Legalmatter

By: Brian J. Meli

This is Part 2 of a two-part article appearing in the May/June edition of IP Litigator. You can read Part 1 here.

In a temporary departure from our usual Legalmatter format, last week’s post contemplated a purely fictional hypo.

Lawyers love hypotheticals, in part because they make fertile ground for debate (and in part because it’s much easier to win an argument when it’s bring-your-own-facts). I deemed this particular hypothetical worthy of some ink however because it raises some thought-provoking questions about how IP laws have shaped our society.

The hypo involved going back in time and changing the U.S. Supreme Court’s decision in one of the most historic IP cases of all time, Sony v. Universal City Studios, so that plaintiffs Universal Studios and the Walt Disney Company came out on top. Such an outcome would have made Sony’s fledgling Betamax videocassette recorder (and the VCR in general) illegal due to its ability to allow users to impermissibly infringe copyrighted broadcasts. This would have had a profound affect on the evolution of consumer technology and the Internet, and fundamentally changed the ways we live, work and play today.

Last week we contemplated the online world of a parallel universe in which just such a thing happened. This week we conclude by taking a look at the equivalent off-line world.

Here’s how it might look:

Hollywood

In 2013 lots of business is still conducted the old-fashioned way. Hollywood however, once on track to become the producer of America’s greatest global export, is struggling mightily. People still love going to the movies nowadays. Box office receipts are at an all-time high, in fact. But with revenue constrained to ticket sales, merchandising and promotional tie-ins, many fewer movies are being made today, and the ones that are tend to be of lower quality.

Unfortunately artistic merit is widely acknowledged as having taken a back seat to the need for producing successive sure-fire hits with broad audience appeal and marketability. The summer blockbuster, which began all the way back in 1975 with Jaws, and gained momentum with the Star Wars, E.T. and Indiana Jones franchises, quickly overran the genre, turning a seasonal trend into a singular year-round emphasis on maximizing ticket revenue in order to ensure studio survival. Movies now are more spectacle than art, and who they’re starring is more important than what they’re about. As a result, the salaries that A-list stars now command is obscene. Titles are also playing much longer on the big screen, with studio execs wringing out as much revenue as possible before relegating them to cable platforms.

Television & Home Entertainment

While legacy broadcast TV channels are still around, the pay-per-play content distributors, namely satellite and terrestrial cable providers, sit firmly atop the entertainment food chain. There’s a common expression in business circles these days that “cable is king”, and that’s not an exaggeration, mainly because expanded and premium cable channels have been the primary means for consumers to view home movies since the 1980s. HBO and Showtime are still big players in this area, but the cable operators themselves now compete directly with them via their own premium branded movie channels. Consumer demand for home movies is so big that the market supports a lot of premium content competition, but the cable, satellite, and to a lesser extent phone companies still enjoy an oligarchy that keeps monthly subscription rates relatively high. These premium channels, which bid against each other for the rights to show the biggest and best box office draws, do so almost immediately after they’re released from theaters, and with streaming on-demand technology they’re able to deliver entire home libraries of movies new and old.

Unfortunately with the focus of premium channels being almost exclusively on feature films, most original programming, including dramatic series, have been relegated to basic cable and network TV. This has resulted in original programming being constrained to subject matter of a far less mature nature due to the tighter restrictions on the broadcast networks. A few original series’ with more adult themes, along with a slate of smaller independent films produced and distributed direct to cable, have found a niche in the 8,000+ channel range, but it’s a place where few mainstream viewers ever venture.

With cable’s reign of dominance continuing uninterrupted for nearly 30 years, it’s truly one of the remarkable success stories of the 20th century. You could say that cable’s only real setback was the forced shelving of its digital video recording (DVR) technology in the 1990s, which right from the start was beset by the same copyright issues that doomed the VCR. Despite the cable companies’ well-reasoned arguments that DVRs were specifically designed to save all recorded content on their own servers and not their customers’, the Sony precedent proved too daunting a hurdle, and providers abandoned the technology altogether rather than opting to fight the uphill legal battle.

Consumer Electronics 

DVD technology, once presumed to be the only realistic challenger to cable’s dominance, came onto the scene amidst a lot of fanfare and bold predictions of it breaking the entrenched direct-from-big-screen-to-cable distribution channel. At best though, it achieved only intermittent success.

Existing in one form or another for years before eventually becoming obsolete, the DVD player, which obviated the legal problems of the VCR by not permitting recording, was still limited as a commercially viable means of viewing content, but the reasons were as much economic as legal.

After the Sony decision, electronics manufacturers shifted resources away from video recording and playback technology and into areas less constrained by copyright law. In the 1980s Sony and others briefly experimented with ‘quasi-VCRs’, devices that could play pre-purchased videocassette tapes but that lacked a recording capability. But they were ultimately abandoned after being declared economically unfeasible. The main purpose of the VCR was, after all, to allow users to record programming to watch when they otherwise couldn’t. No one was distributing movies on videocassettes, and there simply wasn’t a market for machines that couldn’t time-shift programming.

As a result of an extended period of little or no investment in consumer video recording devices, there was a considerable delay between the arrival of the digital age and when the first-generation DVD players hit store shelves. It was a costly delay that gave cable companies a huge head start in establishing their digital customer bases. The bigger problem though was that when the DVD player finally did make its debut, there was simply no infrastructure in place for distributing digital content in a physical format. And before movie studios were able to develop a distribution model that worked on a scale large enough to compete with cable, owning physical copies of movies became viewed as passé; and as antiquated and unnecessary as owning large print libraries.

There was a small window of time in the early 2000’s when sales of DVD players increased modestly—mostly on the promise of providing niche television content and older, more obscure movies that weren’t readily available via cable—but before that potential could be realized the widespread availability of expanded Internet bandwidth unleashed the true potential of cable streaming on-demand services; quickly relegating the DVD player to the expanding scrap heap of obsolete technology.

The Music Industry

In 2013 music is as popular as ever, and the music industry has established a highly profitable distribution model that’s managed to flourish.

Microsoft’s mTunes is the major force in digital music distribution today, the same as it’s always been, but it’s also quickly becoming a one-stop-shop for all types of digital content; from syndicated TV shows to e-books. Microsoft owes its sustained success in this, its core business area, to factors mostly beyond its control; good timing being one of them. The patience and foresight of players in other related fields being another.

When digital music first became a reality in the 1990s, PC makers like Dell, Gateway, Compaq and HP—having learned the hard lessons of the portable electronics pioneers whose dual-deck cassette players (aka “boom boxes”) were pulled from shelves a decade earlier—made the strategic decision to hold back audio file-copying technologies that would be deemed analogous to their banned video counterparts. They therefore limited writable CD drives, or “burners” and hardware capable of copying MP3s and other audio file formats to their business-only computer consoles. To include these capabilities in their consumer models they knew would only invite costly, time-consuming litigation.

At the same time, software companies were partnering with music labels and investing heavily in alternative distribution channels. Without computer technology readily available for consumers to make digital copies of recordings, and with computers getting lighter, faster and more mobile, there was huge pent up demand for digital music. Microsoft, the dominant software company at the time, along with a few dotcom-era survivors like amazon.com were well positioned to make a strategic pivot to meet that demand. In 2001 Microsoft exploded onto the MP3 scene, launching its online music directory as part of a bundle with its new Windows XP operating system. In less than one year mTunes was loaded onto more than half of all consumer PCs in the U.S., creating what seemed like an overnight sensation that exceeded even Microsoft’s lofty expectations. At the same time, with consumer high-speed Internet service gaining critical mass, the conditions were perfect to expand the service to video. And so a year later, mTunes Video was born.

Meanwhile, the consumer electronics industry had been putting the majority of the resources it might otherwise have invested in video recording technology into developing portable digital computing devices instead. The portable MP3 player came first, followed by the smartphone, and finally the tablet; and these devices provided the perfect mobile platforms for mTunes and similar digital music services, accelerating their meteoric rise in popularity. Today new generations of devices are routinely released to coincide with major updates to mTunes, and even cable, the undisputed champion of in-home entertainment, is getting into the mobile act, developing content to stream through mTunes-enabled devices.

The music industry in 2013 is a powerful three-headed monster; with electronics company’s like Sony and Samsung ruling the portable digital device market, Microsoft delivering most of the content via mTunes, and the music labels churning out that content at a record pace—and to the tune of record profits.

2013 is a new and exciting time to be living for sure, but people still have a healthy appreciation for the past. At auction this year a Betamax videocassette recorder fetched the hefty sum of fifty-thousand dollars. The piece is highly coveted by collectors because so few were produced before it was discontinued in 1984. Finding tapes to play on it though, could be a challenge.

The content of this blog is intended for informational purposes only. The information provided in this blog is not intended to and does not constitute legal advice, and your use of this blog does not create an attorney-client relationship between you and The Law Firm of Brian J. Meli. Under the rules of certain jurisdictions, the material included in this blog may constitute attorney advertising. Prior results do not guarantee a similar outcome. Every case is different and the results obtained in your case may be different.