For those of us who practice entertainment law, royalty payments are the coin of the realm and profligate copying now poses a serious threat to the rightful creators and owners of the intellectual properties embodied in entertainment, be they in the form of movies, television, music, streaming media, games and so on. Looking back into the not-too-distant past, while domestic box office for 2005 stood at about 10 billion dollars, media such as DVD technology and the Internet have eaten into what many experts believe should have been 20 billion dollars because it is now possible to create a near infinite number of perfect copies for very little money. Mindful that ease of copying is no defense to a Copyright infringement action but to quote John Adams, “[f]acts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” Today, the evidence is that digitally based media forms the primary – and not the ancillary – revenue stream for most of the motion picture studios. Or, as the head of one industry association put it, movies are now the loss leaders for DVD sales. This current reality is of specific importance to the legal community in the San Fernando Valley for the simple fact that ever since “Hollywood” came to Hollywood, the Valley is where much entertainment is conceived, produced, filmed, edited and distributed.
As an attorney I am no believer that either national and international Copyright protection regimes should now just roll over and play dead simply because it is easier than ever to copy and trade in pirated product. However, as a semi-reformed computer geek and former employee of a major aerospace company (and without revealing anything too specific), I also know of no data encryption methodology yet devised that can’t be figured out and gotten around. Accordingly, what is to be done?
The answer lies in the implementation of the ultimate copy protection scheme: widely available product, reasonably priced. In other words, to stay on the cutting edge of new media, studios and other distributors of entertainment are going to have to continue to embrace digital technology and progressively drop “the price of admission”. It does take a certain amount of unmitigated bravado to think that this will work, however it is actually just this sort of scheme that made not only the movie industry in Southern California what it is today, but has allowed for each successive form of entertainment distribution to supplement – and not supplant – what is Los Angeles’ (and, by extension, the Valley’s) continuing economic miracle, even in these troubled economic time.
Let’s start with motion pictures. Between 1900 and 1920, most of what would later become the major studios had sprung up in and around Los Angeles, providing very popular entertainment for very little money. Technological advances in sound recording soon made possible motion pictures with sound (i.e., “talkies”) and Hollywood smartly and swiftly adapted to this new technology. The result: throughout the Great Depression Hollywood continued to grow and become more profitable as theaters multiplied and ticket prices did not.
Let’s now talk about radio. These very advances in sound recording soon led to advance in the transmission of sound-based media and during the Depression radio entered the arena as an alternative form of entertainment that for a brief time had Hollywood worried. Luckily, most of the early sponsors of radio (i.e., the major corporations) underwrote most of the programming and this, combined with the fact that a simple radio set was pretty affordable, actually increased peoples’ appetites for all forms of entertainment. The result: movies and radio began a parallel track of revenue generation that continues to this day.
Let’s return to the movies. During the 1940’s and 1950’s the motion picture industry continued to grow. Hollywood was able to dominate as more theaters were opened and new technologies, such as Technicolor, were swiftly embraced. Theater attendance increased and all the while ticket prices remained low. Sometime in the 1950’s, an even newer technology again had Hollywood worried: television. What looked like a combination of radio and movies appeared poised to replace films. Whether by design or default, though, the motion picture studios neither decreased the number of theaters they built nor drastically increased ticket prices. The result: television soon joined radio and movies as a very profitable industry, and continued to grow as an important – and profitable – segment of the “business”, especially for the Valley (psst...the real Brady Bunch house is located in Studio City).
Let’s turn to beta...oops, sorry...VHS technology. In the late 1970’s and early 1980’s it looked as if the twin assault on the “business” in the forms of cable television and VHS would quickly bring down the major studios. However, the very technology that many entertainment executives and trade associations were decrying one year became – literally – one of Hollywood’s most profitable ancillary markets the next: movie rentals, in the form of studio syndication to cable television companies and videotapes. And whether you were going to see a film at your local theater, watching a movie on Channel Z or renting something from your local video store, the price always worked out to a few bucks a flick. The result: let’s just say that if I had authored this article for Variety magazine sometime in the mid-80’s, it might have been entitled “Studio Big Wigs Now Dig Vid”.
How I wish this pithy title evinced the industry’s collective attitude to today’s twin digital technology of the Internet and DVDs. Ironically, just as DVDs and streaming movies are becoming a viable supplement to theatrical revenues, the studios are not really aggressively embracing current technology. The result: producers and distributors of entertainment continue to tear at their own Achilles heel by decreasing the number of theater seats while drastically increasing ticket prices and limiting the availability of digital media. Today, there are fewer local rental outlets and very little available over the Internet (e.g., Netflix) compared to the actual “global” library of available films, even as optical cable can handle the transmission of movies to one’s home theater system. Luckily, current distribution models already exist that should be replicated.
A few years ago I took a break from my usual evening reading (i.e., Witkin, Weil & Brown, Nimmer, etc.) and sat down on the couch, turned on the living room television, switched to cable, came across yet another AOL commercial for high speed Internet service (psst...the guy who comes onto the track field and says, “...don’t want to pull a hammy....” is my brother) and then watched Lawrence of Arabia. I realized that my viewing (or “renting” to be technical about it) Lawrence of Arabia already operated under a regime where my family paid about $2.00 to watch a movie (courtesy of Adelphia at that time)... again: widely available product, reasonably priced.
Not too long ago the Motorola box was replaced by a Wii-type box that stays connected to a Netflix-type server that streams movies to our home. The potential revenue pool to be generated by this type of technology is going to be one of the key subjects to be [re]negotiated in many of Hollywood’s collective bargaining agreements over the next few years and I’m already putting together some specialized contract clauses for my clients that contemplate some sort of reasonable royalty payment for just this sort of thing.
Keep an eye on the iPod, music downloads for $0.99 and Apple’s iCloud for a preview of more things to come.