The Verge - Reports

HTC in disarray: staff departures, 'disastrous' First, and production problems cloud company's future

2013-05-22T02:44:07Z

HTC CEO Peter Chou

The Verge has learned that HTC's Chief Product Officer, Kouji Kodera, left the company last week. Kodera was responsible for HTC's overall product strategy, which makes the departure especially notable on the heels of the global launch of the make-or-break One.

It's not just Kodera. In the past three-odd months, HTC has lost a number of employees in rapid succession — most recently Jason Gordon, the company's vice president of global communications. Other fresh departures include global retail marketing manager Rebecca Rowland, director of digital marketing John Starkweather, and product strategy manager Eric Lin.

It's not a coordinated poaching effort that's draining HTC's Seattle-based North American operations. Starkweather has landed at AT&T, Lin at Skype, and Rowland at Microsoft (Gordon has yet to announce his next move). So why is everyone heading for the door at once?

"Anyone who's heard of them in Seattle doesn't want to go work for them right now. They're like T-Mobile two years ago," one source told us, gesturing to a downtrodden T-Mobile that was hemorrhaging subscribers leading up to AT&T's attempted (and failed) acquisition. "They're in utter freefall."

To all my friends still at @htc - just quit. leave now. it’s tough to do, but you’ll be so much happier, I swear.
— eric L (@ericlin) May 20, 2013

It's no secret that HTC has seen better days: both last year's One X and this year's One have tried, and thus far failed, to stem flagging revenue against a Samsung giant that dominates Android's market share. But it may not be a coincidence that this year's prominent departures have struck HTC's marketing ranks disproportionately, while the hardware and software design teams — led by Scott Croyle in San Francisico and Drew Bamford in Seattle, respectively — keep humming along. Specifically, sources say that new CMO Ben Ho, who came from Taiwanese carrier FarEasTone late last year, could share the responsibility for the upheaval as he moves some planning and strategy from Seattle back to HTC's Taipei headquarters.

"They're in utter freefall."

Morale may also be drained by the First, the vaunted "Facebook phone" introduced at the social network's April event. According to people briefed on the plans, Facebook had originally signaled its intention to launch the downloadable version of Facebook Home on a significant delay, giving the First some period of exclusivity. Instead, Facebook changed course and made Home available as a Play download the same week that the First launched. Since then, rumors have suggested that the First is hovering near death amid poor sales — rumors bolstered by a quick price cut from $99 to just 99 cents on contract. The phone is "a disaster," one source says.

And then there's Peter Chou, HTC's co-founder and longtime CEO.

Several sources pointed to Chou — who has promised to step down if the flagship One isn't a retail success — as a roadblock, making snap decisions in lieu of a long-term strategy. HTC staff are said to have alerted Chou months ahead of the One's release of possible supply and manufacturing delays, but were told to push ahead anyway. Indeed, the One was saddled with inventory problems after launch, particularly in black, which features an anodized finish that the white and silver model does not.

Those constraints came at a critical time, just as Samsung was shipping its breadwinning Galaxy S4 around the world. If there was a common thread among everyone The Verge spoke with for this story, it was Samsung's brutal dominance: the Korean giant's own-sourced display and processor combined with an enormous marketing war chest make competing in Android extraordinarily difficult, even as reviews have consistently lauded the gorgeous One and bashed the S4's cheap plastic and comparably safe — even boring — design.

HTC's "Facebook phone," the First

Sources tell The Verge that the One was off to a slow start — in part due to the supply issues — but is now gaining steam. Regardless, against the threat of 10 million S4s being sold in a single month, it may not be enough.

What's next for HTC? More upheaval among the ranks, perhaps — and the changes could go all the way to the top if the One isn't a smash hit (provided Chou stays true to his word). In the meantime, the company stands at the center of a triple threat: a Microsoft focused on Nokia, a Facebook focused on distributing Home as widely as possible, and a Samsung focused on dominating the entire Android market.

Xbox One is powered by Windows, but can Microsoft make you care?

2013-05-21T23:38:49Z

Microsoft finally unveiled its next-generation Xbox One console today. Amongst the fanfare of entertainment features, an improved controller, and the centerpiece of Kinect, the company revealed details on the architecture that powers its next console. More importantly, Microsoft says it's running Windows. The company told press that it's marrying its Windows Phone and Windows 8 user interface to the Xbox more closely than ever before, and that in fact the new Xbox is running three operating systems in total. What does that even mean, though?

"Three operating systems in one."

"The soul of the new system is the Xbox One architecture. Three operating systems in one," says Whitten. It sounds like an impressive software achievement, but when you look at it more closely you might be left confused. Those three operating systems loosely break down into a host OS that boots the new console, and two separate environments for gaming and applications. The first is the base Xbox operating system that has been improved for instant access to the hardware, and the second is the key Windows kernel that provides "access to web-powered applications and experiences." The third and final part "connects these two operating systems" to enable the instant switching and multitasking that Microsoft demonstrated on stage.

Boyd Multerer, director of development for Xbox, confirmed Dave Cutler — "the father of Windows NT" — was involved in the creation of virtual environments that allow the Xbox One to switch back and forth between games and apps. "This guy invented operating systems," says Multerer. It's clear Microsoft has spent a lot of time planning this technology, with a strong Windows involvement, but that's as close as we got to learning why this matters to the Xbox platform.

Will there be more than just web apps?

Also, it sounds like while Microsoft intends to make third-party app developers welcome, it may not be as simple as loading up a Windows app on the Xbox and pressing "run." Marc Whitten told press that the app platform would be focused on "web-powered applications," and Wired reports that Microsoft's Xbox environment will run apps separately to games, suggesting that they won't have access to all the resources. Microsoft's come a long way towards making it easy for app developers across PC, tablet, and phone to share code, as we've seen with Windows 8, Windows RT, and Windows Phone. Presently, apps developed using the WinRT runtime can run natively on both Windows 8 and Windows RT, and Windows Phone can use a subset of their code.

"I imagine it will be exactly how Windows Phone is compared to Windows 8 and RT," says Matt Cavanagh, a Windows developer based in South Africa, of where Xbox fits into that schema. The similarities could mean a subset of code can be shared from Windows 8 or Windows Phone apps, but that it also needs tweaking for the Xbox environment. This would allow developers to port apps across to the Xbox One. It all sounds simple and easy, but there's bound to be some very real limitations.

Perhaps the most important thing Microsoft failed to reveal is whether Xbox will have an app store. Cavanagh wants to know how developers can get apps into a store for Xbox and directly into the living room. "I want confirmation that the Xbox will be possible to target just like Windows Phone and Windows 8 are." A separate store could be key for developers, allowing them to monetize applications across each individual platform.

Live Tiles take hold as we await TV apps

Developers and end users will want to know what type of applications you can produce and run for the Xbox One, and it could be a key part of Microsoft's success or failure with its ambitious TV plans. A lot of companies are attempting to build the next-generation TV experience, with smart apps or smart TVs, but none have been successful in a crowded market. Microsoft is set to fully detail its Xbox development platform at Build in June, but until then we'll be left guessing about its viability. Microsoft seems confident, but times have changed since a closed platform like the Xbox 360 was an acceptable thing. With the Xbox One, the apps and ecosystem could signal victory or defeat.

The Xbox One will always be listening to you, in your own home (update)

2013-05-21T19:48:38Z

In its hour-long Xbox One presentation, Microsoft blazed through announcements for its new next-generation console, including one ostensibly important feature that may raise some eyebrows: the new Xbox will always be listening to you, even when it's turned off.

The reason for always-on listening mode is simple; Microsoft wants the new Xbox to respond quickly and naturally to you, whenever you need it. To fulfill that goal, the company will ship the new Kinect — its motion-sensing and listening peripheral — with every Xbox One. The new console uses the new Kinect for just about everything: switching between games, movies, web browsing, and live television, all of which can be done with voice commands. (In fact, the new console needs the Kinect to operate at all — it's not an optional add-on like with the Xbox 360.) Even when the console's turned off, users can simply say "Xbox On" to power up — which means the new Kinect will be listening to you in your living room at all times.

I think it's creepy that you can say "Xbox on" and it will turn on. It means it's always listening to you.
— Jack Lloyd (@RedDeadLloyd) May 21, 2013

Kinect on the Xbox One is always listening/watching and has a constant connection to the Internet. 1984 anyone?
— James Philippon (@jamesphilippon) May 21, 2013

In fact, the new camera and microphone system is so sensitive to your presence, that Microsoft says the new Kinect can even read your heartbeat while you're exercising, and recognize and process audio that's personalized to specific individuals. "This is rocket science level stuff," Xbox's Marc Whitten said during today's reveal.

Microsoft claims the new Kinect is so sensitive that it can read your heartbeat and recognize individual voices

Of course, that's not necessarily a gloom-and-doom situation, and listening doesn't mean recording. Still, compared to privacy concerns over a device like Google Glass, which doesn't actively listen to its surroundings at all times, the new Xbox could pose greater privacy implications — especially if the system, which many users will connect to the internet, is compromised remotely by a malicious actor. "If I'm recording you, I have to stare at you — as a human being," Google Glass engineer Charles Mendis told The Verge when asked about Glass' privacy concerns. "And when someone is staring at you, you have to notice." But will you notice a fixed camera in your living room that's always listening?

This isn't the first time Kinect has faced privacy concerns

This isn't the first time Microsoft has dealt with privacy issues related to Kinect. When the first iteration of Kinect headed to the market in 2010, Microsoft's Dennis Durken suggested to investors that the peripheral might pass data to advertisers about how you look, play, and speak. "We can cater what content gets presented to you based on who you are," he said, sparking privacy concerns. (Microsoft later denied that the Kinect would use information for targeted advertising.) But even then, the first Kinect was only enabled in specific situations, and didn't have an always-on listening mode.

Microsoft provided few additional details on how the new Kinect will work, but the company did mention that the system will run in an extremely low-power state for listening mode, meaning that the device's operating system and certain hardware features could be disabled in that state.

We've asked Microsoft to clarify the technical specifics of how the system operates in listening mode, and if the company has considered any safeguards against potential privacy threats.

Update: A Microsoft spokesperson responded to our inquiry with the following statement.

The new Kinect is listening for a specific cue, like ‘Xbox on.’ We know our customers want and expect strong privacy protections to be built into our products, devices and services, and for companies to be responsible stewards of their data. Microsoft has more than ten years of experience making privacy a top priority. Kinect for Xbox 360 was designed and built with strong privacy protections in place and the new Kinect will continue this commitment.

Update 2: Microsoft CVP Phil Harrison told Eurogamer that the company has no plans to spy on you:

We aren't using Kinect to snoop on anybody at all. We listen for the word 'Xbox on' and then switch on the machine, but we don't transmit personal data in any way, shape or form that could be personally identifiable to you, unless you explicitly opt into that.

New FCC chair Mignon Clyburn steps out: how turbulent will her short tenure be?

2013-05-21T16:45:38Z

At a keynote speech at CTIA in Las Vegas today — her first since becoming interim chairwoman of the FCC just yesterday — Mignon Clyburn joked that fill-in chairpeople aren't supposed to take risks. "So what do I do? I board a plane for Las Vegas," she joked.

Clyburn's speech definitely wasn't taking big risks

But blackjack and roulette aside, Clyburn's speech definitely wasn't taking big risks, staying unwaveringly on-message with the speeches that just-departed chairman Julius Genachowski delivered at CTIA and elsewhere in years past. Clyburn boasted about successes with recent FCC initiatives, noting that 97 percent of American wireless consumers now receive usage alerts to mitigate bill shock, for example. She noted that the wireless incentive auction — intended to pay television broadcasters for spectrum that can be reused for broadband — is on track for 2014. She brought up the competitive landscape, seemingly happy with it, just as Julius Genachowski always was when he would note the "virtuous cycle" that had been responsible for unprecedented growth in smartphone uptake and data usage during his tenure.

In many ways, Clyburn sounded like an extension of Genachowski himself.

"[We have taken a] light regulatory touch, but have touched when necessary," Clyburn said, perhaps a gesture to the FCC's high-profile intervention in AT&T's failed bid to buy T-Mobile.

Clyburn boasts the FCC has taken a "light regulatory touch, but have touched when necessary"

Indeed, a touch may very well be necessary before nominee Tom Wheeler is confirmed by the Senate. A number of hot policy issues sit on Clyburn's plate, including the specter of threats from CBS and Fox to go cable-only if Aereo isn't shut down, a move that could drastically alter the outcome of the wireless incentive auction. And just last week, AT&T's blockade of video calling in Google's new Hangouts app on Android presents a new regulatory edge case. Just how deeply and directly the interim chairwoman will need to take these on during her brief tenure is unclear — theoretically, Wheeler could be in the seat in just weeks if everything goes smoothly.

But in the most turbulent case, flying to Vegas could be the least risky thing Clyburn does this year.

The Special K cure: new tests show club drug's promise for treating severe depression

2013-05-21T15:00:05Z

Dr. Terrence Early, a psychiatrist in Santa Barbara, CA, is convinced he's found the holy grail of care for severely depressed patients — those who've tried a litany of antidepressants, and even electroconvulsive therapy, to no avail. "These are the very sickest patients," Early, who estimates that he's treated 80 people over 500 sessions with the method, says. "And the results have been dumbfounding."

Powerful hallucinogenic properties

The surprising source of these stunning outcomes? Ketamine — used among medical practitioners as an anesthetic, but perhaps best known as "Special K" and popularized as a recreational drug because of its powerful hallucinogenic properties. But in lower doses, Early is convinced that ketamine can also make a meaningful difference for those suffering from severe depression: in his own practice, he's seen "the vast majority of patients" improve after a single treatment.

It's unclear how many US psychiatrists are currently treating patients with ketamine, though Early — who runs an informal online network for practitioners using the drug — estimates that the figure runs in the low dozens. And according to a growing body of research, Early and that cohort might be onto something. This week, investigators behind the largest clinical trial on ketamine yet — an evaluation of 72 patients out of Baylor College of Medicine and the Mount Sinai School of Medicine — announced the impressive results of their new study at the annual meeting of the American Psychiatric Association.

All of the patients in the trial had been diagnosed with treatment-resistant depression — a description that characterizes around one-third of those suffering from depression — meaning they'd tried at least two conventional antidepressants without experiencing relief. Investigators randomly divided those patients into two groups: half received a dose of ketamine intravenously over a span of 40 minutes, while the other half received an IV drip of midazolam — an anesthetic that doesn't seem to have antidepressant properties.

Marked improvements in depressive symptoms

Within a period of 24 hours, 63.8 percent of patients who'd received ketamine experienced marked improvements in depressive symptoms, versus 28 percent of those in the placebo group. And after a week, nearly half of the ketamine patients were still benefiting from that single dose.

The findings build on several earlier studies comparing ketamine to a placebo, most of which have reached similar conclusions: in doses with around 25 percent the potency as those used in anesthesia, ketamine often improves symptoms of depression quickly, and those benefits linger for anywhere from three to 14 days. This latest research, however, is particularly compelling because it compared ketamine to another anesthetic, rather than an inert placebo. "We wanted to pit ketamine, head-to-head, with something that patients would notice [and] that would affect their central nervous system," says study co-author James Murrough, MD, an assistant professor of psychiatry at Mount Sinai. "It's a higher bar to test the hypothesis that this antidepressant effect of ketamine isn't a side effect of being anesthetized."

Some patients experience noticeable mood changes within four hours

Already, experts have devised a theory to explain how ketamine treats depression: It acts on the neurotransmitter glutamate — in contrast to conventional antidepressants, which instead target serotonin, dopamine, and norepinephrine. The mechanism, researchers suspect, elicits a surge of glutamate, which in turn stimulates new neural connections, essentially repairing circuitry damaged by depression. In fact, ketamine works so quickly that some patients experience noticeable mood changes within four hours — a stark contrast to the six-week period required for traditional antidepressants to either take hold or prove ineffective.

"You can tell within hours if a patient is going to respond or not," says John Mann, MD, a professor of translational neuroscience at Columbia University who has done extensive research on ketamine. "Compared to a waiting game of more than a month, that's a very big thing."

But despite ketamine's promise — and the handful of psychiatrists and patients who already swear by it — those investigating the drug warn that it's too soon to be hooking patients up to IV drips. Research thus far has only studied ketamine on small patient pools, and investigators have yet to determine optimal ketamine doses or methods of delivery. "Anyone using ketamine clinically right now ... is doing so on the basis of relatively limited experience and highly limited trial data," Mann says. "There are still important clinical questions that need to be addressed."

"Similar to using nitrous oxide at the dentist ... or a short-acting high from marijuana."

A comprehensive understanding of ketamine's short and long-term side effects also remains to be established — although side effects detected thus far appear relatively mild, and tend to ebb off within a few hours. Some patients suffer from slight elevations in blood pressure. Others experience what one psychiatrist using ketamine, Dr. William Goldman, describes as "similar to using nitrous oxide at the dentist ... or a short-acting high from marijuana" — essentially milder versions of the hallucinogenic effects that ketamine yields when ingested in higher quantities. And compared to the potential side effects of conventional antidepressants, which can include appetite changes, sexual dysfunction, and insomnia, ketamine's downsides appear downright benign. "That's an important bottom line here," Murrough says. "None of the side effects we've seen have persisted beyond the treatment session."

Pharmaceutical companies aren't interested

It may take years, researchers say, before ketamine is FDA-approved to treat depression: that process will require significantly larger clinical trials that also evaluate long-term outcomes. And because ketamine is already off patent — meaning not particularly profitable — pharmaceutical companies aren't interested in funding those studies, Murrough notes, though several are currently devising drugs that act similarly to ketamine. "What we need are the tens of millions of dollars to move this research along," he says. "Someone is going to have to invest, but the question is who's interested."

Because the drug is already approved as an anesthetic, doctors like Feary and Goldman can continue to prescribe ketamine, in what's known as "off-label" use. At least, for now. "Those of us that do ketamine therapy will run into resistance," Feary anticipates. "I have no doubt that some overzealous regulator will come shut us down eventually."

"That clinicians are doing this speaks to the desperation of these patients."

But even Murrough, who cautions against the practice and doesn't use ketamine on his own patients, has a tough time criticizing those choosing to do so. "That clinicians are doing this speaks to the desperation of these patients," he says. "Who am I to tell them, ‘sorry, but you need to wait five years for more research before you can feel better'?"

Twitter granted patent on pull-to-refresh, promises to only use it defensively

2013-05-21T14:04:57Z

Twitter was just officially granted a patent on the ubiquitous pull-to-refresh gesture — a touch interface concept the company acquired when it purchased Tweetie developer Atebits in 2010 and hired founder Loren Brichter, who invented the move.

"I had started working on the patent two months before the Twitter deal," said Brichter during a phone call yesterday. The application was officially filed the day before Brichter signed the Twitter acquisition paperwork. "The patent was the cherry on top," he says.

"I have plenty of feelings about the patent system and how broken it is."

But like many engineers, Brichter was worried about rampant abuse of patents in the tech industry, particularly software patents. "I have plenty of feelings about the patent system and how broken it is," he says. To alleviate those concerns, Twitter agreed to only use his patent defensively — the company wouldn't sue other companies that were using pull-to-refresh in apps unless those companies sued first. That's why Brichter had filed for the patent in the first place. "I realized that I'd invented something valuable and I could have a bullet in the chamber, god forbid."

That original defense-only provision developed over time into what Twitter is calling the Innovator's Patent Agreement— a contract between the company and its engineers promising that any patents developed during their employment will only be used defensively. Twitter rolled out a first public draft of the IPA just over a year ago, and after seeking feedback from a wide range of sources, the company is launching version 1.0 today alongside the pull-to-refresh patent. The agreement is wide-ranging and includes a provision allowing engineers to kill wrongful lawsuits by issuing licenses to their inventions if Twitter breaks its promises.

"The IPA is an expression of the values of the company."

And to keep everyone on notice, Twitter plans to include a copy of the IPA in all of its patent registrations — a formal reminder that the company is limited in how it can use them.

"[Engineers] were going around saying we're worried about what patents mean," said Twitter IP attorney Ben Lee, who drafted the IPA and guided it through the revision process. "The IPA is an expression of the values of the company."

Lee's work on the IPA began during his initial job interview with Twitter general counsel Alex Macgillivray in November of 2010. "The notion of trying to come up with new ways of handling patents was a major reason for me coming to Twitter in the first place," he said. "I don't think it was that long after that we were already having significant conversations with the engineers and senior management about some things we could do."

Unfortunately, work on the IPA was put on hold not long after Lee joined Twitter — a patent troll had sued the company over a junk patent on "virtual communities," and Lee spent serious time living in a Virginia hotel room as the case went to trial. "We've seen the negative impact" of patent abuse, he says. "And we're a young company."

"Guess his favorite beer."

After a year of work, a jury invalidated the troll's patent and Lee resumed drafting the IPA. He also began a process of outreach, confidentially soliciting feedback from people Lee calls "damn good lawyers" across academia and the legal community. Lee also had to talk to Twitter's management and board of directors — who were supportive even though the IPA meant Twitter could never build a lucrative licensing business like Microsoft's with the technology it developed. (It's hard to collect licensing fees when you've promised never to sue anyone, after all.)

"The board was very supportive," Lee said. "Anyone who's had significant exposure to patent issues in the Valley has very strong opinions on what the proper way out is." The next step was naming the agreement — and after a lengthy meeting with the engineers resulted in nothing, inspiration struck. "Alex will kill me," says Lee with a smile. "Guess his favorite beer."

"The problem is how to define defensive purposes."

But while promising to use patents only for defensive purposes makes perfect sense at first blush, it becomes much more complicated in practice. "The concept is easy to explain," says Lee. "The problem is how to define ‘defensive purposes.'"

Perhaps unsurprisingly, that definition in version 1.0 of the IPA is fairly broad: Twitter can still sue any company that files, threatens, or even voluntarily participates in a patent lawsuit against Twitter, its affiliates, customers, suppliers, or distributors. It can also sue any company that's filed or participated in an offensive patent lawsuit in the past 10 years, and it can further use IPA patents to "deter" a threatened patent suit against Twitter or its users, affiliates, customers, suppliers, or distributors.

That's a pretty wide open list of targets — Twitter can certainly sue Apple, which has filed several patent lawsuits against Android smartphone vendors in the past few years. It can also sue Google, whose Motorola subsidiary has sued Apple and Microsoft. Yahoo? Check. Microsoft? Check. (Twitter isn't planning to sue any of these companies, says Lee. "All of these companies are our partners," he says. "It's not something that has even come up.")

Twitter attorney Ben Lee, author of the Innovator's Patent Agreement

"There's a million good reasons that maybe you went offensive," says Lee. "But once you've done it, there has to be some ramification for it — in this case, for 10 years, you've come out of the IPA." But finding excuses to sue other companies wasn't the point, he adds. "We took the best hack we could to make certain that when we say ‘defensive' it made sense to us."

Lee accepts the criticism that this first draft of the IPA leaves loopholes in play. "I think it's perfectly legitimate for someone to say, ‘You know what, that balance is crappy, the line should have been over here, or here.'" But he's proud of the work Twitter's done to involve the engineers in the process, and to give them some voice in how their patents are used. "So many engineers are taught to just not even bother looking at the application — to just sign and pretend it doesn't exist. That's not good. They're not part of the process in a way where they can actually help the situation."

"If other people can't use pull-to-refresh, they can never build on top of it."

Not so for the IPA, he says. "I would hope the relationship between [Twitter] and the engineer is different. The engineer has checks and balances."

Brichter echoes the sentiment. "I really hope this becomes the de facto standard for hiring — engineers could demand this in their contracts." He notes that pull-to-refresh was built on top of Apple's rubber-band scrolling behavior, and says good ideas should inspire more good ideas. "If other people can't use pull-to-refresh, they can never build on top of it either." He says other developers shouldn't worry about using pull-to-refresh in their apps. "Twitter and I see eye-to-eye on the patent system."

"Where the patent system works is recognizing an engineer for doing something cool," says Lee. "The rest of this is about doing something to fix the other aspects."

But even the part that works can feel strange: Brichter sounds slightly sheepish when I ask him what it's like to know he'll forever be credited with inventing pull-to-refresh, a gesture that has become a central feature of modern touch interfaces. "I think it's really cool," he says.

"It is a little weird though."

Why won’t Bitcoin die?

2013-05-21T13:30:02Z

I attended the first Bitcoin World Conference and Expo, held in a second-floor meeting room in a midtown Manhattan hotel, on a Saturday in August 2011. The virtual currency was powering an alternative economy worth around $81 million USD. Roughly 75 attendees, mostly long-haired programmers and pasty cypherpunks, came from as far as Switzerland. After the talks, we took a group photo.

The Bitcoin economy is now worth more than $1 billion USD. More than 1,000 people showed up last weekend at the San Jose McEnery Convention Center for Bitcoin 2013, a much more professional affair hosted by the non-profit Bitcoin Foundation. Lanyarded Bitcoiners swarmed the trade show booths on Friday night, gripping wine in clear plastic cups, as a comedian opened the convention to a lukewarm reception. “Democrats, make some noise!” he cried. Feeble clapping. “Republicans, make some noise!” Another smattering. He looked puzzled until a heckler suggested a third group. “Libertarians, make some noise!” The audience roared.

Bitcoin 2013 had four speaker tracks, catered lunches, and parties with open bars. There was even a celebrity keynote given by Cameron and Tyler Winklevoss, the athletic twins made famous by The Social Network, who recently purchased 1 percent of all the Bitcoins in circulation.

The twins took the stage around 8:30PM, by which time the crowd was so lubricated that a dull hum of conversation continued throughout the talk. Cameron was wearing a blue checked shirt and black pants. Tyler was wearing a black shirt and black pants. They compared Bitcoin to the automobile, voice over IP, and Amazon.com, all disruptive technologies with steep adoption curves.

“Do you guys remember Horton Hears a Who?” Cameron asked, referring to the Dr. Seuss book in which an elephant is ostracized after he discovers a microscopic race that lives on a dust-sized planet called Whoville. “Everyone here hears a Who.”

Evolution

There’s now $45 million of Bitcoin activity per day, and it’s made some people rich. Wealth circulated around the conference in the form of casual Bitcoin bets, 100-dollar bills being fed into Bitcoin ATMs, and at least one couture-wrapped girlfriend.

"If I were you, I’d buy as many Bitcoins as possible before the end of the conference," Cedric Dahl, one of the founders of the Bitcoin exchange Buttercoin, told me, hinting that the price would skyrocket again because of all the attention on the conference; CNN, Russia Today, Vice, and Thomson Reuters were among the media in attendance.

That hasn’t happened. As of Tuesday morning, the price of a Bitcoin was steady around $120. That’s still astonishingly high for a currency that relies on a stack of arcane code and a network of anonymous helpers in lieu of a central government.

Actually, it’s astonishing that Bitcoin is still around at all. The currency has had several near-death experiences in its short life and received a number of premature obituaries. It has survived massive cyberattacks, scams, technical panics, and extreme price fluctuations. In July 2010, a bug was discovered that allowed anyone to spend anyone else’s Bitcoins. It was fixed. In the summer of 2011, when the mainstream media first discovered Bitcoin, the currency spiked to $31.91; four months later, it crashed below $2. Then it started climbing again.

The mix of competence amid chaos reminded me of another humanist experiment: the early Occupy Wall Street occupation, which had an overlapping constituency. Like Bitcoin, Occupy Wall Street attracted many fringe elements, but its core organizers were clear-headed revolutionaries. For every complication that arose in the Wall Street tent city, a committee would form and handle it. When Mayor Michael Bloomberg announced the park had to be closed in order to be cleaned, the occupiers bought brooms and scrubs and cleaned the park themselves. They had the persistence of ants.

But one night, the New York City Police Department swept in just after 1:00AM and destroyed the camp. That was the end of the occupation. The movement survives in bits and pieces and in the history books, but it never quite recovered.

After all the strife, I expected something similar to happen in the Bitcoin community. One day, there would be a catastrophe too devastating to recover from; some people would pick up the pieces but most would lose interest. Instead, Bitcoin has rebounded from every setback stronger than before.

How is it that Bitcoin has managed to avoid annihilation by governments, hackers, and overhype? How has it evaded the "slow internal death," as the economist Garrick Hileman put it, that destroyed the English barter system LETS? How does it continue to seduce new users, while keeping the base enthralled? Why won’t Bitcoin die?

I decided to walk around the conference and ask.

It’s astonishing that Bitcoin is still around at all

Math

Mike Caldwell created paper Bitcoin money to complement his Casascius coins.

"Because it’s math. You can’t kill math," explained one of the Bitcoiners manning the Shirtoshi booth, which sold T-shirts with slogans like, "Bitcoin Billionaire," "RUN BTC," and "Bitcoin is the future."

Math, or the underlying ingenuity of the Bitcoin protocol, is a big part of the reason for its resilience. Bitcoin is basically a ledger system in which every transaction in the economy must be logged in a central public record called the blockchain. New transactions are checked against the blockchain to ensure that a specific user hasn’t tried to spend that Bitcoin before, eliminating the "double-spend" problem. The system depends on users to provide the computing power to do this logging and checking. These users are called miners because they’re rewarded for their work with new Bitcoins; this also means the money supply will gradually increase until it hits a cap of 21 million. Once that happens, miners will be compensated with transaction fees just like those charged by PayPal or Visa.

Satoshi Nakamoto, the pseudonymous programmer (or programmers) who invented Bitcoin and organized the original community must have agonized over its economic and technical features. Bitcoin is deflationary, which is extremely rare for a currency — the only analogues would be gold and silver. Bitcoins can be divided down to eight decimal places, so a single Bitcoin may eventually be like a $1,000 bill, with most transactions done in smaller denominations. A one hundred millionth of a Bitcoin, the smallest unit, is called a "satoshi."

If Bitcoin were a person, it would be "really solid, really powerful. Just like, a natural-born leader."

Bitcoin was born on January 3rd, 2009, at 6:15PM Greenwich Mean Time, which is when Satoshi Nakamoto mined the first 50 coins, known as the "genesis block." One attendee at Bitcoin 2013 offered to read the currency’s astrological chart for me. Bitcoin’s sun sign is Capricorn, which means it is an innovator. Its Mars sign is also in Capricorn, which means people love it. The sun and Mars were close together in the sky on the night of Bitcoin’s birth, which gives it energy and strength. If Bitcoin were a person, she said, it would be "really solid, really powerful. Just like, a natural-born leader."

Bitcoin’s design had flaws, but the original code was good enough to entice programmers like Jeff Garzik, a coder at Red Hat, and Gavin Andresen, a software developer at University of Massachusetts, to work on it for free. The fundamentals were strong: transparency created trust; a network of users substituted for a central authority; and built-in deflation canceled out any circumstantial inflation that might devalue the currency. Whenever a problem arose, members of the community worked together to fix it. Everyone who has tried to find a fatal flaw in Bitcoin, including renowned security researcher Dan Kaminsky, has failed.

Garrick Hileman, who is working on his PhD and teaching at the London School of Economics, gave a talk at the conference about the history of alternative currencies and why they fail. He thought Bitcoin was done for after the big crash last year, but now he’s bullish (though he hasn’t bought any, in order to preserve his academic neutrality).

"There is something really special about the fundamental protocol, and also the people who are working on it, and the ethos of the Bitcoin community," he said. He pointed to the most recent crisis, in which an upgrade to the Bitcoin software was not universally adopted, creating a "chain fork" with two conflicting versions of the blockchain. This was potentially disastrous, because it negated the safeguard against spending the same Bitcoin twice. Leaders at the Bitcoin Foundation, the closest thing Bitcoin has to a government, corralled miners into using the "correct" chain.

"It reminds me of the headline of this hotel review for The Bowery, where I’m staying in New York next week: ‘Tried to hate it, couldn’t hate it,’" Hileman said. "You can’t keep Bitcoin down."

Growth

Cameron Winklevoss, left, and Tyler Winklevoss, right, during their keynote.

The Winklevoss twins structured their presentation around a quote attributed to Gandhi: "First they ignore you. Then they laugh at you. Then they fight you. Then you win."

Bitcoin can no longer be ignored. At first, the allure was mythical: Anonymous genius invents a currency built to mimic cash on the internet, then disappears without a trace. "It’s such a good story. It's such a fun world," comedy writer Nick Douglas told me in June of 2011. "I love imagining the stories something like Bitcoin conjures up; a market of Libertarians and criminals."

Since then, the Bitcoin economy has grown in every sector. The black market Silk Road, which exclusively accepts Bitcoin, is about 36 times larger than it was; the number of people opening new Bitcoin accounts has increased by about the same amount. More merchants are accepting Bitcoin for goods and services, with payment services like BitPay and BitInstant reporting multi-million dollar monthly volumes. The prestigious Y Combinator business incubator just accepted Buttercoin as its second Bitcoin startup, and more Silicon Valley investors are getting into the game. Speculators have jumped on Bitcoin as well, pushing the price up over $237, until it crashed to about $120. One Manhattan bar that started taking Bitcoin five weeks ago has already done more than $20,000 worth of sales in the e-currency.

The establishment has noticed. Every mainstream media outlet picked up the story when the price shot up in April; CNBC even added a Bitcoin price ticker. The Treasury Department announced that Bitcoin businesses are required to register with the government. Even PayPal, one of the institutions that Bitcoiners seek to displace, floated the idea of adding support for the e-currency.

But on Mahatma Gandhi’s (probably apocryphal) four-step path to change, Bitcoin is still stuck somewhere between being laughed at and being fought. Nobel-prize winning economist Paul Krugman recently called it "entertaining." Meanwhile, the Mt. Gox Bitcoin exchange, which until recently controlled 76 percent of global trading, had two of its bank accounts seized by the Department of Homeland Security (DHS).

Despite Mt. Gox’s troubles with the DHS, there was no sense of persecution at Bitcoin 2013. There wasn’t even much discussion of Mt. Gox, which did not send any representatives due to its issues with the DHS and a $75 million lawsuit with one of its partners, Coinlab.

Given Mt. Gox’s outsize role in the Bitcoin economy, I was surprised that no one at the conference was talking about the absent Goliath. An 18-person company based in Tokyo, Mt. Gox is likely the most profitable Bitcoin enterprise in existence, processing around $6 million in Bitcoin trades per day. However, Mt. Gox has struggled due to its own explosive growth, and is now regarded as a slow, monopolistic drag on the Bitcoin economy.

When asked, attendees seemed to feel that if Mt. Gox shut down, it would be a good thing. In fact, Mt. Gox’s replacement may already be on the way. I met entrepreneurs who were starting new Bitcoin exchanges like Buttercoin, Kraken, and the revived Tradehill.

Bitcoin is stuck somewhere between being laughed at and being fought

Fantasy

Bitcoin tends to grab people and hold onto them, inducting them into an alternate world ruled by computer geeks and idealists. It’s common for people to say that after learning about Bitcoin, they were unable to sleep because they couldn’t stop thinking about it.

"If you ever read sci-fi, it’s like creds," said Jeff Garzik, an early Bitcoin developer who is moving his family from Raleigh to Atlanta to take a job at BitPay.

Neutral galactic currency is a common trope in fiction, and Bitcoin is its first manifestation outside of a videogame. Garzik gestured in the direction of some of the hardware startups peddling wallet-size USB cards designed to hold Bitcoin. "It’s like giving someone your cred stick," he said, giggling.

It was easy to see how acting out a sci-fi fantasy would appeal to this crowd. I saw Bitcoiners sucking on e-cigarettes and sporting necklaces made of Casascius coins, real coins made of brass and gold that contain the private keys for digital Bitcoins while throwing around the lingo of the new economy: "mining," "hashing," "block reward."

But sci-fi is just one of many realities imaginable with Bitcoin. I wandered through tables of Bitcoiners eating breakfast on Sunday, catching bits of conversation: "We can’t keep bailing out the banks," "My interest turned to Bitcoin for dispute negotiation." The Seasteading Institute, the organization that wants to set up utopian communities on ocean liners in international waters, had a booth on the show floor. After one speaker was asked a question about about paying taxes in Bitcoin, a heckler called out, "Use Bitcoin to avoid taxes!"

It’s hard to believe Bitcoin can be everything to so many different groups of people. At lunch, I sat between 9/11 super-truther Sander Hicks and an Argentine developer who has to live with his government’s harsh capital controls. During the conference, the entrepreneur Dmitry Murashchik built a website, "Why isn’t Bitcoin worthless?" which serves up answers from, "You can use it for triple-entry accounting, which has the potential to change finance as much as the invention of double-entry accounting" to simply "Cyprus."

Despite all the grandiose talk, most of Bitcoin’s revolutionary potential is still unlocked. At the moment, Bitcoin is only essential in a few situations: buying contraband on Silk Road, and making scads of money by speculating on a volatile new currency.

Philosophy

Supposedly there were a lot of bankers at Bitcoin 2013, but I only met one, a 24-year-old New Yorker who works for one of the biggest investment banks in the world. "I’m a trader. I make shit go up and down," he said, by way of introduction. He asked that I not use his name or the name of his bank because of his employer’s high profile.

We were standing in a small group of Bitcoiners on the patio of the Hilton’s hotel bar where the exchange Tradehill was hosting an afterparty with free drinks and tiny Bitcoin-frosted cupcakes.

"The only thing I’ve ever seen trade like this or move like this is an infection," said the trader, who studied biology. "Put one bacteria in a tray of food and it doubles and it doubles and it doubles, and eventually it eats up all the food. Then imagine food coming into the system. The only thing I’ve seen move that fast is a virus."

"You can’t stop progress," said Marak Squires, a coder and entrepreneur who said his "only regret in life" is not buying more Bitcoins when they were cheap. Squires compared Bitcoin to Cody Wilson and Defense Distributed’s 3D-printed gun: once the designs were uploaded to the internet, the government had no chance of erasing them.

Gavin Andresen, lead developer on the Bitcoin project.

Peter Vessenes, executive director of the Bitcoin Foundation, buying Bitcoins with cash at a prototype Lamassu Ventures Bitcoin ATM.

"Bitcoin is extra-legal," the trader said. "It only dies if you turn off the internet."

Not everyone agreed. "Bitcoin is already dead. You’re congregating amongst zombies," said Jack Alderson, an entrepreneur who did very well in Bitcoin but admitted he is now involved in some lawsuits because of it. "Have you heard of Ripple?" he asked.

Ripple is one of the many virtual currency systems that arose after Bitcoin’s ascent. There are also umpteen Bitcoin forks, copies of the Bitcoin code with some variations, including Litecoin, Namecoin, and TerraCoin. There are also add-ons such as Zerocoin, which is designed to make Bitcoin more anonymous. None of these have gained significant traction, but new ones seem to pop up all the time.

"What is the definition of the death of Bitcoin?" said Mike Caldwell, the creator of Casascius Coins. "Bitcoin is two things. It’s a community, and it’s a technology. The only way for Bitcoin to die is for people to lose interest in using it. No matter what the attacks are, there’s always going to be a way around them. Because Bitcoin is just today’s embodiment of the idea that we now have the technology to democratize money. So long as there is a demand for that, the only way I see Bitcoin dying is for it to be a predecessor to something else that does a better job."

Progress?

That doesn’t mean Bitcoin is in the clear. The e-currency has never been subject to a full-on assault from regulators, and the precedent for virtual currencies that run afoul of the US government is not good.

There’s also a disturbing cultishness to the Bitcoin community, where everyone is as bullish as can be. "Someone is going to get rich this year," Peter Vessenes, the executive director of Bitcoin, said in his opening keynote. The Bitcoin documentary that was teased at the conference is called The Rise and Rise of Bitcoin. Everyone was talking about how the price was only going up. Bitcoiner Tuur Demeester, the author of a financial newsletter, gave a talk in which he projected a number of scenarios in which the price of a Bitcoin could exceed $1,000, such as hedge funds committing 1 percent of their portfolios. "That's why I think the risk-reward ratio is extraordinary," he said. "Everyone should own at least a few Bitcoins." He did not discuss any scenarios which might cause the price to fall.

The Bitcoin community is also overwhelmingly male, an imbalance that imparts a sense of instability and mirrors the makeup of the financial industry that precipitated the 2008 financial crisis. The issue of gender came up repeatedly as the crisis was unpacked. Researchers noted that men lack risk aversion and tend to favor "fast, short-term abstractions," suggesting the crisis might have been a symptom of too much testosterone.

Still, Bitcoin has attracted benevolent stewards like Gavin Andresen, the meticulous programmer, level-headed speaker, and all-around nice guy who now leads development on the core Bitcoin protocol full time. Responsibility for the Bitcoin project fell to Andresen in April 2011 when Satoshi Nakamoto announced it was time to move on to other things, disappeared from the forums, and stopped responding to emails.

"Bitcoin had always been three steps forward, two steps back since I’ve been involved," Andresen said in his "State of the Union" talk at Bitcoin 2013. He put up a slide of a woman in a roller coaster, representing the "chaos and drama" endemic to Bitcoin.

"I happen to enjoy roller coasters," he said. "It will be interesting to see how many people enjoy roller coasters, and what happens when the roller coaster ride stops."

NewsBlur, flush with Google Reader refugees, rolls out redesign

2013-05-21T13:00:04Z

The independent RSS reader NewsBlur, popular with power users, is getting a major facelift two months after the announcement of the Google Reader shutdown. While NewsBlur is one of the most powerful RSS readers available, it’s not known for being the prettiest — and its hefty feature set made for some tradeoff in usability.

The redesign has been available for beta testers to try out, but today it will roll out to all users. The new NewsBlur is faster and includes a number of user interface tweaks such as a unified notifications popover and a new list view for brisk scanning. The iOS and Android apps also got a refresh.

While the redesign looks slightly better, the reasons for using NewsBlur are the same. It fetches feeds quickly, provides multiple options for how to view a story, and offers the chance to train the algorithm to stop showing you stories from outlets you don't like while surfacing more stories about things you’re interested in.

While the redesign looks slightly better, the reasons for using NewsBlur are the same

Sam Clay knew there would come a day when Google would shut down Google Reader. He just expected, or rather hoped, that day would be far enough off that he would have time to prepare. But in March, the search giant pulled the trigger and declared that Reader will disappear on July 1. NewsBlur, a four-year-old service with paid and free tiers, was flooded with Reader refugees.

"The first day, I was up for about 95 percent of the day," Clay recalled proudly. "After that, it all smoothed out. I never had more than 30 minutes of downtime."

He’d been "battening down the hatches" ever since Google deprecated the sharing features in Reader and rolled them into Google+. "When I noticed that they took out one of the coolest and well loved parts, I realized Reader was not long for this world," Clay said.

NewsBlur was chugging along with 1,500 daily users when Google made the big announcement. Clay immediately saw a spike of new visitors. His hosting provider was unable to keep up with the demand, so he had to switch. Then he maxed out his 10,000 email quota and was blacklisted by Amazon Simple Email Service. Next came the call from PayPal’s fraud department.

Clay was pulling 16-hour days in order to accommodate 5,000 new premium subscribers and 60,000 new users in the first week after the announcement. He even tweaked the sign-up page to make it look like NewsBlur was only accepting paid new users in order to slow the onslaught (Clay left the paywall purposefully leaky; you could get a free account by simply clicking through).

Now that the Google Reader panic has calmed down, NewsBlur is back to growing at a manageable few percentage points a week. Once he finished scaling to accommodate 10,000 daily active users and four million site updates a day, Clay turned his attention to the redesign.

NewsBlur's traffic increased 20 times over

NewsBlur is the second-most popular option after Feedly on the site replacereader.com. Hardcore users (like Verge editors) like it for its speed, ability to organize feeds into folders, and keyboard shortcuts. NewsBlur's traffic increased 20 times over after Google’s announcement, Clay said. What’s more, many users seem to be sick of the uncertainty that comes with relying on a free service like Google Reader. About half NewsBlur’s users pay $24 a year.

Four years ago, Clay was working on DocumentCloud, the Knight Foundation-funded nonprofit that provides a tool for document storage and annotation for journalists, researchers, and activists. He used NetNewsWire for his RSS needs, but became frustrated with the app and other options. "I built [NewsBlur] because I wanted something better," he said. "I was dissatisfied with all the RSS feeds out there."

One of Clay’s innovations was to add a discovery algorithm that let users "train" their readers to surface stories of interest and bury the boring ones. NewsBlur also knows which stories you’ve read, and it won’t show you the same story twice. Clay also built a sharing feature, called Blurblogs, which allows users to share stories and subscribe to each other’s stream. Blurblogs are similar to the sharing functionality of Google Reader, and later, Google Buzz.

Users with abandonment issues after the Reader boondoggle will be reassured to know that they’re paying for some security. And if all else fails, NewsBlur is open source, so if Clay decides to move on to other things, anyone else can relaunch it.

New York City issues $2,400 fine for renting on Airbnb, but the law is still unclear

2013-05-21T00:57:26Z

Nigel Warren, the New York tenant who ended up in trouble with the city after renting his room out on Airbnb, just got some bad news. A judge on the city’s Environmental Control Board (ECB), which arbitrates these matters, has found Warren’s landlord guilty of violating the state's illegal hotel law and fined him $2,400. Many Airbnb listings were already explicitly illegal in New York, but this ruling extends that illegality to cover even more types of listings.

Airbnb sent a lawyer to the hearing to argue on Warren’s behalf, the first time the startup has intervened in such a case. New York City, where Airbnb is projected to do $1 billion in sales in 2013, is an important battleground for the startup, which has run into trouble with regulators in some cities. David Hantman, Airbnb’s head of public policy, has said the company would like to make New York a "model city."

New York City is an important battleground for the startup

Airbnb decried the decision and dismissed it as a case of "overzealous law enforcement officials."

"This decision runs contrary to the stated intention and the plain text of New York law, so obviously we are disappointed," Airbnb said in a statement. "But more importantly, this decision makes it even more critical that New York law be clarified to make sure regular New Yorkers can occasionally rent out their own homes."

Warren rented out his room to a woman from Russia while he was in Colorado for three nights in September. He never met the guest, but his roommate, who is also on the lease, was home the whole time. Warren argued that because his roommate was home, his rental falls under one of the exemptions in the New York state law that regulates illegal hotels. A judge said that because he and his roommate never had contact with the guest, the exemption did not apply.

This is a new interpretation of a law that took effect in 2011, aimed at tenants who convert residential property into full-time illegal hotels. State representatives say the practice decreases the already low stock of housing in the city; the law was also supported by neighborhood associations and the hotel lobby.

The law seems to include an exemption for hosts who rent out an extra room or couch to a "lawful boarder" for less than 30 days, but remain in the dwelling while the guest is there. Because Warren's roommate was home while his Russian boarder was there, he argued that the exemption should apply. However, the judge interpreted the terms "boarders and lodgers" in the law to mean "occupants who share the life of the dwelling with its permanent occupants" and not to "complete strangers who have no, and are not intended to have any, relationship with the permanent occupant." Because the Russian visitor did not interact with Warren or his roommate, the judge said, the exemption should not apply.

The case just shows that more clarity is needed in the law, especially considering the arguments made by the city’s attorney, Michael Burns, who objected to any sort of paid short-term stay. Burns argued that the exemption is actually not aimed at short-term boarders at all, but was intended to protect longer-stay boarders during the first 29 days of their stay. The judge tossed this out, noting that if boarders stayed more than 30 days, they would be considered permanent residents and thus no exemption would be necessary.

The illegal hotels law was passed to combat companies like Smart Apartments, a slummy operation in which nearly 50 residential apartments were converted to illicit hotel rooms. New York has different building requirements for hotels, which are required to have extra fire safety measures, among other things.

Airbnb has become collateral damage in this fight

Airbnb has become collateral damage in this fight (although its model isn’t popular with neighborhood associations either). It’s rare that a host like Warren gets fined. In his case, a city inspector who was in the building investigating multiple complaints happened to run into Warren’s guest in the hallway and learned that she had paid to stay there.

Warren can appeal the decision if he chooses, but has not decided what to do yet. "Airbnb asked to chat so I'll wait to see what comes of that," he told The Verge in an email. An appeal could get the case in front of a judge who could rule more definitively; however, ECB decisions do not set a strong precedent for state law because they’re done at such a low level. It may be time to revisit the illegal hotels law to clarify how it applies to the new bed and breakfasts of the sharing economy.

Showing Hollywood the way: how 'Upstream Color' hit iTunes without leaving theaters

2013-05-20T18:00:04Z

Two weeks ago, Shane Carruth's Upstream Color pulled off an interesting trick. After about a month in theaters, it went online, streaming from the movie's website and plugging into the larger markets at iTunes and Amazon Instant Video. Here's the interesting part: it never left theaters. If I wanted to watch the movie right now, I could stream it onto my laptop here, or I could walk down to my local arthouse theater and see it on the big screen.

"I sort of can't believe it was possible."

That sounds simple, the kind of thing you'd expect to be able to do in 2013, but in the past 10 years, simultaneous release has become a kind of holy grail for the film industry, both inevitable and impossible depending on where you sit. Unifying digital and theatrical releases could help fight back many of the studio's biggest problems — heading off piracy, replacing dwindling DVD sales, and tapping into millions of customers who simply don't like going to movie theaters. But theater owners have taken every proposal so far as a death sentence, and every time it's been proposed, it's gone down in flames.

Somehow, Upstream Color managed to pull it off where the studios failed. It wasn't easy, but it's a sign of how how independent projects can also find their way through the gummy jungle of modern film distribution. When it works, they can do things Hollywood can only dream of.

On the face of it, Upstream Color isn't obviously a success. The film is currently edging towards a meager $500,000 in gross box office revenue; in most cases, that's an unmitigated flop. But for Carruth, everything's going according to plan. It's part of a distribution scheme that Carruth masterminded himself, working through his production company erbp. The plan was to give the film just enough of a theatrical release to legitimize it before unleashing it to the more lucrative online markets. "I sort of can't believe it was possible," he told The Verge. But so far, it's working.

"It's cable VOD, it's Blu-ray, DVD, it's Netflix streaming... iTunes, Amazon Instant, Google, Vudu, Hulu."

Part of the story is Carruth’s famously small budgets. His first film, Primer, was made for just $7,000, and while he’s kept quiet about Upstream’s budget, it’s rumored to be under $100,000. It was also shot digitally and shipped to theaters on consumer-grade Western Digital hard drives, driving costs even lower. At the same time, Carruth expects the theatrical box office to bring in just a small slice of the ultimate revenue. He offered Primer as an example, which grossed less than $500,000 at the box office, but made "single-digit millions" on home video. Two weeks in, he expects Upstream Color to end up with a similar ratio, and that's just the beginning. "There's just so many channels," Carruth told us. "It's cable VOD, it's Blu-ray, DVD, it's Netflix streaming eventually, there's iTunes, Amazon Instant, Google, Vudu, Hulu, subscription-based or ad-based, which will happen eventually." He's also partnered with a streaming service called VHX to offer a $20 DRM-free download direct from the site. Already, he’s hit #1 on the iTunes independent list, and unlike a theatrical release, these streams can continue indefinitely. As long as people are talking about Upstream Color on the internet, whether it's six months from now or six years, they'll never be more than a few clicks away from buying it.

Even if studios don't share Carruth's artistic ambitions, the economics are hard to deny. Theatrical release is great for raising awareness of a film, but it's not a great way to make money. Once you factor in the advertising and the theater's share of ticket sales, profit margins are razor-thin. Video-on-demand channels offer more reliable profits thanks to their small overhead, but by the time a film arrives on iTunes, it has often sat on the shelf for over a month and lost much of its earlier buzz. Naturally, distributors would love to move the digital release date earlier, but any move in that direction has been met with outright hostility from theater owners.

The result is a standoff between studios and theaters

The biggest issue is something called the release window, the length of time a film stays exclusive to theaters. The 90-day release window has been a major-studio standard for decades, and even though most films disappear from theaters within a month of the premiere, theater chains refuse to budge. They see shifts in the window as an assault on the entire industry, moving towards a world where moviegoers watch everything at home and big-screen projection goes the way of the compact disc. Declining audience numbers over the last 10 years have done little to convince them otherwise.

Blu-ray copies of Upstream Color, ready to ship

The result is a standoff between studios and theaters. One studio executive, who spoke on the condition of anonymity because he was not authorized to comment, pointed to studio efforts to promote a service called "Premium Video On Demand" in 2010, which would have let viewers stream theatrical films in their homes if they were willing to pay more than twice the price of a movie ticket. Theater chains went nuclear, threatening to boycott major films in retaliation, and the plan was scrapped. Just a year later, when Universal tried to test out pre-release VOD for Tower Heist, Cinemark refused to screen the film until the studio backed down. Still, many in the industry still hold out hope. "Day-and-date is eventually coming," the studio exec said, referring to the prospect of premiering a film in theaters and online on the same day. "We just have to move carefully because of the theater owners."

"Day-and-date is eventually coming."

For more integrated distributors, it's already here. Magnolia Pictures offers more than a dozen places to watch its films before they hit theaters, and the company can be sure its films won't be blackballed because its parent company, 2929 Entertainment, also owns Landmark Theaters. It's a savvy piece of vertical integration that gives 2929 the prestige of a theatrical release along with the profit stream of immediate on-demand revenue. It would be hard to release a blockbuster that way, but for Magnolia's slate of low-budget indies, it works just fine. Todd Wagner, co-owner of 2929 Entertainment, explained his reasoning at a Tribeca Film Festival panel earlier this year. "I'm not saying every movie should be day-and-date and put it everywhere at once. I'm saying, some movies, maybe. Some movies, a month later. Some movies, three months later. Be unique to what the movie is," Wagner told The Verge's own Joshua Topolsky. "I wish we had the freedom to do that."

"These companies do not want to give up data."

Since he's only distributing one movie at a time, Carruth faces a different set of challenges. Upstream Color isn't big enough to change anyone's business model, but it also doesn't have the clout to make larger theaters budge. Carruth's plan from the outset was to have a 30-day theatrical release window followed by an online release (whether the movie was still in theaters or not), but it wasn't always an easy sell. Arthouses were willing to accommodate his plans because of their interest in the film, and didn't see streaming access as a threat. Carruth says IFC Center, one of the first to sign on, actually saw a bump in ticket sales after the film started streaming. (Weekly figures show a slight decline in total box office with a small jump in per-screen average.) But for larger chains, the 30-day release window was a dealbreaker. When Carruth approached Landmark Theaters, its offer was 90 days or nothing. In the end, Carruth chose nothing. Upstream opened small, filling 43 theaters at its peak. Having Landmark on its side would have more than doubled that number.

""The two movies I've made, whatever they are, they are not disposable."

He's also faced an uphill battle getting hold of the viewing data that online services have used so effectively. Netflix knows how and when people are watching each film, and it's using that information to great effect, but like any business asset, it's not eager to share the information. "These companies do not want to give up data," Carruth says. "I've had to constantly remind everyone that I need this information because I need to make decisions based on it. It's been difficult to convince everybody how important that is." In Netflix's case, the information is potentially valuable as a negotiating tool: If distributors know how popular their film is, they could push for more money when the service wants to renew its license. As a result, they've kept quiet, and Carruth has had to get his data from third-party hacks like InstantWatcher.

But the biggest reward may not be money at all. As long as Upstream is available digitally, Carruth can be sure it'll never go out of print, a guarantee Hollywood can rarely make. "The two movies I've made, whatever they are, they are not disposable. If somebody watches them, they tend to want to talk about it or revisit it somehow." The new crop of platforms ensures that they'll be able to revisit it long after theaters have lost interest. As Carruth put it, "We came out May 7th, and we know we're going to be there for the next 20, 30 years. That window is now infinite."

Additional reporting contributed by Greg Sandoval.