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

from the competition dept

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.

Filed Under: central planning, drm, movie downloads