Hollywood vs the internet

Hollywood VS the Internet: the media and entertainment industries in a digital and networked economy

P2P file sharing (peer-to-peer) computer on a P2P network becomes a file server as well as a client. DRM

digital rights management (DRM) software technology

P2P file sharing can actually be harnessed into a legalized and secue form.

Centralized server-based service model. Decentralized model

Napster

Shawn Fanning This technology allowed people to copy and distribute mp3 files

amongst each other . 60 million users

Napster/mp3

up-to-date MP3 files were difficult to find. created direct peer-to-peer access between clients

The lawsuit

recording labels and studios felt that this so-called music sharing application was violating copyright laws.

The Recording Industry Association of America (RIAA) sued Napster in December of 1999

Napster stopped operation in July 2001

Gnutella Napster paved the way for decentralized peer-to-peer file sharing networks,

many new P2P networks emerged, such as Gnutella, eDonkey2000 and Bit Torrent.

There are also two big differences between Gnutella and the old Napster: no central database. many different client applications

Record labels and studios criminalize file sharing and argues that p2p file sharing is morally wrong and economically damaging to creative industries.

The discourse is rooted in the language of piracy,physical property and theft(vaidhyanathan,2001)

P2p file sharing VS physical piracy

1. free distribution of files between computer users.

1. oriented around the sale of illegal CDs and DVDs in pursuit of high profit margins

p2p

2 Files can be reproduced and distribued an zero marginal cost

2. Circulation constrained by the costs of recordable media,friction of geographical distance and regulatory intervention.

Physical piracy

Benefits of legal p2p file sharing

Fire sharing over the internet has considerable commercial promise for all copyright owners  

1 more cost-efficient for storing and delivering large digital files 2 marginal costs of distribution are zero. 3 encourage users to be “citizens" rather than “leeches”

50% of the shared content is supplied by only 1% of users

(Leyshon,2004;Oberholzer and Strumpf,2004) 4 enables content to be released in multiple formats and versions across

regionally segmented markets.

The growth of file sharing does not mean that more consumers are developing criminal or pirate tendencies, rather, it is reflective of a broader cultural and economic shift, which is profoundly changing the way we produce, distribute and consume creative works in a digital form (currah.2006)

In a legalized form, p2p file sharing networks provide a powerful and potentially lucrative outlet for digital commodities.

Hollywood VS P2P file sharing

US film industry

US film industry dominated by 6 Hollywood studios, (based in los Angeles), which account for over 90% revenues.

Oligopolistic industry---mature and concentrated

DVD VS P2P

Since the late 1990s,the DVD,has become the keystone of studio economics.

$15 billion revenue stream currently generated by sales of DVDS in the US each year.

The studios limits the Internet to the pay-per-view window rather than digital sales.

Digital sale=higher profit margins

The economics of DVD sales and digital sales (in US $) for a hit film

Digital sale

Cost and profit DVD sale Centralized model Decentralized model

Reproduction 1 0 0

distribution 1 0.75 0.25

marketing 4 4 2

Guild payments 0.75 0.75 0.75

Total costs 6.75 5.50 3

Price(sold by studio)

15 12-15 12-15

profit 8.25 6.50—9.50 9-12

Profit margin(%) 55 54-63 75-80

•sell digital films would generate profit margins of 54-63 or 75-80%.•Digital sales would provide the studios with higer profit margins than current DVD sales.• studios can get more economic advantages of a decentralized model.

Hollywood’s response to P2P

The studios are deliberately neglecting emerging and high margin market

Despite the clear economic advantages of a decentralized modal ,the studios are attempting to mend the open and decentralized nature of internet and reshape it into a centralized model.

For example, Movielink.com and Cinemanow.com Movie link was created to promote the centralized model as a best practice standard

in this emerging market

Movie Link

Movielink is a web-based video on demand (VOD) and electronic sell-through (EST) service offering movies, TV shows and other videos for rental or purchase. First available on November 11, 2002, While it was only available to users in the United States, it was the first company in the world to offer legally downloadable movies from major studios.

Roxio CinemaNow

CinemaNow is an Internet-based digital video distribution company founded in 1999.

Why?

Why they protect a mature but lower margin market which is actually exhibiting signs of slow down?

The behavior of studios is constrained by the underlying structure of the industry, which consists of myriad vested interests and sunk costs(Clark 1994;schoenberger,1997)

Understanding the strategic behavior of the Hollywood studios

Investigating and clearing the appropriate distribution rights is costly barrier

studio operate in large publicly traded company, they do not want to pursue any strategy that could endanger that lucrative empire.

The power of vested interests The risk-averse nature of executive behaviour

in the short term----minimize risk and maximize earnings in the long-term---it is potentially damaging to consumers, creators

and even the oligopoly Some form of state intervention may well be required to legalize and

institutionalize the potential of p2p file sharing.

conclusion

Steal This Film

Steal This Film is a film series documenting the movement against intellectual property produced by The League of Noble Peers

http://www.youtube.com/watch?v=htOudt9zFQY&feature=related

http://www.youtube.com/watch?v=AjydSxL6dsc&feature=related

http://www.youtube.com/watch?v=tFLz3cWdUXI&feature=related

Thanks for your attention!

References:

Clark,G.L.(1994)strategy and structure:corporate restructuring and the scope and characteristic of sunk costs.Environment and Planning A,26:9-32

Leyshon,A.(2004) Scary monsters? Free software,pere-to-pere networks and the spectre of the gift,Environment and Planing D:Society and space.21:533-558

Oberholzer,F., Strumpf,K.(2004)The effect of file sharing on record sales:an empirical Analysis.Cambridge,MA:Harvard Business School

Schoenberger,E.(1997) The cultural crisis of the firm.Oxford:Blackwell. Vaidhyanathan,S.(2001) Copyrights and copywrongs:the rise of intellectual property

and how it threats creativity,New York:New York University Press Currah,A.(2006)Hollywood versus the Internet:the media and entertainment

industried in a digital and networked economy.Adanced Access Menta, Richard (December 9, 1999). "RIAA Sues Music Startup Napster for $20

Billion". MP3 Newswire. Scott,A.J.(2003) A new map of Hollywood:the production and distribution of American

motion pictures.Regional Studios Stigler,G.j.(1964) A theroy of oligopoly behaviour. In R.Schmalensee and R.D. Willig

(eds) Handbook of Industry Organizaiong North Holland:Amsterdam