1. Delivering the (Digital) Goods or Jim Noble Warner Music Group The Canary in the Coal Mine

2. C Warner Music Group

4. “There is nothing more powerful than an idea who’s time has come” Victor Hugo

5. C Warner Music Group “Being ahead of your time is as bad as being behind the times” Guglielmo Marconi Radio - 1901 John Logie-Baird TV - 1925 Tim Berners-Lee WWW - 1992 Thomas Edison Elec Light - 1907

6. C Warner Music Group Dot Coms and Making Money “ The wild fling between a young & promising technology and impetuous financial markets is ending in an acrimonious separation. The only outstanding question: what can be salvaged from the break up?” Financial Times, October 13, 2000

7. C Warner Music Group Source: Mercer Management Consulting 10 Leading Internet Companies’ Financial Results (excluding Cisco and AOL) (36%)(28%)(52%) Losses as a % of sales: ($ billion) Business on the Internet

8. C Warner Music Group Source: Mercer Management Consulting; Competitive Media Research; Internet Advertising Bureau; Advertising Age; Forrester Advertising Balance of Trade ($ Billion) Business on the Internet

9. C Warner Music Group However……. The rebound is coming soon as the Internet matures from metadata to product

10. C Warner Music Group Source: Cyber Atlas; IDC; Industry Standard Pages on the World Wide Web (Billion) Exponential curves are most interesting at the “knee” MOORE’S LAW

11. C Warner Music Group Exponential curves are most interesting at the “knee” MOORE’S LAW 1990 199520002005

12. C Warner Music Group Technology Drivers 1) Compression 2) Broadband 3) Internet peer-to-peer file sharing 4) Wireless

13. C Warner Music Group 1) Compression n Sony ATRAC 1 n ADPCM / FFT n Motion Picture Experts Group 1, Layer 3 n MP3 n DTS n Sony ATRAC 3 n Dolby AAC n Real Networks RealAudio n Microsoft Windows Media Technology 4.0 n MPEG 2, 4, 7 n..etc. 5:1 400:1 For audio / video: in real time 1984 2000

14. C Warner Music Group 37 Min 19 Min 4 Min 1 Min 20 sec 8 sec 3 sec 1 sec <1 sec 2) Broadband Broadband Kbps 10 Min <1 sec Narrowband Time for Typical MP3 File Transfer (~4 Mb) 300 - 1965; 14.4k - 1985; 56k - 1995

15. C Warner Music Group 37 Min 19 Min 4 Min 1 Min 20 sec 8 sec 3 sec 1 sec <1 sec Broadband KbpsMbps 10 Min <1 sec Narrowband Time for Typical MP3 File Transfer (~4 Mb) 2) Broadband 300 - 1965; 14.4k - 1985; 56k - 1995; DSL - 2000; T1 - 2000; Cable - 2001; OC - 2005

16. C Warner Music Group Source: Goldman Sachs (11/15/1999) Narrowband Households Broadband Households U.S. Broadband Adoption (% Total) 2) Broadband

17. C Warner Music Group 3) File Sharing MP3.com: Centralized Model User Source: Deliotte & Touche

18. C Warner Music Group Central Registry 3) File Sharing Napster: Decentralized Model User Source: Deliotte & Touche

19. C Warner Music Group 3) File Sharing Gnutella: Peer-to-Peer Model User GG GG GG GG GG GG Source: Deliotte & Touche

20. C Warner Music Group 3) Emerging P2P AIMSTER 3.3 millionPackages delivered by Federal Express 224 millionBulk rate letters delivered by the USPS 280 millionPhone calls on the AT&T network 851 millionAOL instant messages 2.1 billionPersonal e-mail messages sent in the U.S. (average daily rate in January 2000) FLYCODE From the creators of Napster Legal file sharing, with Rights & Payments

21. C Warner Music Group 4) Wireless (with XML) n Cellphones with microbrowsers n PDAs (Omnisky, BlackBerry…) n Airports n Spaceway (GM Hughes) n Teledesic (Microsoft) n etc…. Internet in the Sky

22. C Warner Music Group A) 1/2 million B) 3 million C) 7 million D) 12 million How many users will access the Internet worldwide via devices other than a PC this year? 4) Wireless (with XML)

23. C Warner Music Group Source: Industry Standard (May 22, 2000) Global Wireless Market (Millions)

24. C Warner Music Group Digital Source Available? Easily Uploaded/ Downloaded? Easy for Consumer? Music Books Television Movies The Canary in the Mine

25. C Warner Music Group Delivering Digital Goods PRODUCT META DATA RIGHTS COMPRESSENCRYPTCONTAINER CONTROLS TRANSMIT UNWRAPDECRYPTDECOMPPAYMENT

26. C Warner Music Group Music Channels to Market Source: Goldman Sachs 11/15/1999; Forrester Research U.S. Music Industry Sales ($Billion) Online Sales 41% 59% Retail Outlet Sales

27. C Warner Music Group Digital Downloads 0 2 4 6 8 10 12 14 16 18 91929394959697989900010203 Source: Goldman Sachs 11/15/1999; Forrester Research Online Sales Retail Outlet Sales THE INTERNET IS NOT A ZERO SUM GAME

28. C Warner Music Group Strategy to Compete This has extraordinary implications for Information Systems

29. C Warner Music Group Lessons Learned 4 Internal I.T. must become expert on Internet service providers (not just ISPs and ASPs, but DAM, DRM, DGM….) 4 If you don’t get it, the business will outsource I.T. by the back door 4 The CIO must be seamless with the CTO Music has one year to get it right - how long do you have?