Central Planning Didn't Work In Russia And It Doesn't Work On Your Set-Top Box

from the competition dept

Fri, Mar 7th 2008 7:24pm — Timothy Lee

Here's a roundup of movie-download services -- Apple TV, Vudu, Movielink, Unbox -- all of which have underperformed expectations. This won't come as a surprise to Techdirt readers, as we've panned these products before. And the reasons they've flopped are frankly pretty obvious: high prices, restrictive DRM, and no easy way to move videos to the device of your choice. I won't re-hash those arguments, but I think it's interesting to compare the anemic development of the digital video marketplace with the rapid development of digital audio a decade ago. The fundamental difference is that Hollywood kept a tight grip on the digital video market, while the DMCA didn't come along soon enough to give the music industry control over digital music. They tried to outlaw the MP3 player, but because there was no DRM involved, they lost in court, and the result was the flowering of innovation that led to the iPod and other MP3-based devices.

There's still something of a mystery here, though: most video download services are not just bad but spectacularly bad. For example, Hollywood sunk $100 million into Movielink before giving up and selling the whole mess to BlockBuster for $20 million. Even assuming that Hollywood wants to limit how its content is used, it's obviously not in their interests to make things this crippled. So what's going on? I think a key insight is offered by an excellent paper that Columbia law professor Tim Wu wrote a couple of years ago called "Intellectual Property, Innovation, and Decentralized Decisions." Wu's basic insight is that too much centralization of control over any one part of the economy can lead to poor decision-making. In an extreme case, such as Soviet Russia, a government can try to run a whole economy by central planning. But the same principle applies on smaller scales. The modern cell phone industry, with half a dozen competitors, is evolving a lot more rapidly than the old Ma Bell monopoly used to. And on the other hand, there's a lot more innovation going on in the open Internet than locked-down networks of cell phone companies. (Apple doesn't seem about to change the walled garden wireless model.)

The same principle applies to the digital video marketplace. Right now, Hollywood has veto power over innovations in the video space. They've made some dumb mistakes, like charging too much and mandating the use of DRM. Unfortunately, thanks to the DMCA, competition hasn't had a chance to kick in. People can't route around Hollywood by using DVD-ripping software the way they routed around the record labels in the 1990s using CD rippers. So if somebody has a great idea for a digital video product, they have to go begging to Hollywood before they can implement it. But Hollywood isn't run by technologists, so they make bad decisions. And because nobody else is allowed to enter the market without their permission, the whole world suffers for it.

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Filed Under: central planning, drm, movie downloads

35 Comments

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Gary, 7 Mar 2008 @ 8:49pm

"...restrictive DRM,..."

Isn't that redundant? The R in DRM stands for "restriction."
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Mark Tomlinson, 7 Mar 2008 @ 8:53pm

"Unperformed expectations"? Perhaps you meant "underperformed expectations"?
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Michael Long, 7 Mar 2008 @ 8:58pm

Hollywood?
So we have central planning, and it's bad, because "Hollywood" makes all of the decisions?

So Fox, and Universal, and MGM, and Sony, and Disney, and Paramount, and Lionsgate, and Dreamworks, and Warner, and all of the other studios move in lockstep with one another?

Huh. That explains all of the defections and musical chairs and backstabing that occured over Blu-Ray and HD DVD. And why I can get Warner TV shows on iTunes, but not NBCs. And why I can rent Universal movies, but not NBC TV shows. And so on...

Saying "Hollywood" is engaged in central planning about as meaningful as saying "Silicon Valley" is engaged in central planning. Each area is comprised of individual companies that bob and weave each according to their own ideas of what consitutes their own best interests.
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Anonymous Coward, 7 Mar 2008 @ 9:03pm

Re:
Gary: DRM actually stands for "Digital Rights Management."
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TechEdge, 7 Mar 2008 @ 9:03pm

First Catestropic Failure..
You forgot Circuit City and Divx (Digital Video Express). It was funded by Entertainment law firm "Ziffren, Brittenham, Branca and Fischer" and Circuit City. Circuit City, being publicly traded, revealed it lost $114M in the venture.

Digital Video Express (DIVX) also appeared on PC World's list of "25 Worst Tech Products of All Time" in 2006 (as a "Dishonorable mention").

It's only a matter of time before ALL DRM has the same fate as it's parent.
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Anonymous Coward, 7 Mar 2008 @ 9:10pm

And the cars are so advanced in Soviet Russia, they drive themselves!
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Lawrence D'Oliveiro, 7 Mar 2008 @ 10:53pm

People Will Route Around Hollywood
The US is not the dominant source of culture in the world. Where's the biggest movie industry in the world? Mumbai, India. There are other choices of content. You may laugh, but once upon a time people laughed at the idea that the US could rise to challenge Europe. It took about a century for that to happen; now it's the turn of the Asians.
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Smart Alec, 8 Mar 2008 @ 12:20am

Re:
It's a tautology
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John, 8 Mar 2008 @ 1:41am

Re: DRM
The R in DRM stands for Digital Right Management, not Restriction.
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Tim Lee, 8 Mar 2008 @ 6:00am

Re: Hollywood?
My point is that none of those studios should be able to control what features consumer electronics companies can include in their products. No, the studios' demands aren't identical, but they impose similar—and similarly harmful—requirements on the CE industry.
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Amby, 8 Mar 2008 @ 7:05am

DRM
There are no 'rights' in DRM, only restrictions, whatever the original acronym.
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Anonymous Coward, 8 Mar 2008 @ 9:30am

What a Joke
They should take lessons from The Pirate Bay. One can get as many as 10 movies/day, no DRM issues, most are not on dvd yet, some are still playing.

There is no way to compete for Hollywood, they have already LOST.
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Anonymous Coward, 8 Mar 2008 @ 10:00am

Control what becomes popular
I don't think Hollywood sees what's going on as a loss at all, because they're not interested in the pennies (relatively speaking) they're losing by maintaining tight control over distribution. Their interest lies in exactly the same thing as the record labels/RIAA: keeping enough control to be able to continue to decide what will become popular and what won't, so they can have the greatest chance of making money on the projects they put the most money into. It doesn't work 100% of the time, but determining how much availability there is for any and all movies people are going to have a choice of, does give them the most control they can hope for in pre-determining what movies are going to be the most profitable. It's exactly the same for the record labels: they want to be able to control the availability of music so the artists they put the most money into promoting will give them a good return on their investment! They're not interested in whatever money they might be entitled to according to copyright laws -- copyright manipulation has little to no direct effect on how much money they make -- the real use they make of copyright laws is to give them control over what is most available to consumers. That's where the big money lies. (Unfortunately, that's something that obviously never occurred to the people who first made up the idea of there being such a thing as a "copyright").
Don't think Hollywood is being stupid or losing out by not taking advantage of digital distribution! They're neither stupid nor going about things the wrong way, for their goals. They're doing everything right! They are succeeding in maintaining the control they're after.
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Jason, 8 Mar 2008 @ 11:09am

Ripping DVDs
This comment "People can't route around Hollywood by using DVD-ripping software the way they routed around the record labels in the 1990s using CD rippers." strikes me as incredibly uninformed. There are a variety of DVD ripping applications out there that allow people to bypass all types of DRM on DVDs. Users are already building sizable libraries of movie content from their existing DVD collections (or other sources) as they shift towards the hard drive with an HDMI output model of watching content on large screens (Apple TV, Netgear EVA8000, etc.). Most people think that, as with CDs, once you own something, you should be able to view it in whatever way you like and that any efforts to add new layers of restrictions will only be met with new innovations to get around them.
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Hellsvilla, 8 Mar 2008 @ 12:00pm

Re: Re:
Gary: DRM actually stands for "Digital Rights Management."

That's an example of doublespeak there for you. Read 1984, then come back here with a straight face and try to say that again.

THEY SAY it stands RIGHTS but it MEANS RESTRICTIONS.
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Sarcastic (MS)Sam, 8 Mar 2008 @ 12:22pm

the real thing drm stands for from the superbly re
(D)ouchebags (R)eaching desperately for (M)oney....
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Kaeles, 8 Mar 2008 @ 1:56pm

I'm assuming all the people saying the R in drm standing for restriction are being sarcastic, but I'm going to say this anyway.

The reason DRM is digital rights management, is because its trying to protect the rights of the distributer of the digital content.

Use your brain people.
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Rob, 8 Mar 2008 @ 2:51pm

"Central Planning Didn't Work In Russia And It Doesn't Work On Your Set-Top Box..."
...and it doesn't work at Apple either. Someone tell Uncle Steve to try a different tact.
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joe schom, 8 Mar 2008 @ 2:55pm

netflix subscription + dvd shrink 3.1 = movies on my schedule
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Alex, 8 Mar 2008 @ 2:55pm

Re: Gary
DRM stands for digital rights management
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Rekrul, 8 Mar 2008 @ 3:27pm

Where's the biggest movie industry in the world? Mumbai, India.

And the last world-famous blockbuster to come out of Bollywood was...? They might technically have the largest movie industry, but at the moment, I can't think of a single movie produced in India that has had a world-wide debut. I'm sure there are probably some, but I can't think of any.

This comment "People can't route around Hollywood by using DVD-ripping software the way they routed around the record labels in the 1990s using CD rippers." strikes me as incredibly uninformed. There are a variety of DVD ripping applications out there that allow people to bypass all types of DRM on DVDs.

And every last one of those applications is illegal to sell or use in the USA because they bypass the (weak) encryption on the DVD, which is a violation of the DMCA.

I'm assuming all the people saying the R in drm standing for restriction are being sarcastic, but I'm going to say this anyway.

The reason DRM is digital rights management, is because its trying to protect the rights of the distributer of the digital content.

Two points;

1. It only stands for "rights" if you believe that the content creators have the right to restrict what you can do with their content beyond what the law normally allows. For example, region codes are a form of DRM. Do the movie studios really have the "right" to keep me from playing a LEGALLY purchased DVD from another country?

2. DRM completely and utterly fails to "protect" the rights of the content creators and only annoys honest customers. Case in point; The movie Across the Universe was available on the net as a "ripped" copy several weeks before the US release of the DVD. The DRM clearly didn't do anything to prevent the film from being illegaly distributed. On the other hand, I know someone who bought the deluxe 2-disc edition and it won't play in his slightly older DVD player because of the additional DRM that Sony placed on the disc. I could easily copy the DVD and remove the DRM, but that would be illegal under the DMCA. Since the store won't take back DVDs once they've been opened and Sony didn't offer to refund his money, he's stuck with a movie he can't play. What "rights" are being protected? Sony's right to rip people off by selling them an intentionally defective product?

Regardless of what the acronym officially stands for, there's no denying that the entire purpose of DRM is to restrict what customers can do with the products that they've legally purchased.

Since when did corporations gain the "right" to control what I do with a product once I've paid for it? Does GE get to decide whether or not I can store pork products in my refridgerator? Can Panasonic have the final say over whether I'm allowed to watch porn on my TV?

So why do the content industries get to dictate where and how I can watch the content that I've paid for?
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Tim Lee, 8 Mar 2008 @ 3:34pm

Re: Ripping DVDs
Well sure, but tools for doing so are only available on the grey market. Companies like Apple can't bundle them into commercial products like iTunes. And this shuts out a large number of people who lack the knowledge to download, install, and use Handbrake.
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Tse (profile), 8 Mar 2008 @ 4:23pm

Re: "...restrictive DRM,..."
> Isn't that redundant? The R in DRM stands for "restriction."

Not everyone knows that. They know what DRM does but might not know what it actually stands for (hell, I didn't). I think it's completely in place in a general article like this.

Tse
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Tse (profile), 8 Mar 2008 @ 4:27pm

Re: Re: "...restrictive DRM,..."
>> Isn't that redundant? The R in DRM stands for
>> "restriction."

> Not everyone knows that.

...and here we see a perfect example of how stupid the average end-user can be; I still don't know that :D

Tse
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Anonymous Coward, 8 Mar 2008 @ 5:36pm

Re:
And the last world-famous blockbuster to come out of Bollywood was...? They might technically have the largest movie industry, but at the moment, I can't think of a single movie produced in India that has had a world-wide debut. I'm sure there are probably some, but I can't think of any.

So what's your point? That you're ignorant?
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Anonymous Coward, 9 Mar 2008 @ 5:38am

Re: DRM
Every person here knows what DRM does. Not everyone knows the actual term for it. You're among friends here, you can stop preaching now.
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Anonymous Coward, 9 Mar 2008 @ 1:25pm

#25
That was uncalled for. Can you think of (not look up on IMDB) any world-famous movie, or for that matter, a movie famous in Asia put out by India? No, you can't and you never will be able to in your life time unless you're 6 years old and live to be 100.
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Rover Bob, 9 Mar 2008 @ 4:13pm

Re: Re: DRM
I think every body understands that!
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Alex, 10 Mar 2008 @ 5:47am

Re: People Will Route Around Hollywood
Bollywood is huge in terms of bulk, but... when it was last time you saw an Indian movie making it outside of India?
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YouKnowNothing, 10 Mar 2008 @ 6:21am

"And because nobody else is allowed to enter the market without their permission, the whole world suffers for it"

I think the world suffers a lot more from the yearly outpouring of utter shyte that oozes up from Hollywood. We're all better off NOT watching it.

But I understand the point, nonetheless...
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Overcast, 10 Mar 2008 @ 6:41am

If the MPAA would have had their way - we wouldn't even know what a VCR is. The only way we'd be able to watch a movie is actually going to the show, or watching it sliced and diced up on AMC 7 years later.

Which is good huh - after all, Hollywood made a lot more money at the box office than on VHS in those days.

LOL
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Overcast, 10 Mar 2008 @ 6:44am

Still the funniest thing - after thinking of it all - that the MPAA and RIAA are doing, is cutting out their own potential for profits exponentially.

But they are too stupid and uninnovative to realize that.

If Radio sells music, VHS sells movies, and library's sell books (in the END we all know that's the NET result) then why wouldn't easy to use digital movie technology do the same for the Movie industry?
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bshock, 10 Mar 2008 @ 8:29am

Re: Re:
No, Big Brother wants you to think it stands for "Rights" instead of "Restrictions," just as War is Peace, etc., etc.
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Rekrul, 10 Mar 2008 @ 6:33pm

So what's your point? That you're ignorant?

Perhaps you could help me spot the Bollywood movies on this list;

http://en.wikipedia.org/wiki/Highest_grossing_films

What was the last Bollywood movie to make over $500 million worldwide?
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Anonymous Coward, 15 Mar 2008 @ 9:06am

Re:
They're not stupid at all! They know exactly what they're doing. They want to totally control distribution in order to do the best they can to predetermine what is going to become popular! They want to make the greatest possible return on their investment (the key word there is "investment"). They have to pick ahead of time which project to pour their marketing finances into, so they want to do everything in their power to make that huge marketing investment pay off. And that's less likely to happen when they do not have the absolute control over all distribution they've come to depend on.
They are not the least bit stupid. As long as you keep thinking all they're interested in is gross dollar amounts -- with no regard to the investment-in-marketing side of the picture -- you're never going to be able to understand and eventually defeat the enemy.
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