Raise your hand if you have ever rented a movie. Ok, now raise your hand if you have ever recorded a TV show so that you could watch it later. What if you couldn’t rent a movie? What if VCRs were illegal? It is hard to imagine a world where these basic consumer behaviors didn’t exist. It would be harder to imagine that they almost did but then didn’t because in 1984 Universal Studios sued Sony over their Betamax VCR and won, effectively halting innovation and at the same time the evolution of a media industry that today includes Blockbuster, Netflix, TiVo, every major consumer electronics manufacturer and hundreds of millions of happy consumers parting ways with their hard-earned money.
Ok, now raise your hand if you are part of the $33 billion dollar DVD industry. Yeah, you would have a different job. And the media incumbents collectively would have been $33 billion dollars poorer in 2004. It is a good thing for Universal Studios (and all of the media industry incumbents) that they lost the landmark Sony Betamax case because in retrospect their myopic position at the time, while logical given their view of their industry, would have cost them literally trillions of dollars. Universal Studios at the time thought of themselves as the “the movie industry” and not the “entertainment industry.” They never thought of the VCR as an opportunity – only a threat. They assumed that VCRs could damage their business which was based on box office receipts, even though VCRs had legitimate uses beyond the wholesale piracy of Hollywood movies. That was a reasonable assumption, but it was because of the other legitimate uses of the VCR that Universal lost that case and gained the most important revenue stream in the entertainment industry. The basis of the Betamax decision was that a distributor of a multi-purpose tool cannot be held liable for copyright infringing actions of its users if substantial non-infringing uses of the tool exist.
Grok This
The 9th Circuit found in the MGM v. Grokster case that P2P file sharing services were capable of, and indeed being used for, noninfringing uses. Using the Betamax precedent, they ruled that such services could not be held liable for the infringing actions by their users.
Then today, the Supreme Court disagreed and reversed that decision.
MGM v. Grokster was brought by 28 of the world’s largest entertainment companies against the makers of the Morpheus, Grokster, and KaZaA filesharing software products in 2001. The entertainment companies hoped to obtain a legal precedent that would hold all technology makers responsible for the infringements committed by the users of their products. Today’s decision against Grokster may well give the entertainment companies that power.
This is one of the Forces Shaping Mobile Media. I mentioned previously my strong belief that the owners of intellectual property rights should have the ability to control and sell their content in whatever way suits them. I also mentioned the importance to the entire value chain of the independence of Device Manufacturers and Application Providers in #2 of 3 posts on the topic of the same title.
The Grokster decision will lead us down an interesting path along the value chain, wherein the incumbent media companies will execute a series of steps to regain control of their content and their resultant revenue streams.
Step 1: Lock Down The Internet
ALL the P2P services get sued into oblivion. It won’t matter if they are primarily using their powers for good. It doesn’t matter that P2P is a more efficient and cost-effective distribution mechanism for homogenous files, nor does it matter that P2P enables viral distribution of legitimate content via a network of overlapping personal networks. The companies that have legitimate business models based on legitimate technology will bear the cost of lawsuits as a result of this decision and will ultimately serve at the pleasure of the incumbent media companies.
Step 2: Lock Down The Device Manufacturers
Revisit the Sony Betamax ruling. It’s not just your VCR that is capable of infringement but also has legitimate uses. It is also your iPod, your PC, your photocopier, your router and your CD burner. From the standpoint of the media incumbents, a three-pronged approach is required to lock down the device manufacturers:
First, if a P2P service is liable for copyright infringement, then a revisitation of what can be construed as “P2P” is in order. If our computers are connected, that is a peering environment and cannot be allowed without oversight and control. Your mobile phone has bluetooth? Not in the near future. By shifting the risk of willful infringement to the device manufacturers of certain enabling technologies, those enabling technologies will be taken out of the devices or will only be allowed if wrapped in some kind of Digital Rights Management scheme.
Second, if a cornerstone of the Grokster ruling was that Grokster and services like it “…are used overwhelmingly for infringement,” then a revisitation of what can be construed as “used overwhelmingly for infringement” is in order. It will only take one lawsuit to get most of the device manufacturers in line. CD and DVD burners will get serious scrutiny. Rather than face the cost of getting sued, many device manufacturers will instead choose to modify their products to please Hollywood.
Third, lobbying and legislation will be a critical component of the incumbent media companies’ efforts to regain control over their media. The Broadcast Flag died in the D.C. Circuit Court of Appeals in ALA vs. FCC, but that doesn’t mean it can’t be taken to Congress. From the EFF: “The broadcast flag rule would have required all signal demodulators to ‘recognize and give effect to’ a broadcast flag, forcing them not to record or output an unencrypted high-def digital signal if the flag were set. This technology mandate, set to take effect July 1, would have stopped the manufacture of open hardware that has enabled us to our own digital television recorders.” Understand what that means – if the entertainment industry gets the rule pushed through somehow, you will no longer be able to record your DTV signal freely to execute your fair use rights.
Step 3: Lock Down The Network Operators
To truly eradicate copyright infringement in a digital connected world, content owners must have complicity from the network operators because they own the pipes. The entertainment industry should assume it cannot eliminate every P2P network. It should further assume, as an element of a strong legal strategy, that it will not win every case against every device manufacturer it pursues. As a hedge, there should be no time wasted going after the network operators. Even after an avalanche of lawsuits, congressional hearings and a lot of time and money spent, the entertainment industry could find itself in not as strong a position as it would like to be. The answer is to take separate steps to achieve the strongest possible position. Without the digital pipes to transfer the content, it won’t matter if you have a device capable of copyright infringement. This will require a two-pronged approach:
First, spread the liability to the network operators. They came close to achieving a precedent in RIAA v. Verizon, which would have required Verizon to disclose the identity of a subscriber who allegedly used KaZaA P2P software to share music online, but Verizon won. Based on today’s ruling in the Grokster case, if I were in their shoes, I would present the argument that the network is an integral part of the P2P solution and should therefore be subject to regulation. If I were them, I would start with college campuses as a stepping stone, because they operate networks within their domains. A ruling in favor there would set the stage to go to the ISPs.
The second prong was accelerated today with a ruling in favor of the FCC in FCC v. Brand X, which essentially upheld a rule that enables cable companies to refuse to share their networks with competing ISPs. This comes down to a technical definition: Under the current rule, cable internet companies are providers of “information services” whereas DSL internet companies are providers of “telecommunication services.” “Information service” providers are not subject to the same regulation as “telecommunication service” providers. Does a decrease in competition mean a decrease in consumer choice? Time will tell.
In my opinion, that is a smallish issue compared to the strategy that I would be crafting if I worked for the cable industry: I would be setting up an argument and spinning up my lobbying machine for a more specific definition of “telecommunication services” and would specifically argue that such services should be limited in some way, for instance to voice, or only those services that are truly “communication” in the traditional sense like between two people. A long shot? Maybe. But if successful, I could own the market for high-speed data and relegate a long list of would-be competitors to services that will be essentially valueless at some point in the future.
There’s a lot to do to ensure that consumers pay for the media that Hollywood creates. It’s a big business, and afterall, it is their content and they have the right to charge as much as they want for it as long as the market will pay for it. As nefarious as all the tactics and maneuvering may seem, if it was your billion dollars at stake, you would be doing whatever you could to protect it, too. Furthermore, everyone should have a right to protect the value of what is legally theirs, and I will always take the position in favor of the incumbent media companies on that issue alone. With respect to all of the issues in this post, I quite honestly believe in the capitalistic pursuit of value through the exploitation of intellectual property rights.
However, my issue with the decisions today is that they come at the great cost of individual freedom. That is what makes today such a dark day in the history of media. I literally felt my personal freedom decrease when I read the decisions today because I know that the only way to truly eradicate copyright infringement is to infringe on your privacy. While certainly not always the case, when legislation dictates what you can or cannot do, there is a good chance that it is not in the best interest of your personal freedom. If the incumbent media companies cannot be certain that the copy of the ::whatever:: you made is going to be used only for personal use, then they have to implement some means of observational control to be sure. (And they will.) And here is the most annoying thing about June 27th, 2005: This is all so that I don’t steal whatever music from whatever American Idol star is considered hot right now. I know there is a market for it, so I’m not commenting on the inherent value of the media itself. Rather, I am comparing the inherent value of my personal freedom to the inherent value of whatever music from whatever American Idol star is considered hot right now. I simply cannot make that equation balance. Between the two, I would give up American Idol before I would give up my ability to freely press ‘record’ on my DVR.
