August 22, 2001
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Living With Digital Piracy?
It's Been Done Before.
By HOLMAN W. JENKINS JR.
Jack Valenti, Hollywood's man in Washington, predicted that the VCR would do to the movie industry what the Boston Strangler did to women home alone. Unless he meant the good Boston Strangler, it didn't work out that way.
Mr. Valenti, cresting into his 80s, is still crying wolf, this time about Napster and its offspring. An announcement out of the studios last week, though, suggests that Hollywood has decided to pull itself together and go on anyway. Led by Sony, an industry gaggle including MGM, Paramount, Warner and Universal unveiled plans to make available 100 movies for downloading at $4 a pop.
The news came with unctuous boilerplate about how the films would be "protected by encryption," but the gesture is legal symbolism. A technical fix for piracy was never in the cards. The software code to break DVD encryption has been perfected to the point where it fits on a T-shirt. The music industry's own proudly proclaimed digital watermark was busted in three weeks by four different groups. Now a Dutch cryptographer claims to have found a "fatal flaw" in Intel's design to stop digital broadcasts from being copied and redistributed on the Web.
That leaves only a business solution. Hollywood might deserve more credit for now summoning the gumption to explore down this jungle trail if somebody else hadn't already been there and shown it's possible to return alive.
The original victim was Microsoft, one of the most profitable companies in the world -- and the most ripped-off intellectual property holder the world is ever likely to see.
Since the early 1990s, surveys have routinely established that 90% of the software in use in India, China, Pakistan, Mexico, Brazil, Korea and Malaysia was stolen. These are notorious scofflaw countries, you say? In law-abiding Western lands the figure often approaches 50%. In the U.S., most honest of the bunch, some 25% of corporate software is purloined.
After the Internet took off in 1995, finding bootleg business applications has become even more of a breeze. And let's not get into consumer software like games. Microsoft's controversial new operating system, XP, isn't due until October, but test versions are already easy to find on the Web.
When industry gets handed lemons on this scale, it has no choice but to turn them into marketing. A common reckoning is that one-third of software is used illegally, but not every theft represents a lost sale. If economic theory has any claim on the real world, Microsoft's pricing should naturally gravitate toward producing an optimum amount of theft. That is, thieves who wouldn't use the product if they had to pay for it, but who might become future customers or who become part of a network of users that makes the software more valuable to legitimate buyers.
All companies in the intellectual property biz face the same issue; always have, always will. This is nothing new.
Newspapers and magazines long ago stopped offering more than token resistance to Xeroxing, and publishers make a virtue for advertising purposes of the fact that more people read their copies than pay for them. Likewise, network television became a great industry only after broadcasting pioneers gave up any hope of making viewers pay for programming.
In the latest chapter, the record labels may have been caught napping by Napster, but the industry long ago accepted that the public would be getting much of its music free from radio. Then the industry got a little more pregnant in the 1970s when FM stations began holding "album hour" at midnight, even broadcasting a tone to help tapers get their metering right.
In other words, copyright absolutism has always been a fantasy. One of the great legal fig leaves is "fair use," invented by the courts to airbrush the fact that technology comes along and renders some forms of stealing impossible to police.
Microsoft figured this out because it had to. Now Hollywood will end up adopting many of the same strategies in order to survive the digital age.
A sore subject at its antitrust trial, for instance, was Microsoft's practice of awarding large discounts to computer makers who bought a Windows license for every machine they shipped, whether or not Windows was actually loaded. This was supposed to be proof of monopolistic intent, but the only real competitor for Windows is a Windows bootleg. Microsoft's pricing strategy was designed to induce customers not to steal.
For the same reason it spends billions upgrading its "monopoly" product, so customers will have a reason to buy the latest Windows rather than illegally transferring Old Windows to their new machines.
Another key element is striking the right balance in pricing. Various dancing-on-a-pinhead analyses were put forward by the government to prove Microsoft charges a "supracompetitive" rate because it faces no competition. But Microsoft faces huge competition -- from its own software, which never wears out and can be duplicated at zero cost.
The problem, and also the enormous profit potential, with digital goods is that they are easily and infinitely copyable. All it takes is one hacker to break the security seal, or one employee to let an unencrypted version out of the lab. Soon copies are everywhere. Hollywood must understand it can't change this any more than Microsoft could.
That's why it's good, after a period of moping, to see Tinsel Town exploring how to keep people paying enough for cultural pollution to make it worth producing. Big record labels have joined together to whip up a Napster worth paying for: with reliable downloads, comprehensive libraries, user friendliness. The movie industry is well on its way to deciding to live in the world too. Mr. Valenti weeps that 300,000 films a day are being illegally downloaded from the Web, including such current releases as "Planet of the Apes" and "American Pie 2." But has this stopped even one customer from buying a movie ticket?
The entertainment industry is still getting used to the idea that anybody who wants to take the trouble can get its products for free. But as Microsoft has been showing for years, that's no excuse for not making bundles of money.
--------------------------------------------------------------------------------
Living With Digital Piracy?
It's Been Done Before.
By HOLMAN W. JENKINS JR.
Jack Valenti, Hollywood's man in Washington, predicted that the VCR would do to the movie industry what the Boston Strangler did to women home alone. Unless he meant the good Boston Strangler, it didn't work out that way.
Mr. Valenti, cresting into his 80s, is still crying wolf, this time about Napster and its offspring. An announcement out of the studios last week, though, suggests that Hollywood has decided to pull itself together and go on anyway. Led by Sony, an industry gaggle including MGM, Paramount, Warner and Universal unveiled plans to make available 100 movies for downloading at $4 a pop.
The news came with unctuous boilerplate about how the films would be "protected by encryption," but the gesture is legal symbolism. A technical fix for piracy was never in the cards. The software code to break DVD encryption has been perfected to the point where it fits on a T-shirt. The music industry's own proudly proclaimed digital watermark was busted in three weeks by four different groups. Now a Dutch cryptographer claims to have found a "fatal flaw" in Intel's design to stop digital broadcasts from being copied and redistributed on the Web.
That leaves only a business solution. Hollywood might deserve more credit for now summoning the gumption to explore down this jungle trail if somebody else hadn't already been there and shown it's possible to return alive.
The original victim was Microsoft, one of the most profitable companies in the world -- and the most ripped-off intellectual property holder the world is ever likely to see.
Since the early 1990s, surveys have routinely established that 90% of the software in use in India, China, Pakistan, Mexico, Brazil, Korea and Malaysia was stolen. These are notorious scofflaw countries, you say? In law-abiding Western lands the figure often approaches 50%. In the U.S., most honest of the bunch, some 25% of corporate software is purloined.
After the Internet took off in 1995, finding bootleg business applications has become even more of a breeze. And let's not get into consumer software like games. Microsoft's controversial new operating system, XP, isn't due until October, but test versions are already easy to find on the Web.
When industry gets handed lemons on this scale, it has no choice but to turn them into marketing. A common reckoning is that one-third of software is used illegally, but not every theft represents a lost sale. If economic theory has any claim on the real world, Microsoft's pricing should naturally gravitate toward producing an optimum amount of theft. That is, thieves who wouldn't use the product if they had to pay for it, but who might become future customers or who become part of a network of users that makes the software more valuable to legitimate buyers.
All companies in the intellectual property biz face the same issue; always have, always will. This is nothing new.
Newspapers and magazines long ago stopped offering more than token resistance to Xeroxing, and publishers make a virtue for advertising purposes of the fact that more people read their copies than pay for them. Likewise, network television became a great industry only after broadcasting pioneers gave up any hope of making viewers pay for programming.
In the latest chapter, the record labels may have been caught napping by Napster, but the industry long ago accepted that the public would be getting much of its music free from radio. Then the industry got a little more pregnant in the 1970s when FM stations began holding "album hour" at midnight, even broadcasting a tone to help tapers get their metering right.
In other words, copyright absolutism has always been a fantasy. One of the great legal fig leaves is "fair use," invented by the courts to airbrush the fact that technology comes along and renders some forms of stealing impossible to police.
Microsoft figured this out because it had to. Now Hollywood will end up adopting many of the same strategies in order to survive the digital age.
A sore subject at its antitrust trial, for instance, was Microsoft's practice of awarding large discounts to computer makers who bought a Windows license for every machine they shipped, whether or not Windows was actually loaded. This was supposed to be proof of monopolistic intent, but the only real competitor for Windows is a Windows bootleg. Microsoft's pricing strategy was designed to induce customers not to steal.
For the same reason it spends billions upgrading its "monopoly" product, so customers will have a reason to buy the latest Windows rather than illegally transferring Old Windows to their new machines.
Another key element is striking the right balance in pricing. Various dancing-on-a-pinhead analyses were put forward by the government to prove Microsoft charges a "supracompetitive" rate because it faces no competition. But Microsoft faces huge competition -- from its own software, which never wears out and can be duplicated at zero cost.
The problem, and also the enormous profit potential, with digital goods is that they are easily and infinitely copyable. All it takes is one hacker to break the security seal, or one employee to let an unencrypted version out of the lab. Soon copies are everywhere. Hollywood must understand it can't change this any more than Microsoft could.
That's why it's good, after a period of moping, to see Tinsel Town exploring how to keep people paying enough for cultural pollution to make it worth producing. Big record labels have joined together to whip up a Napster worth paying for: with reliable downloads, comprehensive libraries, user friendliness. The movie industry is well on its way to deciding to live in the world too. Mr. Valenti weeps that 300,000 films a day are being illegally downloaded from the Web, including such current releases as "Planet of the Apes" and "American Pie 2." But has this stopped even one customer from buying a movie ticket?
The entertainment industry is still getting used to the idea that anybody who wants to take the trouble can get its products for free. But as Microsoft has been showing for years, that's no excuse for not making bundles of money.
