Et Tu, HBO?

HBO Max has a me-too problem.

No, not the hashtag type of #MeToo problem. Its problem is that it’s a me-too product at a me-first price.

The $15 a month streaming service, which launched on Wednesday, got off to a rough start, racking up fewer than 90,000 app downloads on launch day, well below the 3.2 million day-one downloads recorded by Disney+, and even below Quibi’s anemic 380,000.

Theoretically, of course, the launch converted some 33 million existing HBO Now subscribers into HBO Max subs overnight. But even that process ran into a significant glitch when AT&T failed to secure Max distribution agreements with Roku and Amazon Fire TV by launch day, which means that HBO Now users who subscribe through those two platforms, which together account for nearly 70% of all standalone set-top streaming devices, are not able to access either service.

People who subscribe to HBO through their cable or satellite providers can upgrade through those providers.

AT&T will, presumably, get its distribution problems sorted out at some point. The harder problem will be convincing consumers that they need to subscribe to HBO Max, especially when it costs more than nearly every other streaming service.

AT&T accelerated its launch plans for HBO Max in response to the coronavirus lockdown. But even so, it’s launching into a crowded streaming pool, with two very big fish — Netflix and Disney+ — already in the pond and a long list of pretty big fish — Amazon Prime, Hulu — and smaller fish — Acorn TV, BritBox, Apple TV+, Peacock — schooling behind.

It’s simply harder than it used to be to make a splash amid the crowd.

With the vast WarnerMedia catalog behind it, there is plenty of great content on HBO Max, from Warner Bros. movies, to Turner networks, to TV shows like “Friends.” But even Warner Bros. and Turner are not the sort of well-defined, differentiated brands that Disney+ boasts, with Pixar, Marvel, Star Wars and Disney itself.

The big brand hook for HBO Max, of course, is HBO. But HBO has been available as a streaming service for a while now, whether through HBO Go for cable and satellite subscribers, or through the standalone streaming service HBO Now. Anyone inclined to subscribe to HBO in the first place has long been able to subscribe.

For those who do subscribe to HBO already, HBO Max is a great upgrade. For everyone else, though, it’s a big bundle of content amid a lot of big bundles of content. Some of that content is iconic, like “Friends,” but with so many streaming services now available people have to make choices. And there are a lot of big bundles of content to choose from, most of which carry lower prices than HBO Max.

Part of the plan for HBO Max involves producing original content to attract new subscribers, and the streaming service boasts its own original programming unit separate and apart from the HBO network’s original production operation. That effort has unfortunately been set back by the production shutdown caused by the Covid-19 pandemic.

But exclusive original content is now merely table stakes in the streaming game, and by raising the bet to $15 a month HBO Max may simply bluff itself out of the hand.

AT&T obviously believes it needs something big to show investors for the $85 billion it spent to buy Time Warner. But simply dumping everything into a single pot and calling it HBO may not be the best way to show it.

Many WarnerMedia assets, in fact, might have greater value on a targeted, standalone basis, rather than subsumed into a me-too bundle if they were licensed, or packaged and marketed correctly. Turner Classic Movies, for instance, or the MGM musical collection are potentially viable niche brands; DC films, Cartoon Network and Adult Swim could be as well.

Such a multi-niche strategy might not have the seeming throw-weight of a Netflix or Disney+ to impress analysts and investors. But it might impress more actual users over time.

Seeing Red Over The DMCA

The U.S. Copyright Office last week released its long-awaited report on the operation and efficacy of Section 512 of the Digital Millennium Copyright Act, which created a number of conditional “safe harbors” for online service providers against liability for copyright infringement committed by their users.

The 250-page report concludes that the original balance Congress intended to strike in crafting Section 512, between encouraging the development of the internet ecosystem and protecting the interests of copyright owners, has gone awry in the 2-plus decades since the DMCA was enacted. But the report stops short of recommending wholesale changes to the law:

The Office is not recommending any wholesale changes to section 512, instead electing to point out where Congress may wish to fine-tune section 512’s current operation in order to better balance the rights and responsibilities of OSPs and rightsholders in the creative industries.
Should Congress choose to continue to support the balance it devised the DMCA and move forward on the issues identified in this Report, then the Office harbors some optimism that a path toward rebuilding the section 512 balance could be found.

There is no guarantee Congress will take up the report’s recommendations, particularly this year, in the midst of a pandemic and with lawmakers focused on the election. The Copyright Office itself is also currently headed by an acting Register of Copyright, and the Library of Congress, of which the Copyright Office is part, is actively recruiting a new, permanent Register, who may, or may not, make pushing the report’s recommendations a priority.

If and when Congress does get around to addressing the issue, however, it’s likely to find itself mired in more than than mere legislative “fine-tuning.”

Among the report’s 12 suggested legislative fixes is a recommendation that Congress “clarify” the degree and type of knowledge an online service provider must have of infringing activity to trigger an obligation to remove or block it.

That is, how much circumstantial, or “red-flag,” evidence of infringement should be sufficient to compel an OSP to act even if it has not received a formal notice-and-takedown request from a copyright owner?

Here’s how the report describes the problem:

Congress did not define “actual knowledge” in section 512, nor did it discuss its scope in either the House or Senate Reports. But the concept of actual knowledge is well understood to mean actual—as distinct from red flag or constructive—knowledge…

In the absence of actual knowledge, section 512 holds OSPs to a “red flag” knowledge standard. The phrase “red flag” does not appear in the statute, but Congress used that phrase to refer to “facts or circumstances from which infringing activity is apparent.” Congress intended for this red flag standard to obligate OSPs to remove or disable access to infringing content for which they learned enough [sic] information to indicate a likelihood of infringement—but short of obtaining actual knowledge.

How much knowledge is “enough” to require preemptive removal has been a key question at the heart of some of the most important and precedential litigation over the DMCA since its enactment, including UMG v. Veoh and Viacom v. YouTube.

In those cases and others, courts have generally set the bar for red-flag knowledge quite high, much to the dismay of copyright owners. But in its report, the Copyright Office makes clear it thinks the courts have got it wrong and that Congress should “clarify” that it intended the bar to be lower.

Apart from undoing a lot of case law, that could a long way toward shifting the burden of policing infringement from rights owners to platform providers — something rights owners have been pushing for for a long time.

It would also come against a backdrop of the EU Copyright Directive, which aims to shift the burden decisively toward the platforms.

So far, the Copyright Directive has only been implemented in one EU country, France, and even there only partially. Given the current turmoil within the EU, fueled by the rise of far-right parties in several EU countries, the pandemic and lockdown, and the looming recession, it’s not clear whether any member country will get around to meeting the official deadline for fully implementing the directive by June 2021. YouTube and other platform providers, meanwhile, are using the delay to lobby EU governments furiously to limit the directive’s impact.

Still, the EU Copyright Directive put the question of burden-shifting squarely on the table. The U.S. Copyright Office is now seeking to do the same here.

That’s likely to start a lot more arguments than it settles.

What Quibi Got Wrong

It’s hard to imagine what more could have gone wrong for the launch of Quibi. The short-form, mobile-only streaming app set sail amid the worst pandemic in a hundred years that has left people with hours of time on their hands and decidedly un-mobile.

It bet heavily on a technical twist — its Turnstyle portrait-to-landscape viewing feature — that is now the subject of a patent infringement lawsuit that could prove costly, and it suffered a major privacy breach less than a month after launch.

It also baffled and frustrated early users by having no connection to TVs or any other non-mobile platform, and its ad-supported tier still costs $5 a month.

As a result, despite billions in advertising and promotion, including an expensive Super Bowl ad, Quibi has so far managed to attract only 1.3 million active users, most of whom are still on a free trial, and the app quickly fell out of top 100 list of iPhone app downloads.

In an interview with the New York Times last week, Quibi co-founder Jeffrey Katzenberg blames the poor showing so far on Covid-19.

“I attribute everything that has gone wrong to coronavirus,” Katzenberg said. “Everything.”

But there was a lot wrong with Quibi even before the Covid lockdown.

The initial lack of a connection to the TV was both a monumental miscalculation (which the company is now scrambling to fix) and a tell. It was a strategic decision premised on the idea that a service provider can dictate to consumers long-habituated to all-platform access to content what the use-case must be and which device they must use for it.

It’s the same way of thinking that led the record industry to believe they could continue to force consumers to buy high-margin CD albums even after Napster had empowered consumers to disaggregate the bundle. It’s as if Quibi’s big-name Hollywood backers have learned nothing about consumers and digital services in the nearly three decades since.

Quibi also raised $1.75 billion before launch and used it to pay A-list talent to create original programming based on the untested premise that consumers want to watch professionally produced long-form content cut up into 10-minute chunks.

In short, there was nothing at all organic about Quibi. Its content is un-viral by design, there is no way to engage with it apart from passive consumption, and it’s not designed for binging.

Compare that with TikTok, which came out of nowhere less than three years ago and has amassed 2 billion viewers worldwide. The platform is mobile-friendly by design but its content is designed for engagement. Unlike Quibi, it’s seen a surge in users since everyone was forced to stay home and is now attracting the same sort of A-list talent to create content organically that Quibi has paid so handsomely for.

Quibi needs to go back to the drawing board.

Publish, or Perish?

When you think about the “copyright wars,” you typically think of the major record companies and Hollywood studios battling digital platform providers and developers over alleged “piracy” and the purported “value gap.” But some of the hottest engagement these days are happening in the world of publishing, including book, news media and scholarly journal publishing. And the roster of antagonists includes governments, courts, libraries and public advocates.

The U.S. Supreme Court this week handed down a ruling in a closely watched case concerning an annotated compendium of the Georgia state laws compiled by LexisNexis on behalf of the state legislature and no direct cost to the state treasury.

While the statutes themselves are a matter of public domain, under a long-standing legal principle known as the “government edicts doctrine,” the legislature maintained that the annotations represents original works of authorship covered by copyright. Under its work-for-hire agreement with LexisNexis, the legislature claimed the copyright in the annotated presentation for itself and granted LexisNexis and exclusive license to sell the annotated edition — the only form in which a complete corpus of state laws is made available.

When the non-profit public access organization Public Resource scanned the annotated edition and posted it for free the state legislature sued it for copyright infringement.

By a 5-4 majority that crossed ideological lines the Court held that since the work of annotating the laws was done by LexisNexis under a work-for-hire agreement, the legislators themselves were technically the authors of that work. Insofar as they were acting in their official capacity as legislators, however, any work of authorship they produced would fall under the government edicts doctrine and ineligible for copyright.

In its brief to the Court, the legislature argued that without a licensable copyright, it could not induce private parties such as LexisNexis to help it produce affordable editions of its annotated code, ultimately harming the public. Writing for the majority, however, Chief Justice John Roberts said that was a matter of public policy better addressed to Congress than to the courts.

“That appeal to copyright policy, however, is addressed to the wrong forum,” Roberts wrote. “As Georgia acknowledges, ‘it is generally for Congress, not the courts, to decide how best to pursue the Copyright Clause’s objectives.'”

Twenty-two states, two U.S. territories and the District of Columbia rely on similar arrangements with commercial publishers to produce annotated statute books. All of those arrangements are now potentially invalid, as could be thousands of other copyrights and licensing arrangements maintained by the several states. Which means this week’s ruling won’t be the last shot fired in this skirmish.

Open Sesame

We also haven’t heard the last shot in the long-simmering battle over applying open-access publishing policies to publicly funded research.

In 2018, a coalition of scientific research funding organizations announced an ambitious plan to require recipients of their grants to make any resulting papers on their findings freely available for anyone to read, download, translate or otherwise re-use the work, rather than publishing them in subscription- or fee-based journals.

After much hue and cry from commercial academic publishers, the original 2020 target date for the initiative, known as Plan S, to take effect was pushed back by a year to give publishers more time to adjust their business.

But the issue hasn’t gone away. And in February of this year, the White House Office of Science and Technology Policy (OSTP) issued a request for comments on a proposal to implement a similar policy in the U.S. for federally financed research.

Those public comments are not yet available, but in December, when word of a possible executive order imposing the policy began to circulate, a group of publishers led by the Association of American Publishers (AAP) wrote a letter to the White House strongly objecting to any such policy.

“We have learned that the Administration may be preparing to step into the private marketplace and force the immediate free distribution of journal articles financed and published by organizations in the private sector, including many non-profits,” the group wrote. Such a policy, they said, effectively nationalize American intellectual property and “force us to give it away to the rest of the world for free.”

The issue is an odd one for the Trump White House to be pushing, given its general disdain for the fruits of scientific research. And in fact the initiative within OSTP dates to the Obama Administration. The fact that it has been able to continue, however, demonstrates the momentum behind the open-access movement.

Much of the raw data that results from publicly financed research is already made freely available, either voluntarily by the researchers themselves or the institutions they work for, or as a matter of policy by the funding organizations.

It is the scholarly papers analyzing those data that historically have been published in commercial, peer-reviewed, journals that are at issue.

Subscriptions to those journals are often very expensive, especially institutional subscriptions that allow access to qualified users. Tension between publishers and budget-strapped public and academic libraries is a matter of long standing.

But as digital technology has democratized access to information generally the question of access to publicly funded scientific information has become a matter of public policy.

There is a certain intuitive fairness to the idea that publicly funded research ought to be publicly available. We paid for it, after all.

On the other hand, organizing and managing the peer-review process, and identifying, curating and archiving the most credible and highest quality information — editing — cost money. And if commercial publishers are not able to profit from performing those functions they are unlikely to perform them.

Someone else — perhaps even the public that funded the research in the first place — would need to bear the cost of performing those fuctions.

Training Camps

Commercial publishers these days also find themselves on the front lines of a growing conflict over the use of copyrighted works to train artificial intelligence algorithms.

As discussed here before, both the U.S. Patent & Trademark Office (USPTO) and the World Intellectual Property Organization (WIPO) have launched inquiries into the intellectual property implications of A.I. technology.

Much of the public discussion of the issue has focused on whether works of authorship or invention produced by A.I. systems should be eligible for intellectual property protection, and if so, in whom or what should any such copyright or patent vest.

But the most contentious debates emerging from the USPTO and WIPO inquiries has been around the datasets used to train A.I. systems.

Artificial intelligence applications such as machine learning must be fed huge amounts of data from which the algorithm can decipher patterns, relationships among data points, and statistical correlations. In many such applications, the data being fed in is contained in works that are under copyright.

As with most computer operations, a certain amount of reproduction is involved. The works most be reproduced in a machine-readable form before they can be input, and then get reproduced again in the computer’s random access memory as it processes those machine-readable inputs.

According to the AAP, such “wholesale, un-permissioned reproduction of copyrighted works in which data subsists, even for the purpose of machine learning, is likely to be infringing.” As for any data contained within those works, “the scope and terms of such use can best be set out in a licensing agreement between the parties.”

Other rights groups argue that any output of an A.I. system represents a derivative work descended from the copyrighted inputs and that the act of creating it should be licensed.

A.I. developers, however, maintain that their algorithms are merely extracting data about the works, not data from within the works and that data, like facts, cannot be copyrighted. As for any reproduction involved, it is merely functional, and of no commercial significance, and should therefore be allowed under the fair use or fair dealing doctrines.

In one sense, the dispute over A.I. training datasets is simply another flare up in the age-old conflict between rights owners and technology developers over fair use/fair dealing.

What the broader debate over the copyright implications of A.I. would seem to share with the Georgia case and the drive for open access, however, is an evolving sense that the public domain is becoming impoverished, and that its legal scope and contours need to be revised.

Copyright owners have been generally successful over the past three decades, legally and politically, at putting limits on the public domain, from adding decades to the term to copyright to channeling the publication of public information through private hands.

Last week’s Supreme Court ruling and the imposition of an open-access policy for publicly funded research cut against those gains, and could herald a broader shift in the wind.

WarnerMedia Gets Hulu’d

This week saw a rare smart move by AT&T with the hiring of Jason Kilar to head up WarnerMedia.

It was smart not only because Kilar is a capable executive but because he seems to thrive in thankless jobs.

I first met Kilar when he was with Amazon, running its VHS and DVD business. When he was later picked to be head up the nascent Hulu I went on record to declare the job un-doable. But Kilar proved me wrong.

Not only did Hulu turn out to be a well-designed and well-constructed service, but Kilar managed to successfully navigate around an ungainly board of directors that included representatives from the three competing major studios that owned the joint venture at the time: Universal, Disney and Fox.

There were constant frictions over the strategic direction for the company, with Kilar wanting to chase the streaming future while its studio owners were really trying to hold back the streaming tide to protect their then still-lucrative DVD business.

The creation of Hulu, in fact, was driven in no small measure by the studios’ frustration with YouTube over the explosion of TV and movie content being uploaded to the platform. Before being christened Hulu, it was known jokingly in the industry as “Screw Tube,” “Me-too Tube” and “Fuck you Tube,” among other sobriquets.

Kilar also had to manage a persistent channel conflict between Hulu’s internal advertising sales team and those of the networks’ whose programming it was streaming, who shared sales duties (and sometimes clients).

He’s likely to find much that is familiar at WarnerMedia.

Though his hiring is a signal that AT&T is serious about WarnerMedia’s digital future, where Kilar had tried to steer Hulu, he will again be riding herd over multiple and not-always harmonious power centers, including Warner Bros. studio, under Ann Sarnoff, WarnerMedia Entertainment, under Robert Greenblatt, and WarnerMedia News and Sports under Jeff Zucker, all of whom have far more experience than Kilar in movie and TV production and distribution.

As I’ve written here before, AT&T/WarnerMedia is also an awkward amalgam of content and pipes, an arrangement that, for all the hype about “synergy” and scale, has historically destroyed more value than it has created.

Kilar has also been charged with launching AT&T’s big digital play HBO Max, on which it’s betting much of the company’s future, into the teeth of a catastrophic public health emergency and perhaps the steepest economic downturn since the Great Depression.

Meanwhile, his new parent company’s shares are getting downgraded, its balance sheet is heavily leveraged, and its pay-TV business is bleeding out.

Welcome to Hollywood, Mr. Kilar.