Torrent’s Effect on Hollywood

The U.S. Supreme Court is currently in the process of determining how people around the world will be using digital technology for file sharing. The case MGM v Grokster was heard in the court on 29 March, but its outcome isn't expected until June. The case has arisen from an ongoing bitter debate between the legality of peer-to-peer (P2P) file sharing, which allows users to share the content of their personal computers. The people in favour of technology are concerned because if the court votes in favour of the entertainment industries, many new technologies that have nothing to do with file sharing may never be discovered.

Bit Torrent now devours more than a third of the Internet's bandwidth, and Hollywood has taken notice. The FBI’s Cyber Division claims that the theft of copyrighted material has grown substantially and has had a detrimental impact on the U.S. economy. Meanwhile, the MPAA and its international counterpart, the Motion Picture Association (MPA), estimate that the U.S. motion picture industry loses in excess of $3 billion annually in potential worldwide revenue due to piracy.[1]

Twenty one years have passed since the Supreme Court's now famous Betamax decision. In 1984, the Court ruled that Sony's Betamax VCR was perfectly legal. It was decided that although you could, in theory, use the device to record copyrighted television shows and movies and then sell them for profit; most consumers used their VCRs for "time-shifting," that is to say, they could record and watch their favourite shows at a later time. It was decided Americans should be allowed this sort of "fair use." [2]

However, this privilege does not extend to television shows and movies purchased on DVD. It's illegal to make copies of any DVD—even to backup for your own personal use. The Digital Millennium Copyright Act 1998 (DMCA), prohibits anyone from circumventing "copyright protection systems" used by digital media, and today, all DVDs are equipped with such protection. [2]

In February 2004, the FBI joined forces with the Recording Industry Association of America (RIAA), the Motion Picture Association of America (MPAA), the Software and Information Industry Association (SIIA), and the Entertainment Software Association (ESA) to announce a new initiative designed to combat the theft of copyrighted material. Shortly after, a federal court ordered 321 Studios, a privately held software developer, to cease making DVD X Copy, an application that lets users make copies of DVD movies. The FBI now places an "Anti-Piracy" seal on copyrighted materials, that provides warning against digital piracy. [3]

In December 2004, in an attempt to avoid the same fate as the music industry, the MPAA came down hard on file-swapping network Bit Torrent, filing suit against more than 100 people running on the network. The MPAA targeted individual computer users as well as Web site and server operators that serve as hubs of file-trading networks. However, bringing suits runs the risk of pushing the tens of millions of file sharers to more decentralized technologies. [4]

Another potential problem for the MPAA is that many of the computer servers are offshore, outside the scope of U.S. copyright law. Hollywood movie studios contend that the unauthorized trading of films online has the potential to threaten their industry, particularly as faster Internet access in homes makes the large movie files easier to download.

When the Hollywood studios stepped up the legal pressure and filed a second round of lawsuits against online US movie-swappers in January this year, the MPAA also made available a new free software tool “Parent File Scan”. [5] This tool enables parents to scan their computers for file-swapping programs and for movie or music files that may be copyrighted. The group also launched a worldwide campaign against the operators of Bit Torrent, eDonkey and DirectConnect networks. Hollywood is not willing to let this slide, but is it able to stop it? The legal experts think not.

Firstly, the courts have argued in recent years that a file-sharing technology cannot be banned if it has "substantial noninfringing uses" [6] - in other words, if it can be used for legal purposes. Secondly, the Darknet paper, written by four Microsoft researchers makes the point that there is really no way to stop file sharing, as long as people want to share files. It also points out that in the presence of widespread file sharing, a copy-prevention technology must be perfect and there is little if any hope that a copy-prevention (or Digital Rights Management) technology will work – it actually claims “schemes are doomed to failure”. [7]

Edward Felton, raises an interesting point about the “Darknet” terminology, that it evokes a sort of criminal underground of the Net. This concept is misleading, as it could imply that one can draw a clear line between the “ ‘legitimate Net’ and the illegal ‘DarkNet’ ” [8]. In practice, the same technologies are used for both legal and illegal activity; consequently, attempts to regulate or ban the darknet often affect legitimate networking.

It is obvious to those in the movie and software industries that Hollywood is not going to win the war over darknet with Digital Rights Management (DRM). Hollywood is simply biding its time with lawsuits. They assume money and power will overcome or at least give them time until they retire. In reality, this seems highly unlikely; the socio-technological conditions are changing too quickly. The conditions being thrown up in this instance are digital file format and the networks. Piracy is the major hot topic at all film conferences and festivals in the U.S. and Western Europe. To compete, the film industry must compete on the darknet’s own terms – convenience and low cost rather than additional security.

The Betamax case paved the way for the development of a new business model, the video-rental business, which vastly increased film industry revenues. The Grokster case presents the issue of Internet regulation; how can a new medium develop with old laws? This has been an ongoing struggle for the U.S. courts for ten years and remains to do so. The introduction of new technology always disturbs old markets, particularly to copyrights sold through well-established distribution mechanisms. However, time and market forces often bring about a balancing of interests and the Courts would be wise to be careful not to rewrite the law in order to address every new market abuse. “The issue of property rights in cyberspace is one of the biggest dilemmas of the digital era” [9]. It is understandable Hollywood has fears with greater film budgets and more competitive market forces. Only one in ten movies makes back its original investment in the domestic market and when foreign sales are cut, the film industry are threatened.

In an article, ‘A looting of property in the webs biggest test case’ [9] Barry Meyer, chairman of Warner Bros Entertainment expressed that Hollywood is grateful for bandwidth. It has given them time to look at what has happened to the music industry and develop their own strategy. Some executives are putting faith in technology, hoping a more robust encryption will present itself. However, they could increase the availability of movies at sensible prices, making consumers less likely to support piracy.

Meanwhile, Hollywood continues its onslaught of lawsuits against individual computer uses in an attempt to frighten people and hopefully slow down the inevitable. Has Hollywood forgotten? It was created out of ‘pirates’, pioneering independents that refused to be manipulated by the Edison monopoly and sought creative ways to continue as filmmakers. As it did one hundred years ago, success will depend on the industry’s ability to adapt to changing environments and to not be out manoeuvred by the masses. The industry needs to consider economic models that can be built around conditions that exist. We are situated at a very interesting moment in time.

Sources and related articles:

[1] Motion Picture Association of America. http://www.mpaa.org/anti-piracy/ [Accessed 25 March 2005]

[2] Metz, C. (2004) Congress Revisits the Copyright Act http://www.pcmag.com/article2/0,1759,1593992,00.asp [Accessed 21 March 2005]

[3] Metz, C. (2004) Courts Shut Down DVD X Copy http://www.pcmag.com/article2/0,1759,1536829,00.asp [Accessed 21 March 2005]

[4] Fury, J. (2004) Hollywood Sues BitTorrent Servers http://www.shortnews.com/shownews.cfm?id=45091 [Accessed 25 March 2005]

[5] Borland, J. (2005) MPAA files new film-swapping suits. http://news.com.com/MPAA+files+new+film-swapping+suits/2100-1030_3-5551903.html?tag=nefd.top [Accessed 29 February 2005]

[6] Garg, A. (2004) Latest Draft of Induce Act Narrower But Still Too Broad In Certain Respects http://lsolum.typepad.com/copyfutures/copy_legislation/ [Accessed 3 March 2005]

[7] Microsoft. (2004). The Darknet and the Future of Content Distribution.

[8] Felten, E. W. (2002) DarkNet http://www.freedom-to-tinker.com/archives/000206.html [Accessed 25 March 2005]

[9] Waldmeir, P. Morrison, S. (2005) A looting of property in the webs biggest test case. http://news.ft.com/cms/s/17c99e0c-9b0d-11d9-90f9-00000e2511c8.html [Accessed 25 March 2005]

Markoff, J. (2005) As File Sharing Nears High Court, Net Specialists Worry. http://www.nytimes.com/2005/03/17/technology/17soft.html?adxnnl=1&adxnnlx=1111072106-rN3xplDSwXSlZU3ZWtTlww [Accessed 21 March 2005]

Samuel, P. Digital Rights Management the Law Available from: http://www.sims.berkeley.edu/~pam/papers/acm%20on%20drm.pdf [Accessed 2 April 2005].

Wright, N. (2005) MPAA’s third round of anti-piracy campaign begins. http://www.earthtimes.org/articles/show/1763.html [Accessed 21 March 2005]