate a demand for new content (‘I liked the story, I would like new stories’), the growth of demand is triggered more by the abundance rather than the shortage of offer. Problems relating to the management, the protection and the valorisation of intellectual property can however trigger negative dynamics which are difficult to overcome and make things difficult in terms of equilibrium of such a promising market.

In the debate on such issues, the sector’s industries and the end users are opposed as far as the utility of sales models of protected digital content (based on the enforcement of copyright and related rights); the much needed and appropriate ‘complicity’ between client and supplier, without which no market can keep up, has therefore decreased. In this scenario, the Electronic Frontier Foundation (EFF) and the European consumers organisation (BEUC) believe that said models heavily impact on fundamental liberties and on constitutional rights; at the same time there are attempts, such as those by Creative Commons [2], to create models of free distribution by using mechanisms fully in compliance with the regulations on copyright, thereby overcoming their apparent rigidity.

Give the premises, in our opinion for the content market to fully work, a relationship of trust between authors and customers must be regained by attributing to the authors greater decision-making powers on the degree of protection of their work, by entrusting the management of rights to regulations and technology, and by educating consumers to a correct perception of the value deriving from authors. We believe that, within the current reform of regulations on intellectual property, clear regulations should be defined which also deal with the management, as well as the protection of intellectual property and which facilitate:

This would allow the introduction on a national level of the release terms defined at point 5.4.

5.2        Relevance of this subject

The initial stages of what we call the mass-media system lead to a concentration of the phases of representation, conservation and management of knowledge in private and public entities. The latter, often of monopolistic nature, used public resources to produce and distribute content and to support the technologic innovation needed for development.

The progressive introduction of digital techniques in all the stages of the value chain has changed – among other things – the economic terms of the processes of representation, production and sharing of knowledge. In particular, digital technologies have made information long-lasting, economical and easily retrievable, with great benefits by non-linear sharing of knowledge whereas, thanks to the widespread distribution of fixed and mobile digital networks, information can reach every user at a fraction of the costs traditionally associated with transport and with extreme flexibility (linear sharing).

Not all stages of the value chain have however harmoniously adjusted to the possibilities offered by technology. The offer of content on payment has often been proposed by compartmentalising the market by means of proprietary technical solutions for the protection of content. ‘Walled gardens’ have therefore been applied which, despite being legitimately realisable, have negative implications on the global efficiency of the market of content. ‘Walled gardens’ often fragment the market in such a way that they do not justify large investments on the creation of content. When on the other hand, thanks to non interoperable DRM technologies, they coincide with whole-scale distribution platforms (see the satellite offer in Italy), walled gardens tend to raise the threshold of access to competition in distribution. Moreover, the large investments required by their management can subtract resources from the creation/production of content. Finally, the control of a protected DRM ‘platform’ can give one or more operators too much power over various points of the procedure and, in particular, on the management/profiling of the final customer.

For as long as intellectual work has been represented by physical objects (paper, vinyl, magnetic tape, etc.) not much has changed in terms of the other value chains created by man’s economic activities. The necessary adjustments have been progressively introduced by international treaties, such as the Berne Convention [10] or the legislation regulating copyrights (in Italian, French and British law).

The law has also adapted to the evolution from analogue to digital, although it has struggled to keep up with the speed at which technology has been developing and with the consequent emergence of business models (industrially-derived ‘top down’ or popularly created ‘bottom up’, such as the peer-to-peer exchange of files) which are constantly challenging the methods of distribution and use of digital content.

For a medium-sized country like Italy, with a medium-sized cultural industry and a language of modest dissemination, the lack of policies regulating the use of digital techniques as support for value chains could weaken the creative process.

5.3        Current situation

In all countries the transition from analogue to digital has seen the intervention of both the public authorities and the market. In most cases there have been and there still are serious problems of coexistence in terms of expectations of right owners, intermediaries and end users.

A typical case is that of DTT USA, the first in the world to propose an ambitious project called Advanced Television (ATV) to broadcast high definition programmes on terrestrial channels; this programme is now stalled as high-value content is not made available for fear they may be immediately re-broadcast by other networks.

The situation in Japan, where a nationally accepted procedure has been defined which includes terrestrial networks, satellite and CATV and a centralised payment system exists, is very interesting and is similar to dmin.it’s proposal outlined in section 5.4.

Virtually all countries in the world have Pay TV or satellite services. Up to now these have only been successful in larger countries and/or in countries with a large linguistic catchment area. In all other countries the original competition has shrunk to one or even no operator.

In Italy, in terms of mass distribution, digital media are at the beginning. The main (and possibly only) exception is represented by the Pay TV service on the satellite platform offered by Sky Italia which, as at March 2006, counted about 3.7 million subscribers. Such service requires a specific STB which integrates local proprietary technologies for the protection of content. There is, therefore, no horizontal and open market of STB supplier for satellite Pay TV, and Sky supplies its own terminal to its own customers.

As far as Pay TV services on Digital Terrestrial TV (DTT) are concerned, the situation is completely different. These have been created as additional Pay-Per-View (PPV) services for free-to-air available channels and were initially developed both by Mediaset and by La7 independently (competitively, as it were) by using different technologies for conditional access. In order to avoid the fragmentation and consequent blockade of the emerging market, the two companies have willingly and knowingly co-ordinated their actions, thus laying the basis which allowed all manufacturers of STB sold in Italy to integrate both protection solutions they used in their products. Said co-ordination action went further by also enabling the development of another level of abstraction of those functions needed for a Pay-per-View service in terms of API Java.

On the whole the operation has allowed the preservation of an open market of STB for DTT, and has given the manufacturers of decoders who wish to enter the Italian market the possibility of including conditional access in their device or not. To date an estimated 3 million DTT decoders have been sold which have been manufactured by taking advantage of this ‘system’ agreement.

IPTV is digital television which reaches the home through a broadband connection. Nowadays in Italy two different services are available, provided by Fastweb and by Telecom Italia. In this case too, the two service offers use specifically developed proprietary decoders, which use two different solutions which are incompatible with each other. The number of IPTV customers in Italy is however still small, with less than 300,000 units.

The use of digital media on PC via ADSL is a potentially much bigger market. Among the various content - supplying portals, many propose a basic ‘free’ offer (such as RAI’s Web portal), other offer some content free and some on payment, and can almost always be accessed and consulted through any broadband access. In most cases pay services use Windows Media’s DRM technological solution. This is because of the fact that there is, as it were, a single supplier of the device on which clients use content: in our country the presence of Microsoft Windows on personal desktops is in fact close to 90%. This is a case of a ‘single decoder’, which is also valid as far as the consumption of music on PC is concerned, which is also mostly based on Windows DRM or Apple iTunes protection technologies..

With regards to music on portable devices, the situation is on the other hand rather different. On the one hand there is the predominant coupling of iTunes and iPod, which represents a monolithic system with a specific Apple protection technique. Then there are all the other Italian online musical shops, which include a certain number of players operating within this sector both through specialised portals (for example, vitaminic, messaggeriedigitali, mediaworld….), and through the musical sections of multimedia portals (for example, Rosso Alice, musica.tiscali.it, imusic.libero.it, music.rai.it…). The above-mentioned portals allow one to purchase and then download music in digital format for portable devices using the Windows Media Player protection system, with the exception of Vitaminic, which supports both Windows Media Player and the iTunes format.

Music is also supplied via cell phones, as all portable phone operators offer their customers the possibility of downloading and listening to songs via a wireless network. In this sector, too, despite the standardisation action promoted by OMA (Open Mobile Alliance), the solutions implemented by the various operators are interoperable. And for the services of Mobile TV broadcast on 2.5 or 3 G network, the situation is the same.

For some aspects the situation is also the same for the service of Mobile TV with DVB-H technology, already launched by 3 Italia and TIM and also announced by Vodafone. On DVB-H the solution of content protection adopted by the various managing agents belongs to the same technology supplier and comprises a SIM-lock function which prevents the DVB-H cell phone from being used with a different SIM card and, therefore, from receiving and decoding signals coming from other DVB-H networks.

Final conclusions

Among the various service offers, there is an extremely high plurality of systems used for the protection of content. In order to use the same services on the same platform, different protection technologies are often used and even when the same technology is used, specific features are often included which limit or prevent interoperability between terminals and content. In this highly verticalised scenario, the only solution ‘against the mainstream’ is represented by the terrestrial digital platform, which could show the way to be followed to create open markets for digital contents.

5.4        Proposal of interoperable DRM system

As exhaustively specified above, according to dmin.it, a full, open development of digital media requires that the conditions of interoperability be recovered. In terms of management and distribution of content, in dmin.it’s opinion the market needs to make available implementations of an interoperable DRM system based on public specifications, similarly to the way GSM (an ETSI standard) is a nationally-adopted communication system.

The interoperable DRM system therefore comprises a set of technical specifications, standards, protocols, governance and, also, regulations which will be defined nationally. By using the interoperable DRM’s specifications, products can be manufactured using the interfaces and protocols identified by public specifications and adopted at national level.

Manufacturers or distributors of digital media operating at national level who, by holding the exclusive rights for a certain distribution system, offer content to consumers through a proprietary DRM system, will also have to distribute such content through the interoperable DRM system adopted at national level. This will guarantee that consumers can access any content distributed within the Italian territory with devices of their own choice, selected from those offered on the electronic consumables market. As far as the distribution of interoperable DRM systems is concerned, suppliers will be able to adopt the most suitable business models, which either replicate those implemented on any of their proprietary platforms or not; the offer must follow the market regulations in force and must not be discriminatory (in terms of qualitative, technical and economic aspects) with respect to the offer proposed through the proprietary DRM.

As far as compatibility of the DRM adopted for the interoperable DRM system is concerned, both suppliers and customers will be guaranteed in terms of compatibility thanks to a wide range of user terminals on the market.

The technical specifications of the interoperable DRM system will be developed by a duly set up committee (defined as ‘National Authority’), which will be responsible for making said specifications available by a predetermined deadline. Said specifications will concern hardware, software, content and services, and will be made public both in textual format and in Open Source Software in order to optimise performance and facilitate their adoption.

The interoperable DRM system must be able to support any business model, including innovative models never implemented before. The interoperable DRM system will also be able to manage the unprotected release of content (pure management) and any negotiation involving the transfer (possibly even free) of content upon authorisation including the tracking of the mode of use.

Governance regulations will also be defined for the interoperable DRM system, such as the request and the obtainment of certification, the assumption of responsibility, etc.

Anyone will be able to access the interoperable DRM system to offer or use content.

Anyone will be able to create hardware, develop software, propose services as long as these are in accordance with the technical specifications and the governance regulations of the interoperable DRM system. Where necessary, the governance system will request the certification of devices and services.

5.5        Course of action required to implement the proposal

5.5.1        Technical aspects

Most of the technologies requested are already available. See, for example, the MPEG-21 standard suite [4], through which a DRM platform with a complete set of basic functions can be created, as already done by the Digital Media Project [8]. If requested by the market, other functions could subsequently be added.

5.5.2        Economic aspects

In order to examine the proposal’s economic element, two different aspects must be assessed: one relative to the markets existing along the value chain and the other one relative to the types of exchanges which are carried out in said markets. The first aspect describes the economic ‘environment’ within which holders of rights and end users could meet, whereas the second describes the economic properties of the exchanges carried out. In relation to said exchanges, the effects arising from the adoption of a single decoder system for each platform should be assessed.

A first, general characteristic of digital goods lies in the lack of the conditions typical of competition. As far as offer is concerned, there are almost always increasing returns (that is, strong scale economies) due to the presence of high fixed costs which are necessary for the production of the first copy, associated with very low marginal costs (those incurred to produce other copies), which tend to correspond to zero. As far as demand is concerned, there are often positive network external effects (for a definition, see 6.5.2). Because of these characteristics, returns on these competitive markets are imperfect. To this basic imperfection, another one, relative to the strong differences existing in the level of competition of the different markets operating along the value chain, is added. Where, in fact, the activities of transmission and distribution of digital goods are offered in liberalised markets, the competition tends to be quite strong; on the other hand, the owners of the rights over content (intellectual work, relative rights) enjoy a legal protection which effectively makes them monopolists of the goods they own. This particular configuration of the market results in strong differences in terms of contracts between manufacturers and consumers. Whenever they effectively hold any market power, the manufacturers are often led to adopt discriminatory behaviour by fixing different prices for consumers; whereas consumers tend to look for solutions which reduce the most negative consequences of the monopolistic exploitation adopted by the holders of rights, even by transcending the usual economic relationships completely.

This ‘see-saw’ between owners of rights and consumers has often resulted in failures in the market, namely in a quantity of exchanges lower than the one there would have been had the market been competitive. This proposal is therefore aimed at facilitating exchanges between owners of digital rights and end users, that is, reducing the transaction costs burdening the parties as much as possible.

According to economic analysis, the latter can be classified in two types. The first type of ex-ante costs includes all activities carried out before the transaction takes place[2] ; among these are included costs relative to information and research on possible partners and their identity, on existing prices, on market trends, on future prospects, on expected risks inherent in the investment one intends to make through the transaction but also on negotiations, including the supply of sufficient guarantees to convince the other party to carry out said transaction.

The second type relates to the activities subsequent (ex-post) the conclusion of the contract or the exchange: monitoring that the contract is observed, effectiveness of guarantees, costs arising from possible controversies.

This analysis demonstrates that the proposal intervenes on both the ex-ante stage and the ex-post stage and facilitates exchange by reducing transaction costs.

The proposal allows owners of rights to simplify the distribution of any goods and to facilitate its use by the consumer at the conditions of use each party deems best. However, differences between the parties still remain because, as mentioned above, wherever possible owners of rights will try to exploit their own monopolistic power granted by the regulations in force by exercising some price discrimination towards consumers.

In this case, too, the proposal seems to have a positive effect, facilitating a legal activity of consumer proliferation for the owners of rights thanks to the acquisition of data, which is essential to the development of an effective commercial activity, and the right to non-discrimination for final consumers. From this point of view, the prior ascertainment of the other party’s identity appears to be a factor which, by facilitating the supply of information, generates trust between the parties and therefore facilitates the exchange.

The proposal’s advantages, which allow consumers to access content with a ‘single device’, result both in a growth in the level of competition in the various markets of the value chain and in a higher wellbeing of consumers. In fact said provision undoubtedly has a positive influence on the markets existing along the value chain, both in terms of equipment and content. Thanks to a ‘single device’, acting as ‘lowest common multiple’ of the various existing standards for the use of multimedia content, the anticompetitive risk connected with the possible existence of proprietary technologies for single decoders is less dramatic. By offering functions and exclusive ‘extra’ services, single decoders can in fact coexist with the single open version, which allows all consumers to use the main (therefore not necessarily all) content and services offered on the market by utilising a ‘single device’. Those consumers wishing for a supplemental exclusive service could safely choose the proprietary decoder, in the knowledge that the basic performance of all content offered on a certain platform is in any case guaranteed by the ‘single device’. At the same time the possibility that such exclusive technology, which would still be present in proprietary decoders, could be used by the company which owns it for an unjustified restriction of the market in order to maintain their leadership, would be precluded.

In terms of demand, the interoperability of the ‘single device’ stimulates the level of demand, which is higher than what there would be on the market if only incompatible proprietary standards were present. In terms of offer, there being technology not proprietary de jure but open and shared, there will presumably be a number of manufacturers which, while competing over the quality and price of their own model of ‘single device’, will be spurred to look for forms of technical-productive co-ordination. The realisation of a single open standard could, in fact, in itself suggest the creation of consortiums/alliances for sharing the access to the licences of the patents needed in order to create the various elements of the ‘single device’. Naturally it will be up to the quality of the governance and the regulations these institutions shall give themselves, for example by predisposing suitable forms of cost and revenue sharing arising from the use of shared resources, so as to minimise the likelihood that some participant to the consortium be tempted to behave opportunistically towards the other members once the standard of the ‘single device’ has been defined.

5.5.3        Regulatory aspects

Current national regulations do not provide for explicit forms of interoperable DRM. The law on copyright for example includes some regulations which refer to the so-called ‘technical protection measures’ (art. 102/quarter., paragraph 2, Law on copyright, according to which ‘Technical protection measures are considered to be efficient in case the use of the protected work or material is controlled by the relative owners through the application of an access device or a protection procedure, such as encoding, distortion or any other modification of the protected work or material, that is limited by means of a mechanism of copying control satisfying the objective of protection.”).

The law on copyright therefore also protects those who use DRM to protect intellectual work from possible infringement, without however giving any provisions with regards to interoperability.

The inevitable reaction to the regulator’s inertia by the creators and holders of digital content has translated, at world level, into an attempt at creating systems which can guarantee and, where advisable, sanction any improper operation in connection with the rights, which compensate for the lack of specific regulations and are compatible with the general regulatory context. These are the DRM systems, which can consist of simple self-regulatory measures carried out by means of contracts, and may include the so-called ‘technical protection measures’ (TPM), which physically prevent the possibility of infringement and activate the sanctions provided for by the law on copyright in the event of infringement.

Even though the ideal solution would be to implement a legislative reform on copyright, implementation times would be long and the results somewhat uncertain. Having acknowledged a significant lack in regulations and an orientation of the market towards solutions exclusively based on DRM, another way of intervention is proposed, which leaves aside the regulations on copyright and restores the regulations on the single decoder, which had already been in force in Italy (Law 78/1999), and which should be adequately updated in order to reflect the proposal’s contents on the issue of a ‘single device’ platform.

The regulations (platform of interactive digital television, irrespective of transmission procedures) are already included within the ‘Framework Directive’ (considering 31 and article 18, Directive 2002/21/EC) and are in fact the regulations which should be kept in mind in terms of European dispositions.

To be effective, as far as this proposal is concerned, these regulations must provide for:

  1. technical specifications: these are the technical specifications relative to the equipment or the software which, platform by platform, will enable the reception of digital content, even if protected by DRM, according to the interoperability criteria outlined in this proposal;
  2. freedom of access: this is a system of public licences (similar to GPL or Creative Commons), which is defined and adopted through the chosen regulation system; the licences in question allow free access to all hardware and software components of the single decoder for the chosen platform; among these is the licence of interoperable DRM; the system of licences in question will have to contravene the dispositions in force concerning technical protection measures included in the law on copyright;
  3. obligation of release: the ‘single device’ of each platform allows its users to use at least ‘basic versions’ of the straightforward/conditional access offers present on each platform (versions which therefore favour digital content over the added value services available in the proprietary version); if the product differs from the product available in the proprietary version, the price is consequently adjusted subject to the control of an independent organisation.
  4. freedom of trading: the authors and owners of rights over the work can request that the licences outlined at point ‘2)’ specify, within the limits of the law, how said work is circulated (first distribution platform, exclusive, etc.)

The regulations do not necessarily need to be ‘hetero-imposed’: the above-mentioned results could be achieved through an agreement among stakeholders aimed at promoting the agreements needed in order to introduce the ‘single device’.

Said agreement can also be reached by means of a consortium and then be ratified by the Communication Authorities or by the Ministry of Telecommunications. Said authorities can, if necessary, adjudicate on prices and clauses.

Said solution would solve several existing problems relative to the current regulations.

Current regulations do not in fact provide for a single platform for the circulation of digital content, whereas they specify that an accounting or company separation, depending on the case, should exist between network operators, content suppliers and suppliers of interactive services (Art. 5.1. Consolidation Act Radio and television, which provides for this obligation for the companies operating within the radio and television digital communication sector).

In terms of terrestrial digital, these subjects are obliged to use a certain category of API (MHP); similar obligations do not however exist with regards to satellite, cable, IPTV, Internet TV and DVB-H[3].

It is obvious that an agreement on a common platform with relation to the single decoder is therefore needed. Failure to do so would result in the ‘open’ protocol being a limitation rather than an opportunity for terrestrial digital. The remaining platforms, characterised by closed protocols, are where anyone can broadcast ‘valued’ content.

The presence of an iDRM platform on a ‘single device’ could result in each platform having an open CDN (Content Delivery Network) alongside the proprietary ones, on which digital content can be streamed.

For users, the benefit would lie in the possibility to access digital content, even for a ‘basic’ experience, with the consequent democratisation of the same. The positive experience of Open Source and Creative Commons proves the likelihood of success of such an approach.

The antitrust aspects of the proposal should finally be assessed: if carried out by way of an agreement, the proposal could be under scrutiny by the Competition and Market Controlling Authorities as it would limit competition; if carried out as hetero-imposed regulations, the proposal could equally be under scrutiny by the same Authorities, as it could disrupt market operation.

The case can be argued when presenting the proposal to the Authorities, once a precise implementation strategy has been defined.

5.6        Advantages arising from the proposal

Dmin.it’s proposal integrates several aspects, some of which are traditional, some innovative. In brief:

The advantages of adopting it at national level would interest all the players in the value chain:

The adoption at national level of an open and interoperable DRM platform would give an unprecedented stimulus to the circulation of content, or rather to its formulation, production and use. Many of the existing technological barriers would be knocked down and this would also allow the recovery of part of the digital divide currently existing in the country. Wider access and use of content results in informed, aware citizens and social inclusion..

Italy has the power to create, define, integrate, realise, operate and govern such complex evolution and could propose itself to the whole world as a new paradigm of a Country which was able to fully exploit the opportunities offered by digital convergence.

6          Open network

6.1        Introduction

In the boom years bridging the century, the great success of the Internet, the first mass service digital network – even though with a very limited bandwidth – led people to think – erroneously – that the Internet would have ‘naturally’ evolved into a global broadband network.

Today the evidence shows that, despite the fact that the Internet and the IP protocol have catalysed the convergence of media and their business and tend to assert themselves as a single media, the economic returns on the investments on the network are finding it difficult to take off.

Telecommunication operators therefore feel cornered between the substantial investments needed to keep up with development and the fast obsolescence of their more traditional businesses – all the while feeling threatened by the risk (partly real) that their innovation path is an ideal ‘culture environment’ for the growth of their competitors.

Should the offer of access services cease to exist on the market, this would irreparably undermine one of the fundamental premises of the full development of digital media. To this purpose, dmin.it believes that network operators should prepare an offer for accessing their network’s services both in a ‘pure’ manner (‘unbundled’ mode) and in association with other added value services, such as the supply of content (‘bundled’ mode).

According to dmin.it, users of the broadband network should be able to request and obtain even a basic bidirectional Internet access, meant as access space and IANA ports. The access thus supplied should be ‘service agnostic’ therefore not giving different priorities to the transfer of different types of information, unless this is requested by the user; its economic conditions should not be discriminating towards the operator’s other offers; its technical characteristics (such as bandwidth) should fall within the range of the operator’s other commercial offers. Moreover, operators should guarantee that services are interoperable among themselves and, wherever possible, should try to ensure (for each offer to customers with a higher level of QoS than that at ‘best offer’) specific levels of QoS at the ‘peering’ points in order to maintain the ‘end to end’ characteristic of the defined level of QoS.

6.2        Relevance of this subject

After the triumph of mobile telephones, broadband is the second success story of this first part of the new century. The two technological areas (which are partly converging) share the capacity for their customers to connect with great efficiency and an unprecedented ease to an increasingly wider world, in the first case in order to exchange information and vocal messages (but not only) from any place, in the second case to access and use information (but not only). The growth of broadband is still mostly in its exponential stage across the world and, even in the most economically developed parts of the world, it does not seem to be slowing down.

This mass phenomenon, and the consequent network effect which results in such a strong offer of broadband, generates broadband-based services and is in turn generated by them, and maintains the exponential, tumultuous development of access and services, which is mediated but also pushed by an increasingly wider availability of electronic devices for the individual use of content. Based on the ratio between the number of PCs (about 1.5 billion) and mobile telephone numbers in the world (about 2.5 billion), one is lead to believe that the true revolution will be represented by the wide availability of wireless broadband and will start with WiBro devices and, above all, with 4G, which is due to make its commercial debut around 2009-2010.

Broadband-based (fixed) services which, to date, have created a new business, both global and niche, in terms of interpersonal communications (telephones and VoIP videophones, e-mail with increasingly heavier attachments, such as photos and videos); the wonders of the Internet, electronic trading and exchange of virtual and physical objects, among which a relevant part is played by musical products and streaming or on-demand videos; the countless IP-based specialised services (video surveillance), the massive gaming on-line; B2B services.

Two characteristics of the broadband – cheapness of access in comparison with the quantity of data exchanged and ubiquity of delivery points which themselves become nodes of the network – have contributed to the development of broadband and must therefore be protected.

The increasing integration of networks, their increasingly higher ‘intelligence’ and, finally, the fast convergence of services on the new ‘all-purpose’ IP networks illustrate the need to maintain an open access to all legitimate uses and to increase technical power through public and private research and a suitably remunerated investment by the private sector.

This is the direction in which the European Commission is moving; thanks to the i2010 programme, the Commission has identified digital convergence as the main growth factor for the ICT market. The Commission has undertaken to revise the regulations relative to electronic communications and the regulations governing the dissemination of content online[4], with the aim of stimulating the creation and distribution of rich and diverse content, developing secure networks and services, protecting consumers and maintaining the market’s freedom and accessibility.

6.3        Current situation

Broadband diffusion for fixed platforms (DSL, cable, Wi-Fi) is different than that for mobile ones (3G). Until broadband is also able to take off significantly on a mobile platform, the scenario is dominated by fixed broadband.

Some examples of ‘fixed’ broadband:

  1. Europe. According to OCSE data, at the end of 2005 broadband users in Europe (all platforms) were close to 43 million. Whereas penetration is linked to geographical characteristics, average income and higher or lower presence of cable networks, the rapid increase in adoption of broadband in Europe is a constant data, with peaks of 25-27% of users for some Nordic countries.
  2. Japan. The Japanese government supports network access by residential and business users by promoting the realisation of fibre optic 100 Mbit/s connections ‘to the home’ or mixed connections with VDSL technology on ‘the last mile’ for speeds up to 50 Mbit/s. Coverage of great cities like Tokyo and Osaka is already at an advanced stage.
  3. South Korea. This case (with a 25.4% penetration rate of broadband in 2005 for about 51 million people) in a rapidly growing country, both in terms of people and economy, which has been studied with attention by the world’s operators and governments, is also founded on a constant and exemplary government action of economic and regulatory incentive and support. The government paid for one sixth of the costs related to infrastructures incurred, with 1.5 million dollars for the national connection backbone of the public sector (from which service providers can rent capacity) and contributed more than one billion dollars in concessional loans towards the realisation of access points and more than 700 million dollars towards research and development. Moreover measures have been introduced which have promoted broadband competition between cable and adsl operators. This has in turn promoted a consistent offer of broadband services at accessible costs, the development of broadband-based services (among which, predominantly, videogames and the VoD offer) and their adoption by consumers (to date 60% of Koreans use the Internet daily).
  4. China. The very fast growth of Internet use in China and the resulting behavioural changes is illustrated by the data relative to the take-up of online games of the ‘massive multiple-player’ type. In the case of the world phenomenon ‘World of Warcraft”, 3 out of 7 million players/subscribers (at 14 dollars per month) are Chinese. The use of video-on-demand and sport – also foreign and, specifically, Italian – from broadcast and from the Internet is extremely high. Google registers more than 210 million ‘.cn’ websites (con.cn, org.cn, net.cn).
  5. Italy. With about 12% of broadband users per 100 residents, Italy is slightly below the European average of 14.2% (France, with more than 15%, and Great Britain, with almost 16%, register higher rates). There is an 86% ADSL cover of the population, with about 7 million subscribers, whereas ‘cable’ (essentially Fastweb fibre optic) reaches almost 6 million families (2005). About 70% of residential broadband access is through Telecom Italia.

Broadband’s new frontier will be that of mobile services. 3G services such as UMTS already enable the streaming and downloading of video content. Thanks to 3.5G (HSDPA) technologies, even higher speeds are just round the corner. In terms of speed, and therefore rich and innovative broadband-based mobile services, the true revolution of broadband (any content, anytime, anywhere) could start with the complete realisation of convergence services between fixed network and 4G high-speed mobile networks, which should appear on the market around 2009-2010.

As far as the present situation is concerned, WiBro, WiMax and WiFi technologies enable access to broadband with various degrees of mobility.

A look at the rest of the world shows different experiences within mobile broadband, which are however united by their characteristics of commercial, if not yet technological, experimenting:

  1. In Korea the main operators announced a partnership to supply WiBro service to the whole country. The Korean government is hoping that WiBro will become the mobile equivalent of DSL broadband in a country where mobile telephones are already used by 78% of the population.
  2. In Italy, in December 2005, Telecom Italia announced a trial of WiBro, launched on occasion of the Turin’s Olympics, with the intention of starting up commercial services at the beginning of 2007.

6.4        Open network proposal

The proposal arises from the principle according to which each network operator should be allowed to develop their own digital media business according to how they deem it to be more effective and requires them to offer the minimum level of interoperability needed to allow the development of a horizontal market of content offers which all Italian consumers can access.

In fact:

  1. Operators of bidirectional broadband networks offer access to their network’s services in bundled and unbundled mode, with the technical characteristics of their own choice.
  2. Any network user (either content suppliers, intermediaries or end users) can request and obtain from a generic network operator even basic access service to the ‘big bidirectional Internet’ (address space and IANA port) in ‘service agnostic’ mode and, therefore, in such a way as not to give different priorities to the transport of different types of information, unless requested by the user. This should be offered with such bandwidth and other characteristics as those already falling within the range of offer of the operator and at such conditions as not to discriminate against the operator’s other offers and/or bundles
  3. Bidirectional broadband operators guarantee service interoperability, agree upon and ensure (for any offer to customers with a QoS better than the ‘best effort’) specific levels of QoS to the points of peering in such a way as to supply users a specified QoS in end-to-end mode.

For example, if operator A supplies a service with a guaranteed QoS on his network, A delivers the flow at the point of peering with the operator B with the same QoS. If operator B wishes to do so, he can equip himself so that it can guarantee transport with the same QoS within his network to the other end of the connection.

NB: The access to bidirectional, service agnostic non-discriminating Internet supplied by an operator with the same technical characteristics of his own offer (e.g. of bandwidth, save for the fact that it is ‘best effort’), therefore represents the minimum service which can be purchased by the user from each operator.

6.5        Course of action needed to implement the proposal

6.5.1        Technical aspects

The technologies needed to implement the proposal are largely already existing, even though new broadband communication technologies are constantly emerging.

6.5.2        Economic aspects

The creation of closed networks with controlled web access seems to entail large implications on the economic nature of both business models and on the competitiveness of profiles for markets in which the company, along the Internet value chains, operates. The technology of closed networks is contemporary to the Internet, what is new is the development, which ran parallel to the development of broadband, of software which can be used by suppliers of network services, thanks to which the provenance of content and services requested by consumers from companies offering them on the Internet (for ex. Google, Yahoo, Microsoft, IPTV services), can be controlled, a specific connection speed can be fixed, the compatibility with one’s own DRM system can be assessed and, if necessary, the dissemination on one’s own network can be blocked (even though illegitimately and at the cost of heavy intervention by the Authorities – case VOIP in the United States).

Network operators now have the chance to broaden their role, which up to now was limited to that of mere suppliers of connectivity, by actively taking part in the relationship as intermediaries between content suppliers and end users.

Thanks to the new technologic scenario, potentially similar or identical content supplied by companies competing on the network can be treated selectively. New business models therefore emerge, which associate the capacity of obtaining a profit with the distribution of benefits and the costs incurred to make the network operative.

From an economic point of view, the efficiency of the network is maximised whenever the financing of the relative costs is paid by getting its users (business or retail) to pay in proportion to the benefits enjoyed, whether these have been initially offered for free of for payment.

Hence the problem of guaranteeing an open transport network.

If, in the past, there was a ‘simple’ market in that there was a single type of exchange between seller and purchaser, the new configuration of the market changes its nature, thus becoming ‘bilateral’. A bilateral market occurs whenever a subject operating along the value chain manages to diversify his own income, obtaining one part of said income from his direct customers, and the other from the suppliers of services or goods purchased by consumers as input. The credit cards market (operators obtaining their income both from customers and retailers), and the advertising market (media centres getting ready for the customer-company packets of advertising interventions on different media, but also getting paid by the big broadcasters) are bilateral markets.

A bilateral market can be perfectly legitimate or even competitive, but requires more attention by regulators than a simple market.

An important technical characteristic of the bilateral market of connectivity services is the possibility of transforming what used to be a single network into many more or less proprietary and more or less open ‘virtual’ networks.

What is the economic benefit measured by an integral opening of the network, that is when the network is the same for everyone? The enjoyment of network economies or externalities, that is when belonging to a certain network, generates a certain benefit for the participating party, which increases proportionally to the increase of the size of the network itself. At community level then there is maximum benefit whenever there is a bidirectional network reaching all potential users, that is when such network is entirely open (no-one is or can be excluded). This benefit can be enjoyed by both consumer and manufacturer if the network manages to propose valid content which actually becomes a standard.

Alongside this benefit there is another one connected with the advantages arising from belonging to a network with more or less accentuated characteristics of closure. Both for consumer and manufacturer benefits can arise in what we could define as contexts of ‘specificity’; in terms of consumers, this consists in belonging to an exclusive ‘premium’ group with services only a few can access (for example the Apple case, in which part of the benefit enjoyed arises from belonging to an exclusive community), whereas in terms of manufacturers this consists in the exploitation of said condition in order to propose proprietary integrated solutions.

As far as this trade-off is concerned, there is an ‘optimal’ point of equilibrium between opening and closing, both specific to each network and general. It is up to the market to determine whether in the future there will be multiple networks with some ‘closed’ services or whether these, as many maintain, will instead be destined to disappear, the network benefit prevailing over that of specificity.

From an economic point of view, therefore, when the future evolution of the market is uncertain, it is important that a certain minimum, socially efficient level of network opening be guaranteed; in this way the enjoyment of network economies by the whole community can be protected. In our case this translated into a policy according to which each operator should supply a good quality ‘service agnostic’ Internet connectivity – by identifying the most suitable measures –. Said policy would have the advantage of reducing or avoiding legal disputes and ex-post antitrust actions which would inevitably arise if the network operator tried to practice tying commercial politics consisting in offering only packets of combined services of connectivity and content.

In terms of different speed for different content, this is a normal commercial practice which allows suppliers of network services to better segment demand, by offering connectivity services of different quality. If, in this case, such segmentation opportunity improves the profitability of the supplier of network services and, hopefully, also the benefits for consumers, it is also open to abuse and must therefore be subjected to careful ex-post regulation.

6.5.3        Regulatory aspects

A formulation of a proposal relative to the use of broadband networks is not complete if the regulations needed in order to implement said proposal are not specified.

Italian regulations – which are linked to those of the European Community – are currently characterised according to typology (regulations relative to access to electronic communication networks, content transferred on the networks, the protection of content, data privacy, competition, electronic trading, etc…) and according to entities in charge of protection (European Commission, Communications Authorities, Competition and Market Authorities, Personal Data Protection Authorities, Ministry of Communications, SIAE [Society of Italian Authors and Publishers]).

In our opinion, the Italian fundamental principles which allow the implementation of our proposal are to be found in the Electronic Communication Code (Decree Law 259/2003, art. 4, paragraph 3)[5]; such principles can be used as intervention criteria for a soft-regulation which contemplates an agreement among all operators monitored by the relevant authorities.

As the responsibility for implementing the Electronic Communication Code is shared out between the Communication Authorities and the Ministry for Communications, ideally either the Authority or the Ministry will have to be responsible for monitoring the agreement on open networks and for implementing the suitable tools to put it into practice. It should however be remembered that behaviours such as tying and lock-in, for which the proposal is trying to find a ‘virtuous’ solution, can generally also be assessed with the traditional tools of competition law by the Competition and Market Authorities.

A first intervention could therefore be carried out on specific aspects to be defined between the parties, which would allow the clarification of grey areas of regulation overlap in order to achieve truly converging regulations.

Subsequently, the supply of open network could be included within the Electronic Communication Code, among those elements subject to assessment as part of the procedure of authorisation of operators.

In this scenario a board for drafting, observing and assessing the use and the openness of broadband networks should be set up, alongside a planning board (e.g. consultation/self-regulation/soft regulation) monitored by the authority in question, with which we propose to co-operate; this stage should include all the industry’s main players and all the participants in the value chain, as well as consumers.

Motivating tools should be perfected which would ensure the participation by operators to the boards and would guarantee the subsequent adoption of the regulations arising from the implementation of the proposal by the participants; in this process the role played by Institutions and the future arrangement of Community regulations on communications, which will soon be subject to revision, will be decisive.

6.6        Advantages arising from the proposal

The existence on national territory of a network thanks to which any offer of content can be reached through any access point and thanks to which any access point can be used to organise an offer of content reachable by any Italian consumer is a central qualifying technological factor for the development of the digital media market.

Moreover, such infrastructure would promote the development of new and intensive relationships between customers and suppliers which, in time, could also adopt very dynamic communication patterns; said relationships can in turn create the conditions which would promote a higher demand for the services offered by the network itself, possibly even with an interest towards a new and more enhanced service performance (e.g. up-down symmetry, semi-pro applications in ASP mode, etc…).

A growth in the offer of distributed content (or even a widespread distribution, such as is the case of self-produced content) reduces the importance of both great concentrations of content suppliers, and the relative big service centres, thus reducing the need to invest in those infrastructures which are necessary to support this business segment. At the same time it increases the importance of broadband, of peer-to-peer networking, of directory functions, and of the capacity to certify the computer identity of subjects, which are all elements contributing to enhance the network infrastructure itself.

The assertion of a horizontal market model results in the possibility, by consumers, to choose autonomously the preferred terminals with which to connect to the network and use the content there available, as specified in the following chapter. This has the positive effect of drastically reducing the need for network operators to invest in the peripheral segment in order to subsidise the terminal in order to acquire customers, thus improving the service’s revenue account.

Moreover, the new business models which can be activated in a similar situation of horizontal market can hardly be anticipated in advance, and this is a relevant element of strength within the context. The experiences of those businesses which will emerge successfully from this initiative will in fact probably become points of reference which could be exported to other markets, with advantages which can be felt throughout the entire Italian industrial ecosystem.

7          Open payment system

7.1        Introduction

According to dmin.it, the success of digital media in Italy will be facilitated by some form of opening of the network, as outlined at paragraph 6.4, and by the possibility, for both creators and consumers of services, to access an open and secure form of distribution, as outlined at paragraph 5.4.

In our opinion, transactions should be made easier, more flexible and not unnecessarily onerous. In this sense our proposal first acknowledges the existence of new flexible forms of payment, such as PayPal [11], the periodical direct debiting of bills on current accounts or top-up SIM cards. Some of these payment tools also offer interesting characteristics in terms of protection of privacy, such as the obscuration of purchasers’ financial data to sellers and the obscuration of information concerning the purchased goods from the financial intermediaries of the commercial transaction between purchasers and sellers.

A particular characteristic shared by all these forms of payment is the reduction in the number of transactions, which carries obvious advantages in terms of costs. The proposal is therefore based on the definition of a virtual account, which can be supported by credit card, current account, pre-paid card, direct debit, etc. and which is in line with the chosen form of payment, either periodical or upon request, thus reducing transaction costs.

7.2        Relevance of this subject

Any initiative aimed at supporting the creation of a platform of content and services on an open network cannot disregard the creation of a corresponding open platform, possibly even in economic terms, for the recognition of said content and services with such a degree of flexibility and cheapness as is suitable for the nature of digital media.

According to dmin.it, the DRM techniques which enable the management and protection of rights also contribute to free the huge economical and cultural potential of digital media. At the same time dmin.it is well aware of the need to render the role of the many players co-operating to the value chains and acting as intermediaries between artists and public more flexible. The level of accessibility and simplicity of the procedures of recognition of the value produced by the activities of the individual players of the value chains can therefore contribute to significantly reduce the thresholds of adoption by said players of the platform of content and services on an open network outlined in the previous paragraphs. Said possibility is therefore more apparent when the attention is focused on one particular player of the value chains, namely the consumer.

According to dmin.it, instead of only pursuing the path of dissuasion from illegal use of digital media, the promotion of legal use of digital media should also be pursued. The accessibility and simplification of the process of recognition of the value of digital media by the consumer is one of the main types of promotion of legality, albeit indirect. The second, more direct form of promotion is on the other hand represented by the recognition of the content supplied to the value of digital media by each player in the value chains, consumers included.

The young section of the population, which represents a large section of digital media’s target, is the most likely to adopt the technologies of production, transformation, distribution and use of digital media, but is also the least equipped to conclude with payment the online cycle of purchase of digital products/services. The accessibility and simplicity of the user experience which characterise the P2P networks of digital media distribution represent, for this age bracket, the most efficient and efficacious alternative in comparison with any other network of digital media distribution requiring, as well as the recognition of the value downloaded, payment methods which are practically impossible to satisfy (e.g. unavailability of credit card and/or current account on which purchases can be debited online).

7.3        Current situation

In the current situation, in order to unblock the market of digital media, the following problems must be solved:

This paragraph outlines synthetically some of the solutions which have already been proposed in Italy and throughout the world with reference to the above-mentioned issues.

7.3.1        The problem of micropayments

According to a recent market research, in the United States the market value of micropayments (that is, payments with value included between a few cents and about 10 dollars/euros) will be, in 2010, around 10 billion dollars; out of the total value of e-commerce market, credit cards cover about 85% of online payments; and about 17% of customers using credit cards for online payments use them for micropayments too.

In Europe, and particularly in Italy, for various reasons the situation is very different from the USA:

For these reasons in Europe and in Italy the use of credit cards as main method of online payment for closing the cycle of purchase on a network in general is being slowed down. It is clear how, when applied to the context of micropayments in the absence of alternative methods, credit cards represent an insurmountable obstacle.

However, whenever a clear characterisation of digital media with reference to their unitary value exists, their purchase generally requests micropayments (for example, a song on iTunes has a value of 99 cents). To break this sort of deadlock several solutions have been studied, from monthly subscriptions (e.g. www.napster.com and safari.oreilly.com), which aim at overcoming the psychological threshold of the 10 dollars/euros typical of micropayments, to the introduction of pre-paid cards. Neither solution seems to have had the success with consumers which service suppliers were hoping for.

On the one hand, consumers seem to prefer unitary purchases of digital media rather than the purchase of subscriptions and, on the other, even though pre-paid cards considerably reduce the fears of the risks related to the use of credit cards for online payments, instead of reducing commission costs for traders and issuing and management costs for consumers, these cards have actually increased them.

There is then a third solution, the so-called dialler, which consists in diverting users who intend to purchase digital goods online towards a more expensive connection which absorbs the cost of the digital good in question. This third solution has however been adopted by so many fraudulent initiatives that it has now acquired a very bad reputation both among consumers and among traders.

While it is true that the solutions adopted so far for the problems of micropayments have not yet been adopted sufficiently to be considered a success, some positive characteristics can however be identified:

Note how, out of the three above-mentioned solutions, those relative to subscription and dialler reduce a collection of micropayments to a single total payment postponed in time, whereas the solution relative to pre-paid cards is the only one which effectively deals exclusively with micropayments.

7.3.2        The difficulties arising from the young bracket of the population

The characteristics of the three above-mentioned solutions to the problem of micropayments reduce, among other things, the exclusion of the young bracket of the population from online payment of digital goods:

While potentially reducing the exclusion of the young bracket of the population from the online payments for their purchases of digital goods, all the proposed solutions have yet to meet the success that many expected. According to Digital Media in Italia however, said solutions feature important characteristics, the implicit value of which is still to be discovered.

7.3.3        Paypal limitations

Thanks to more than 100 million accounts, Paypal represents one of the most interesting and most successful initiatives for online payments. Paypal current accounts are ‘supported’ by credit cards and pre-paid cards (personal and premier accounts) or by traditional current accounts (business accounts). Paypal is therefore a virtual payment circuit supported by other virtual (i.e., Credit cards) or physical (i.e., current accounts) circuits or both. For purchasers, unlike credit cards, pre-paid cards and bank accounts, Paypal accounts do not entail any cost. For sellers on the other hand, Paypal accounts entail associated costs, which are in any case decidedly lower than the corresponding costs of the supporting circuits.

Paypal’s success undoubtedly resides in the possibility it offers to access cost-free (with the exclusion, of course, of the costs relative to the supporting circuits) local and international ebay auctions, but also in a reduction in the risks associated with credit card payments. Paypal employs in fact, mutatis mutandis, one of the core principles of the protection of privacy of the SET (Secure Electronic Transactions) initiative: it does not let sellers know the purchaser’s financial data, even though it implements the second SET principle, which is equally important but obviously less perceived by the average user, that of not letting the financial intermediary know about the goods which are the object of the financial transaction.

A big limitation of Paypal lies in the fact that it does not solve the problem of micropayments. On that matter, the importance of creating one or more virtual payment circuits which are supported by traditional circuits should not be underestimated.

7.4        Proposal of open payment system

Dmin.it’s proposal of an open system for the payment of content/digital goods is inevitably inspired by the previously outlined online payment systems, from which it tries to keep some of the properties that, together, can help to support the liberation of digital media’s economic and cultural value.

As widely anticipated, the main objective of an open platform for the payment of digital media is to promote their legal use. While the illegal downloading and use of digital media remains simpler and cheaper than their legal use, it will be very difficult to find a balance between consumers and producers/distributors of digital media.

Dmin.it’s proposal is based on the following core elements:

  1. accounts based on guaranteed collection support circuits (for example current accounts, credit cards, bank collections, etc.)
  2. management of transactions carried out between accounts with access to support circuits, either periodically or upon request

Dmin.it’s first choice of open payment platform is the definition of a type of account which maximises its accessibility particularly by the young bracket of the population, in the wake of the huge success of the Payment solution to online payments. 

According to dmin.it’s proposal, anyone can open an account supported by any of the following guaranteed collection payment tools:

  1. traditional current account
  2. credit cards
  3. pre-paid card
  4. bank direct debit (e.g. telephone, electricity and gas bills, etc…)
  5. electronic purses
  6. etc..

The introduction of an account for the purchase and sale of digital media or of any other related digital service does not however solve the problem of costs related to micropayments, as each micro-transaction on said accounts would in any case require a micro-transaction on the supporting circuits.

In the dmin.it proposal, the micro-transactions between accounts are recorded in real time, although they become periodical– for instance, monthly - transactions on traditional circuits when, for example, the account’s owner decides to transform said account’s balance (whether this be credit or debit balance) by an economic transaction on the traditional circuits. The transaction on demand could entail a higher management cost than the natural periodical payments/collections.

Please note that a monthly payment/collection would allow the introduction, within the circuit of the accounts of the dmin.it proposal, of further mechanisms for the reduction of transactions similar to those widely used by American financial Clearing Houses. These are not however part of the current formulation of the proposal.

The introduction of accounts supported by any payment circuit, together with the reduction in the number of micropayments on the latter, obtained thanks to the periodic distribution of transactions and the introduction of clearing algorithms, would by themselves be sufficient in order to produce a significant improvement on the state of affairs with relation to accessibility and costs of micropayments.

The proposal therefore features the following characteristics:

7.5        Course of action required to implement the proposal

This paragraph identifies and describes the technical, economical and regulatory recommendations which are needed in order to implement the realisation of the platform itself.

7.5.1        Technical aspects

The following technical aspects will require intervention:

7.5.2        Economic aspects

These will be the subject of further study.

7.5.3        Regulatory aspects

The regulations governing electronic payment systems such as “Paypal”, quoted as a model for the proposal, corresponds to the ones established by Directives 2000/46/EC and 2000/28/EC of the European Parliament and the Council, both dated 18th September 2000, on electronic currency companies. The Directives in question have been included in the Italian law system with suitable amendments to the Testo Unico Bancario (TUB) (Bank Consolidating Act), approved with Law 385/93.

Art. 1 (paragraph 2, letters “h-bis)” and “h-ter)”of the TUB includes the following definitions:

Paypal is in fact registered in the United Kingdom as an electronic currency company under British regulations, which correspond to the TUB. This specification is extremely important, as the receipt of funds for the provision of electronic currency does not represent an activity of "savings collection among the public", which would otherwise be forbidden to any subject other than banks (art. 11 TUB[6])

The provision of electronic currency is governed by art. 114 of the TUB[7], which provides, among other things, for electronic currency companies to be registered under the relevant registry held by the Bank of Italy which authorises the activities of said companies, on condition that the following requirements are satisfied (provided for by art 114-quater and 14 paragraph 1, TUB):

  1. the company must be a stock company or a joint-stock company limited by shares;
  2. bis) the registered office and the headquarters must be within the Republic’s territory;
  3. the paid-up capital must not be lower than the one established by the Bank of Italy;
  4. a programme relative to the initial activity, together with the memorandum and the articles of association must be presented;
  5. the holders of relevant shares must have the requisites of respectability provided for by article 25 of the TUB and these are the necessary premises for the issuing of the authorisation provided for by article 19 of the TUB;
  6. the subjects carrying out the functions of administration, management and control must have the requisites of professionalism, respectability and reliability provided for by article 26 of the TUB;
  7. between the bank, or the subjects of the group of membership, and other subjects there are no strong bonds which would hinder the exercise of supervision functions.

A general limitation lies in the fact that electronic currency companies cannot exercise credit activities.

The holder of electronic currency can ask the issuing company to repay the electronic currency in legal currency by means of transfer against a current account, or other procedure which has been agreed upon in the contract, always subject to the obligation to pay to the company any cost which is strictly necessary in order to carry out the operation.

A minimum amount for requesting a repayment within the limitations provided for by the Bank of Italy can be established.

As the purpose of this proposal is to establish a payment system for the exclusive use of digital media, art 114-quinquies could be applied, which provides for a ‘lighter’ regime of authorisation to operate, at the discretion of the Bank of Italy, in case the electronic currency issued by the company in question is accepted ‘by a limited number of companies’.

If the electronic currency which, according to this proposal would become a tool of payments for digital media, could be spent only and exclusively with suppliers of content and multimedia publishers which are somehow combined into a ‘consortium’ within the system, its implementation would be easier. In all likelihood this is what happened with Paypal-Ebay.

7.6        Advantages arising from the proposal

The proposal offers many advantages.

8          Conclusions

As highlighted in the previous chapters, the proposal developed by dmin.it in a year’s work is set out in a series of actions aimed at identifying the conditions which are ‘strictly’ necessary but sufficient to enable the widest circulation of content through the proliferation of opportunities of proposition and use. The proposal introduces three fundamental novelties:

dmin.it is aware of the fact that, while expressing in a conceptually complete manner all elements needed to be effective and to achieve the desired results (i.e. allowing our country to obtain a worldwide prominent position in terms of building an innovative model of economic development based on digital media), the outlined proposal needs to be made operative and, subsequently, implemented.

For this reason a series of future actions has already been identified. First of all, the proposal should be openly disseminated through all those economic and social contexts which may be interested in the initiative and involved in its future implementation. This process tends to spread knowledge and to gather consents and possibly any contributions which could add to the strength and the strategic value of the proposal itself.

dmin.it will therefore communicate the proposal to the competent ministries, their relevant technical bodies, to the market supervisory authorities and to the whole political world interested in this issue, in order to obtain wide consensus on the strategic targets. At the same time, the debate will be spread throughout the economic and industrial world, both its manufacturing and service side, with the aim of preparing these entities to better exploit the many opportunities the implementation of the proposal will create for those who can find advantages within product and service innovation. Italian universities should not be excluded from this informative and confronting activity. The chance offered by the revolution of Digital Media becomes, in fact, a favourable opportunity for refinement and enhancement by the leading thinkers existing in the university environment who are waiting for nothing more than the chance to fulfil the operational task of transforming the investment made in research into a practical application working for the further development of the Country.

After having developed the information concerning the objective and after having assessed the level of support for the initiative, the path to be followed for the implementation of the necessary practical actions must be clearly set out. Definition of any necessary protocols and standards, choice of reference technologies, development of any missing components/subsystems, guideline regulatory actions, setting up of the bodies needed to guarantee the end success of the initiative, marketing action in terms of the idea and the possibilities which it opens particularly for the most numerous segment, which is perhaps the one less likely to understand the advantages offered by the proposal, that of citizens/consumers. These are only a few examples of the activities included in the process of operational development. In dmin.it’s opinion, for this process to be most effective, a regulatory board should be set up on which all the representatives of the interested parties can take their place, and which can be co-ordinated by an institutional body provided with decision making power.

The development of digital media is only at the beginning and the changes it will bring to the way of life and the customs of citizens will not be limited to entertainment but will also extend to the use of culture, education and training, to personal relationships, social groupings and to political commitment. This is a great innovative phenomenon which will open astonishing spaces for economic growth to those who can support it and exploit it. Italy, together with its people, its industries and its economic-social system must be among the first.

Annex A – Miscellaneous

For the benefit of readers and for a better understanding of this report, a bibliography and a collection of terms and acronyms have been included.

   Bibliography

[1]

Chris Anderson, The long tail, Wired, October 2004, http://www.wired.com/wired/archive/12.10/tail.html, or The Long Tail: why the future of business is selling less of more – Hyperion Books, 2006

[2]

http://creativecommons.org/

[3]

AVISTA CG1 Coordination Group, NAVSHP (FP6) DRM Requirements Report

[4]

ISO/IEC 21000 Information Technology - Multimedia Framework

[5]

http://www.eff.org/

[6]

http://www.beuc.org/

[7]

http://www.dmpf.org/

[8]

The Digital Media Project, Interoperable DRM Platform, Phase II, http://www.dmpf.org/open/dmp0765.zip

[9]

William Krasilovsky & Sidney Shemel, This Business Of Music 19-23 - 8th ed. 2000

[10]

Berne Convention for the Protection of Literary and Artistic Works, http://www.wipo.int/treaties/en/ip/berne/trtdocs_wo001.html

[11]

http://www.paypal.com/

    Glossary

Term

Definition

4G

Fourth-generation mobile telephones (the 1st being TACS, the 2nd GSM and the 3rd UMTS)

ACS

Alternative Compensation Systems

Address space

All possible addresses with which the devices interconnected to a network can be identified. The address space can be private if the addressing is valid within a single organisation, or public if addresses must be universally univocal. As far as the Internet is concerned, a single authority (IANA) administers the governance of addresses.

Open

This adjective is typically associated with a technical solution and it specified that it is public, completely specified, can be practiced from a party other than the one that specified it, possibly through the payment of royalties due to the intellectual property included in the specification. Examples: Standard ISO/IEC/ITU/ETSI etc.

B2B

Business to Business

B2C

Business to Consumer

Broadband

Bandwidth sufficient for transmitting audiovisual information of adequate level for entertainment applications

Best effort

Attribute of a network which makes a ‘sincere’ effort (similar to the legal concept of “best effort” contract) to deliver all data packages in transit under normal traffic conditions; when the network is overloaded, some data packages could get lost, delayed or delivered out of order.

BEUC

Bureau Européen des Consommateurs.

Bidirectional

Attribute of a network in which data can travel in both directions

Value chain

A group of intermediaries uniting in order to realise a business model and connected one to the other and with authors and end users. Intermediaries subsequently carry out added value functions to which transactions correspond

CC

Creative Commons

CDN

Content Delivery Network

Digital content

See Digital media

Decoder

See Set Top Box

Holder of rights

Natural or legal person possessing the copyrights or the relative rights over a content

Digital media

Form of creation, distribution and use of content made possible by the fact that the content itself is expressed by means of bits which can be processed by programmable devices and can be transmitted by various types of protocols on digital networks

Digital Rights Management (DRM)

A system of computer-based components and services which aim at distributing and controlling content and the relative rights with digital techniques

DTT

Digital Terrestrial Television

DVB-H

Digital Video Broadcast Handheld

Walled garden

A set of content and services offered exclusively to a closed set of users

HSDPA

High-Speed Downlink Packet Access

IANA

Internet Assigned Numbers Authority

iDRM

Interoperable DRM

Interoperable

Adjective typically associated with:

  • A content, to specify the possibility of using that content on a device

  • A device, to specify the possibility of using a content on that particular device

  • A network, to specify the capacity of transferring data to another network with certain characteristics

IP

Internet Protocol

IPTV

Internet Protocol Television
The supply of television services, for example broadcast television and pay-per-view, Video-on-demand (VOD), interactive TV and the associated applications, realised on a broadband IP bidirectional network connected to a dedicated set-top box.

NGN

Next Generation Network

OSS

Open Source Software

Peering

Operation with which different access or, generally, Internet connectivity operators connect their own networks. It represents the procedure thanks to which the different operators recognize each other’s equal status (literally: ‘relationship among equals’)

P2P

Peer-to-Peer

Platform

IN the distribution of contents: set of hardware and software devices thanks to which contents can be sent, received or used

Pay-per-view (PPV)

Pay service which allows a user to use single content upon payment

Protection of content

see TPM

Quality of Service (QoS)

Characteristic by which a network can transmit data with predetermined characteristics

SET

Secure Electronic Transactions

Simulcast

The transmission of the same content with different characteristics (for example resolution) or on two different transmission systems

Alternative retribution systems

Method of retribution of holders of rights other than direct economic retribution

STB

Set Top Box

TPM

Technical Protection Measure
Any technology (encoding, watermarking etc.) aimed at preventing or discouraging the use of content to people without authorisation

UMTS

Universal Mobile Telecommunication System

Venture Capital

A financial company which makes investments, especially towards fast-growing companies which however require a high level of capital

Work for hire

Intellectual work which should originate rights for those who are engaged in it but which instead reduces to simple salaried work



[1] In this document "digital media" means any content expressed by means of digital techniques which can be carried over digital and processable networks by means of programmable devices.

[2] I.e. substantiated by a contract in which the agreement is sanctioned by a legally binding type of exchange of consent between the parties (See E-commerce directive 2000/31/CE, implemented in Italy by Decree Law 70/2003).

[3]Worthy of notice, among recent cases, is the one of Justice of Peace Imperia (see http://www.interlex.it/testi/giurisprudenza/im06398.htm ), who passed a sentence (Sentence n. 398 of 30th June 2006) against Sky Italia for damages in favour of a user who complained he could not use universal devices (Common Interface) to access the Sky offer. Thanks to the proposal in question this type of controversy, which seems to be on the increase, would be solved at its roots.

[4]On this matter, on 13th December 2005 the Commission proposed an Audiovisual Media Services Directive, by way of reform of the current ‘No frontier TV’ Directive. See http://ec.europa.eu/comm/avpolicy/reg/tvwf/modernisation/proposal_2005/index_en.htm

[5] Italian regulations on data transport networks are mostly included within the Electronic Communication Code, art. 4: “The regulation of networks and services of electronic communication is aimed at protecting, in obedience to the principle of free circulation of people and things, the constitutionally guaranteed rights to a) freedom of communication; […] e) promoting the development, in a competition system, of networks and services of electronic communication, including the ones related to broadband, and their diffusion at national level, thus promoting social and economic unity, even at local level; f) guarantee a flexible access and interconnection for broadband electronic communication networks, by considering the types of service, the means of ensuring sustainable competition, innovation and advantages for consumers; g) guarantee the convergence and the interoperability among electronic communication networks and services and the use of open standards; h) guarantee the observance of the principle of technological neutrality, meant as non discrimination among specific technologies, non imposition of the use of a particular technology instead of others and the possibility of adopting reasonable measures in order to promote certain services independently from the technology used.”

[6] By savings collection is meant the acquisition of funds with an obligation of repayment, either by means of deposits or any other form. Savings collection among the public is forbidden by anyone other than banks.

The receipt of funds in connection with the issuing of electronic currency is not considered to be savings collection among the public.

[7] The issuing of electronic currency is reserved to banks and electronic currency companies. Said companies can only carry out the activity of electronic currency issuing by immediately transforming the funds received. Within the limitations established by the Bank of Italy, the companies may also carry out associated and instrumental activities,

as well as providing payment services; the granting of any form of credit is in any case prohibited.

The Bank of Italy records in an appropriate register all Italian electronic currency companies and the subsidiaries in Italy of the electronic currency companies with registered office in a country belonging to or outside the European Community.

The holder of electronic currency has the right to ask the issuer, according to the procedures specified in the contract, the repayment at nominal value of electronic currency in legal currency, that is by means of a deposit on a current account, by paying the issuer any cost which is strictly necessary in order to carry out the operation. The contract can provide for a minimum limit of repayment which should not exceed the amount provided for by the Bank of Italy in conformity with communitarian regulations.