RealNetworks' real mistake

One week  after Judge Marilyn Hall Patel decisively threw out its antitrust claims against the studios and DVD CCA in the RealDVD case, RealNetworks appears to be imploding. On Wednesday COO John Giamatteo abruptly left the company, and on Thursday founder Rob Glaser stepped down as CEO (he’ll remain chairman). Although Glaser’s move had apparently been planned for some time, it came sooner than he expected and appears not to have been voluntary.

While it’s possible the timing of the events is just a coincidence I wouldn’t bet on it. Investors cheered the news of the Glaser move, sending the stock soaring 17 percent in its wake (ouch!), presumably in anticipation of a new strategic direction for the company–one not quite as provocative and confrontational with respect to the content owners.

The whole RealDVD saga, in fact, has been a disaster for Real. Not only has it been unable to distribute the product, thanks to a restraining order and temporary injunction by the court, but the litigation with the studios over the DVD copying software has produced an unending series of legal setbacks for Real, of which last week’s ruling is merely the latest. 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 »