Is MKV the MP3 of video?

The release of the Napster client in 1999 is seen by most in the music industry as a watershed event. It was the moment when millions of people began “trading” individual music tracks over the Internet and–in the received version of the story–stopped buying CDs. The industry’s response was, first, panic, then to attempt to get the genie back in the bottle by suing Napster and its creators Shawn Fanning and Sean Parker. That led to similar suits against Friendster, Aimster, Grokster,  and any other peer-to-peer network “operator” the RIAA could identify clearly enough to serve with papers.  

napster-logoWhat had really hit the music industry, however, wasn’t P2P technology so much as the MP3 codec. The first MP3 encoder was released in 1994, and by 1995 it was being used in commercial consumer software such as WinPlay, and later WinAmp. Using MP3 compression, WinPlay users could store tracks ripped from a CD on a hard drive in files that were a fraction of their original size (a critical issue at the time given the small size of most consumer hard drives), albeit with some loss of sound quality. All Fanning had really done was to figure out a practical way to tie those hard drives together into ad hoc networks so that compressed music files could be exchanged at the relatively slow bandwidth speeds then generally available. 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 »

Feels like old times

Some news out of China last week laid a nostalgia trip on those of us who covered the long saga of the Blu-ray vs. HD DVD format war. According to a report in the Timesof London, a recently introduced high-def DVD format developed in China, called China Blue High Definition (CBHD), is already outselling Blu-ray in the Peoples’ Republic by a margin of three-to-one.

bluray-vs-hddvdThe Times called the development a “new format war” but it’s really a continuation of the same format war that had simply gone underground after Toshiba pulled the plug on HD DVD  in the West back in February 2008.

The roots of CBHD go back to 2005, when the Chinese government set out to “break the monopoly” of Western and Japanese companies on the technology underlying the DVD format by creating new intellectual property controlled by China to be used in a next-generation format.

In 2007, the DVD Forum fomally approved specificationsfor a “China-only” version of the HD DVD standard, which was to be based on the HD DVD physical specs developed by Toshiba and Chinese-developed audio and video codecs. Instead of MPEG 2, VC-1 and H.264, for instance, the Chinese format would support only the Advanced Video System (AVS) developed in China, saving Chinese manufacturers boat-loads in royalty payments to foreign technology owners. Read More »

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 »

Down on strikes

french-flagThe copyright industries had high hopes for France’s three-strikes law. At the World Copyright Summit in Washington last week, speakers had nothing but praise for the government of President Nicolas Sarkozy, who championed the law and railroaded it through the legislature. And they were crushed when, on the second day of the conference, the French Constitutional Council threw out the new law’s critical third-strike–government-ordered banishment from the Internet for those caught repeatedly downloading copyrighted content illegally–on grounds that the extra-judicial  procedure the law created was a violation of  free speech, the presumption of innocence and due process.

Oops.

Now, however, things have gotten even worse for the content companies. In a bit of a face-saving move, the French government on Friday stripped out the portion of the law invalidated by the Constitutional Council, sent the rest to Sarkozy for signature and published it in the official record, allowing it to take effect this week. Read More »