Obama and Google's Eric Schmidt
The White House has weighed in on the Online Piracy Act. They are clearly walking a tightrope between two competing powers, both of which have traditionally supported Democrats. On one side there is Hollywood and the music industry and on the other is Google. There has been an incredible amount of misinformation floating around about piracy for years and of course there are also some real bully boys who will threaten anyone who opposes their right to “free culture.” We have had these battles for two years on this blog. So here is my thoughts about all of this.
Google- The world’s largest search engine has made hundreds of millions allowing makers of pirated or counterfeit goods to advertise using Google Ad Words. It signed a non-prosecution agreement with the Federal Government and agreed to forgo $500,000,000 worth of counterfeit drug advertising. Google does not want to stop the worldwide revenue it gets from pirated content advertising. Google and it’s competitors could eliminate the need for Piracy legislation by immediately adopting the following rules:
- We won’t sell advertising on pirate websites.
- We won’t have our search engine link to pirate websites that can’t prove they have legitimate licenses to the content they host.
- We will stop pretending we can’t control what gets posted on You Tube.
Hollywood and the Music Business- What I can’t figure out is how did movies and music get to a position that the public feels they are entitled to these works for free? So you never feel you are entitled to a meal at a restaurant for free, do you? What is it about digital entertainment: movies, music, TV and very soon, books that makes them special? Why should the worker in these business not get paid? We built a knowledge society, and the best products we export are all digital objects of desire. But no one seems to care about the notions of intellectual property. It’s so self destructive.
So the President has to thread the needle. That’s why the statement yesterday from the White House was important.
We expect and encourage all private parties, including both content creators and Internet platform providers working together, to adopt voluntary measures and best practices to reduce online piracy.
Google could begin these voluntary measures listed above and reduce the pressure to push a flawed act through Congress. Without some middle ground this whole discussion is going in a very stupid direction.
The deal the Director’s Guild made this week with the Media conglomerates was “good enough”. The most important thing is that by being able to revisit the revenue of ad supported streaming media in three years, the Guild will have not surrendered a key revenue stream. As the chart of streaming Internet video for the month of August 2007 shows, there were over 9 billion video streams watched from U.S. sites for a total of 24 billion minutes. In three years if the classic 15 minutes of commercials per hour of programming holds, this would be the equivalent of 12 million 30 second spots. Of course that isn’t the situation today, but You Tube, AOL and My Space video are clearly headed in that direction. And of course in 3 years that 24 billion minutes per month will be more like 60 billion minutes per month. My sense is that the Writer’s Guild should make a similar 3 year deal, quit threatening all of the Awards Shows and get Hollywood back to work.
The Box office results are in from last year and the message is pretty clear. Releasing more movies does not increase the audience. On any given weekend, four to seven new movies compete for a fixed audience of theater-goers. This is called “Cannibalization”; its as ugly as the word sounds.
Hollywood is caught in “The Prisoner’s Dilemma”, a classic bit of game theory that is behind such notions as a nuclear arms race. It would be in the financial and security self interest of both India and Pakistan to not spend billions on nuclear weapons, but because they don’t trust each-other, they continue to do so, instead of feeding their poor. Hollywood moguls, caught up in the useless notion of “Market share”, don’t trust each-other to not make more movies to grab greater share. The notion of market share of the box office never entered Hollywood’s lexicon until the Coca Cola company bought Columbia Pictures in 1982, bringing their supermarket shelf space POV to the movie business. Market share with a commodity product like sugar water is a fine notion. Market share with a one-off variable cost product like a movie is financial suicide. Coke quickly figured this out and in 1987 unloaded Columbia to Sony, desperate to own content so it didn’t get screwed in the DVD wars to come as it had in the Betamax disaster. Of course Sony’s guess turned out to be wrong as well, as their ownership of content has not helped BluRay’s High Definition player succeed in a similar Prisoner’s Dilemma stand off with Toshiba’s HD DVD. The excess movie output problem is further complicated by the role of A list talent, who’s only objective is to secure as many multi-million dollar fees per year as possible. They always believe their film will rise above the crowd, and when this does not happen, they have no penalty for the failure. No one ever asks Tom Cruise or Joel Silver to give back their fees on a bomb.
With the hedge funds that fueled much of this madness now licking their wounds from the sub prime meltdown, perhaps some sanity may return to the business. Without crossing the anti-trust fine line, perhaps the majors and their equally guilty specialty divisions might make a New Year’s resolution to cut back production. After all, the mark of a good business is not market share but Return on Investment.
