By Jane Black Ken Potashner says he doesn't want to antagonize the entertainment industry. Really. But the straight-talking CEO of consumer-electronics maker SONICblue (SBLU) has made more than his share of enemies in the music and movie businesses. SONICblue sells the most popular MP3 player, Rio, which broke new ground by giving listeners more control over downloadable music. The player also drew copyright lawsuits from the Recording Industry Association of America and the big music labels, which were settled out of court in 1999.
Now, Potashner is drawing fire again. SONICblue's latest product is a digital video recorder, called the ReplayTV 4000. The souped-up VCR has a feature called "autoskip" that allows viewers to bypass all commercials during a recorded program with the click of a button. TiVo, ReplayTV's chief competition in personal video recorders, allows users to whiz through commercials at top speed. With Replay TV's Autoskip, it's as if there were no commercials at all.
Better yet, ReplayTV owners can share recorded programs over the Internet with as many as 15 friends. Broadcasters, cable networks, and all the major Hollywood studios are understandably up in arms -- and have sued SONICblue for copyright infringement.
NEW TARGETS. It would be easy to write off ReplayTV as another technology upstart that will be squashed by the entertainment establishment. SONICblue sold fewer than 5,000 units, which cost anywhere from $699 (for a unit with a 40-gigabyte hard drive) to $1,999 (for a 320-gig drive), during the Christmas season. After all, the entertainment establishment has successfully used the courts to vanquish other new technologies in the digital world. In 2000, the RIAA all but quashed Napster, the peer-to-peer music-trading service, and is now battling to put down its successors: MusicCity, Kazaa, and Grokster.
ReplayTV is no Napster, however. It's a glimpse into the digital future. Experts say it appears that, unlike Napster's technology, which permitted the unlimited downloading and sharing of files, ReplayTV's doesn't constitute copyright infringement. Rather, it's the digital equivalent of a traditional VCR -- albeit one with powerful extra features. As corporate giants, such as Microsoft Corp. (MSFT) and AOL Time Warner (AOL) scramble to develop their visions of 21st century home entertainment, ReplayTV is already giving consumers much more control over when and how content is delivered.
Legal experts say the real issue with ReplayTV is that it attacks the foundation of an established and lucrative business model: paid advertising on television. "This is another round of the traditional and historic battle between entrenched interests and new technology," says Jim Burger, an attorney with Washington (D.C.) law firm Dow Lohnes & Albertson. "All these fights are retrograde action to prevent technology from changing the fundamentals of a business."
COMMERCIAL KILLER. Nowhere is this clearer than in the attack on ReplayTV's autoskip feature. According to the suit's complaint, autoskip "harms the potential market for and value of copyrighted works because advertising is a crucial (and often the sole) means by which plaintiffs receive payment for programming." Susan Duffy, a spokeswoman for entertainment giant Viacom, contends that there's a difference between individual consumer choice and technology that enables people to kill a business model. "If you undermine the value of the copyright, then it's being infringed," she says. What the broadcasters and studios refuse to admit is that consumers have been ignoring commercials for years -- without any technological help.
The objections to program-sharing are just as unfounded, experts say. The entertainment industry disagrees. "ReplayTV takes sharing to a whole new level," complains Duffy. "It's about scale. It's akin to Napster." But unlike Napster, ReplayTV doesn't allow viewers to quickly and easily send files to an unlimited and unknown group of people. It's more of a "friends and family" concept. ReplayTV users can send programs to a maximum of 15 other ReplayTV owners. To do so, they must have the recipient's code, and that person must accept the file when it arrives. The recipient can not send the program along to anyone else.
The case hasn't yet gone to court, and whether ReplayTV's features constitute "fair use" hasn't been decided. Fair use isn't a consumer's right, but a legal concept that ends up being determined on a case-by-case basis in the courts, according to Burger. Sharing a movie with 15 friends may push the limits of fair use. But in theory, it's no different than borrowing a videotape from a friend, some experts say.
SEND ME SEINFELD. Still, the entertainment industry's time and money would be better spent trying to harness the new technology. SONICblue's Potashner says TV broadcasters could offer a service that records every show on every channel for two weeks. Then a customer who missed an episode of The West Wing could send an e-mail requesting a copy of it for a fee.
Another idea is to create a video-on-demand service on steroids. Instead of requiring consumers to order movies through their cable box, an entertainment company could deliver, say, five movies a day based on a consumer's viewing habits and recording history. When the consumer turned on the TV, the device would signal any new downloads available for rental.
The entertainment industry's skittishness about new technology goes back decades. In the 1920s, the Hollywood elite wrote off "talking pictures." It wasn't until 1940 -- 13 years after the debut of The Jazz Singer -- that Charlie Chaplin accepted a role in a "talkie." In the early 1980s, Hollywood battled Sony all the way to the Supreme Court in an effort to ban videocassette recorders. Studios believed videotapes were not only a vehicle for copyright infringement but that they could spell the end for traditional cinemas.
BAD ANALOGY. Motion Picture Association of America President Jack Valenti told Congress in 1982 that "the growing and dangerous intrusion of this new technology is to the American film producer and the American public as the Boston Strangler is to the woman alone." Nothing could have been further from the truth: Today, video rentals account for 46.6% of studio revenues, compared to 24.6% collected at the box office.
SONICblue's Potashner has shown that he has a knack for zoning in on the next big thing. His company's MP3 player has 40% market share and deals with all five major music labels. Isn't it about time the entertainment Establishment stopped wasting time and money trying to use the courts to forestall the future -- and instead embrace the new technology? Black covers technology and the entertainment industry for BusinessWeek Online