Friday, February 6, 2009

Selectable Output Control: Yes, it's still good for consumers

Ars Technica reports that the motion picture industry continues to press its arguments to the FCC on the issue of "selectable output control," a form of technical protection for digital transmission of movies whereby content owners could selectively block use of unprotected analog outputs from home entertainment devices, such as cable boxes. The studios want SOC in place before they implement plans to introduce a new feature: HD movies piped into the home, before DVD release, and possibly even when films are still in the theater.

Last year the studios filed a petition with the FCC to lift its current ban on SOC, but, so far at least, the FCC has not yet granted it. Ars points to a letter confirming that execs and lobbyists from Sony Pictures earlier this week met with Acting FCC Chairman Michael Copps and his staff "to talk up (PDF) 'the advantages of expanded consumer choices in the marketplace' which would supposedly come with a waiver on the agency's ban on" SOC.

Techdirt is outraged by this, particularly by the studios' argument that SOC will result in more consumer choice. Let's examine Techdirt's argument (while doing our best to ignore its liberal use of tendentious language ("break your DVR," "totally ridiculous," "jedi mind trick," "politicians are a bit slow," " The MPAA is simply trying to confuse politicians," "yammering on and on").

Techdirt implies that the studios claim they can't (i.e., are physically unable to) implement the new early home HD window without SOC, because there's something "stopping" them from doing so. But that's not what the studios actually said; if you read their petition in context, you will see that they simply said that they won't implement the new services unless they have SOC in place to allay their piracy and business concerns. So when Techdirt says, "There's absolutely nothing stopping the MPAA from offering this "consumer choice" right now," it's correct -- but the studios never claimed anything different. The studios' position in a nutshell is: Sure, as a purely technical matter, we could give everyone early-window HD VOD now. But we think that would be a bad business decision, because of our piracy and other copying concerns. But rather than paraphrasing, let's look at what the MPAA actually said in its petition:
Specifically, the Petitioners are interested in exploring opportunities to provide consumers with the ability to order recently released theatrical, high definition movies directly through their MVPD [multi-channel video programming distributors] (the "Services"). These new Services are exactly the type of ''new business models" that the Commission contemplated when it adopted the encoding rules. While each studio would have its own independent business model developed through private negotiations with existing and potentially new partners, the purpose of this Petition is to remove a general regulatory impediment that prevents implementation of content protection required in the specific case of the Services.

In order to make this extremely high value content available for general in-home viewing at such an early release window, protections are necessary to ensure it is not exposed to unauthorized copying or redistribution. Enabling SOC in this instance will provide the Petitioners with vital protections by allowing their high value content to flow only over secure and protected digital outputs. Absent sufficient protections, the Petitioners' theatrical movies are simply too valuable in this early distribution window to expose them to uninhibited copying or redistribution. Expedited consideration of this waiver request is necessary in order for the Petitioners to move forward with their independent discussions with MVPDs regarding introduction ofthe Services.
When the petition uses language like "prevents" and "necessary," it is simply saying that, it the studios' judgment, their concerns about "unauthorized copying or redistribution" have led them to determine that they will not begin the new services without SOC -- not that anything actually physically prevents them from doing so. It's clear what the MPAA is saying: its members want to implement the new services, but, after evaluating the piracy and business issues involved, have decided that they aren't willing to do so unless they have SOC. No "jedi mind tricks" here.

Techdirt mocks the MPAA's argument that SOC would result in additional consumer choice. But the studios' argument is perfectly reasonable. As I previously explained:
Today the studios don't offer pre-DVD hi-def VOD. If SOC comes to be, they will, and consumers will have an additional choice in home-movie viewing. If the copyleft succeeds in continuing to block SOC, they won't. And how exactly are consumers better off when the government takes steps that result in the studios offering them fewer choices?
Whether SOC opponents like it or not, the studios have made clear that they won't implement the new services without SOC. Thus the way to bring more choice to consumers is to allow the studios to use SOC, and experiment with the new early-window HD VOD service. Maybe SOC and the proposed services will be a complete flop. But we'll never know unless the FCC allows the SOC experiment, which the studios say will give them the confidence to proceed.

One more thing: Techdirt writes:
[SOC is] about giving the MPAA another way to block legitimate watchers from doing perfectly legal time shifting of the content on their TV.
Techdirt cites no law for the proposition that it's "perfectly legal" to time-shift paid VOD content; that that's not surprising, for the simple reason that there are no cases so holding. The Supreme Court's Sony-Betamax decision is often mis-cited as an all-purpose free pass for time-shifting. But it isn't. In fact, the Court was explicit that it was not ruling on the ability to time-shift content that the user specifically pays for (which is what the VOD service at issue in the SOC proceedings would be):
This case involves only the home recording for home use of television programs broadcast free over the airwaves. No issue is raised concerning cable or pay television...
The Sony-Betamax Court also was careful to define "time-shifting" quite narrowly:
the practice of recording a program to view it once at a later time, and thereafter erasing it.
Thus the ability to record high-value paid content on a DVR, watch it multiple times, and retain it indefinitely, is well beyond the scope of existing law on time-shifting. I see no indications that courts today would expand Sony-Betamax to encompass such activities. And there is nothing wrong with copyright owners taking reasonable steps, such as pressing for permission to implement SOC, to inhibit unlicensed copying and further distribution of their most valuable products. Why should the FCC prevent them from even trying?

UPDATE: Paul Sweeting of Content Agenda has an interesting take on the issue, suggesting that falling DVD sales may prod the studios to put in place the early HD VOD service even without SOC:
Given than more than half of studios' profits from movies come from DVD, the rapid erosion of that revenue stream is potentially catastrophic. Disney and Fox-parent News Corp. this week each reported huge earnings hits in their filmed entertainment divisions due to plunging DVD sales. Time Warner saw an increase in film earnings but still experienced a decline in DVD revenue.

Would an early, premium priced, high-def VOD window get people watching movies at home again and replace some of those DVD losses? Hard to say. But it's also hard to point to any other existing or potential distribution channel where they're likely to replace those dollars in the near term.

The question for the studios is whether the need to create a new revenue stream will be keen enough to risk doing it without the protection of SOC.


  1. "Why should the FCC prevent them from even trying?"

    I dunno... perhaps because it would *break* the consumer electronics that people bought and are using in their own home?

    By the way, you have a rather unique interpretation of the Betamax ruling. I've yet to see any lawyer -- even one who believe so strongly in copyright -- pull that one out. It would be great to see how a court reacted to such an argument.

    Finally, I stand by my claims. The studios claiming that it *won't* offer these things is no excuse for the FCC to change the law. That's the studios' own decision. Why should the FCC break everyone's consumer electronics because the studios are too clueless to figure out how to build a decent business model?

    Hell, if the FCC would guarantee Techdirt that we would get top billing on the home pages of every ISP website, we'd be willing to offer a lot more content, thereby increasing consumer choice as well. But, that's dumb. The FCC's job is not to put in place laws that make companies feel "more comfortable" offering something.

  2. SOC doesn't break anything. It simply (and temporarily) flips an "off" switch on certain outputs.

    Actually, I didn't even "interpret" Sony-Betamax. I simply quoted language from the Supreme Court's opinion, verbatim. One can (and many do) argue that courts today should go *beyond* what the the Supreme Court said in 1984, and broaden the definition of time-shifting. But I quoted accurately from the opinion, which remains binding law. And there is nothing remotely "unique" about citing that language (or about my interpretation of the case); I've seen it quoted in scores of opinions, briefs, articles, memoranda, and even blog posts. If you can cite any cases contradicting what I wrote, I'd be interested in seeing them.

    Lastly, the studios are not asking the FCC to "put in place laws." Actually, just the opposite. They are asking the FCC for a "permanent waiver" (i.e., effectively a repeal) of the regulation that currently bans SOC, so that they can experiment with a new technology.

  3. Ben, you suggest that the studios, "after evaluating the piracy and business issues involved, have decided that they aren't willing to do so unless they have SOC."

    Let's exercise a bit of critical thinking about that assertion. First, it's absurd on its face to assert that SOC will prevent any piracy. Many (most?) films are already available on the Darknet before the DVD release (see the interesting Oscar Piracy figures at Woxy). If not, then any minimally motivated "pirate" will be able to capture the video from the VOD using an HD camcorder. SOC will be no barrier at all to that method of copying.

    So, just to be clear, when Hollywood suggests that SOC is necessary to address their "piracy" concerns, that only makes sense if you mean that regular folks who want to use their old set or tape for later home viewing are "pirates." Whether or not I accept your reading of Betamax, let's be clear about the "threat" that Hollywood is hoping SOC will protect them from.

    Second, let's consider the "business issues" that you leave so tantalizingly vague (as do the studios). The only "business issue" I can see here is the desire of the MPAA companies to prevent disruptive innovation, thereby retaining control over who can build what devices and business models around their content. Last time I checked, that's not an exclusive right afforded the copyright owner.

    The FCC is supposed to consider the public benefit here. Your much touted "more consumer choice" is only true if you accept, as a baseline, that Hollywood will make good on its threat to withhold pre-DVD HD releases. If, on the other hand, you think that withholding SOC will force Hollywood to provide that without these restrictions, then the public stands to lose quite a bit.

    These "if you don't give us what we want, we'll exercise our cartel power and withhold our content from consumers" threats aren't terribly credible. Viacom made that threat in demanding a Broadcast flag back in 2003, saying they would stop providing **any** HD content for broadcast TV on a date certain. Ooops, I guess we called their bluff on that one. Result: they blinked.

    For the reasons discussed by Paul Sweeting (a very astute observer of the DRM wars), the FCC should call their bluff one more time.

  4. Fred --

    I tried to be careful to distinguish "piracy" (which I think of as widespread copying/distribution, though admittedly there's no universally accepted definition) from other forms of unauthorized copying, such as a consumer making a copy of a VOD film that the rules say he's only allowed to watch for 48 hours (which is, I believe, an example of what the studios are talking about when they refer to "business issues"). I think it's perfectly OK for a copyright owner to license its works for a limited viewing time, and to implement technical measures to thwart transgressions of those limits.
    Is it your position that, under Sony-Betamax, a consumer has the "right" to time-shift or permanently retain a copy of a VOD movie that the contract says he can only watch over a 48-hour period?

    Re pre-DVD piracy: I think the vast majority of the existing piracy in this window is from camcords, where the quality is often pretty bad. With the HD VOD we're talking about here, the quality would be near perfect. So I think it's fair for the studios to try and prevent those pristine copies from getting recorded and sent immediately around the web. As for your HD camcord scenario, I guess that's possible, but I would think a camcord of a TV screen is still significantly worse than pristine copy of the sort SOC is trying to prevent.

    Question for you: you have argued in various contexts against government technology mandates. You don't want the government to impose a broadcast flag, or to ban p2p software, or to have the courts decide what features of the ReplayTV are acceptable. Fair enough. So why do you want the government to ban SOC (as it currently does)? Why can't the studios and CE manufacturers design and implement technologies without FCC bureaucrats telling them which features they can put in cable STBs?

    In other words, aren't SOC opponents the ones trying to "prevent disruptive innovation" by giving the FCC "control over" the ability to implement new technologies?

    As for whether the studios will move forward with such services even absent SOC, I suppose it's possible, as Sweeting suggests. But they've held out for quite a while now, and they obviously think SOC is important enough to forego a potential revenue stream while they press their case with the FCC.

  5. "In other words, aren't SOC opponents the ones trying to "prevent disruptive innovation" by giving the FCC "control over" the ability to implement new technologies?"

    Nice attempted inversion, but I'm afraid that dog don't hunt.

    The government has already imposed a design mandate in the form of the Plug-and-Play regime. We at EFF supported the initial statutory goal of Plug-and-Play, which was to ensure more openness and interoperability in a technology environment that was entirely dominated by monopoly cable carriers. In other words, the basic approach behind Plug-and-Play was initially to support *more* market entry, more competition, and more innovation.

    Unfortunately, the MPAA intervened in 2000 to inject copyright issues into the Plug-and-Play proceeding (seeking measures that necessarily reduce innovation and interoperability). EFF fought that effort, unsuccessfully. In short, the MPAA, working with cable providers, turned Plug-and-Play into a federal DRM mandate (the prohibition on SOC is one of the few ways that this DRM mandate is constrained -- otherwise, every interface has "security and robustness" as a "feature").

    We discussed this dilemma in our 2003 comments to the FCC, for those who may be interested.

    In short, the ban on SOC is not a "government technology mandate" on the MPAA companies. The mandate happened when the MPAA and cable companies added content protection to a navigation devices interoperability standard, then got the FCC to turn it into a mandate. The limit on SOC is an effort to ameliorate the anti-innovation, anti-consumer potential of that ill-advised mandate.

  6. You certainly know the history better than I do. But it still seems to me that, even within the Plug-and-Play context, we should not want the FCC to ban use of a specific technology, which is what the current SOC rules do.

    We can debate whether the studios are just bluffing when they say they won't implement the contemplated services without SOC (and neither of us knows for sure). But I still think the bottom line is that the studios *will* implement innovative new business models (which everyone says is the goal) if permitted to experiment with this new technology. And I don't think there's really any harm in letting them try.

  7. To reiterate what I said earlier, the "harm" in "letting them try" is that it precludes the *better* possibility of the studios implementing a better, "innovative business model," namely one without SOC.

    In addition, I think it's worth pointing out that if Hollywood won't do pre-DVD HD video on demand, there are plenty of content owners who will fill that void for them (think Mark Cuban's HDNet, for example). When a cartel issues a coordinated refusal to deal, the best antidote is to encourage competitive entry, which generally breaks the cartel.

    In fact, Hollywood's history is littered with examples of their cartel discipline failing, leading to better outcomes for consumers. For example, in the early 1980s, the movie studios all refused to release any movies on prerecorded videocassette. That is, until Fox (given your former employment at Fox, I trust you'll appreciate the irony) defected from the cartel and started to make money on prerecorded tapes. Predictably, the cartel collapsed and consumers got the prerecorded cassettes that the studios said they would "never" release.

    I see no reason not to call their bluff here.

  8. Accusing someone of a "concerted refusal to deal," which has a specific meaning in antitrust law, is a pretty serious charge -- and I don't think there's any evidence to support it. The MPAA petition repeatedly emphasizes that every studio will make its own decisions on what to offer (or not): "each studio would have its own independent business model developed through private negotiations with existing and potentially new partners." (p. ii); ("Petitioners are each interested in individually evaluating opportunities...") (p. 2); ("Petitioners would each individually consider mutually satisfactory business arrangements...") (p.4); ("Each Petitioner and its MVPD partners would determine through commercial negotiations the appropriate outputs and content protection tools for use with their Services.") (p.6).

    The only thing the studios have done in concert is petition the FCC -- which is totally legal under Noerr-Pennington.

    I admit I wasn't at Fox when people were sitting around deciding whether to release pre-recorded tapes. But why isn't the fact that Fox did so not evidence of a "cartel" collapsing, but, rather, that there was no "cartel" in the first place?

    Lastly, as to the Mark Cuban point: maybe I'm missing something, but how would the FCC's decision whether or not to lift the SOC ban affect the ability of Cuban (or anyone else) to start offering early HD VOD right now? If he wants to do it without SOC, more power to him.


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