This wasn't how it was supposed to go for AT&T. In AT&T executives heads, the 2015, $67 billion acquisition of DirecTV and the 2018 $86 billion acquisition of Time Warner were supposed to be the cornerstones of the company's efforts to dominate video and online video advertising. Instead, the megadeals made AT&T possibly one of the most heavily indebted companies in the world. To recoup that debt, AT&T has increased its efforts to nickel-and-dime users at every opportunity, recently imposing the second rate hike in just a year on its streaming TV subscribers.
Not too surprisingly, these price hikes are now driving subscribers to the exits.
AT&T's latest earnings report indicates that the company lost another 1.16 million video subscribers from its traditional DirecTV and IPTV TV services. The company also lost another 195,000 subscribers from its streaming TV platform, creatively dubbed AT&T TV. All told, AT&T lost another 1.36 million TV subscribers in a single quarter; again not the kind of domination AT&T expected when it decided to merge its way to sector dominance.
Like Verizon, AT&T got bored with simply running quality networks and lobbying to crush competition; both have eyed Google and Facebook ad revenues as they push harder into the video advertising space. But competition there has not been easy going for either government-pampered monopoly, Verizon's own fusion of Yahoo and AOL doing repeated face plants, mostly notably the failure of its Go90 Millennial-focused streaming platform. And while AT&T's had better luck making streaming TV and advertising inroads, these numbers clearly indicate slow sledding.
Even AT&T investors have started to grow impatient with AT&T's obsession with growth for growth's sake. After a bit of an investor revolt, AT&T had to promise it would make no major mergers or acquisitions in the next three years.
AT&T, meanwhile, has been busy trying to hype its upcoming HBO Max streaming service, the latest in an AT&T TV streaming branding effort that's so convoluted, it has confused the company's own employees. Undaunted by recent issues, AT&T's telling anybody who'll listen that the service should grab somewhere around 50 million subscribers by 2025:
"This is going to be a meaningful business for us over the next four or five years and we're talking a 50 million subscriber business and we're really enthusiastic about this," AT&T CEO Randall Stephenson said during an analyst call. The AT&T boss clarified his domestic forecast of 50 million subscribers was for five years to 2025."
The problem, for AT&T, is that it's already proven incapable of retaining or adding subscribers in the current market. With Apple and Disney poised to join the crowded field in November, the battle for streaming domination is only going to get harder for ma bell.
Netflix has certainly enjoyed its flight to the top of the heap of the streaming space, now streaming video to 60.1 million US subscribers. That's more than pay TV giants like AT&T or even Comcast, who've done their best (via usage caps and lobbying shenanigans) to unsuccessfully hamper Netflix's meteoric rise.
But there's some indication that the company may have started to reach its high water mark. Netflix this week revealed it lost 130,000 subscribers last quarter, the company's first quarterly subscriber loss in history. The losses come despite Netflix having spent $3 billion on programming last quarter, and another $600 million to market its its wares. The loss was quick to rekindle memories of Netflix's bumbled Qwikster, price hike debacle from back in 2011:
"Investors had been forgiving about the spending and the debt -- so long as customers grew at record rates. But the loss of subscribers in the U.S. was the first since the Qwikster debacle, and it suggests Netflix may be running into price resistance or the limits of the addressable domestic market. The company has forecast it can reach as much as 90 million customers in the U.S., compared with 60.1 million currently."
In a letter to investors, Netflix downplayed the rise of streaming competition, blaming the losses on its own price hikes and a fairly underwhelming content slate during the quarter:
"Our missed forecast was across all regions, but slightly more so in regions with price increases. We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated.
Given all the premature hand wringing and predictions of doom that surrounded Netflix after the Qwikster face plant, anybody suggesting Netflix will suddenly start to free fall is likely jumping the gun. Netflix's third quarter kicked off with the launch of Stranger Things season three, which will likely help drive subscriptions skyward again. And Netflix executives also seem to be slowly realizing that throwing around billions of dollars for mediocre international content at a mind-boggling scale may not be the winning strategy they originally surmised.
That said, this is only really the beginning of Netflix's challenges. Giants like Disney, AT&T, and Comcast are all rushing to pull their growing slate of TV shows and movies from Netflix and shift them exclusively to their own new streaming platforms. Studies suggest that nearly every broadcaster will launch their own streaming service by 2022. That's not only going to create greater losses due to competition, but the added cost and confusion of so many exclusivity silos is going to likely drive a significant number of users back to piracy, something the streaming sector hasn't really figured out yet.
In other words, despite a lot of pearl clutching Netflix is likely to clear its current hurdles. It's the rise of an ocean of streaming exclusives (especially by telecom providers given the death of net neutrality) and a shift back to piracy Netflix will really need to worry about over the next five years.
One of the stupidest fights over internet points has reached its latest nadir. It's nadirs all the way down, tbh. If you're interested, there's an entire Wikipedia page with a blow-by-blow of YouTuber PewDiePie's fight against Indian content conglomerate, T-Series. It starts with subscriber counts and ends with a court order. In between, there's racism, hacked printers, billboard purchases, invective of all varieties, and this salvo from the controversial PewDiePie: a "diss track" called "Bitch Lasagna."
If you're inclined to click through and assail yourself with "Bitch Lasagna," you'll be greeted with some of the worst white boy rapping since white boys started rapping. Robert Van Winkle is rolling over in his grave. [Note: My apologies to all of us: I've been informed Mr. Van Winkle is, unfortunately, still alive.] Contained in this video are some slurs against the country of India and its inhabitants -- not all that unexpected for a diss track.
What's a little more unexpected is how far T-Series will go to up its subscriber count and fan the flames of this meaningless -- but lucrative -- battle over numbers in a little red box. There's now a court involved.
Delhi HC has ordered the removal of PewDiePie’s diss tracks against T-Series namely ‘Congratulations’ and ‘Bitch lasagna’, Bar and Bench reports. YouTube has also been ordered to see that these videos are not uploaded on the platform again. If you search for either of the videos on YouTube, you will see that they are not available in India.
[...]
The High Court was of the opinion that the songs have “repeated comments made which are abusive, vulgar and also racist in nature,” according to the report. The matter is currently pending in the Delhi High Court and the next hearing will take place on July 15.
The court isn't wrong. The video contains all of those elements. But this isn't really about someone offending a country with over 1 billion residents. It's about who has the higher subscriber count. By geofencing PewDiePie out of India, T-Series can hope to grab the lead for good. This is a race to the bottom and T-Series has taken the lead by using the power of the government to nuke a competitor's video.
But I'm sure -- given enough time -- PewDiePie or his supporters will find a way to "top" this. Taking control of unsecured devices and vandalizing war memorials is just part of the stupid, stupid game being played here.
Broadband ISP CenturyLink has been on the receiving end of an ocean of lawsuits accusing the company of billing fraud after a whistleblower (who says they were fire for bringing it up to management) revealed systemic efforts to routinely overbill users and sign them up for services they never asked for. And while CenturyLink tried to claim an investigation of itself found no wrongdoing (shocking!), State AGs like Minnesota's Lori Swanson say in their complaints (pdf) that they've found plenty of evidence proving that billing fraud was a routine occurance at the broadband provider.
Most of these lawsuits have since been combined into one class action suit. And CenturyLink has since developed a fairly creative attempt to dodge legal liability for its misdeeds: by claiming it doesn't technically have any customers. Technically CenturyLink has 5.66 million broadband subscribers as of last year, but a new brief filed by the company tries to argue it's not culpable because "CenturyLink" is technically just a holding company that manages 10 subsidiaries around the country:
"That sole defendant, CenturyLink, Inc., is a parent holding company that has no customers, provides no services, and engaged in none of the acts or transactions about which Plaintiffs complain," CenturyLink wrote. "There is no valid basis for Defendant to be a party in this Proceeding: Plaintiffs contracted with the Operating Companies to purchase, use, and pay for the services at issue, not with CenturyLink, Inc."
Customers signed up for business relationships with those 10 companies (Qwest Corporation; Embarq Florida, Inc.; Embarq Missouri, Inc.; Carolina Telephone and Telegraph Company LLC; Central Telephone Company; CenturyTel of Idaho, Inc.; CenturyTel of Larsen-Readfield, LLC; CenturyTel of Washington, Inc.; CenturyTel Broadband Services, LLC; and Qwest Broadband Services, Inc.), most of which are just holdover names left over by the company's 2011 acquisition of and earlier fusion with CenturyTel and Embarq. Domains for those companies all resolve to CenturyLink.com.
Because customers signed user agreements with those ten subsidiaries holding them to binding arbitration, CenturyLink lawyers argue that CenturyLink proper can't technically be sued for wrongdoing. You'll recall that thanks to AT&T and a 2011 Supreme Court decision, companies can now strip away your legal rights via fine print, instead forcing you into binding arbitration, where the corporation is victorious more often than not. And while the class action system is arguably broken (unless your criteria involves helping lawyers buy new boats), the arbitration system we've supplanted it with is arguably worse.
Needless to say, the plaintiffs trying to hold CenturyLink accountable for routinely ripping them off aren't impressed by the company's strategy:
"We reject these heavy-handed, anti-consumer tactics and the absurdity of these shell entities that CenturyLink claims to operate under," Meiselas said..."The arbitration clauses they're trying to enforce post-date the litigation," he said.
"The arbitration clauses they're trying to enforce post-date the litigation," he said.
Even with Supreme Court ruling ISP efforts to shovel users into binding arbitration isn't always successful, depending on state law. For example a US District Court judge in California recently ruled that AT&T couldn't force customers into binding arbitration because California law prohibits some aspects of mouseprint arbitration efforts. CenturyLink, meanwhile, is one of several U.S. telcos that have been hemorrhaging customers thanks to their refusal to seriously upgrade their aging copper networks at scale. Between that and the company's billing shenanigans (which include imposing fees for doing absolutely nothing), CenturyLink's effort to have zero customers may just prove successful yet.
Last week, we noted how Disney and ESPN threw a bit of a hissy fit when Nielsen data indicated that ESPN had one of the biggest subscriber losses in company history last month. According to Nielsen's data, ESPN lost 621,000 homes in a single month, as well as losing 607,000 ESPN2 households and 674,000 ESPNU homes. That's of course on the heels of losing more than 7 million subscribers over the last three years or so, thanks largely due to the rise of cord cutting, cord trimming (scaling down your TV package) and the rise of some "skinny bundles" that exclude ESPN from the base channel lineup.
ESPN demanded that Nielsen withdraw its numbers, insisting they represented a "dramatic, unexplainable variation" that didn't match ESPN's own numbers. Nielsen obliged, but after conducting an "extensive" review of the numbers found them to be "accurate as originally released." Of course, this shouldn't be a surprise; we've noted how everybody but ESPN appears to have seen the writing on the wall. But instead of adapting to the changing times, ESPN responded by denying that cord cutting was real, and suing companies like Verizon for trying to bring some flexibility to the traditional cable bundle.
Not too surprisingly, ESPN's response in light of Nielsen confirming its numbers was to continue denying the very obvious fact that customers are tired of paying an arm and a leg for sports programming many of them simply don't watch. From an ESPN statement given to the media:
"This most recent snapshot from Nielsen is a historic anomaly for the industry and inconsistent with much more moderated trends observed by other respected third party analysts. It also does not measure DMVPDs and other new distributors and we hope to work with Nielsen to capture this growing market in future reports."
Except it's not an "anomaly" at all if you've been watching ESPN's subscriber base drop 2-4% per year right alongside dips in other broadcast ratings. Even sports, long believed to be the untouchable holy grail of television programming, has been suffering a notable decline as younger viewers look for cheaper, more flexible alternatives to the bloated cable bundle. ESPN's response to these challenges? Either outright denial or incorrect claims by company executive John Skinner that these departing customers are old, poor, and not worth keeping anyway.
ESPN is the biggest beneficiary of the old method of bloated, overpriced channel bundles, but like so many broadcast and cable companies, it's too terrified of prematurely harming the existing cable TV cash cow to try anything truly innovative. As a result, the company is seeing historic losses in subscribers, with apparently everybody but ESPN seeing that this adaptation (like a standalone streaming service) will need to come sooner rather than later.
ESPN has been losing hand over fist as consumers shift to streaming alternatives and new "skinny" TV bundles of smaller channels. The company is estimated to have lost roughly 7 million subscribers in just a few years, and a recent survey found that 56% of consumers would drop ESPN in a heartbeat if it meant saving $8 a month on their cable bill (the estimate of how much ESPN costs each subscriber). The losses are largely thanks to ESPN executives failing to see the cord-cutting threat coming. Apparently it's difficult to identify shifting viewership trends with your head buried squarely in the sand.
Fast forward to this week, when viewer-monitoring firm Nielsen released a report stating that ESPN lost more subscribers than ever last quarter. According to the original Nielsen report, ESPN lost 621,000 homes in a single month, as well as losing 607,000 ESPN2 households, and 674,000 ESPNU homes. Interestingly, ESPN was quick to complain that these numbers were in error:
"The Nielsen numbers represent a dramatic, unexplainable variation over prior months’ reporting, affecting all cable networks. We have raised this issue with Nielsen in light of their demonstrated failures over the years to accurately provide subscriber data. The data does not track our internal analysis nor does it take into account new DMVPD entrants into the market."
As a result, Nielsen was forced to issue a statement saying it was pulling the findings for review:
"Nielsen is investigating a larger than usual change in the November 2016 Cable Network Coverage Universe Estimates (versus the prior month). We take the accuracy of our data very seriously and are conducting a thorough analysis to determine whether or not there is an issue with these estimates. In the meantime, we have removed the November 2016 Cable Network Coverage Universe Estimates file from the Answers portal and ask clients not to use the numbers that were posted Friday. We are working closely with clients and will alert them on the findings of our internal review."
While it's entirely possible Nielsen did make a mistake, this isn't the first time the company has been willing to withhold data simply because the cable and broadcast industry didn't like what the data indicated. In 2014, Nielsen backed away from including broadband-only household data in the firm's local TV ratings service because broadcasters didn't like what that data said. The company spent many years denying that cord cutting was real, then simply changed the name of cordcutting to "zero TV households" when it was forced to actually ackowledge the trend was real.
Again, Nielsen may have flubbed the data and the estimates could be a little too high (given past trends likely not by much), but it's also entirely possible this is just part of an ongoing attempt by the cable and broadcast industry to shield itself from the reality of evolving markets.
About once a week now you'll see a legacy broadcast executive take to the media to try and "change the narrative" surrounding cord cutting. Usually this involves claiming that things are nowhere near as bad as the data clearly shows, with a little bit of whining about an unfair media for good measure. ESPN, which has lost 7 million subscribers in the last two years, has been particularly busy on this front. The broadcast giant has been trying to argue that cord cutting worries (which caused Disney stock to lose $22 billion in value in just two days) are simply part of some kind of overblown, mass hallucination.
Speaking to the Wall Street Journal (registration required), ESPN President John Skipper "plays offense on cord cutting" by effectively denying that ESPN is even in trouble. He starts by proudly insisting that the huge losses in subscribers weren't a surprise to the company:
"We stayed pretty calm. [The loss of subscribers] didn’t come as a bolt out of the blue to us. We had been thinking about this. We had a big town hall meeting in December. We had a priorities meeting earlier where we gathered everybody together to try to ground ourselves in our business."
Right, except that former ESPN employees have said ESPN execs weren't even talking about cord cutting as a threat until 2015. The company was also spending hand over fist (like a $125 million update for the SportsCenter set), suggesting they didn't really see the subscriber dip coming. After pretending that cord cutting didn't catch ESPN by surprise, Skipper proceeds to admit that "cord trimmers" (people scaling back their TV packages) are a big reason for the subscriber hit, but that the losses aren't all that big of a deal because the departing customers are old and poor:
"People trading down to lighter cable packages. That impact hasn't leaked into ad revenue, nor has it leaked into ratings. The people who’ve traded down have tended to not be sports fans, and have tended to be older and less affluent. We still see people coming into pay TV. It remains the widest spread household service in the country after heat and electricity."
This narrative that cord cutters and cord trimmers are old, poor, and otherwise of no interest is a popular one among cord cutting denialists, but data consistently shows it's simply not true. Cord cutters and cord trimmers tend to be young, affluent consumers who are just tired as hell of paying an arm and a leg for channels they don't watch. And, if recent surveys are any indication, there are a lot of users who don't watch ESPN and are tired of paying for it. In short, most of the data suggests that ESPN has a lot more subscriber defections headed its way with the rise of so-called skinny bundles (an idea ESPN has sued to stop).
When asked what ESPN plans to do to attack the cord cutting trend, you'll note that Skipper's first instinct is to deny that the legacy cable industry really has all that much to worry about:
"We are still engaged in the most successful business model in the history of media, and see no reason to abandon it. We’re going to be delivering our content through the traditional cable bundle, through a lighter bundle, through Dish’s Sling TV, through new over-the-top distributors, and through some content that is direct-to-consumer."
When pressed for what "direct to consumer" services ESPN plans to offer, Skipper can only provide one example: the company's brief experimentation with streaming the Cricket World Cup. That's because ESPN's contracts with cable companies state that if the company actually evolves and offers a direct streaming service, cable companies are allowed to break ESPN out of the core cable lineup. That means more skinny bundles than ever, and an acceleration of ESPN's problems. So, like a child in the dark, ESPN has decided to hide under the covers and pretend the monster under the bed isn't real.
There's no doubt that Disney and ESPN will eventually figure things out and balance the need for innovation with their desire to protect their existing businesses, but it's pretty clear from public comments and past decisions that it's going to be an ugly transition. That transition would be so much less ugly for many legacy broadcast companies if they spent a little less time trying to "correct narratives" telling them truths they don't want to hear -- and a little more time preparing to compete with the internet video revolution.
Historically, the cable and broadcast industry has made a full-time sport out of trying to ignore the changing TV landscape and the threat posed by internet video. There's a fairly significant number of cable and broadcast execs who still believe that internet video, cord cutting, cord trimmers (users who cut back on cable packages) and recent ratings declines are some kind of mass delusion akin to the yeti or the mysterious chupacabra. Others think this recent commotion is just a fad we're going through that will magically resolve once millennials start procreating.
One of the biggest culprits for rising TV prices is sports programming, which is driving more and more users to either internet video, or so-called "skinny bundles" provided by TV operators. Companies like Verizon have gone so far as to boot ESPN from the core cable lineup (and have been sued for it by ESPN). Like so many broadcasters, ESPN apparently hoped things would stay the same forever, but recent subscriber data suggests that's very much not the case. Analysts, in fact, point out that new data indicates ESPN has lost around 7 million subscribers in just two years:
"ESPN topped out with 99 million US subscribers (“subs”) 2 years ago, according to their filings with the Securities and Exchange Commission. Since then, its sub count has been shrinking. It’s currently at around 92 million. That drop in subs has meant a big drop in profitability for ESPN which has been at the heart of its parent company’s profitability."
And, at least according to former ESPN insiders like Bill Simmons, neither ESPN nor Disney saw the hit coming (it's apparently hard to see with your head buried squarely in the sand):
"Did ESPN or Disney see the cord-cutting decline coming? It doesn’t look that way, despite predictions from a number of market watchers that it was a sizable risk. The sports network reportedly spent $125 million or so on a revamp of the Sports Center set, which seems like an odd investment if you think your viewership is going to fall. Former Grantland editor Bill Simmons also said on a recent podcast that he never heard ESPN executives talking about their concerns about cord cutting until last year."
ESPN now finds itself at a notably tricky crossroads. It could remain comfortably in denial, or it could embrace the modern era and start building its own, more flexible sports streaming video empire. The problem? ESPN's contracts with cable operators dictate that if it launches a standalone streaming service, cable operators will be allowed to boot ESPN from their core cable lineups. That will of course accelerate ESPN's losses, but it would also accelerate ESPN's adaptation to a market evolution the company has refused to take seriously.
A plaintiff invoking the Video Protection Privacy Act (VPPA) has just been handed a second defeat in his lawsuit against Cartoon Network. The Eleventh Circuit Appeals Court has reached the same conclusion as the lower court, albeit for different reasons.
Originally written to protect consumers against the release of their VHS rental history, the VPPA has since been invoked in various lawsuits to address the release of protected "subscriber information" to third parties, including more than one against the Blockbuster of today: Netflix.
The most recent VPPA lawsuit against Netflix argued that showing viewing history (upon login to an account) violated the account holder's privacy. The Ninth Circuit Court of Appeals found in favor of Netflix, rather than the person who felt they should still have viewing history privacy despite leaving accounts logged in and/or sharing login information.
This one is a bit more tangled and involves Cartoon Network's phone app, rather than the new face of video rentals. The CN app allows users to view the network's videos. It does not require a login to do so. Because no login was required, the plaintiff felt the app wouldn't gather or disseminate "personal information." Well, the app does collect some information, which is specific to the device, but not necessarily the person.
Cartoon Network identifies and tracks an Android smartphone user on the CN app through his mobile device identification or Android ID, which is “a 64-bit number (hex string) that is randomly generated when a user initially sets up his device and should remain constant for the lifetime of the user’s device.” Cartoon Network keeps track of an Android user’s viewing history by maintaining a record of “every video clip or [episode] viewed by the user” via the Android ID number. Cartoon Network then sends this information to a third-party data analytics company called Bango. Each time a user closes out of the CN app on his Android device, “[a] complete record”—including the user’s “Android ID and a list of the videos he viewed”—is sent to Bango.
Bango, of course, is the subsidization behind the free app.
Bango specializes “in tracking individual behaviors across the Internet and mobile applications . . . [and claims] that its technology ‘reveals customer behavior, engagement and loyalty across and between all [ ] websites and apps.’” Bango uses Android IDs “to identify and track specific users across multiple electronic devices, applications, and services.” Because Bango is apparently “smarter than the average bear,” see The Yogi Bear Show, Trying to Escape Jellystone Park (Hanna-Barbera Prod. 1961), it can “automatically” link an Android ID to a particular person by compiling information about that individual from other websites, applications, and sources. So when Cartoon Network sends Bango the Android ID of a CN app user along with his video viewing history, Bango associates that video history with a particular individual.
It was this tracking that bothered Mark Ellis, who sued on behalf of himself and "others similarly situated."
The decision doesn't head off into a discussion of what is or isn't personally-identifiable and subject to the restraints of the VPPA. Instead, it discusses the difference between a "subscriber" and someone with no viable legal claim at all. The lower court decided Ellis' minimal connection to Cartoon Network (via its free app and his phone's ID) was enough to grant him standing as a "subscriber." But it also found that the information gathered by CN wasn't "personally identifiable" under the VPPA definitions. An Android ID identifies a device, not a person, even if only one person uses it for the lifetime of the device (see also: privacy arguments about license plate readers).
Ellis appealed this finding, and struck out again, but from the other side of the plate.
Mr. Ellis did not sign up for or establish an account with Cartoon Network, did not provide any personal information to Cartoon Network, did not make any payments to Cartoon Network for use of the CN app, did not become a registered user of Cartoon Network or the CN app, did not receive a Cartoon Network ID, did not establish a Cartoon Network profile, did not sign up for any periodic services or transmissions, and did not make any commitment or establish any relationship that would allow him to have access to exclusive or restricted content.
Mr. Ellis simply watched video clips on the CN app, which he downloaded onto his Android smartphone for free. In our view, downloading an app for free and using it to view content at no cost is not enough to make a user of the app a “subscriber” under the VPPA, as there is no ongoing commitment or relationship between the user and the entity which owns and operates the app. Importantly, such a user is free to delete the app without consequences whenever he likes, and never access its content again. The downloading of an app, we think, is the equivalent of adding a particular website to one’s Internet browser as a favorite, allowing quicker access to the website’s content. Under the circumstances, Mr. Ellis was not a “subscriber.”
Having found that Ellis is not a subscriber, the court doesn't weigh in on the issue of the information gathered and distributed by the app. It infers -- by its discussion of previous cases -- that the app behaves more like a website cookie that tracks unregistered users by device info rather than more personally-identifiable data.
Had Ellis increased his level of interaction -- say, by creating an account -- he would have had a better chance at being recognized as a "subscriber." Of course, had he done this, he would have had to agree to CN's terms of service, which likely contains plenty of fine print "disclosing" its relationship with Bango, as well as to what is specifically collected and passed on. So, there would have been no cognizable injury in that case either.
First, Wright takes on the evidence Prenda Law presents, consisting of a "snapshot" of possible infringement in progress. He points out that a time-coded screenshot hardly makes the case that actual infringement occurred.
This snapshot allegedly shows that the Defendants were downloading the copyrighted work—at least at that moment in time. But downloading a large file like a video takes time; and depending on a user’s Internet-connection speed, it may take a long time. In fact, it may take so long that the user may have terminated the download. The user may have also terminated the download for other reasons. To allege copyright infringement based on an IP snapshot is akin to alleging theft based on a single surveillance camera shot: a photo of a child reaching for candy from a display does not automatically mean he stole it. No Court would allow a lawsuit to be filed based on that amount of evidence...
And as part of its prima facie copyright claim, Plaintiff must show that Defendants copied the copyrighted work. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991). If a download was not completed, Plaintiff’s lawsuit may be deemed frivolous. In this case, Plaintiff’s reliance on snapshot evidence to establish its copyright infringement claims is misplaced. A reasonable investigation should include evidence showing that Defendants downloaded the entire copyrighted work—or at least a usable portion of a copyrighted work. Plaintiff has none of this—no evidence that Defendants completed their download, and no evidence that what they downloaded is a substantially similar copy of the copyrighted work. Thus, Plaintiff’s attorney violated Rule 11(b)(3) for filing a pleading that lacks factual foundation.
RULE 1. IN ORDER TO SUE A DEFENDANT FOR COPYRIGHT INFRINGEMENT, YOU MUST PROVE THAT THE DEFENDANT DOWNLOADED THE ENTIRE COPYRIGHTED VIDEO.
RULE 2. A “SNAPSHOT OBSERVATION” OF AN IP ADDRESS ENGAGED IN DOWNLOADING AT THAT MOMENT IS INSUFFICIENT PROOF OF COPYRIGHT INFRINGEMENT
This sort of lawsuit has almost always relied on little more than a snapshot and an IP address as "evidence," the latter of which has been shot down by multiple courts for its inability to correctly identify alleged infringers. Now, Wright is throwing out Gibb's precious bundle of snapshots as well.
Wright tackles the IP address issue next, under a heading titled "Lack of reasonable investigation of actual infringer's identity." He points to earlier explanations by the plaintiffs as to how they arrived at the identity of the alleged infringer and picks apart their "methodology." Here's Ingenuity 13 LLC's explanation of their deductive process.
Though the subscriber, David Wagar, remained silent, Plaintiff’s investigation of his household established that Benjamin Wagar was the likely infringer of Plaintiff’s copyright. As such, Plaintiff mailed its Amended Complaint to the Court naming Benjamin Wagar as the Defendant in this action. (ECF No. 14, at 2.)...
In cases where the subscriber remains silent, Plaintiff conducts investigations to determine the likelihood that the subscriber, or someone in his or her household, was the actual infringer. . . . For example, if the subscriber is 75 years old, or the subscriber is female, it is statistically quite unlikely that the subscriber was the infringer. In such cases, Plaintiff performs an investigation into the subscriber’s household to determine if there is a likely infringer of Plaintiff’s copyright. . . . Plaintiff bases its choices regarding whom to name as the infringer on factual analysis. (ECF No. 15, at 24.)
"Factual analysis?" Really? Wright calls it for what it is.
The Court interprets this to mean: if the subscriber is 75 years old or female, then Plaintiff looks to see if there is a pubescent male in the house; and if so, he is named as the defendant. Plaintiff’s “factual analysis” cannot be characterized as anything more than a hunch.
Wright gives Ingenuity 13 LLC several suggestions on how to narrow this list of suspects down, including "wardriving" to check whether the WiFi connection in question is open, whether several downloads have occurred at the same IP address, or just a good old-fashioned stakeout.
Such an investigation may not be perfect, but it narrows down the possible infringers and is better than the Plaintiff’s current investigation, which the Court finds involves nothing more than blindly picking a male resident from a subscriber’s home.
This sentence is damning enough, but the followup is the killer:
But this type of investigation requires time and effort, something that would destroy Plaintiff’s business model.
Wright notes the difference between criminal and civil suits that rely on IP addresses for identification. In criminal proceedings, the court usually can rely on the fact that an actual investigation has taken place prior to the charges being brought. In a civil case, the court has no such guarantee, but that doesn't mean the judicial system has to entertain these claims.
[W]hen viewed with a court’s duty to serve the public interest, a plaintiff cannot be given free rein to sue anyone they wish—the plaintiff has to actually show facts supporting its allegations.
Back to TorrentLawyer with another addition to California federal court case law and another blow to trolling-as-business-model.
RULE 3. BEFORE SUING A DEFENDANT FOR COPYRIGHT INFRINGEMENT, YOU MUST DO A “REASONABLE INVESTIGATION” TO DETERMINE THAT IT WAS THE NAMED DEFENDANT WHO DID THE DOWNLOAD, AND NOT SOMEONE ELSE WITH ACCESS TO HIS INTERNET CONNECTION.
All in all, this smackdown is going to make copyright trolling in California a rather unprofitable venture. Expect to see some venue-shifting in the future. Unfortunately for Ingenuity 13 LLC, it's already entrenched in a losing battle, and it's going to get even worse. Wright also had some choice words for Brett Gibbs' misconduct. Two allegations stem from his failure to comply with the Court's orders to cease discovery. Gibbs first told the court the plaintiffs had not obtained any information about the subscribers in question, before later regaling the court with tales of its efforts to obtain the forbidden information when responding to Orders to Show Cause.
The third allegation is more serious, alleging fraud on the court. This circles back to the mysterious "Alan Cooper."
Upon review of papers filed by attorney Morgan E. Pietz, the Court perceives that Plaintiff may have defrauded the Court. (ECF No. 23.) At the center of this issue is the identity of a person named Alan Cooper and the validity of the underlying copyright assignments. If it is true that Alan Cooper’s identity was misappropriated and the underlying copyright assignments were improperly executed using his identity, then Plaintiff faces a few problems.
First, with an invalid assignment, Plaintiff has no standing in these cases. Second, by bringing these cases, Plaintiff’s conduct can be considered vexatious, as these cases were filed for a facially improper purpose. And third, the Court will not idle while Plaintiff defrauds this institution.
Wright then orders Gibbs to show cause why he should not be sanctioned for this misconduct, while declining to extend the sanctions to AF Holding and Ingenuity LLC -- based on Gibbs' "fiduciary interest" in the plaintiffs and the likelihood that the plaintiffs are "devoid of assets."
Wright gets in a little dig at the still-nonexistent Alan Cooper:
If Mr. Gibbs or Mr. Pietz so desire, they each may file by February 19, 2013, a brief discussing this matter. The Court will also welcome the appearance of Alan Cooper—to either confirm or refute the fraud allegations.
Things were already looking pretty grim for Brett Gibbs, but the worst may still be on the very near horizon:
Based on the evidence presented at the March 11, 2013 hearing, the Court will consider whether sanctions are appropriate, and if so, determine the proper punishment. This may include a monetary fine, incarceration, or other sanctions sufficient to deter future misconduct. Failure by Mr. Gibbs to appear will result in the automatic imposition of sanctions along with the immediate issuance of a bench warrant for contempt.
What started out for Gibbs and co. as a route to easy money has morphed into possible jail time and a complete undermining of the "business model" Prenda Law, AF Holdings and Ingenuity 13 LLC hoped would make them, if not actual millionaires, at least slightly richer. And so another chapter of the Gibbs/AF Holdings/Prenda Law saga concludes, leaving us with the sort of cliffhanger that only those whose names haven't been listed above will enjoy seeing played to its conclusion.
