By Heather Green
It's hard to muster much concern about something that's likely to happen four years from now on TVs that few people own. But there's reason to make the effort. Right now, entertainment companies want the government to mandate technology that would control how digital TV shows are copied and distributed.
The goal is clear: To prevent the Napster-style pirating that has shaken the music industry. But the way the mandate is written, couch potatoes who make copies of the Super Bowl or The West Wing on the next generation of digital TV sets could find that an anti-pirating program erases them within 48 hours. "This battle is going to affect consumers for the next 50 years," says Joe Kraus, co-founder of DigitalConsumer.org, a public interest advocacy group.
And it's just the latest skirmish in the war over digital music, movies, and books. The entertainment industry's legal victory over Napster, the now-defunct file-sharing sensation, brought precious little relief. File sharers are installing Kazaa, a neo-Napster, at a rate of four copies per second, and they're swapping video- and computer-game software in addition to music. No wonder the music industry blames piracy, in part, for the drop in music sales--which during the first half of this year tumbled 6.7%, to $5.53 billion. And with the growth of broadband, bootleg movies are on the rise.
In congressional hearings on Sept. 26, entertainment industry execs pushed for powerful defenses. They want legislation to enable a host of new piracy protections. And they're pushing for greater leeway in launching cyberattacks against computers illegally transmitting copyrighted files. Congress and the Federal Communications Commission will hammer out a legislative approach to these issues through the rest of the year. "All of our enforcement efforts have been about supporting the value of the legitimate services," says Hilary Rosen, CEO of the Recording Industry Association of America.
These are tough times, and the entertainment industry is right to seek protection. Never before have media companies faced a technology that can make limitless perfect copies of their products and transmit them in a flash. But fear of this digital disaster is pushing the industry too far. From Hollywood to the publishing houses in New York, executives are weighing down their digital offerings with so much legal and technological armor that they could well scare away the public. Want to lend your college-bound daughter a dog-eared copy of To the Lighthouse? Go ahead. But if you try lending her the electronic book version, it's illegal. Dish out $16 for a CD, and you might get a new copyright-protected version that can't be copied onto your PC. So much for your MP3 player.
The risk is that the industry's strong defense will undermine its offense--its attempt to expand its audience with a vast array of digital offerings. Online music, for example, could pull the industry out of its slump, growing from $15 million to $540 million, or 5% of sales, by 2005, estimates Forrester Research Inc. But not many customers will pay for digital downloads if the music costs as much as a CD, or if a song can't be burned onto a recordable disk.
To win customers, companies have to steer a middle course. They must put aside some of their fears and their bent for control. Consumers have the freedom to lend and copy products such as books and CDs. They won't stand for anything less in the Digital Age. The challenge then is to provide freedoms without opening the door to massive, Napster-style ripoffs. Says David J. Farber, former chief technologist at the Federal Communications Commission: "If you made it convenient to buy material and added relatively bulletproof ways to protect it, you'd drum up a huge amount of business." Here are three steps that would help the industry do that:
-- Loosen up on licensing. Web customers won't shop en masse until the selection on legal sites matches those of the file-swappers. For this, entertainment companies and artists need to ease up on licensing. The two industry sites, Pressplay, formed by Universal and Sony, and MusicNet, owned in part by AOL Time Warner and Bertelsmann, withhold licensing rights from each other. Together, the services dish up only 10% of the top Billboard songs. Kazaa provides far more for free.
Licensing woes also are dogging the nascent market for online movies. To be sure, cable programming companies such a Home Box Office and Showtime Networks Inc. have come up with innovative video-on-demand services. But at the movie studios, the zeal to control leads to tentative offerings. Before the end of the year, an online movie site backed by five studios called MovieLink will be launched with only some 150 movies. "This will be a great experiment" says Jack Valenti, president and CEO of the Motion Picture Association of America.
But independents feel boxed out. Last month, Intertainer Inc., an independent movie service, filed an antitrust suit against three studios that back the Movielink service. In time, the studio execs say they plan to license more to each other. A far better solution is to license to everyone. Blockbuster Inc. doesn't belong to one studio or another. But all of the studios benefit from a service that gets their products to customers.
-- Come up with new products and pricing schemes. This means selling smaller pieces, such as songs, short stories, and shows, at low prices. Digital offerings cost virtually nothing to store and ship, and they occupy no shelf space. Companies should break free from the traditional packaging of CDs or books and sell cheaper bits and pieces. This process is under way. Over the summer, Warner Music, Sony (SNE ), and Universal began offering consumers unlimited downloading of singles, either for subscription fees or 99 cents per song.
But online pricing is way off. The reason: Companies look at an online customer as a threat, someone who might stop buying CDs. So they try to set the price at nearly the CD level, even though the costs of online delivery are negligible.
The trick is to consider online as an opportunity, a chance to win back tens of millions of Napster-Kazaa users. This year, about 60 million copies of songs from Nirvana's 1991 Nevermind album will be downloaded from file-sharing networks, according to Web monitoring service Envisional Ltd. If even one-fifth of these people paid 25 cents a song, those downloads would net $3 million, or roughly a third of what the album made annually, says Envisional.
-- Embrace "fair use." This means giving consumers the right to view or listen to a work any way they want, and on whatever device they choose. The industry fears that fair use will lead to billions of perfect copies circulating everywhere. To fend off this risk, publishers are adding lots of digital protection. This is inevitable and should help prevent piracy. But too much of it will discourage consumers.
At the same time, innovators also need fair use. Decades ago, they were free to tinker with televisions and radios. This produced inventions such as the videocassette recorder, which have benefited the industry. But since 1998, the Digital Millennium Copyright Act has prohibited inventors from unlocking copyright protection technology on digital products. Even to open the code on a DVD is a felony. The law should be amended so that thieves and pirates could be prosecuted, while inventors would have the freedom they need.
Debates rage about why consumers' rights should be protected in the digital age. The industry's rights deserve no less consideration. But until media companies give customers a taste of the old-fashioned freedoms from the analog world, the vast digital markets that promise riches will remain largely in the hands of pirates.
Green covers the Internet economy from New York.