June, 2009

Cablevision case puts kibosh on collection society claims

supreme-courtThe Supreme Court’s denial of cert. in the Cablevision remote-DVR case has launched countless column inches of commentary and analysis already, much of it focused on the problems it poses for the Hollywood studios and TV networks worried about its impact on ad-skipping (see here, here and here). But the studios and networks aren’t the only losers in the case.

By letting the Second Circuit’s opinion stand, at least for now, the court has dealt a serious set back to the designs of the performance rights societies like ASCAP and BMI to bring cloud recording and playback within the scope of public performances subject to performance royalties.

According to the plaintiffs in the Cablevision case, the playback of programs stored in MSO’s head-end servers constituted a performance of the work by Cablevision that was not authorized by its basic distribution agreements with program provided and thus needed to be separately licensed.

The Second Circuit disagreed, however, finding that as a legal matter the customer “performed” the work since the copy used for playback was accessible only to that customer.:

In sum, we find that the transmit clause directs us to identify the potential audience of a given transmission, i.e., the persons “capable of receiving” it, to determine whether that transmission is made “to the public.” Because each RS-DVR playback transmission is made to a single subscriber using a  single unique copy produced by that subscriber, we conclude that such transmissions are not performances “to the public,” and therefore do not infringe any exclusive right of public performance. We base this decision on the application of undisputed facts; thus, Cablevision is entitled to summary judgment on this point.

 In other words, according to the Second Circuit, there is indeed such a thing as a non-infringing private performance of a work transmitted over the Internet. Assuming the reasoning applies to musical works as well, the ruling is going to make it much harder for ASCAP and BMI to compel providers of online music lockers and other types of user-directed cloud storage facilities to take out licenses and pay royalties on transmissions.

(Although not directly on point, it probably doesn’t help ASCAP’s efforts to license mobile-phone ring tones, either). — TMW

I linked the news today, oh boy

newspapersI’m assuming a judge and scholar as smart as Richard Posner of the Seventh Circuit Court of Appeals doesn’t really believe copyright law should be extended to cover the paraphrasing of news reports without the permission of the copyright owner, as he seemed to suggest in a recent blog post (h/t TechCrunch). Instead, I’ll assume he simply meant to be provocative.

Posner’s subject was the parlous condition of the newspaper business in this twilight of the print era. After surveying the declines in hardcopy readership and ad revenue, and the baleful effects of cuts in the ranks of professional journalist (I feel your pain), he comes to this conclusion:

Imagine if the New York Times migrated entirely to the World Wide Web. Could it support, out of advertising and subscriber revenues, as large a news-gathering apparatus as it does today? This seems unlikely, because it is much easier to create a web site and free ride on other sites than to create a print newspaper and free ride on other print newspapers, in part because of the lag in print publication; what is staler than last week’s news. Expanding copyright law to bar online access to copyrighted materials without the copyright holder’s consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder’s consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

Others have already discussed the obvious First Amendment problems with this suggestion (the reason I think Posner is not really serious), as well as Posner’s  misdiagnosisof all that ails the newspaper business (he doesn’t even mention the impact of Craigslist, which has nothing to do with free-riding on copyrighted content). I would raise another objection: his assumption that news-gathering must necessarily be financed by newspapers. Read More »

An uneasy alliance on TV Everywhere

I have a guest post up this weekend over at GigaOm where I discuss some of the potential technical and anti-trust problems with Time Warner  CEO Jeff Bewkes’ concept for TV Everywhere, particularly the amount of cooperation and information sharing among nominally competing service providers necessary to make the system work.

But there are other potential problems that could also scuttle the industry’s best-laid plans. Like the imperfectly aligned interests of programmers and service providers.

It’s striking, although perhaps not surprising, that much of the impetus for the plan is coming from programmers. The idea was first articulated by Time Warner CEO Jeff Bewkes, who coined the term TV Everywhere (at the time Time Warner still owned Time Warner Cable but was in the process of spinning it off). But other programmers have been quick to jump on board. Read More »

Nothing to ad

Got a business plan for a digital media application and looking for funding? Better take out that part about, “and they we sell ads against it” and come up with Plan B.

According to a panel of venture capitalists at the Digital Media Conference in Washington, DC, Thursday, ad-supported is not a viable online business model.

gupta“We’re really looking for consumer-pay models,” said Arun Gupta of Columbia Capital. “We would really shy away from any digital media idea that is ad-supported at this point. Ad-supported can be part of it, especially if you already have some traction building value in other ways. But ad-supported is the gravy, it can’t be the meat.”

Ditto Kuk Yi, managing director of Best Buy Capital, the electronics chain’s VC arm.

“You need pretty massive scale to make ad-supported work,” according to Yi. “If you have a viable business that is not based on selling ads it’s pretty easy to layer the ad piece on top of that. But it’s very hard to build a busine ss that requires the ad piece to be there.”

Kuk-YiBest Buy Capital invested in an early-stage games compan, Yi said, that creates paid games that get embedded on social networks and mobile platforms. Another company in its portfolio is generating revenue of $1.5 million a month selling virtual goods online.

“Ads may eventually be  part of both of those but that can’t be the whole business,” he said.

Grotech Ventures general partner Don Rainey offered a somewhat sarcastic dissent.

Rainey“You can do ad-supported if you have 2o or 30 million visitors a month,” he said. “The trick is getting to 20 or 30 million visitors.”

Rainey added that, unlike years past, VCs in the digital media space these days are looking for ideas “that are actually good ideas, and can scale and become big ideas.”

Ahh, for the good old days. — TMW

Creation and the Internet

Last week saw two interesting developments in the ongoing debate over effects of file-sharing and what to do about it. On Thursday, a federal jury in Minneapolis ordered Jammie Thomas-Rasset to pay $1.92 million to Universal Music Group and other record labels after finding she had downloaded 24 songs illegally. That works out to a staggering $80,000 per song.

thomas-rassetEven Sony BMG’s lead lawyer in the case, Wade Leak, admitted to being “shocked” by the size of the verdict.

On Friday, two Harvard Business School economists, Felix Oberholzer-Gee and Koleman Strumpf, released a working-paper version of a new study (PDF), which found that, pace the media companies, the conclusion that rampant file-sharing and other types of digital piracy will reduce incentives to produce new music and movies ultimately harming the public, has no empirical foundation.

In fact, the data point in precisely the opposite direction. The researchers found that the number of new albums released each year soared from 35,500 in 2000, to nearly 80,000 in 2007 (including 25,000 digital-only albums), despite a decrease in gross revenue from CD sales over that same period. Similarly, the number of feature films produced worldwide each year rose from 3,807 in 2003 to 4,989 in 2007.

The increase in film production held true even in countries where film piracy is rampant, such as South Korea (80 to 124), India (877 to 1164) and China (140 to 402). Feature film production in the U.S. over the same period rose from 450 films in 2003 to 590 in 2007.

What does one development have to do with the other, apart from their coincidental timing? Read More »