Admittedly, we here at Public Knowledge spend a lot of time fighting with Hollywood and the MPAA. It is not that we think that the MPAA is full of bad people, just that the policies that they fight for are not always in the public interest. Of course, it is not their job to fight for the public interest – their job is to fight for movie studios. Fighting for the public interest is our job. However, sometimes the MPAA or one of its member studios says something that makes us wonder - are you even doing a good job fighting for movie studios? Here are two developments that really beg the question.
Netflix’s Success = Bad for Movies?
A recent example of this are the comments made by an unnamed studio executive to CNET about Netflix. At this point, Netflix essentially offers two related services to customers – DVD by mail and streaming movies over the Internet. Both of these services are becoming increasingly popular. Recent reports from Cisco and Sandvine show that licensed streaming video is starting to draw users away from the P2P networks that studios point to as hotbeds of piracy.
Consumers like the way that Netflix allows them to watch movies so much that Netflix has been able to report a string of profitable quarters. This might seem like a good thing – in an age where studio executives repeatedly warn that their business is being undermined by Internet piracy, a paid movie service is growing like gangbusters.
Apparently at least one studio executive sees it otherwise. As CNET reported “’The thing with Netflix is that people are taking notice that they keep reporting these big quarters,’ said one studio exec. ‘We aren’t participating in that and that’s going to change.’” Keep in mind that Netflix does not rent and stream movies that it gets from some mythical “free movie tree.” Every DVD that Netflix sends through the mail was purchased from … a movie studio. Every movie that is streamed by Netflix is licensed from … a movie studio.
I encourage more appropriate analogy suggestions in the comments, but to me this is like steel companies complaining that Honda is making too much money selling too many cars, and that they “aren’t participating” in the success. Just as Honda needs to buy steel to make cars, Netflix needs to buy movies to make its service work. When Honda is successful it needs to buy more steel. When Netflix is successful it needs to buy more movies. Sorry to belabor the point, but studios are “participating in” Netflix’s success – they are selling more movies to Netflix. Oh Hollywood.
People Like to Rent Movies – Make Them Wait Longer?
People seem to like to pay to rent movies. While plenty of people like to purchase DVDs, others don’t necessarily want to pay to own the movie and are more than happy to just pay to rent. Again, companies that rent movies don’t get them from the free movie tree – they buy them from studios. How is Hollywood reacting to the fact that people are willing to pay to rent movies? They are making it harder.
Last week, reports started to surface that Hollywood was considering changing the DVD release window. Instead of making consumers wait until well after a movie has left theaters to buy or rent the DVD, studios are going to make consumers wait until well after a movie has left theaters just to buy the DVD. Then, they are going to make consumers wait even longer to rent the DVD. It is possible that the best way to fight the scourge of Internet piracy is to make it harder for people to pay to watch movies the way they want to, but that strikes me as unlikely. Instead, this is another barrier making it harder for people who actually want to pay to watch movies, instead of simply downloading unauthorized copies from the Internet. Oh Hollywood.
Delayed Rentals
The rental delay thing just makes me laugh. Have they forgotten that the first-sale doctrine still exists? The only way they could enforce something like that would be through an agreement with distribution and retail places, basically refusing to sell to them unless they agree not to rent the videos before a certain date… but then those same places could just buy their DVDs through another source and just bypass Hollywood’s oh so cunning plan.
Reminds me of the “Blockbuster exclusive” rentals, and how we used to rent them out anyway when I worked at a (non-Blockbuster) video store. We could buy the DVDs directly, but had to agree not to rent them out. Instead, on the release day, we’d send an employee to another store, buy up however many copies we needed to rent out, then repackage them in the rental cases. Agreement with the movie people satisfied since we didn’t rent the particular copies we agreed not to, but we still got the benefit of the rental business.
All in all, it wouldn’t accomplish their goal of control, just make the rental business slightly (but not particularly significantly) more difficult/expensive. Might even cost them some good income if stores aren’t savvy enough to buy extra copies to supply their competitors with rentals, as the rental places would be ordering fewer DVDs initially.
This article
1st part of article is bogus argument. You take the quote out of context. The execs you quote say they want a “fair share” of profits, not that they don’t make anything at all. See the line before your quote in the CNET article. Studios own content….can they not request fair share?
To make a better analogy with your car example. Studios are Honda, and Netflix is the car sales showroom. Who makes the real product? Who is pushing product? Who has the right to a fair share of sales/rentals? (BTW, the camera maker is the steel maker in your example).
I you made a product, which I bought from you for $1 and I turned around and sold for $10. Doesnt that mean you underpriced your product to me? Would you not want your “fair share” of what that product was worth on the market?
I’m not arguing for sales window are not. But lets state the arguments fairly.
As for the 2nd part, Netflix itself argues against what you think Netflix should argue:
“In a conference call with investors Thursday, Netflix CEO Red Hastings sided with Hollywood studios’ efforts, saying his business is “less dependent on new releases than our DVD-based competitors.” Further, Hastings believes that Netflix could benefit from a short sales-only window, allowing the company to spend less on discs and more on streaming content.”
http://www.walletpop.com/blog/2009/10/28/priced-to-own-studios-seek-to-stem-losses-by-restricting-rental/
Thanks for the comments
Thanks for the comments. Anonymous (2), I appreciate where you are coming from but I have to disagree. Your objection to the first part of the article forgets about the impact of the first sale doctrine as codified in copyright law (as well illustrated by Anonymous (1)). The beauty of the first sale doctrine is that once a rightsholder has sold a copy of a DVD, they do not get a second bite at the profit apple or to restrict how people use their copy. The widespread availability of DVDs makes it impossible for them to have a “rental establishment” price and a “guy buying the movie at a store price.” Both types of purchasers will just buy whichever price is lower (again, see Anonymous (1)). Among other things, this allows companies to build innovative businesses that consumers want without having to get approval from movie studios. Unfortunately (or fortunately, depending on where you are standing), moving towards a license-stream model has the potential to undermine some of the freedoms that the first sale doctrine protects and may make it harder for innovators to launch new services that studios don’t necessarily understand.
As for the second part, I was not trying to make a Netflix-specific argument. I was just pointing out that making it harder for consumers to pay for films the way they want to (and are used to doing) gives them less incentive to choose a legitimate film distribution method. I am not saying that this is necessarily a good or bad thing, but at a time when everyone’s anti-piracy mantra appears to be “make it easy for consumers to purchase content and they will happily pay for it (see iTunes)” this strikes me as moving in the wrong direction.
Are they trying to promote streaming over DVD sales?
The thought that occures to me is the studios have decided to encourage streaming over DVD sales by further delaying the DVD release date. There is no pesky 1st sale doctrine to worry about with a DMCA encrypted stream.
Car analogy
A better car analogy would be that the MPAA is Honda, and Netflix is Enterprise Rent-a-car.
If Enterprise chooses to buy its rental cars from Honda rather than lease them, why should Honda then demand more money on account of the fact that they’re not getting their “fair share” of the rental income?
Ultimately, the MPAA is faced with the same limit on income that the first anonymous poster mentioned above: if all else fails, Netflix can simply buy a retail copy of every DVD it rents out. Streaming video is nice, but they don’t have to be able to stream every movie in their inventory in order to have a good service (which is exactly the situation right now).
The content industry has abused copyright for decades, if not centuries, to extract additional profits from their content outside of that which market forces provide. (International arbitrage created by DVD region coding is a good recent example of this.) This is nothing different, and the only real question is whether they’ll have to sue Netflix in order to learn that this particular battle isn’t winnable.