August, 2009

Choosing up sides over e-books

Quite an interesting battle is taking shape in the suddenly hot world of e-books.

For many, of course, “e-books” are synonymous with Amazon and its Kindle device. But over the past few months, several would-be challengers to Amazon’s Kindle kingdom have emerged to do battle. In July, No. 1 brick-and-mortar bookseller Barnes & Noble unveiled a revamped online e-bookstore and announced a partnership with e-book reading device maker Plastic Logic, which plans to introduce a thinner, touch-screen version of an e-reader early next year.

kindle-newsweekA few weeks ago, Sony entered the fray with a pair of new e-book readers and its own revamped e-bookstore. (Technically speaking, Sony has been in the e-book business longer than Amazon has, but for reason known only to Sony it seemed to be trying to keep its involvement a secret until this month.) Last week, Sony announced a third e-reader, this one with wireless connectivity to allow Kindle-like direct-to-device downloads (no need to stop at the PC first for transfer to the handheld device).

The big news in Sony’s announcement, however, was its embrace of EPUB, a series of open technical standards for the file structure, packaging and publishing of e-books over digital networks developed by the International Digital Publishing Forum, an industry group, and supported by a number of major publishers. Last week, Sony’s embrace of EPUB was seconded by Google, which announced it would use the standards to distribute (at no cost) the nearly 1 million public domain works it has compiled in digital form as part of its Library of the Future project (many of the works were originally digitized by the non-profit Project Gutenberg).

As an open platform, EPUB poses a significant challenge to Amazon, which has followed an iTunes-like strategy of enclosing the Kindle and Kindle e-books within the walled-garden of a proprietary format and DRM–the better to set prices and control margins. Should the rest of the industry adopt EPUB–which Amazon has so-far shunned–Amazon’s current status as the 800-pound gorilla of the e-book market would be threatened. (Shameless plug: For more on Amazon’s strategy and the implications of the EPUB initiative, see my report, The Evolution of the E-book Marketat GigaOm Pro [subscription required].) Read More »

Redbox, RealDVD and Hollywood’s long struggle with consumer demand, Part II

In my last post, I discussed the Hollywood studios’ long history of being willing to frustrate consumer demand in order to maximize their own profit, or at least to do what they believed would maximize their profit. For decades, in fact, it defined their basic business model: starve demand in one window or market to boost it in another.

In ordinary businesses, continuously frustrating consumer demand would not be a very effective business plan. But under the artificial conditions of the copyright monopoly it has generally worked for the studios over the years. When some innovator came along and found support in the Copyright Act for a model to meet consumer demand without giving primacy to studio profits, such as video rental stores, the studios’ first instinct has been to suppress it, often by litigation or seeking new legislation, or failing that through monopoly pricing.

It’s a deeply ingrained habit.

From the bunker of their copyright monopoly, however, the studios have often misidentified their own self-interest, at least at first. The video rental market, after all, went on to become hugely profitable for them, despite their unease with it. Yet the old habit is stubborn.

DVD, for instance, was the most successful format for distributing movies to the home ever devised. And it achieved that success largely by overcoming the studios’ historical ambivalence and meeting consumer demand head on. It didn’t eradicate the rental market but by meeting consumers’ reasonable expectations for purchasing a movie–in terms of price, convenience and quality–DVDs fundamentally changed consumer behavior to the benefit of the studios.

It wasn’t enough to change studio behavior, however. As later technological innovation caused consumer expectations and behavior to change again, the studios effectively did nothing to respond. DVD prices that once seemed reasonable, for instance, came to seem less reasonable over time as consumers’ expectations of value changed. Yet prices largely stayed where they were. Read More »

Redbox, RealDVD and Hollywood’s long stuggle with consumer demand, Part I

There’s something about the video rental market, to borrow a phrase from Barack Obama, that causes the studios to get all wee-weed up.

Back in 1983, not long after the Hollywood studios began, ever-so tentatively, to release movies on the newly introduced half-inch videocassette for watching at home, they were horrified to discover that some enterprising video shop owners had begun renting the cassettes for a few bucks a night, sparing their customers the need to shell out $30 or $40 for a movie they might watch only once. Worse for the studios, the video shops had not licensed the right to rent movies and were not sharing any of their rental earnings with the studios.

Hollywood huffed and it puffed but, in fact, the video shops had the law on their side, specifically Section 109 of the U.S. Copyright Act of 1976, which provides that:

[T]he owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

In other words, the rental shops didn’t need a license, and the studios couldn’t stop them from renting. So Hollywood did what copyright owners had done at least since the introduction of radio: they went to Congress to get the law changed more to their liking.

Never mind consumers’ manifest interest in renting movies.

In the sausage factory of Capitol Hill, the repeal of Section 109, known colloquially as the First Sale Doctrine, became twinned with a separate studio initiative to outlaw the use of VCRs to record TV programs, or, short of that, to impose a royalty levy on VCRs and blank tapes to “compensate” copyright owners for such copying.

In 1984, however, with the legislative battle still raging, the U.S. Supreme Court threw a wrench into the works by handing down its decision in the famous Betamax case, which held that recording TV shows off the air with a VCR for private use was perfectly legal and that no royalty payment was required. With that, the studios’ effort to ban or tax recording equipment died in Congress, and with it its legislative twin, repeal of the First Sale Doctrine.

The studios were not ready to make their peace with rentals, however. Their next move was to implement a series of ever-more baroque “rental plans,” which involved various schemes to try to distinguish between “rental” cassettes and “sale” cassettes, including the use of different color plastics for the cassette shells. Thus, “rental” cassettes were red, while “sale” cassettes were blue.  The idea was that “rental” cassettes would not actually be sold to rental stores but licensed, thereby pulling an end-run around the First Sale Doctrine. Since the stores would never legally own the cassettes, they could not unilaterally exercise their right to rent them under Section 109 of the copyright statute. Instead, they were compelled to pay a “royalty” to the studio on each rental transaction. Read More »

The studios just say 'no'

The studios and the DVD Copy Control Assn. (DVD-CCA) are on a legal roll. On successive days last week they won a preliminary injunction against RealDVD and a reversal on appeal in the Kaleidescape case (The Media Wonk has been on another assignment so I’m only just getting aroundto blogging this now). The two courts found, inter alia:

  • The CSS license and technical specifications “unambiguously rule out” (RealDVD) the making of permanent digital copies of DVDs and prohibit the playback of the DVD’s content without the original disc in the tray.
  • The technical specifications in the CSS license are indeed part of the CSS license agreement and it was the “unambiguous intent” of the parties that those specifications barred the creation of permanent digital copies  (Kaleidescape).
  • The anti-circuvention provisions of the DMCA clearly and plainly tipped the balance of copyright law in favor of copyright owners and trumped any fair use analysis (RealDVD).

The studios really couldn’t have asked for more.

Kaleidescape-collection-to-systemSo, now what? Now that the studios have won most of the key legal points and preserved the integrity of the CSS license  (at least for now), what will they do with them?

Alas, probably nothing very useful.

As long-time readers of The Media Wonk know, the DVD-CCA has been attempting to devise a comprehensive system for allowing “managed copying” of DVDs for the better part of four years–a process that has thus far produced little apart from the Kaleidescape and RealDVD litigation. Based on the most recent discussions, in fact, Media Wonk’s sources suggest, negotiators seem farther than ever from a comprehensive solution. Read More »