Technology and Business Models

Here some thoughts prompted by the Q&A for Panel 1 at Southwestern’s Copyright Reform Conference.

One idea that came up was the way in which law and technology intersect. Nimmer claimed that the 1976 Act would have addressed DeCSS. Fred von Lohmann said no, Betamax and other cases would have said non-infringing uses mean DeCSS is allowed.

The part that I am not sure worked was when FvL ceded that DVDs would not have been offered had it not been for the DMCA, but that now we don’t need that protection. In other words, the DMCA was necessary in 1977, but not needed for continuing success of the DVD market today. DVDs would still be in play with or without the DMCA.

When I followed up with him he said that the point was that incumbent copyright industry often if not always overstates the way disruptive technologies will impact creation. That point makes more sense to me.

Yet, by ceding that at some point in time one had to have the DMCA to encourage the industry to pursue DVDs, a bigger point comes to the fore. One does not know what technology will or won’t be disruptive. Furthermore, because we don’t know we should allow for more open systems to see what happens. Nonetheless, at least with DVDs we may find that certain technologies will not be pursued without the law agreeing to protect an existing business model.

Put differently, I suggest that if the law is protecting a business model, it should do so for a limited time (and I think that is what FvL was trying to say). This explanation explains the seeming inconsistency with DVDs and the DMCA. One may have to offer protection to stimulate the incumbent or new endeavor. Once that model is flourishing, however, one should cease to offer that protection. Of course as a practical matter, once an industry has that protection, it will not give it up easily. The best question then may be: How do we assess when protection is necessary and when to remove that protection? Simply saying that industry in hindsight overstates the problem or is incorrect about the effects does little to help the system move forward. More on that in follow-up posts about the conference.

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7 Responses

  1. I’m not sure that Fred conceded that the DMCA was a necessary precursor to the release of movies on DVDs. Jon Baumgarten insisted, as someone who was there at the time and perhaps involved with the decision, that the motion picture industry would have refused to bring out films in any digital format unless Congress had passed the DMCA anticircumvention provisions. (I think there are lots of reasons to question that assessment. The absence of anticircumvention law might have delayed the release of films in digital formats for a couple of years, but not, I think, more. Two pieces of evidence in support: first, the motion industry had no reason to expect that 1201(a)(1)(a) would be read as broadly as it was read in the DeCSS case, and, second, almost the instant DVDs appeared, circumvention tools showed up notwithstanding the DMCA, so it’s hard to see how it provided a real expectation that DVDs would not be subject to rampant unlicensed copying.) I understood Fred to be saying that even if Jon were correct that DVDs would never have been introduced but for the enactment of section 1201, the section was not now protecting anything in a useful way.

  2. A.J. Sutter says:

    You mean of course 1998, not 1977 for the DMCA. I think some confusion arises here from your premise that DVD is “disruptive”. This term is way overused. In Christensen’s original sense, a “disruptive” technology is initially used in a low-margin market, and then gradually captures higher-margin ones. Was that ever the case with DVDs? Margins on DVDs are much higher than on theatrical exhibition. Arguably DVDs are actually a case of a “sustaining” technology, an improvement on video tape and laser discs. In that context, DVDs are a new product, not a new “business model” (another often misused term). DMCA was sought by the movie industry to protect their high margins, not to nurture the development of a low-margin “disruptive” technology.

    BTW, DVD players were a sustaining technology for electronics manufacturers too. Evidence for this includes that DVD players could be introduced at a higher price than other media players, and that the companies introducing DVD players were the incumbent electronics majors.

    Maybe the “disruption” you are thinking of is to rent-seeking behavior. If people could freely make digital copies of movies, that would mean the copyright owners would lose monopoly rents. Fair enough, but that is quite distinct from “disruptive technology” in the proper sense of that phrase. That phrase also masks a point you’re interested in, namely who really had the most at stake with DVDs. These were the incumbents in the content and electronics industries, not newcomers.

  3. Deven says:

    Jessica, I checked my notes and was surprised, but as far as I can tell he ceded that one. That being said I think you are correct that Fred was saying today “the section was not now protecting anything in a useful way.” Still I am not sure about the chicken and the egg problem. If the industry needed the safety blanket that does not undercut that it believed it needed it.

    As for the idea that because the facts played out differently than expected, I am not sure what you are saying. Is it that the industry postures and knows that the reality is people will use technology to share? So the industry is really grabbing at what then? Illusions? Or ways to nudge the system over and then make a bigger grab down the line?

    In other words, are we seeing a pattern that is necessary as we move forward? Incumbents make claims and take stands they know will fail. We should not honor those claims because they are in fact false. Insofar as these claims are incetive arguments in disguide (or in the open), they would seem to overstate.

    I am just getting to these comments and about to leave town, so I may be missing the plot. I wanted to start thinking about them a little.

    A.J., thanks for the edit help and the ideas. I will get back to you in the next few days.

  4. Jay Levitt says:

    But is it fruitful to ask when we should remove the legal protection? Look at copyright; we’ve granted virtually-infinite protection to any works produced since the dawn of mass media. Whenever that protection is about to expire, we extend it again.

    The answer to “how do we assess that need” is, apparently, that we ask the industry if they still want it.

  5. Bruce Boyden says:

    “[I]f the law is protecting a business model, it should do so for a limited time.” This can’t be the test though; e.g. contract law protects various business models (business models that rely on enforceable agreements), but that’s no reason to repeal contract law. The only justification for a repeal of a once-useful law is that the law is no longer needed, so that’s what you’d need to show.

    And I think there’s a pretty strong case for at least perceived need for 1201, at least originally, setting aside actual need. Ultimately that’s a historical question based on evidence of what corporate actors were thinking that we don’t have reliable public access to. But pace Jessica, I think the indirect evidence doesn’t weigh against it. I think it would have been pretty surprising if Corley had come out the *other* way. And I’m pretty confident that very few if any of the relevant industry players had this combination of beliefs about hacks in 1996: 1) hacks are inevitable and imminent even with 1201; and 2) 1201 will do nothing to mitigate the harm. Indeed, regardless of beliefs, I don’t think (2) is even true, but that’s obviously a whole separate argument.

  6. A.J. Sutter says:

    Jay hits the nail on the head (though I do think it’s fruitful to keep asking, in the hope that someday things may change). And the point he makes is exactly why it’s good not to bamboozle one’s thinking with the “disruptiveness” rhetoric. We’re prone to think “disruptive” in this context = “good”, and this leads us to overlook what’s really going on.

  7. What I meant about the safety blanket was this: Like Fred, I’m happy to believe Jon Baumgarten when he says that in 1998, the motion picture Industry believed it needed the protection of anti-circumvention law to enable it to bring out DVDs, just as the recording industry believed it needed that protection to release digital downloads. By 5 years later, though, I think it was already clear that the anti-circumvention law was not meaningfully reducing the availability of circumvention tools and that DRM was not meaningfully reducing the incidence of unlicensed copying. Yet, both the motion picture and the recording industries continued to release hot new properties in digital form; networks began to stream their hottest programs from websites designed for the purpose; series producers licensed their episodes to iTunes. The reason is that the need to compete for eyeballs in an increasingly competitive marketplace has been compelling enough to override concerns about copy-protection. This, I think, is evidence that the failure to enact section 1201 might have delayed the roll-out of DVDs, but not by more than a year or two.