Netflix's Move From DVDs To Streaming Shows The Massive Value Of First Sale Doctrine
from the those-exceptions-are-important dept
We've pointed out many times in the past that exceptions to copyright (such as fair use and the first sale doctrine) may actually be a lot more important than copyright itself in "promoting the progress." For example, we've highlighted CCIA's study that uses the identical methodology used by the entertainment industry to claim that copyright contributes $1.52 trillion to the economy to show that exceptions to copyright law (again, things like fair use and the first sale doctrine) contribute significantly more. However, have we ever really quantified specific exceptions? We recently covered how the movie studios were upset about Netflix, and demanding much higher fees for allowing streaming -- and that actually highlights how damaging a loss of those copyright exceptions can be.Edwad Epstein has a post over at TheWrap.com pointing out the massive differences in costs facing Netflix between buying DVDs that it can rent by mail and licensing movies for streaming. The key issue: the first sale doctrine. If Netflix wants, it can buy DVDs from any particular source and then use them in its business. It need not get any licenses with the movie industry. Yet, for streaming, there is no first sale situation, so it needs to license. And the differences in costs to Netflix are substantial. Epstein notes that it costs Netflix about $15 to buy each DVD, but to license a single movie title the industry wants $16 million for a two year license.
Where Netflix can buy 10,000 copies of a major title for $150,000 to mail out, it will need to spend about $16 million to license it for streaming. Such a hundredfold increase in price can obviously be deleterious to profits especially since Netflix still has to maintain its mailing centers, and buy DVDs, for the subscribers who elect to continuing using the mail-in service either because they prefer DVDs’ higher quality and features or they don’t have the apparatus to receive digital streaming.First of all, $16 million for a single title? Yikes. Someone please tell me that's only for the really big titles. But, even if the numbers are slightly off, think about the obvious impact here. When you make the product much more expensive, you're definitely going to limit its availability to the public. Netflix will either choose to stream fewer movies or it will have to increase its own prices, creating a net loss for the public. In this case, the right of first sale allows Netflix to bring the cost of doing business down by an order of magnitude, since it is not wholly locked to the studios.
Of course, it's a little more complicated than that. As we've seen with Redbox kiosk DVD rentals (and, to a lesser extent, Netflix), the movie studios have worked hard to get around first sale rights, by telling wholesalers not to supply DVDs to DVD rental companies if those companies won't cough up some sort of revenue share plan. Those actions (which certainly seem to violate antitrust laws) suggest that the studios recognize how much value there is in killing first sale rights.
But as a society, this should concern us greatly. The move to digital actually allows the studios (and other content producers) to effectively kill off such first sale rights. We've seen this in other industries as well. There have long been questions about whether or not you can sell an iTunes song you legally purchased -- and the video game industry has been so desperate to kill off the secondary market, that it's quite excited about the move to digital.
This should be a concern for everyone, however. Studies have shown that a robust secondary (used) market actually helps drive the primary market and makes it larger. If you know you can resell something you bought, it makes you more willing to buy it (minimizing your risk) while also increasing the value of the product (since it can bring in some money on the back end). Yet, in the big content business's short-sighted attempts to kill off the secondary market by going digital, they may do harm to the primary market as well.
Of course, the real issue is going to be that, one of these days, someone's going to test the first sale rights on digital goods too, and I would imagine that there will be quite a giant lawsuit around that.
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Filed Under: buying, copyright, dvds, first sale, licensing, movies, streaming
Companies: netflix
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Meh.
Only if you actually pay attention to this crap.
Er, as we all do, of course.
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The Average Schmuk On The Street
As our rights have been continually eroded over time with little push back from the TASOTS (The Average Schmuck On The Street)I don't see this as making any difference.
ACTA and other rights restrictions just like the health care law is meant to take away your choices and control your behavior.
Get used to it.
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direct download
The record industry allowed itunes to grab the song download market. I am surprised the movie companies will do the same.
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Re: direct download
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Theft
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Maybe off topic: Netflix as streaming-only
How many other folks will find the streaming-only plan to be not very useful? How will the affect their profits?
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Re: Maybe off topic: Netflix as streaming-only
As far as profits are concerned, think about it this way. It costs NetFlix something like .05 cents an hour/stream, it costs them 90 cents to send you a disc round trip. That is why they limit how many disc you can get in a month.
I don't know where the 16 million came from, but last I heard it was 600K per year for a movie.
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Re: Re: Maybe off topic: Netflix as streaming-only
1. Roku (has lots of extras, for instance I run a home movie server.
2. Wii(i like being able to point)
3. Computer(doesn't sit on lap well)
4. Disc Player(not very good search)
5. Xbox (I shouldn't have to pay a fee to use my toy)
Unranked Ps3(never played with one)
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Re: Re: Re: Maybe off topic: Netflix as streaming-only
I do it all the time. My PS3 in the bedroom streaming one movie while the kids downstairs stream a different one and the GF streaming one from the study on a PC.
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Re: Maybe off topic: Netflix as streaming-only
I just got two Roku boxes a couple of weeks ago and I absolutely love them. I'm ordering another one tomorrow (free shipping this weekend from Roku). I'd say look at what's available and decide whether you like the selection. Between Roku, Hulu, and Amazon on Demand, my TV needs are more than met.
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Re: Re: Maybe off topic: Netflix as streaming-only
That's the problem with ANY format shift. Some things might be left behind because they aren't considered popular enough or whatever other excuses can you can come up with.
Netflix is a rental service. If I can't control what I watch, then I might as well be subscribing to cable.
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Re: Netflix producing movies
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$15 for DVD? HUH?
So they pay no licencing fee for ability to rent? Can I do this...legally?
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Re: $15 for DVD? HUH?
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Re: Re: $15 for DVD? HUH?
This is, perhaps, why the rental market is rather different here in the UK; there is no Netflix etc., and the attempt to set something similar up didn't last long - but Blockbuster (which recently folded in the US) seems to be going strong, presumably through lack of competition.
Interestingly, this is pretty much the complete opposite of EU law on the subject, where renting and loaning *are* restricted by copyright (the 'first sale' idea wouldn't work anyway as the data copyrighted cannot be owned or sold - at least in the UK). There is even a thing called the "Artist's Resale Right" that means anyone selling certain physical objects in which there is copyright, in a certain way, must pay a royalty to the copyright owner.
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Re: $15 for DVD? HUH?
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Right now, format shifting is 100% legal, the location of the DVD is irrelevant so long as netflix accounts for every DVD it owns and is not allowing the same DVD to be used by 2 customers at the same time. Courts have also said that a DVR at home or a DVR at the cable company is 100% legal.
Why cant Netflix buy DVD's from Wall-mart assign a unique key for each DVD it owns, put them in a giant DVR and stream that data to its customers. Thus when a customer locks a unique copy of a given dvd for streaming he is simply using his rights to content shift and remote DVR.
Finally, Most equipment that can handle Netfilx can also play DVD's. Thus its equipment that is authorized to decode DVD's. The DVD need not be physically located inside the player for the player to use its software decoding ability's and as such (at least till someone buys out the DVD lobby) You could just transmit the encrypted file and let the player decode the data.
Now the price on the other hand makes some sense, Netflix has X customers, of those y% will watch a given movie. Netflix has spent large amounts of money to figure out what its customers like and can use that data to say that hit movie will most likly be enjoyed by Z amount of people.
Hollywood takes this and says, if we rented via blockbuster we would earn x, to earn the same value of x we demand 15 million.
All it will take is some creative accounting, a tracking system, and paying "shoppers" to run out and by lots of DVD's of a given movie from retailers (most of whom will not have a contract with the studio) and you can get around the licence issue.
I say Netflix needs to come up with how much it would cost to do this, take that to Hollywood, and tell them, "We'll just buy copys at retail if you attempt to charge such insane prices."
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But a reasonable solution could be that if they buy (license) say, 10,000 copies at the dvd price, then they can stream up to 10,000 simultaneous showings of a movie.
It wouldn't be too much of a hardship for viewers to understand that all the available films are being watched at some particular time and Netflix could manage their purchased to meet demand just like they do now with physical dvds.
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I do agree that it would be cheaper for Netflix and the customer this way and should increase the streaming selection. The lesser of two evils?
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Re: Comparing Apples to Bicycle Tires
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Why to TV stations not just go to Blockbuster, rent a DVD, and broadcast it? After all, they are making only a single broadcast? The answer lies in the distribution rights granted when you purchase a DVD, and all the rights that exist under law for both the rights holders and the buyers.
The physical discs limit the number of plays per unit (maybe 5 or 6 cycles per month), where steaming is limited only by the ability to stream. While a DVD might get 30 plays in it's life, streaming could be for tens of millions of people. It is a different product, and different delivery method.
When you look at the potential in streaming (an unlimited number of views on any day), the actual license fee is low.
What I don't get is this: If you read Epstein's piece closely, you will realize that the problem isn't licensing fees, but rather that Netflix is moving into a market place where they actually have competition with a lower price structure, and that their legacy DVD distribution system is what hurts them the most. If anything, they appear to be suffering the classic market disruption, and the only way out is to move from their relatively safe little pool into an ocean filled with sharks.
Netflix streaming will end up competing with the studios, the broadcasters, the cable movie channels, PPV providers, and a myriad of those technologies that are coming to bring content to your home. It is a typical middle man squeeze, Netflix is a middle man aggregation business that only works when there is not a cheaper option. With streaming, there is a cheaper option, and studios (and TV networks) can go "customer direct" with no need to deal with Netflix.
I am surprised that nobody at TD noticed this.
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Would Netflix be willing to face the inevitable lawsuit when they rip all of the DVD's in their collection and stream them out to customers? If they had 20,000 copies of a DVD and limited the stream to 20,000 IP's at a time would they fall on the legal side of the law? Would first sale protect them then? I would assume not or they have done this already.
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No, there will be a successful middleman/aggregator, and it won't be studio-controlled, because they would just F it up. Netflix is in a great position for continued success IMO.
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Its ok.. they're fighting a losing fight.
I generally use the rule, download illegally first, and if the game/movie/show is really good enough to want to spend money on for some higher quality, I consider buying it. Truth is normally I don't get to that point as most of these things aren't worth the hard drive space they take up.
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antitrust laws..
16 million for streaming per movie?????? they are so greedy it's unbelievable.
I don't bother with Netflix - I just watch it on Cable or if it's really good I buy the DVD.
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Re: antitrust laws..
16 million for streaming a movie, all day, every day, for 2 years. That is about $22,000 per day, for essentially an unlimited number of viewers.
Second, if you are watching it on cable, well,you are still paying for it. You pay the cable company, and the cable company pays to carry the channels, and the channels pay for the content. So at the end of the day, you aren't sticking it to the man, you are just paying him in a different way at a different time.
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Re: Re: antitrust laws..
For one movie. That doesn't strike you as an enormous amount of money? To stream 10,000 titles (less than half their library I think) would cost $220 million a day. 80 billion dollars per year. You see the problem?
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Surprising
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Netflix ++
§ 106. Exclusive rights in copyrighted works38
Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: .....
(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
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Re: Netflix ++
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16 Million sounds like a lot
Given the unabashed greed of the movie industry I though they would want even a better deal like $16 Million PLUS 98.99% of Netflix's gross.
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If anyone has any doubt...
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First Sale dead anyway... ALL movies to cost $16 million!
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