(By guest blogger Kevin Laws, former entertainment industry consultant and current venture investor)
It's not too late for the motion picture industry to avoid the music industry's fate
Several months ago, I predicted that the motion picture industry would learn from the mistakes of the RIAA and not go down the same path. I was wrong.
The Motion Picture Association of America released a study recently that highlights two facts:
- Broadband is leading to a huge growth in downloading of movies and TV shows
- The MPAA has learned nothing from the RIAA and is following the same failed path
My prediction turned out to be wrong because video reached the tipping point sooner than expected. Enough of the pieces have become "good enough" that video downloading is taking off, leading people to accelerate their efforts to get it from good enough to mass market.
So the MPAA has been startled into action. So far they appear to be going down the same failed path as the RIAA. It's not too late for the MPAA, though - there is still a chance to save Hollywood.
The Four Horsemen: DivX, BitTorrent, Broadband, and Gateway
There were four impediments to easy transport of digital entertainment. While not yet there, all four are falling simultaneously.
DivX is quickly becoming the video standard. Initially, there were many formats for digital video - Quicktime, MPEG, MPEG2, WMA, H.263 to name a few. For online transport of video, however, two formats are emerging as dominant: DivX and XviD (basically freeware DivX). Currently, there are still too many options for a normal user: resolution, bitrate, framerate, and a bunch of others. However, MP3 was no less complex at first. Packages emerged that simplified it for the average user, and the same is happening in the online video world.
BitTorrent clients allow reliable downloading of very large files. For small files like MP3s, it is easy to download the whole file from Joe, the college student running a computer in his dorm room. It doesn't matter that he was only on the net for a few hours that Thursday. A movie might take a few days to download, however, so when Joe shuts down his computer, you're stuck with only a tiny portion of the movie you were downloading from him. BitTorrent solves this problem cleverly. Since you need to be connected to it while downloading a large file, it allows others to download pieces from you while you download. Once files are available online, if they are sufficiently popular, they never disappear even if the original server goes down. Web sites then list the files available for download.
Broadband is entering the average home. Though slow, MP3s could still be downloaded through a modem. Video is far too large, but broadband is now becoming so mainstream that most homes will soon have a high speed connection. Comcast just ran fiber optic cable through my neighborhood and the local phone company is upping the speed of their connection as well.
Manufacturers are providing the devices needed to view digital video. As long as digital video could only be watched on your computer screen, Hollywood didn't need to worry. How many normal people will sit at their computer for 2 hours just to watch a movie? Now that DivX and XviD are becoming standards, devices that accept those formats are proliferating. I have a Gateway Connected DVD player - a media center that can pull video off my computer and show it on my TV. My Archos AV340 is a portable MP3 player that can also play DivX video.
Each component is good enough that a moderately sophisticated user can figure them out. As sales take off, some product will bring the pieces together as Apple did with iPod/iTunes, taking digital video to the mass market. If the MPAA hasn't figured out how to compete with free services by then, they will suffer as the music industry has.
Learning From the RIAA: Perfect As The Enemy Of The Good
As history has shown, the RIAA did not react appropriately to the problem it faced. In part, their reaction was slow because they were being held back by their own retailers. While the movie industry doesn't have that to the same degree, it just means they are making the same mistakes faster.
Specifically, they are letting the search for perfection prevent them from going with the "good enough" solution. The music industry tried to come up with a DRM-enabled encryption solution that couldn't be cracked. The Secure Digital Music Initiative (SDMI) failed rather spectacularly when it was cracked by a group of students. The movie industry has now done the precise same thing by financing AACS, a proprietary standard for distributing video. Given that the standard is not out yet, it is even later in the game than SDMI was compared to MP3.
The music industry failed to recognize that perfect encryption wasn't necessary and going against an established standard wouldn't work. CDs could already be ripped and put online, so worrying about copying of downloadable tracks was irrelevant. Instead, they just need to get to the market fast with a "good enough" solution. Put simply, if iTunes existed in 1994, my parents would not be using MP3s today.
After all, the primary reason to download episodes of The Simpsons isn't so you can get them for free. They were free the first time they were broadcast on TV. It's because downloading is the only way to watch them on your portable video player. I'd pay for an appropriately priced service that let me download them, but there isn't one.
The genie of perfect digital copies is already out of the bottle. You can download many free (if illegal) software packages to turn DVDs into DivX or XviD format. Worrying about whether the format picked by Hollywood prevents perfect copies seems silly in that light, since the act of releasing a DVD makes perfect copies available to anybody.
Competing With Free: How To Save Hollywood
It's clear from the report the MPAA released that Hollywood needs to move fast to save itself. The solution is obvious given the RIAA's experience. Guaranteed quality, complete catalog, and ease of use will make it possible for the studios to compete with free.
Work with DivX to incorporate digital rights management in the standard, no matter how imperfect. AACS is the movie industry's equivalent of SDMI, a consortium of entertainment companies creating a proprietary standard for sharing video. AACS is DOA because it is too late, just as SDMI came too late. It was supposedly announced July 14th, but the web site still says "coming soon" and if you have images off, it still says "coming July 14th". Instead, work with DivX. Allow it to continue to support any movie ripped freely, but with an optional simple encryption with a separately provided key tied to a specific device. Users register "allowed" devices with a third party service and when they pay, it automatically downloads and installs keys that allow the device to play any specific video. It is important for the industry that this become part of the already winning DivX and XviD standards, rather than a proprietary solution.
Free copies of the exact same movies will still be available for download because people will rip the DVDs, just like MP3s are available for almost any song downloaded from iTunes. People still download from iTunes, because as a mass market experience it is better. For those that value their time more than a few dollars, it will be the obvious choice. For the students who don't have the money, they wouldn't have shelled out $50 for a season of the Simpsons anyway.
Release everything. If I can't get the Simpsons legally, I have that much more incentive to learn how to use illegal file-sharing services. Rather than staging things individually, just make the entire catalog available. It's still OK to wait until the theater or TV season ends, but it better be available online soon afterwards.
Support the infrastructure. Once DivX supports some form of moderate DRM, Hollywood needs an iTunes-like experience for video. They should instantly make their entire catalog available to any service that wants to provide it on the same terms as DVD releases (minus the costs of physical distribution), spurring the same sort of innovation in that area as we've seen in music.
So far, the MPAA has shown weak leadership by not aggressively moving this direction. It's not too late to save Hollywood, but only if it learns its lessons from the RIAA's failure.