TimeTrax is software that lets you turn your PC into a TiVo for satellite radio. Veteran journalist J.D. Lasica spoke with CEO Elliott Frutkin about the upstart startup’s prospects, its diffident relationship with the RIAA, the future of music subscription services, and whether the recording of satellite transmissions will be outlawed.

Tell me your backstory. I understand TimeTrax was created by Scott Maclean, a lone programmer in Toronto who didn’t like missing cool radio broadcasts in the dead of night.

I found out about TimeTrax the way other people did, through an online tech news roundup. Scott wrote an app to record a Blondie concert that was on in the middle of the night. There turned out to be tons of interest in it. He posted it and it was hugely popular and people started asking him to add new features. He decided to spend more time on the software and start selling it for $19.99, and it just kept growing. I then got in touch with Scott and we put together a deal to formulate a business around TimeTrax.

So how many employees do you have today and where are they based?

We have seven people we’ve put together on ad hoc basis. We’re at an exciting stage – we are just finishing up raising some angel funding which will allow us to open an office and step up our efforts.

Why does TimeTrax Technologies do, in a nutshell?

TimeTrax allows a user to record or capture to their computer or their iPod as MP3 files, or one of six other formats, any kind of broadcast on satellite radio, namely Sirius or XM Radio. What makes it compelling is that it divides the content into useable chunks. Instead of just recording an hour block of time, it records individual MP3 songs and tags them – say, Bruce Springsteen, Born in the USA. So you end up with a library of content that you can listen to, which is what makes it really cool.

This is the final step in showing that digital media is going to replace traditional radio. Instead of program managers deciding what collection of talk and music you’re going to listen to, now every individual user will have that ability themselves.
Anything beyond name and title?

If you’re a talk radio fan, it will become an expert in what programs you like and make sure there’s something always available for you. That’s really the ultimate goal of where we’re going.

Why is this a big deal?

The big key for us is XM and Sirius. We’re generating files that work on any MP3 file, and we’re not loading it down with surrounding it with so much digital rights management and restrictions that it’s difficult on the end user. We’re trying to make things work as universally as possible.

If you subscribe to XM or Sirius, it doesn’t matter what tuner or MP3 player you have — Winamp or Windows Media Player — you can use our software.

The biggest value proposition for users is that they can turn their satellite radio subscriptions into portable personal media.

Right. To me, that’s the value proposition that we would like to see the recording industry embrace. That’s the biggest challenge facing the industry right now. How do the copyright holders continue to make a living?

How do you see that shaking out?

Well, instead of shelling out 99 cents for a song, people would pay $5 a month for a service, and all the people in the chain would get a cut of that. I just think that’s a more realistic approach. Sure, I bought an iPod and early on I bought 20 or so tracks on iTunes, but at the end of the day that got expensive.

From a record company perspective, this holds real opportunity as far as introducing new artists. You could apply a few of the methods we’ve learned about matching up people to the music they like and identify the target audience for a new release. Based on the feedback we get from our users, we can tell a recording company: Look, here’s a way to get your new release on he iPods of 100,000 people who might buy it as a track or subscribe to the service.

I saw a Napster ad where they asked people, would you like to buy 10,000 songs at a buck apiece, or have a million songs available to you at 10 bucks a month? So you’re in tune with the idea that a celestial jukebox subscription service is the wave of the future?

I definitely think so. The record companies have to look at what’s realistic. Is it better to get nothing from someone who’s annoyed by the proposition of spending $10,000, or do you get $60 a year from that many more people?

So how is TimeTrax a better choice than Napster or similar services?

Napster is one of the services that wraps a lot of restraints around how you can use a particular song. With a lot of these services, you can only use it on a certain number of registered devices, and if you ever switch or upgrade computers there are a lot of hassles to go through. Try getting a managed song from iTunes onto any other MP3 player other than an iPod.

We’re doing a totally different thing that has kind of freaked some people out. Realistically, it’s just where the industry going. Organizations like the RIAA are providing a valuable front to recording industry — they do the kicking and screaming for the record companies, but frankly I think the RIAA itself is working toward obsolescence. The record companies realize what’s going on, and they’re letting the RIAA pursue what’s necessary in the short term. That’s their role. There’s always somebody who wants to suggest that what we’re doing amounts to stealing music. We vigorously disagree with that.

And yet, the RIAA hasn’t slapped you with any lawsuits.

Although they have publicly repudiated what we do, we haven’t heard from them. We’ve heard rumors that they’re up to something, but we haven’t heard anything.

In terms of litigation or regulatory action?

The RIAA is lobbying Congress to change what the rules are with copyright laws and the definition of fair use. Ever since the invention of the tape recorder and the VCR, the industry has tried to stop technological progress. But for the movie studios, it’s a good thing in the case of the VHS and DVDs that they didn’t succeed.

Let’s examine where things are going and to build a business model around it. TimeTrax can do for the music industry what the VCR did for the movie industry.

What do people need to make TimeTrax work for them — software, hardware and a satellite service subscription, right?

Correct. We have complete packages for both XM and Sirius that includes everything they need: software and hardware. The only thing we don’t do is set up the user’s subscription. For people who are a little more adept technically, if they already have satellite radio or buy the hardware on eBay, we do sell just the software or just the USB adapter to configure it themselves.

How much does it cost?

The software starts at $44.99 and our top-end product, TimeTrax Docktrax, is $199 and includes a dock for your iPod.

Is TimeTrax strictly for desktop computers or for portable devices as well?

It’s mostly for desktop computers. You need a line-in jack on your sound card — a lot of laptops don’t have that. We do have a handful of users who use a laptop.

So you can’t hook it up to your car?

You can. A lot of cars being sold today are satellite-radio ready, and some people have built a quick-release mount similar to a CD changer, so they plug in their tuner and they just pop open their trunk or reach under their seat, and grab the tuner when they want to use it. It’s the same tuner you’d use with your desktop, so that’s pretty cool. You don’t have to buy a second subscription.

How much do subscriptions run?

$9.99 a month for Sirius and $12.99 a month for XM. XM has a family plan with a lower rate for additional subscriptions.

What are folks recording with TimeTrax? Music, talk radio, comedy?

There are a lot of people recording things other than music. A popular show on XM is “Opie and Anthony” — it’s their shock-jock version of the Howard Stern show. I personally record about half talk and half music. In the morning, I like to listen to news and talk and music in the evening. Overnight, I’ll set my system to record an hour of talk content and an hour of music, so when I grab my iPod off my desk in the morning and pop it into my car, it has the two hours of content I need for my commute.

Have you heard about other kinds of uses?

In early January we got a call from someone in military. He’d gotten together with a bunch of his fellow soldiers just before they shipped out to Iraq, and they pooled their money to buy a TimeTrax Complete setup and an iPod. They used TimeTrax to record 20 or 40 gigabytes of content and take it to Iraq with them. It makes you feel good in some ways.

I see certain parallels with podcasting.

Sure, although podcasting is someone else making a programming decision for you. In our case, you’re picking and choosing the programming. Our software has all the functions of a TiVo. You can schedule a particular show or channel or block of time each day. What I think will be popular in future is the ability of the system to know you well enough to record a show based on how you’ve evaluated other programs.

What kind of DRM do you use?

We don’t want to encourage people to distribute what they capture with TimeTrax over the Internet, so we encode the satellite signal into each recording that’s made, with a specific identifier for each user. Besides that, we don’t have any other restrictions on what people can do with their recording. We just want to encourage people to be responsible, and yet not punish them at the same time.

That sounds perfectly reasonable. Are you insane? What if this catches on?

You know, this approach takes the responsibility off us in a certain way and puts it on the user, where it belongs. We’ve shared our methodology with Sirius and XM and told them, if you find users who are violating your copyright you can take them to court or unsubscribe them.

And what was their reaction?

They tell us it’s certainly a step in the right direction vs. having no protection at all. That was the first thing I did when I took over the company. We realized that we needed some kind of control mechanism.

When we announced our approach, we expected some pushback from our customers or from privacy advocates. While heard from a certain number, the criticism we got from our user base was negligible.

I’ll guess that the criticism has been muted because you don’t keep a central database of people’s listening habits. It’s encoded in the recording, not sent to the mother ship, is that right?

Exactly. We don’t keep those kind of records at all. It’s all done on the user’s PC.

You don’t have a formal relationship with Sirius or XM, is that right?

Right, we don’t. We’ve certainly had conversations with them. They’re still in a position of deciding what they’re going to do going forward.

Why is your service restricted to satellite radio rather than Internet radio?

Partly for legal reasons. There is a difference in the law between what an individual can do with a broadcast brought into their home vs. a program delivered electronically over the Internet. There are separate legal rules that govern each, and that’s why we’ve stuck to satellite radio. But we’re looking into related services, like working with cable providers to deliver a choice of music stations that can be streamed into people’s homes.

What’s your next big feature?

In the next month we expect to roll out a new version of our software that lets listeners scan satellite radio channels and record songs by specific artists.

How many customers do you have?

We don’t release a specific number, but we will say the software has been downloaded more than 350,000 times and we have tens of thousands of customers, and we’re growing exponentially.

And the business outlook for this year?

This year we expect to be available in retail stores by Christmas. Today you can purchase TimeTrax only directly for us, but we hope to be in Best Buy, Circuit City and other major retailers by the holidays.

What’s the legal outlook for recording satellite or other audio transmissions?

I think over the next few months you’ll see public positions start to form about where the industry sees this stuff going. We’ll know where organizations like the RIAA and companies like XM and Sirius and maybe the recording companies come down on all this.

What’s your stance on the audio broadcast flag?

We’ve been following that very carefully. The RIAA continues to emphasize that there’s a carve-out for satellite radio. That’s a big step in the right direction for us. The satellite industry is a major source of revenue for the record companies, so it makes sense. They pay royalties at a higher rate than terrestrial stations and the RIAA doesn’t want to rock that boat. The satellite companies have a love-hate relationship with the RIAA.

As blogging comes of age, what ethical standards should bloggers follow when offered payments or freebies (schwag) for buzz?

Stowe Boyd

 

Stephen King

 

Auren Hoffman

It wasn’t long ago that bloggers and money had nothing to do with each other. But as the blogosphere exploded into the public consciousness over the past year – PubSub estimates there are more than 8 million Weblogs, or online journals – it was inevitable that the captains of commerce would latch onto this increasingly popular form of personal media.

Blogging is growing up. For better, for worse.

It has become common to see advertising on personal blogs. Major corporations such as Microsoft, Nokia and Dr Pepper have launched blogs. Executives like Sun Microsystems President Jonathan Schwartz and Dallas Mavericks owner Mark Cuban now blog (see related OJR story). Ad-supported blogs such as PaidContent, Weblogs Inc. and Corante have formulated standards for separating commerce from editorial content.

The latest issue thrust before the tribunal of blog opinion: What are the rules when commercial entities offer payments or freebies to get bloggers to write about them?

Several events have sparked a debate about whether an ethical threshold has been crossed: the decision by Marqui, a company in Vancouver, to pay bloggers to mention the company; Newsweek’s revelation that a group of 100 technologists in Silicon Valley accepts free products and services in return for word-of-mouth endorsements (or not); and the news that BzzAgent, a 3-year-old Boston company, has enlisted thousands of volunteers to generate buzz for clients’ products, sometimes in ethically questionable ways.

The ground is shifting so rapidly that the Word of Mouth Marketing Association last week released a draft Code of Ethics to help define the rules of the road. (The group invites the public to participate in the process.)

Cyberspace and the blogosphere add new wrinkles to the debate. Just how far can marketers go in soliciting blog coverage of their products or services? Does the practice of paying bloggers to blog about a product amount to an advertorial, embedded infomercial or product placement – and does such an arrangement violate the compact of trust between reader and writer? Or is it simply the next logical step in the blogosphere’s evolution from hobby to business opportunity? Do different rules apply to journalists who blog?

Stowe Boyd, president of Corante’s Weblog network, has been particularly withering in his criticism of the Marqui program, calling the bloggers who agreed to participate “paid shills” and warning that such programs threaten to “turn the blogosphere into a graffiti-laden slum where you won’t be able to tell if a blog posting is genuine or a paid message.”

Marqui’s bloggers have been quick to respond, suggesting that publishers of group blogs were simply trying to prop up their existing ad models in the face of “a brave new experiment that shortens the line of communication between a producer of a product and a customer,” as Marqui blogger Alan Herrell puts it. Gawker, for instance, just nailed a $25,000 a month buy from Sony as the sole sponsor for its LifeHacker blog about the personal gadgetry software. (Nick Denton of Gawker Media, who originally floated the idea of a blog ethics committee to create standards in blog advertising, and his counterpart at Weblogs Inc., Jason Calacanis, who originally endorsed the idea, declined to be interviewed. Boyd said he’d be happy to revive the proposal for a codified set of standards.)

Most observers agree on one point: Bloggers and traditional journalists don’t play by the same rulebook. Consider the unsparing standards set out in the Society of Professional Journalists’ Ethics Code, which instructs journalists to:

• Avoid conflicts of interest, real or perceived.
• Remain free of associations and activities that may compromise integrity or damage credibility.
• Refuse gifts, favors, fees, free travel and special treatment, and shun secondary employment, political involvement, public office and service in community organizations if they compromise journalistic integrity.
• Deny favored treatment to advertisers and special interests and resist their pressure to influence news coverage.
• Be wary of sources offering information for favors or money …

Bloggers sometimes act as journalists, but they uniformly say they hew to different standards than professional journalists. “The idea that there has to be a Chinese wall is an industrial-era notion that doesn’t take into account the cottage media era we live in,” said Mitch Ratcliffe, a veteran tech journalist and blogger. “When I am blogging and I am both publisher and editor, I’m playing by different rules, and there is, across the blogosphere, an evolving set of mores that will never become hard and fast rules for all bloggers.”

While they may not have a rulebook, bloggers have evolved a loose-knit set of general tenets. These principles seem to be widely held:

• Disclose, disclose, disclose. Transparency – of actions, motives and financial considerations – is the golden rule of the blogosphere.
• Follow your passions. Blog about topics you care deeply about.
• Be honest. Write what you believe.
• Trust your readers to form their own judgments and conclusions.
• Reputation is the principal currency of cyberspace. Maintain your independence and integrity – lost trust is difficult to regain.

Others have come up with their own formulations. Rebecca Blood, author of “The Weblog Handbook,” identified six principles of blog ethics. And Jonathan Dube of CyberJournalist.net issued a Bloggers Code of Ethics. But as Ratcliffe suggests, the blogger’s penchant for independence means that even these guidelines may be trumped by an even higher law: Don’t impose your rules on me.

“It is still early in the evolution of the Internet, and there is no one true way,” Herrell said.

“The blogosphere runs on customs and norms – on what the community feels is acceptable,” adds Steve Rubel, vice president of a New York public relations firm and proprietor of the popular Micropersuasion blog. “It’s so early that people are experimenting with different types of marketing models. Eventually, someone will cross the line and the community will police itself.”

The latest wrangle over blog ethics began in November when Marqui, which sells communication management services for automating Web sites, announced its experimental program. The company was seeking to increase awareness of its brand among influential members of the software developer community.

“Our original fear was that this would destroy the whole the concept of the free and open blogosphere,” said Stephen King, Marqui’s CEO and president. “But we decided it could be done if the right safeguards were put in place.”

Marqui enlisted 20 bloggers of various backgrounds and readerships, including tech journalist Mitch Ratcliffe, podcaster Eric Rice, tech entrepreneur Jon Lebkowsky, Rochester Institute of Technology professor Liz Lawley, programmers Lucas Gonze, Alan Herrell and Robin Good and others. (A full list of bloggers and their posts is available, and Marqui launched its own blog last month and also posted a FAQ.)

With Ratcliffe’s help, Marqui crafted a contract that set out the game rules and posted it online. Under the program, disclosure of the bloggers’ relationship with Marqui is encouraged. Bloggers are required to publish the Marqui icon and mention Marqui in a blog post at least once a week, but they’re free to speak their minds and write anything, positive or negative. They’re also free to blog directly about the company’s products or pursue a different angle. In return, they receive $800 a month. The initial round of three-month contracts expires next week.

“We wanted to make certain that this would not be an advertorial, the kind of unscrupulous arrangement where it’s unspoken who is paying for what,” King said. “We don’t tell bloggers what to write. We’re doing this to get a conversation started, and we want the right to participate in that debate.”

Each of the bloggers headed off in different directions. Ratcliffe declined to write about Marqui’s products, instead focusing his blog posts on the implications of the paying-bloggers program itself. Rice donated $1,000 of his proceeds to the podcasting community. Good decided not to accept a $50 commission for each product lead that his blog generated.

Wrote Good: “I have a radical vision where publishers will choose their sponsors rather the other way around. I know, it may appear crazy, but that is what I am seeing now. I also see a near-coming future where I will be able to personally select the companies/products/services I want to endorse because they fully represent my spirit both in terms of products value as well as in terms of company vision, strategy and attitude.”

As it happens, Good also delivered a public smack down of Marqui for the way it released a whitepaper without getting input from the community.

Marqui believes the program has been a monumental success. The company has gone from 2,000 mentions on Google in October to 155,000 mentions today. The blog program has morphed, King said, from being a vehicle for reaching developers into “the cornerstone of our branding.”

Marqui underestimated the impact its bloggers would have on the company.

“Nobody knew what would happen,” King said. “We’re now doing demand creation and market research in real time. We get immediate feedback on the plusses and minuses of our product. It has proved to be a transformative experience for us as a company because you have to stay constantly in touch with your bloggers and your customers and responding to what their needs are. I think that’s been good for us. Including bloggers in the mix changes not only your marketing approach but your entire corporate culture.”

But others suggest that disclosure – while important – may not always be sufficient.

Om Malik, a blogger, author and tech reporter for Business 2.0 magazine, laid into the Silicon Valley 100 last month when it was disclosed that 100 influential members of the Bay Area’s tech community are periodically offered products or services – or schwag, as Malik terms it – to tout or not tout as they please.

“We all trust each other in this business,” Malik said. “When an industry analyst promotes a company to boost his employer’s stock or a venture capitalist touts a company he’s invested in, we’ve learned the hard way to take that with a grain of salt. Now it’s going to be more difficult to know whether there’s a hidden agenda in what people are telling you.”

Auren Hoffman, the entrepreneur behind the Silicon Valley 100, acknowledges that his 100 movers and shakers – who include venture capitalists, business executives, party planners and a dozen or so bloggers – aren’t instructed to disclose their relationship with the group. But he said, “These are people who can’t be bought. If we were paying people, we wouldn’t be able to get influencers of this caliber and integrity.”

Hoffman serves as a facilitator, trying out new gadgets and services and sending them out to interested members of the group. “If they use a product and think it’s cool, we hope they’ll want to talk about it with the people they meet on a daily basis.” The members get to keep the products – such as a $900 temperature-controlled toilet seat — after the initial tryout.

The San Francisco Bay Area is good place for “tipping” gadgets, technology wine, or politics, Hoffman said, borrowing a term from Malcolm Gladwell’s “The Tipping Point.” Boston might be a good place for tipping beer, while other regions would be better for tipping food, movies, books, jeans or new vodkas. He hopes to expand his word-of-mouth program to other areas.

Ross Mayfield, CEO of wiki company Socialtext and a member of the elite 100, said, “Every blogger who is member of the SV100 has not only disclosed it but bent over backward to disclose every aspect of the relationship.”

Chris Shipley, an SV100 member who organizes NetworkWorld’s DEMO conferences, said, “You need to differentiate between paid shills, product placements and product reviews. Many companies are effectively using bloggers to review their products and these bloggers are doing fair and frank reviews. This is a practice not unlike product reviews in traditional media channels.

“Bloggers who take money or other graft and, as a result, write biased, uncritical flattery about people, products, ideas, companies, etc. will ultimately lose their credibility, and along with it their readership and influence,” she adds.

Malik remains unconvinced. “I am going to selectively monitor and remove the feeds of some of bloggers among the schwag set. You don’t accept corporate schwag – you write about a product and you ship it back.”

Others agree that the line between content and promotion is being fudged. Rob Greenlee of WebTalkRadio commented on Ratcliffe’s blog: “It is unnatural to think that Mitch would post negative criticisms about a sponsor. … I think we are mixing the concept of objective product review and advertising. This is the ethical dilemma.”

Ron Williams, CEO of alternative news publisher Dragonfly Media, said, “We’ve reached a saturation point with commercial message among people who resent the intrusion of commercialism into almost every aspect of their lives. We’ve starting to see blowback and resentment.”

Boyd points to Marqui’s rising visibility in the blogosphere as the proof of his indictment.

While blog advertising has become standard practice, Boyd said, “It starts to get cheesy when the blogger is not necessarily writing entries based on his passions, interests and insights. He’s being influenced to put things into his blog because he’s being paid to do it. That violates a basic operating principle of the blogosphere. This isn’t carved in stone or brought down from the mountaintop on tablets, but the fact that an advertiser is paying you to write about them means that you’re handing over your editorial decision-making and you’re selling that off. And I think that’s wrong.”

Boyd also criticizes the activities of BzzAgents – where volunteer marketers may phone bookstores to increase interest in a particular book, feigning ignorance about its title – as another form of “social spam.” In a similar vein, Armstrong Williams was discredited when it was disclosed that he was posing as an objective commentator promoting No Child Left Behind at the same time he was receiving a $240,000 annual income from the Bush administration. Later, two additional conservative columnists on government payrolls were outed.

“When you have a conversation with a friend or trusted associate, you shouldn’t have to wonder in the back of your mind, ‘Has he been paid to say that?’” Boyd said. “You’re automatically diluting and squandering your trust by putting your editorial content up for bid.”

Staci D. Kramer, executive editor of PaidContent, said, “It’s one thing to have a sponsor – we certainly like ours – but it’s quite another to write about sponsors or advertisers in exchange for money. That’s an advertorial, in print parlance, and if it’s not done right it can taint editorial.”

In response to such criticisms, Marqui’s King said, “If I come across a blog and see that part of it is sponsored, I agree that I would approach that content with a higher degree of skepticism. I’m not arguing with that, because that’s how I would react, too. But bear in mind that our bloggers disclose their relationship with us and they’re writing both positive and negative things about us and we are not editing anything.”

King said that in the next round of blogging for dollars, some of the current bloggers will be dropped and others added. “One of the things we’re learning is that for bloggers to write regularly about us, they need to be closer to our market,” he said. “We’d like them to look at the product. They can interview customers, they can interview people around the subject – it just has to remain interesting, and in that sense they’re acting as amateur journalists.”

Ratcliffe, who said he expects to have his contract renewed, may have a problem with that approach. “If they wanted to change the contract to say, you’ve got to write a story about our product, I would not be doing it anymore. I was trained as a journalist so I have a very strict sense of ethics. I don’t blog about Marqui or its products, I blog about the business questions raised by its blogger program.”

That’s in line with his Dec. 3 post: “I am just writing my blog with the same indifference to the advertiser as I had as a journalist. … If I rhapsodized about or went on at length dissecting the product, which would be rather disingenuous and boring, if you ask me, I’d have turned my blog into a service for Marqui rather than a publication for my readers.”

(Interestingly, Ratcliffe criticizes the Silicon Valley 100 operation as “creepy,” while SV100 founder Hoffman criticizes the Marqui program as “out there.”)

Other Marqui bloggers do not share Ratcliffe’s hesitation about blogging about a sponsor. Herrell tells me, “The Chinese wall meme is smoke and mirrors, as editors do have a foot on both sides of the wall up to their eyeballs, and despite protests to the contrary this does create a bias that affects the decision of what to publish.”

King believes that what Marqui is doing falls squarely within the boundaries of ethical behavior. “In the traditional media market, the advertorial is deliberately meant to mislead. It’s designed to look like it’s part of the newspaper or magazine. We’re not doing that. You know what you’re getting.

“We all know that influence happens at publications,” he added. “So we can’t sit here and say, ‘Look how pure the real journalists are.’ If you advertise in a trade publication, you’ll have an influence on whether your company might get mentioned, even if you have no influence on what or how it gets mentioned. The way newspapers handle that is church and state: The advertising people don’t influence the writers or editors. But if there’s just one person, you can’t have a wall because the blogger is taking our money as an ad person and he’s also serving as an amateur journalist by writing whatever he wants. But the same code of ethics applies.”

That’s true, to some extent. But credible publications always demarcate advertorial from editorial content. (Sony Style magazine would not fall under the umbrella of “credible.”) All reputable publishers require that such content be set off in a different typeface, and they put out the word that their covers and content are not for sale. In other words, you don’t need to read the fine print to know you’ve just read an ad. But Ratcliffe makes the important point that with advertorials, the advertiser controls the content of the message – something that doesn’t happen with the paid-bloggers program.

Renee Blodgett, head of her own San Francisco public relations firm, said that the Marqui program was a controversial item at both the recent Blog Business Summit and Blog University conferences. “I think most of the marketing world has decided to take a different approach: Instead of paying bloggers, you establish relationships and engage those bloggers who are care deeply about the industry that impacts you or your clients.”

Rubel, the Manhattan marketing executive, said the current advertising landscape is filled with “256 shades of gray,” and notes that corporations that have ventured into the blogosphere have generally stumbled, as when Dr Pepper/Seven Up enlisted six teen bloggers to write about a new flavored milk drink called Raging Cow without mentioning their ties to the company; Mazda tried to launch a viral marketing campaign with a fake blog; Warner Bros. began posting blog comments with gushing praise for new WB bands; and McDonald’s created a fake Lincolnfry blog as part of an ad campaign.

But Rubel saw many opportunities for new ad models as long as they keep faith with the reader. “I could see bloggers signing major endorsement deals,” he said. Why not have Adobe pay the author of a Photoshop book to blog about best practices? Why shouldn’t Microsoft give out 500 free copies of the Tablet PC to movers and shakers in the tech world, no strings attached?

Boyd was less sanguine about the volatile mix of content and commerce. He made no predictions about the future of paid-blogging programs but said, “The trouble with opening up Pandora’s box is that it’s impossible to get all the plagues back inside.”

The idea that paid-blogger programs will revolutionize blog commerce – that it will blow away the traditional model of advertising – seems unlikely. More likely is the notion that this may help usher in a new era of experimentation with commerce and content.

In many ways, the fuzzy world of sponsored content is not a new dilemma. In the late 1990s, the American Society of Magazine Editors established guidelines for separating advertising from editorial in online publications. (“On all online pages, there shall be a clear distinction made through words, design, placement, or any other effective method-between editorial and advertising content.”) In 1999, the Internet Content Coalition set out to devise a set of guidelines for presenting advertising online.

But hard-and-fast rules have not yet formed. It was only two months ago that Forbes magazine abandoned the policy of inserting advertising links into editorial content – an ethically dubious practice even though it was disclosed.

One cautionary tale that potential blog sponsors might bear in mind came in 1999 at the Los Angeles Times. The paper’s journalists were assigned to write about the new Staples Center sports arena for a special issue of its Sunday magazine. Without the newsroom’s knowledge, the newspaper and Staples Center had agreed to split the ad revenue from the issue – a too-cozy arrangement whose revelation became one of the biggest media scandals of the past decade. The arrangement, which led in part to the downfall of publisher Mark Willes, blurred the line between commerce and editorial and violated the spirit of the paper’s implicit compact with its readers – even had it been disclosed in advance.

But blogs are not newspapers with the same traditions and set of reader expectations. It may be that the Marqui program needs only a bit of fine-tuning. Here are some suggestions:

First, disclosure of the payment arrangement between client and blogger ought to be mandatory, not optional – for both parties’ sakes.

Second, now that the initial experimental phase is over, the content needs to be demarcated in a consistent way. Liz Lawley has blazed the trail smartly, adding a “sponsored content” label as part of the headline and a box around each sponsored post. (Ratcliffe points out that half the people who read his posts never visit his site but receive the content through RSS feeds – hence the need for a text disclaimer as well as a visual cue.) Even Corante permits sponsored content – for example, Jabber pays people to blog on Corante when attending a conference – but the blog entries are set off so they’re clearly differentiated from the rest of the site’s content.

Third, bloggers should not be added or dropped based on positive coverage they’ve provided or based on whether they’re willing to write editorial product reviews (favorable or unfavorable).

Fourth, and finally, let’s get something straight. If bloggers are paid by a corporation to write about the company, they’re no longer acting as amateur journalists. Journalists cannot and do not accept payments from sources.

Bloggers, on the other hand, are free to do so, and it’s up to each reader to decide how to judge that. “If you’re a blogger or writer, OK, take the money,” Rubel said. “But understand that you’ve crossed a line with some readers.”

Just don’t call yourself a journalist when you’re cashing that check.

The Engadget Interview returns! Veteran journalist J.D. Lasica interviewed Michael Malcolm, founder and CEO of Kaleidescape, a DVD movie jukebox that lets you save perfect copies of DVDs to a server stashed out of sight for streaming to your home theater. It recently won home entertainment awards from Sound & Vision Magazine and Popular Science. They discussed the emerging video server category, the lawsuit brought by an overprotective industry group, and why their bare-bones product costs more than J.D.’s car.

Give me the 30-second rundown on Kaleidescape – what do you do, where are you located, when were you founded?

We were founded four years ago this week. We’re a privately held company based in Mountain View, Calif., with engineering labs in Waterloo, Ontario. We have about 45 people working for us. We originally got interested in how entertainment-quality motion pictures could be distributed to people’s homes through the Internet. We looked at all the facets and filed a number of patent applications for things like overlay distribution network architecture. We finally concluded there wasn’t a good a platform for delivering movies to the home and decided to focus on the high end of the market first.

Why the switch? Isn’t the Internet ready for the delivery of prime-time entertainment?

It was to solve a chicken and egg problem. To do Internet delivery of movies, you need to convince the content owners to license their movies to you, and you need a large enough installed base that it’s economically interesting to them. But you need people to buy the platform, and you can’t get there without the movies.

That pushed us into supporting DVDs initially. We think in the long term people will want to see high definition movies delivered electronically. In the near term, the vast majority of content in digital form is available on DVD.

We also realized that DVD collection is a national pastime, and a lot of people have hundreds or thousands of DVDs. As soon as you get to 150 or 200 discs, it becomes a management problem in collecting, storing and finding what you want to watch. I was having that problem in my own home with 300 DVDs, and this was a problem that needed a solution.

So tell me about this category. You’re in a different sector than DirecTV, Toshiba/TiVo or other high-def digital video recorders, right?

Right. We don’t do recording off the air or off cable. We deliver movies on hard disks, and so we’re able to deliver them at higher bit-rate encoding. A few of our titles come in the high-definition 1080i format, encoded at 35 megabits per second, or double the rate of broadcast HD. Many more are on the way.

Talk to me about price. Your most inexpensive model costs more than my new car.

We cater to the high end of the custom installation market. Typically you’ll find they’ve got a large home, several plasma displays, a media room and projector, three to five viewing zones, perhaps a yacht with 10 to 50 cabins, each with a separate viewing zone. These are pretty high-end affairs, but the cost is not out of line with the chunk of change they spend on all sorts of things.

The basic unit starts at $27,000 and some go up to $100,000 for additional storage, server boxes and viewing zones. All the players are connected by a home Ethernet system.

OK, you can watch movies in a zillion rooms. What else can this baby do? Bake? Clean house?

You can browse your DVD collection in lots of ways. Sort by movie title, by genre, actor, director or running time. You can look at the details of each movie and its cover art.

You can mark your favorite scenes and locate them immediately. In addition, when you press play it starts with the movie, skipping over the FBI warning, the trailers, advertising and menu. It also sends cues to the control system by lowering the lights or setting automatic masking on your home theater system (black velvet panels that move up and down to accommodate the movie’s dimensions).

You’re also selling Kaleidescape Collection DVDs ranging in prince from $1,180 to $6,890. That would make a nice Valentine’s Day present.

Certainly.

How are sales of the units?

Somewhat more than 300 systems have shipped. We’re just at the beginning of the curve, and we’re seeing a lot of interest in the marketplace.

What do you need in place to get the full effect – a home theater system?

We sell our systems exclusively through custom home system integrators, and they’ll be able to feed the output into any video or audio processors in the home.

Given Hollywood’s hyper-sensitivity to digital piracy, I take it these systems come with full digital rights management armament?

We’ve taken great precautions to ensure that the stored content is unusable outside the system and can’t be uploaded or streamed onto the Internet. But we use the Internet to connect people’s homes to our servers so we can provide the data about each movie.

So you’re not streaming movies yet?

No.

And your units are not portable. Homeowners can’t copy, share or burn a single movie, is that right?

Correct.

You obtained a license from the DVD Copy Control Association to show Hollywood movies on your system. Why are they suing Kaleidescape?

It’s a head scratcher. The DVD-CCA is an industry association of three industry groups: the film industry, the consumer electronics industry and the computer manufacturers. It’s not really clear who’s the driving force behind this.

You’d think the studios would be happy with a system where people have to go out and buy scores of DVDs.

And that’s what happens with our customers: They immediately go out and buy hundreds of DVDs. While there’s some traditional resistance in Hollywood to new technologies, it may be that there are some anticompetitive aspects to the suit brought by the big CE manufacturers, who don’t want to see a major competitor emerge. They’re not close to coming out with a product like ours, and we’ve got a pretty healthy list of patents.

Their suit says that Kaleidescape must redesign its system to require the presence of the physical DVD disc in the drive during authentication and playback. That pretty much defeats the whole purpose of your company.

Exactly. I’ve read and our attorneys have read the DVD-CCA license specifications over and over, and nowhere does it say that. If it were true, why can’t they point to a specific section of the license agreement that? They can’t because it’s not there.

They’re afraid of what – DVD swapping?

I don’t have any knowledge of that happening. It is not in our interests to be using our system to steal content. We’ve done everything in our power to prevent that from happening. Our rules prohibit that.

Look, today it costs $50 to $60 per DVD just for the storage space, so it’s cheapter to just go buy the DVD than it would be to make a pirated copy onto the Kaleidescape system. What’s actually happening is that we’ve heard customers tell us they had stopped buying DVDs for about two years because they had no place to store them – they were chewing up half the wine cellar.

Oh, the tragedy.

Once they got a Kaleidescape system, then they had a way to organize their digital entertainment and they’d go out and buy DVDs again.

Do you plan to file a counter-action against the DVD-CCA?

It looks that way. We have a lot of support behind us. (See Editorial: DVD CCA is an Innovation-Stifling Cartel.)

A new generation of DVDs is coming out in the next year. Will Kaleidescape support those newfangled discs?

It’s yet to be seen as to what will be involved to support them. I don’t know how rapidly these will take off, given the industry is divided between two different standards, Blu-ray and HD-DVD.

HD-DVD would require a new hardware device for reading them. With our system, one of the nice things about the architecture is that you just add a new input device on your Ethernet system and you’re all set.

What’s the next step beyond what your current system can do? Are you in the DVD playback business, or the movie viewing business?

We’re in the home entertainment business. As the cost of these systems continues to go down, we’d like to add additional capabilities to our system, so you can listen to music to our system, load CDs onto it, download music from places like iTunes. By the end of this decade, it will become very practical to store hundreds of movies and other digital media on these systems.

Wake me when the price drops below $1,000.

I think we’re five to seven years away from hitting the mass market.