Two Smoking Guns and a Cold Case

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The copyright war just isn’t dramatic enough to warrant a good novel, let alone a big movie deal.

Consider a few recent stories from the on-going battle between content owners and consumers:

  • In October, sources reported to CNET’s Greg Sandoval that part of the document exchange between Viacom and YouTube in the on-going $1.1 billion infringement case revealed evidence that YouTube management knew about rampant uploading of copyrighted film and TV clips.  Worse, the source indicated that there was also evidence that YouTube employees were among those uploading unauthorized material.  (A YouTube spokesman responded that Sandoval’s characterizations were “wrong, misleading, or lack important context.”)

Sounds pretty exciting, doesn’t it?

Wrong.

In the Wolverine case, Sandoval reported a few days later that the man accused of uploading the stolen film, Gilberto Sanchez, had purchased a DVD “from a Korean guy on the street for five bucks.  Then I uploaded it.”  In other words, Sanchez apparently has nothing to do with the real crime—that is, whoever inside the industry managed to steal the pre-release version of the film and put it in circulation in the first place.  The real case may have gone cold.

And Viacom’s potential smoking gun was greatly undermined yesterday when it was revealed the company asked the judge in the case for permission to remove 250 of its claims of infringement.  Why?  Well, at least 100 of the removed claims involved clips that had been intentionally uploaded to YouTube by Viacom employees.  It turns out that Viacom and other content owners regularly used and continue to use YouTube to promote their programming by uploading clips and hoping they go viral.  (According to a YouTube lawyer who attended last month’s Supernova conference in San Francisco, those uploads are often done anonymously to mask the fact that the clip is a marketing effort.)

Make no mistake.  Sanchez’s uploading of the bootleg DVD of the movie still constitutes a copyright infringement.  And just because the owner of a copyright, in Viacom’s case, decides to license some of its content without receiving any royalties doesn’t in any way negate its right to pursue third parties who do the same thing without permission.

But the two stories underline that the problems of copyright in the digital age are much more complicated than the battle of good vs. evil Hollywood portrays.  Content owners continue to hide behind the rhetoric of “pirates” and “stealing,” arguing that every file share or on-line viewing, no matter how poor the quality, represents precisely one less customer paying full retail price.

The reality, clearly, is something very different.  The Wolverine movie viewed 4.1 million times was an unfinished copy, missing special effects and other elements (I didn’t see either).  It seems likely that some, perhaps most of those who watched the unfinished movie before it was released later saw the finished film in an authorized format.  It also seems likely that some who saw the unfinished movie wouldn’t have seen the real thing in any case, or were moved to see the real thing by what they saw in the pre-release.  (Think of it as a full-length trailer.)

Likewise, many who watched unauthorized YouTube clips of Viacom content may have already seen authorized versions of the same content and wanted to see it again without fussing with their DVRs or waiting for reruns, or may have been inspired by seeing a clip to start watching the program regularly.  Clearly Viacom’s marketing department thinks so, or they wouldn’t have put up at least 100,000 clips themselves.

I say “seems likely” because there’s no data to support these claims, or at best very incomplete data.  But there’s equally poor data to support the extreme view of copyright damages—that every unauthorized view is cash money out of the pocket of the content owner.

Copyright infringement in the digital age, in other words, isn’t about piracy and theft.  These cases are really about control over markets, many of which are new and emerging.  Their dynamics are still mysterious.  (Why does Viacom believe that an anonymous authorized post of a clip generate better buzz, for example, than an identified authorized post?)

Content owners shouldn’t be allowed to pursue damages—as courts often allow today and as Viacom is claiming in the YouTube case—on the theory that unauthorized uses are always destructive and always completely so.  That is, that unauthorized uses never help sales and indeed translate to fully-marked up losses.

Rather than thieves and pirates, we ought to be talking about productive and destructive uses of content.  A productive use, as I write in The Laws of Disruption, is one that adds more value to the underlying information than it takes away.  A destructive use has the opposite effect.

Media companies needn’t be so apocalyptic in their rhetoric if not their strategy when it comes to unauthorized uses, especially those (like clips and short excerpts) that inherently promote their products.

Giving up some measure of control is hard for these companies, because they believe in a binary world in which one either controls one’s content or loses everything.  I’m not sure that binary world ever existed, but in digital life it clearly doesn’t.

Indeed, in the Olden Days, the law used to recognize that copyright holders couldn’t always be trusted to license content to maximize their own best interests.  The law used to allow for short excerpts, quotes, and clips to be reproduced without permission, in the form of reviews, commentaries and parodies.

The old law was called “fair use.”  It made a lot of sense, but content owners have managed to use the courts and Congress to rob it of any real meaning.

We should really think about putting it back.

Comcast: The New Forces at Work

comcast logoMy op-ed today in The Hill (see “The Winter of Our Content,”) argues against those who want to derail the merger of Comcast and NBC Universal.  I don’t know enough to say whether the deal makes good business sense—that’s for the companies’ shareholders to decide in any case.  But I do know that every media or communications merger of the last twenty years has been resisted for the same reason—that the combined entity will both have and exercise excessive market power to the detriment of consumers.

That argument has turned out to be wrong every time.  It will be here as well.

Under the terms of the agreement, Comcast will get a 51% interest in NBC, Universal and several valuable cable channels including MSNBC and Bravo.  Comcast already owns E!, the Golf Channel, and other content, as well as being a leading provider of cable TV access, Internet access and, more recently, phone service.

A wide range of public advocacy groups have already objected that the new Comcast will be too powerful, and will have “every incentive” to keep programming it controls off the Internet, including new services such as Hulu, which is 33% owned by NBC.  Consumer groups also fear that Comcast will dismantle NBC’s broadcast network, all in the service of pushing American consumers onto paid cable TV subscriptions.

Why Comcast would want to use its leverage in the interest of only one part of its business I don’t understand.  But even if that was the goal, I very much doubt that goal would be achievable even with the new assets it will acquire.

As is typical in industries undergoing wrenching and dramatic consolidation and reallocation of assets, the urge to merge is a function of three principal forces, first introduced in my earlier book, Unleashing the Killer App. These forces—globalization, digitization, and deregulation—are themselves a function of the profound technological innovation that all of us know as consumers of devices, services, and products that didn’t exist just a few years ago.

There are several technologies involved here, including standards (the Internet protocols as well as compression and data structures for various media), software (the Web et al), hardware (faster-cheaper-smaller everything) and new forms of bit transportation, including cable, satellite, and fiber.  It’s the combination of these that makes possible the dramatic ascent of new applications—everything from Napster to YouTube to the iPhone to TiVo.  It’s why there are now hundreds if not thousands of channels of available programming, increasingly in high-definition and perhaps soon in 3D and other innovations.

With the advance of digital technology, driven by Moore’s Law and Metcalfe’s Law, all content is moving at accelerating speeds from analog to digital forms of creation, storage, and transport.  (This includes media content a well as user content—email, phone calls, home movies and photos.)  See my earlier post, “Hollywood:  We have met the enemy…”

That fundamental shift has made it easier to create global markets for content use and in turn has put pressure on regulators to open what had been highly-parochial approaches to  protecting the diversity of content.  Until very recently,  in the U.S. that diversity was represented by a whopping three choices of television programming—that of ABC, CBS, and NBC.

As globalization and digitization advance, the pressure to deregulate increases.  Caps and other artificial limitations of media ownership have been falling away over the last twenty years.  Clear rules separating who can transport data versus voice versus video make less and less sense, and have been removed.

Each of these changes has been resisted by consumer groups.  One long-forgotten change to the media industry occurred even before the rise of digital life, in the stone age of 1995.  That was the year the FCC eliminated the “financial syndication” rules, or finsyn, which had been adopted in 1970 to limit the power of the three broadcast networks.  (See Capital Cities v. FCC, 29 F.3d 309 (7th Cir.1994)).

Finsyn, among other controls, limited the ownership in prime-time programming the networks could obtain, and prohibited them from selling the programming they owned directly.  Once a program, say “Gilligan’s Island,” finished its prime-time network run, the networks could only syndicate it through third party syndicators.  The goal was to protect non-affiliated stations (mostly on the UHF band), who might not get a chance to buy syndicated programs at all if the networks kept control.  The networks might have only syndicated to their own affiliates.

Cable TV, which made the weak UHF signal stronger, along with the rise of Fox as a fourth network and independent producers who self-syndicated (particularly Paramount, which produced several made-for-syndication Star Trek series), made clear that the finsyn rules were no longer necessary.  The independent stations and consumer advocates fought to retain them anyway, and lost.

Of course we now have more diversity of programming than anyone in 1995 would have ever imagined possible.  Not because finsyn was repealed, but in spite of that fact.  Technology, left alone, achieved multiples of whatever metric regulators established for their efforts.

Those who object to the reallocation of industry assets see these deals entirely as efforts by vested interests to resist change inspired by what I called “the new forces.”  In part these deals are surely trying to hold back the flood.  They may even be motivated by the belief that consolidation translates to control.

But it never works out that way.  Consumers always get what they want, usually sooner than later, and regardless of what entrenched industry providers may or may not want.  Artificial limits on who can do what do more to hold back the technological inevitability than they do to protect consumers.

Resistance here is not only futile, it’s counter-productive.

LoD named one of Ten Most Important Info-Tech Policy Books of 2009!

TLF logoThe Laws of Disruption was just named one of the ten most important books published on Information and Technology Policy by the Technology Liberation Front, a leading policy blog.  Adam Thierer, the President of the Progress and Freedom Foundation, called the book “the closest thing you will find to a genuine cyber-libertarian manifesto these days,” and concludes his review, “I highly recommended The Laws of Disruption and found it to be the most enjoyable of all the books I read this year.”  Thanks, Adam!

Protecting consumers from Moore's Law: CNET

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I write today on CNET News.com (see “FTC’s new strategy:  kick ’em when they’re down”) that the FTC’s decision yesterday to attack Intel seems oddly-timed.

Regular readers of this blog will recall that only a month ago, I wrote that Intel’s settlement of long-standing disputes with rival AMD (see “The Intel/AMD Settlement:  Watch What Happens”) was likely to mean the end of government-sponsored litigation against Intel, or at least a toning down of the rhetoric.  I was, clearly, wrong.

It’s hard to know the real background here, but piecing together bits and pieces it appears that the FTC and Intel were close to resolving issues related to how the company sells CPU chips for personal computers when, perhaps at the urging of Nvidia and other graphics processing unit makers, the FTC began looking at the GPU market as well.  Intel flinched, the FTC got mad, and filed a complaint that recites all over again the issues that appear in most of the other litigation, plus the GPU complaints.

Hell hath no fury, it seems, like a regulator scorned.

Aside from the addition of GPU complaints, there are several important differences between the FTC’s action and the rest of the pending or already-completed litigation.  Most disturbing is the proposed remedy.  Instead of money damages and fines, the FTC is proposing, should it make its case, to dramatically redesign the way Intel–and therefore the rest of the semiconductor industry–does business.  Some of the relief the agency is seeking is, truly, draconian.  Intel would be essentially run by an outside monitor, and would need to pre-approve most transactions and even advertising with the FTC.

The FTC is charged with protecting consumers from fraudulent practices–false advertising, for example, or inadequate cigarette warnings, or misleading terms in credit card applications and the like.  It’s hard to see how it has anything to offer here by way of expertise in the chip market, which only affects consumers after-the-fact.  The likelihood that the agency’s actions will help consumers seems very very low.

It’s also hard to see what the harm to consumers (harm to competitors aside) can be.  As I write in The Laws of Disruption, the continued operation of Moore’s Law means that computing power gets faster, cheaper and smaller all the time–indeed, on a predictable schedule.  The PS3 that now sells for $299 is the rough equivalent of enough early-era computers to fill the state of Washington.  Today’s cell phones have more processing power than yesterday’s supercomputers.  And so on.

Well, the FTC replies, maybe if Intel didn’t have a monopoly on PC CPUs those prices would fall even faster.  Maybe, doubtful, but in any case, don’t they have bigger problems and more broken industries to mess with?