Picker MobBlog

Our Next Mob: von Lohmann/Darknet

We will start our next mob on Monday, August 15^th. Fred von Lohmann of the Electronic Frontier Foundation will present his paper “Measuring the DMCA Against the Darknet,” 24 Loy. Entertainment L.Rev. 635 (2004). That paper builds off of a prior paper “The Darknet and the Future of Content Distribution” written by a group at Microsoft.

Fred will make an initial post, a discussant will make a commenting post, and we should be off and running. We are in the process of organizing participants.

I will be out of the office for chunks of the next two weeks, with uncertain Internet access, so I suspect that we will be observing blogging silence over the next two weeks.

See you on Monday, August 15^th.

Picker: Why Google’s Stock Should Be Higher

Oh, actually, I don’t have a clue. Couldn’t tell you what it is trading at now and couldn’t begin to tell you the right number.

But I still know the answer: the DVR.

C|Net has two interesting stories posted on DVRs. The first is a prediction from JupiterResearch that U.S. DVRs will jump from 7 million at the end of 2004 to 55 million by 2010. The second describes a new DVR that they are oohing and ahhing about in England.

Why does this matter for Google? I published a paper a couple of years ago entitled “The Digital Video Recorder: Unbundling Advertising and Content” (a version online is here).

That paper makes the simple point that while the DVR is just a souped up VCR, the soup really matters. That quickly translates into some obvious points and some less obvious points and then we can circle back to Google.

The obvious point, of course, is that the DVR makes it easier to avoid commercials. Now we have been there and done that: the Supreme Court’s opinion in Sony details the content industry’s concerns with commercial zapping with the VCR, as well as the state of the evidence then. The VCR didn’t turn out to matter that much; the flashing 12:00s exemplifies the relative complexity of the VCR, and that complexity protected the advertising-based financing model for most TV. But we live in a nonlinear world, and small changes in transactions costs may make the DVR the real commercial killer. And the DVR is probably a big change in costs.

The less obvious points relate to the question of what financing model will replace the current model of bundled commercials and advertising. We pay for TV with dollars or with the risk of exposure to commercials. Obviously, advertisers can embed advertising into the content itself—product placement—a long-standing tradition in broadcasting football—soccer to us in the U.S.—in other countries. (A group of my LLM students were nice enough to give me an Arsenal shirt recently. The O2 emblem in the middle—a UK wireless provider I think—is much, much larger than the Arsenal patch on the shirt.)

We also may move to personalized advertising, which might increase the likelihood that we would watch the ads. That possibility turns out to have interesting spillovers for the content itself, as I explain in more detail in the article.

The other point of interest on the financing model is that who provides the DVR may matter. Free-standing DVR makers have only a weak stake in the current advertising model. Cable and satellite providers have a much stronger stake, as most of their content is non-premium (HBO and Showtime) and is advertising-supported.

So what does this have to do with Google? A disruption in the TV advertising market will put tens of billions of advertising dollars into play. Google is well-situated to capture a good chunk of this, both the original text Google as well as Google’s new move into video (I discuss the latter here).

Picker: Figuring Out What We Can Agree On

I am interested in trying to understand what common ground exists, if any, with regard to content restrictions, whether on paper through contracting or through technology ala DRM.

Take one recent example, created as part of the Family Entertainment and Copyright Act of 2005 enacted by Congress on April 27th. The new law does a number of things including validating ClearPlay’s technology for skipping the naughty parts of movies (and perhaps more, see Ed Felten’s discussion of this).

The act defines a new federal crime, namely, the unauthorized recording of movies at theaters. As you may remember, there is a Seinfeld episode in which Jerry is coerced into recording a movie—Death Blow—for one of Kramer’s friends, but Jerry’s obsession with camera angles eventually gets him out of further engagements.

This is obviously a content restriction of a sort. It means that when I go to the theater to watch Batman Begins, as I did with my two sons recently, we don’t get to take a copy home for our private use or for distribution in Beijing.

The content owner imposes a traditional restriction on my right to access the content. The fact that I may have missed a scene or two while going to the bathroom does not give me the right to come back to the theater the next day to sit in an empty seat to catch the scenes nor can I bring a camcorder with me to make sure that I don’t miss anything.

We could talk about whether this kind of issue should be dealt with through federal or state legislation (my understanding is there were some state statutes on this prior to the new federal law). We could also talk about why this is made a crime punishable by imprisonment for up to three years (the standard answer for criminalizing copyright is that we think that we can’t deter violations through fines if the perpetrators don’t have much money).

What I don’t see is talking about—hence the question as to whether we’ve found one piece of common ground—is whether the content owner can bar me from taking my camcorder to the movies.

Yes? No?

Picker: Radio Wars: Limiting Competition and Buying Playing Time

The Wall Street Journal had two interesting stories this morning on the state of the radio business. (WSJ subscription content here and here.)

The two leading satellite radio companies, XM and Sirius, are expanding the amount of local content that they deliver. This is a function of getting more spectrum and figuring out better ways to manage the spectrum that they have.

You would think that this would be a good thing. The Federal Communications Commission has a long-standing interest in what it describes as localism, plus XM and Sirius are just trying to give their customers what they want.

The local radio stations don’t want the competition and are taking steps through the National Association of broadcasters to attempt to limit the extent to which the satellite broadcasters can localize their content.

This is a conventional approach to competing, that is, block competition by making life harder for your competitors. Satellite TV faced this when it didn’t have a statutory copyright license so as to enable satellite broadcasters to broadcast local broadcast channels into local communities (the cable companies have had this for years). Most TV viewers want to get their television from one source and don’t want to have to switch between satellite and rabbit ears.

Local radio broadcasters are using the same strategy: if regulations make it so that you can’t get local weather and traffic from your satellite radio provider, you probably will be less likely to adopt the technology. This is not competition on the merits or in the marketplace but rather competition in the halls of Congress and the FCC.

The second story relates to the pay-for-play settlement announced today between New York Attorney General Eliot Spitzer and Sony. The press release for the settlement describes the practices that Sony undertook to get playing time for its new songs.

As Larry Ribstein emphasizes, there is good reason to be skeptical that rules limiting payola are socially useful. So, for example, I am quite confident that if I wrote and sang a song and paid radio stations to play it many times, you would still recognize that it was a very bad song. For me to pay the stations would be to throw good money after bad and that will naturally limit the extent to which paying for playing time can distort results. There is much more to be said here about all of this—and the place to start, as Ribstein notes, is Ronald Coase’s classic, “Payola in Radio and Television Broadcasting,” 22 J. Law & Econ. 269 (1979)—but I will leave that for another day.

More to the point is how the first story relates to the second. Sony was paying local radio stations because they have a valuable commodity: airtime. We can try to regulate payola directly, as we have done the past and as Eliot Spitzer has done again today, or we can reduce the incentive to pay payola by allowing competition to take place in the marketplace. Making sure that satellite radio broadcasters can broadcast local content is an important step in that direction.

Elsewhere: Tracking Printers

Donna Wentworth has an interesting post at EFF: Deep Links on a purported scheme for tracking the outputs of color printers with the hope of catching counterfeiters. Unsurprisingly, the ACLU is concerned that this technology could be used more widely to monitor outputs. The EFF is investigating.

This is the flipside of my last post, which focused on controlling inputs into printers/copiers/scanners.

Picker: Copying the Half-Blood Prince

I take it that one of the important lessons of Harry Potter VI is that Hermione was right: it wasn’t a good idea to copy the Half-Blood Prince.

Ed Felten has posted on the inevitable fact that HP VI would make its way online, hence the futility of refusing to offer for sale a digital version of the book. (As a family that purchased two copies of the book and one copy of the CDs, I was just happy to learn that there was at least one medium on which we couldn’t buy the content again.)

We should talk about the possibilities for controlling this type of copying.

Based on Ed’s description, it sounds as if individuals have digitized chunks of the book. I know too little about watermarking and other forms of document controls, but I would think that it would be straightforward to imprint each page of copies of HP VI with a mark—dare I say a dark mark?—that scanners could recognize and respect.

Yes, it would make scanners marginally more expensive, but this doesn’t strike me as rocket science technology. The hard part, I suspect, is much more on the institutional side: getting scanner makers to include this technology. The scanner makers don’t have a stake in helping to limit copyright infringement; indeed, just the opposite: scanners that scan everything are more attractive to consumers than those that have a reduced feature set.

But of course there is even a more basic problem if we really want to avoid digital transmission of HP VI. The scanner approach—one that we could extend to photocopying machines as well—wouldn’t prevent me from typing the book into my computer. Sure it would be a lot of work to type all 652 pages, and I probably wouldn’t do that, and I suspect that no one else would either. And whatever we think about the plausibility of the scanner/marking scheme just described, I doubt that anyone thinks that Microsoft Word could be designed to somehow recognize when I am re-typing a copyrighted work.

But the Internet really is close to the world of friction-free transaction costs. Even if I won’t type the whole book, the Internet makes it reasonably straightforward for 652 of us to type one page and combine those together to make a digital copy of HP VI. The basis problem is that as soon as I can read the text, it is out in an unencrypted, capturable form.

For many works—academic monographs for example—it might be hard to find 652 volunteers to type in the work. Rowling is a victim of her success: both with regard to demand for the work in an electronic and searchable form and on the supply of ready typists. I confess that I won’t lose sleep over Rowling’s lost galleons; I am confident that her vault at Gringotts is already overflowing and that her incentives to create the works in question don’t turn on every possible market for the work. (That isn’t a general theory of copyright, and it doesn’t say that the current copying isn’t infringement, just a question of psychic energy.)

Does all of this mean that matters are hopeless for copyright holders? And more importantly, what does that mean for the broadcast flag? The flag, of course, is the technology of interest, since I suspect that we are a long way from controlling scanners in the way that I describe above. Degradation of quality comes next in line after filters or flags to block copying or re-transmission. When we type HP VI into our computers we introduce mistakes: Microsoft Word doesn’t recognize “horcrux” for example, so it would be easy to misspell it.

Degradation comes in a variety of forms. For a text such as HP VI, we would have misspellings, perhaps even missing paragraphs or pages. Hard-core fans will care a great deal about having the exactly-right version of the text. China has a flourishing market in infringing DVDs but I am told that the sheer number of infringing versions of a particular work makes it quite hard for a customer on the streets of Beijing to know that she is getting the authentic version of the original work.

The FCC intended the broadcast flag to limit the redistribution of video content. Note the past tense on “intended,” as the D.C. Circuit concluded on May 6, 2005 that the FCC lacked jurisdiction to implement the flag. The flag certainly wouldn’t have prevented all redistribution of digital TV content: I could plant my camcorder if front of my TV, record and redistribute. But the flag might have increased transaction costs, both direct and indirect through degradation of the re-transmitted works. And that might have been enough to move—even just a little bit—the line that separates paid use from infringing use.

Picker: Grand Theft Auto, Grokster and Sony

Grand Theft Auto: San Andreas made the front-page of the New York Times yesterday, as well as the business section and the editorial page today. (The editorial, which has a great, funny line about Cary Grant and Grace Kelly, makes the point that my co-mobblogger Tim Wu made in comments on my post last Friday, namely that the added sex scenes may be the least objectionable parts of GTA:SA, but U.S. culture has often startlingly different reactions to sex and violence.)

To recap quickly, GTA:SA carried a Mature rating from the Entertainment Software Rating Board. M means 17 and up. Patrick Wildenborg released the Hot Coffee mod that made playable even more explicit content, content that Wildenborg said was resident but invisible on the PC version game. Rockstar Games, the producers of GTA:SA, said that Wildenborg had done much, much more.

Rockstar now has conceded that the content was on the disk originally—an early draft included with the final version. This has set off a quick chain reaction. The ESRB had suggested initially that it wouldn’t need to bump up GTA:SA from M to its Adults-only rating if Rockstar hadn’t intended the hidden content to be playable, but the ESRB quickly realized that wasn’t a sustainable position. With the rating raised, Wal-Mart and Target said that they wouldn’t carry the game, and that was game over. Rockstar has announced that it won’t sell the current version of the game and will re-issue it, sans the extra sex scenes.

What happens next? The Parents Television Council, a conservative media watch group, has called on Rockstar to recall GTA:SA and to offer refunds to disgruntled customers. It might be smart marketing for Rockstar to do that, as it is likely to get few takers. Indeed, my forecast is that the AO-version of the game—should we call this GTA:SA Classic?—will enjoy a long life on eBay.

There is every reason to think that Sen. Clinton will push forward her legislation. She will see this as a family-friendly issue, and the rare issue where she can work with social conservatives.

But of more interest to us is how this situation relates to Sony and Grokster. In yesterday’s NYT story, Patricia Vance, head of the ESRB, said that the Hot Coffee mod was the first-time that the ESRB has had to address the consequences of a third-party modification of a game. Rockstar itself said that it was considering legal action against companies that make products that make it possible for players to change content.

That gets us to Sony and Grokster. I know nothing about these third-party products—let me know in the comments, if you like. The Grokster inducing inquiry takes us to questions about how the mod tools are marketed and what the business model looks like. The traditional Sony analysis—we are still trying to figure out the 3-3-3- division in Grokster—will look to substantial noninfringing uses (what are those here?).

As the range of joint creativity expands—one way to characterize what is going on with a mod—we will quickly find our into the Grokster/Sony morass. Rockstar can solve the “problem” by just making sure that draft content doesn’t get carried into the final product, but Rockstar may regard all of this as priceless marketing that reinforces it image with its core customer base.

Picker: Dealing with Zombies

The Internet is an almost-organic mix of actors and their machines, an eclectic scheme of government and private-decision-making, of non-profits and for-profits. As in any integrated system, my choices affect your life in a very direct way.

Here is a good example of this: C|Net has an article today discussing the role that ISPs will need to play in dealing with zombie PCs. (For those of you thinking George Romero and the Night of the Living Dead, a zombie PC is a personal computer that can be controlled by a third-party, without the consent and knowledge of the owner; it is typically used to send out spam—some estimates suggest that 80% of spam arises from zombie machines—or to block access to websites (see “Zombie PC Army Responsible for Big-Name Web Blackout”)).

Picker: DVDs and Antitrust

Ed Felten and I have been engaging in a bit of a cross-blog dialogue on the interaction of tech and law. Ed has a post today on possible antitrust issues associated with the HD-DVD standard, which is one of the two competing candidates for the next-generation DVD standard. Ed is concerned that the system is being set up as a “closed” system. In this case, this means that a DVD player will only play content that brings with it an appropriate content certificate. Ed hopes that the antitrust authorities are paying attention, and that consumers will vote against the system with their wallets.

Antitrust first, closed systems second.

Wu: Harry Potter & Trademark Infringement

The new Harry Potter book is one of the best. Among many other topics, it has an unsubtle take on counterfeit products, in this case counterfeit magical amulets:

"Some idiot's started selling Metamorph-Medals. Just sling them around your neck and you'll be able to change your appearance at will. A hundred-thousand disguises, all for ten Galleons!"

"And what really happens when you put them on?"

"Mostly you just turn an unpleasant orange color, but a couple of people have also spouted tentaclelike warts all over their bodies. As if St. Mungo's didn't have enough to to already!"

J.K. Rawlings, of course, has had her own problems with unauthorized sequels, discussed here.