Saturday, January 28, 2012

From VCRs to SOPA, Big Media's Troubled History with Technology

There’s a mantra of the digital age that’s as old as the internet itself: information yearns to be free. But when that information is copyrighted intellectual property, another mantra comes to mind: there’s no such thing as a free lunch.

For years, the media companies behind SOPA have watched sites like MegaUpload enjoy a “free lunch” at their expense - with a bill totaling $16 billion per year. Yet inexplicably, SOPA was not aimed at pirated content sites like MegaUpload as much as it targeted Google and Facebook – sites that drive tons of potential paying customers. In fact, the U.S. took down MegaUpload just days after SOPA was killed, suggesting that SOPA is in fact unnecessary in the war against pirated content.

$16 billion in lost revenue indicates piracy is a major problem, but that’s not to say that media companies haven’t figured how to cash in on their content online. Whether it’s paid downloads from iTunes, advertising revenue from Hulu or licensing fees from Netflix, companies like Disney, News Corp. and Time Warner have done a fantastic job of monetizing content in ever changing ways. This transition to digital has been lucrative for media companies and it has vastly improved the experience for their customers. In the history books, the digital era will be remembered fondly by content consumers and producers alike.

Whether or not the media companies deserve credit for cashing in on the digital era is another question. In fact, the companies behind SOPA have a history of opposing technology that ultimately turned out to be a major boon to their business.

The Opposition to VHS
In Congressional hearings in the 1980s, Motion Picture Association of America head Jack Valenti likened
the effect of the VCR on the film industry to the Boston Strangler. His prediction couldn't have been more off - box office revenue remained strong and VHS paved the way for the video rental companies like Blockbuster which turned out to be an enormous incremental revenue stream for the film business.

Viacom's lawsuit against YouTube
During the course of the lawsuit, YouTube created its Content ID technology which enables YouTube to
identify copyrighted content and give the owner a chance to sell ads against it. This is a sizable business for
both parties. YouTube makes a third of its revenue on such ads, which it shares with the content producers.

The Shunning of Netflix
In an amusing bit of hypocrisy, media companies aimed to protect the video rental business they once tried
to kill. After initial reluctance to strike a deal with Netflix, media companies realized that on-demand
streaming allows them to monetize back-catalog TV content like never before. Rather than gather dust, they
can make money on the Wonder Years and Frazier all over again. Netflix is paying more and more for new content too. In 2008, Netflix entered into a four-year streaming deal with Starz estimated to be worth as much as $30 million a year. That same deal, which gives Netflix rights to Disney and Sony movies, is up for renewal at a figure rumored to be closing in on $300 million a year. That would be 1,000% growth, not too shabby.

It’s pretty clear that when it comes to new technology, media companies tend to do everything in their power to screw themselves over. SOPA it seems, was just the latest stumble in the media companies legacy of biting the hand that feeds them.

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