more on News Corp's Peter Chernin: "The Problem with Stealing"

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: "Robert M. McClure" <rmm () unidot com>
Date: Sun, 24 Nov 2002 14:37:22 -0700
To: dave () farber net
Subject: Re: <[IP]> News Corp's Peter Chernin: "The Problem with Stealing"

Dave,

I was fascinated by the speech by Peter Chernin that you recently
circulated.  Although slickly written, Mr. Chernin clearly was
either misinformed or was intentionally dissembling.  I will be
charitable and claim he was misinformed.  But perhaps worse, his logic
is sufficiently flawed that it compels me to disect some major parts
of his talk.

Please bear in mind that I am 1) a strong proponent of intellectual
property rights, 2) an ardent supporter of the Constitution of the
United States of America, 3) agree that piracy is a problem, a crime,
and is morally wrong, 4) of the opinion that the movie/music
industries commercial rights do not trump my rights, and 5) also
of the opinion that that is exactly what the movie/music industries
are trying to do.

The much heralded downturn in CD sales has as least two roots.  First,
of course, is the general economic downturn.  Just ask the airlines
about that (and they don't suffer from pirates stealing free tickets).
Second, something of a market saturation has set in.  A lot of us
rebought large libraries of music that we had formerly bought on
vinyl, but largely stopped when that was complete.  It has also been
noted that the 16-30 year old crowd is the prime market for CDs
and that demographic segment is not growing as it did for many
years.  Clearly, some of these factors are as important, or even
more so, than piracy.

> ... the rash of stealing that
> currently  and seriously  threatens us both.  Because of all the things
> that unify technology and media companies, we have nothing more urgently
in
> common than the escalating theft of our products.  The piracy of software
> is responsible for annual global revenue losses of more than $4
> billion.

This figure is commonly bandied about but I have never seen any methodology
to back it up.  I suspect that it is arrived at, more or less, by valuing
each pirated copy at full retail value and the number of pirated copies
being
inferred from the number of computers sold.  This evaluation flies in the
face of the likelihood that many if not most users of pirated software
would not or could not pay full retail price.

> The piracy of computer games cheats the gaming industry out of
> more than a billion dollars a year.  And the piracy of songs has left the
> music industry fighting for its digital life, thanks to a pillaging that
> reached levels of more than a billion songs a month. Now the motion
> picture business is facing the same threat as hundreds of thousands of
> movies are digitally hijacked every day.

Let's calculate now:  I billion songs a month is 12 billion songs per
year.  At 12 songs per CD, and a CD at $18, that is a loss of $18 billion
per year, right?  Now on to the movies, 200,000 per day at say $15 per
movie is another billion per year.  Considering that the music biz and
the movie biz gross about $40bn per year each, it might seem that the
estimate for music is much too high and the estimate for movies too low.

> It's wrong because it debilitates legitimate businesses.  When illegal
> versions of Windows XP are made internationally available two months
before
> its launch; when $50 computer games can be bought on the Asian black
market
> for the equivalent of 75 cents; and when motion picture files are stolen
> and shared online as soon as the movies hit theaters  and often
> before  then legal digital trade simply doesn't stand a chance.

Legal digital trade seems to be doing fine, with Microsoft doing about
$40bn all by itself, and selling well even in China where piracy is known
to be rampant.

> But more than anything else, digital copyright theft is wrong because
it's
> destroying the ability of the technology industry to evolve.

The past few decades have not produced any evidence whatsoever that the
technology industry has lost any ability to evolve and innovate.

> How has it taken years of robbery in broad daylight and annual copyright
> losses of around $8 billion to bring the interests of media and
technology
> companies together in the same room?

Now where did $8bn come from?  Out of thin air I suppose.

> If hundreds of thousands of dresses were stolen from a Wal-Mart, the
police
> would mount a task force that would make Winona Ryder quake in her boots.

Hard goods and software are by no means comparable.  Intellectual property
theft is characterized by the possiblity that if it is stolen, you still
have it.  Much as if someone went into a WalMart and took a photograph
of thousands of dresses.

> If hundreds of thousands of books were stolen from libraries in a single
> day, school and library officials would immediately institute a security
> system that would make casino security at the Belagio look lame.

Another bad analogy.

> And if hundreds of thousands of movies were shoplifted from video stores
> instead of web sites, no one would be defending the shoplifters with
claims
> of personal freedom or excuses for the harmless highjinks of the young.

But they were, simply by renting them and making copies.  And the movie
industry had a conniption fit.

> The three most inaccurate and most popular of these misconceptions I
> would call the Dinosaur Theory, the Big Bully Theory, and the
time-honored
> theory of Screw the Suits.

Three most popular possibly.  Three most inaccurate? -- read on.

> The Dinosaur Theory proposes that media companies object to illegal
> downloading because we're simply and stubbornly anti-technology.  Our
> opposition to piracy is nothing more than a distrust of innovation in
> general:...

> The truth, of course, is pretty exactly the opposite.  Not only have
> creative content industries embraced and thrived on new technologies  we
> have been central to their birth and their success throughout our
> history.  It is the pioneering of special effects by filmmakers that has
> revolutionized computer graphics and audio-visual technologies.

> In fact, it would be hard to find an industry that has proven more eager
to
> expand and develop in order to capitalize on emerging technologies than
the
> media business.

The movie industry has been reactionary since its inception.  Mr Chernin
has chosen to avoid any investigation of its history.  Not only has the
industry not welcomed or even accepted technological change, it has
also been resistant to artistic change.  From the days of the Motion
Picture Patents Trust, through the advent of sound, the development of
color photography, the emergence of radio and television, and the consumer
VCR, the motion picture industry has fought them all tooth and nail.

In the early days of television, for example, contract actors and actresses
for the studios were forbidden to put in even a brief appearance on the
small screen.  And most of you probably remember that Universal and Disney
filed a lawsuit against Sony in 1976 claiming that home video-taping for
the purpose of time-shifting was a gross violation of their copyrights and
in no way fair usage.  (The Supreme Court in 1984 decisively ruled that
such usage was fair usage.)  It is the height of absurdity for the movie
industry to claim that they are "eager to expand and develop in order to
capitalize on emerging technologies".  [For the record, I was a member
of the Society of Motion Picture and Television Engineers for 40 years
and watched a lot of this first hand.]

> And the second most popular theory, the Big Bully Theory, is no more
> valuable or accurate.

> The Big Bully Theory holds that by opposing digital copyright theft,
> content providers are looking to roll back the rights and privileges that
> consumers have come to enjoy  and to overturn the principles of fair use
in
> favor of our own unfair agenda.

> The fact is that we have never had any such interest or agenda.
> Subscribers to the Big Bully Theory may be surprised, for example, to
learn
> that we have no objection to anyone making copies of televised content,
> whether aired on free or pay TV, whether analog or digital, whether
> recorded on a PVR, a VCR, through TiVo, or with the help of any other
> device geared to the viewer's convenience.

Please, Mr. Chernin, revisit the Betamax case referred to above and
repeat that last paragraph with a straight face.

> We'd also be idiots to want to overturn fair use; which is why, as media
> companies, we are its number-one defender  in large part because we rely
on
> it every day.  Fair use is what allows us to quote movies in our film
> reviews and to show any footage on the news that we did not actually
shoot
> ourselves.  Far more important, fair use is crucial to the operations of
> academic institutions and libraries; as publishers ourselves, we are
keenly
> aware of that need.

Since several studios sued to tag time-shifting as copyright infringement,
we can only agree to Mr. Chernin's statement that they are idiots.  The
reality is that they like fair usage only when they would like to use
other's works.  And the court records of full of cases in which they
could not agree among themselves what was fair usage.

> Of all the theories that may have defended  and extended  the spread of
> digital content theft, my personal favorite would have to be the theory
of
> Screw the Suits.  According to this theory, illegal downloads and illicit
> file-sharing are nothing more than rebellious slaps at the rich idiots in
> slick Hollywood offices who basically had it coming.

Here he has a slight point.  A number of people seem to feel that they
are being ripped off and therefore have a right to steal.  My own feeling
is that they have a right to abstain.  There appears to be some evidence
that they are, in fact, doing just that.  There seems to be a lot more
selectivity in the music listening and the movie going than just a few
years ago.  Part of this might be driven by the economic situation, but
some of it is probably old fashioned price elasticity.

> The truth, of course, is a little different than that.  The creation of
> films is far more labor-intensive, more inclusive, more personal, more
> passionate  and for that matter, more technologically artistic  than most
> people know.

Certainly that is the case, but the economics are driven by the staggering
amounts of money paid to the super stars.  As has been pointed out in
a number of business publications, the basic business models for both
the movie and the music industries are broken and need some serious
thought.  Rather that make the effort to do that, however, it is clear
that the course chosen is to try to sustain the current model as long
as possible, even at the cost of not only sending some big names in
the entertainment business to the dust heap, but doing serious damage
to the computer industry along the way.

> The cable and satellite television industry was basically stillborn in
> 1980, a victim of the kind of uncontrolled piracy that we face now.

Mr. Chernin is not reading his history right.  The cable and satellite
television industry has shown a very steady growth since its inception
and was *not* stillborn in 1980.  Most of the very early problems were
due to chicken or egg problems, as early programming was advertiser
driven like over-the-air TV, and there were not enough viewers to
provide the needed revenues.

> It was only once encryption was put in place in the mid-1980s that
content
> providers felt confident contributing their best programming, technology
> providers dedicated themselves fully to maximizing those programs, and
the
> cable and satellite TV industry took off.  Today Wall Street analysts
> estimate that cable and satellite TV represent a $300 billion worldwide
> industry  a figure that far exceeds the market value of the Internet, for
> example  as subscribers continue to grow by more than 10 percent a year.

The figure iof $300bn per year is suspect.  I have not been able to verify
anything like that.  And the comparison of the cable and satellite TV
industry
to the Internet is comparing apples and oranges.  If true, however, the
loss of $10-20bn to piracy is much greater than what the retail industry
suffers in "shrinkage".

> The DVD industry also grew out of piracy.

Balderdash.  The movie industry also fought the DVD hammer and tongs.
The DVD grew out of the computer technology industry.

> The market for DRM software
> has the potential quickly to exceed $4 billion, purely on the strength of
> high-quality content and the science of its protection.

Mr. Chernin might not like to admit it, but the worldwide technology
industry is far more important to the world's ecomony than the world
wide entertainment industry.  Further, the technology industry is not
likely to want to jeopardize its future by making video recorders,
satellite receivers, computers and/or software more difficult or
unpleasant to use.

Bob McClure



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