The Real Battle
The following article is the text of Doc Searls' SuitWatch newsletter from October 3, 2002. Sign up here www.linuxjournal.com/xstatic/community/suitwatch for your own subscription.
When I showed up at the Digital Hollywood conference in Beverly Hills last week, I didn't expect much in the way of connectivity. Free wireless Net access, now almost standard at computer industry conferences, was out of the question. Net-connected PCs in the speaker and press rooms were a long shot. Frankly, I didn't even expect to find dial-up there. So I wasn't disappointed to find none of it.
What did surprise me was finding zero demand for it. The opening session, “Feature Distribution and the Threat of Internet Piracy: Evaluating the Short & Long Term Implications”, was packed, yet I was the only member the audience with a laptop. I couldn't have felt farther from the Internet if I had been on a desert island. The only familiar face at the conference, J.D. Lasica of Online Journalism Review, smartly anticipated the problem by not even bothering to bring a laptop.
Sitting next to J.D., I felt like we were a couple of pirates hiding in the cove of an island targeted for destruction by Hollywood's Joint Chiefs. Generals from Universal, the MPAA and MovieLink (a joint creation of five major studios) were gathered on that very stage to strategize about what their industry is starting to call “P2P warfare”.
Karen Randall, Executive VP and General Counsel for Universal Studios, said “we'll win this war” by “maximizing outcomes” from a “full frontal assault on illegal downloading”. She was encouraged by “excellent interpretations” of the DMCA, and the “export” of that law through a “global lobbying effort”.
But I feared no evil. No, not only because Linux was with me but because Linux was with the audience—whether they knew it or not. Technologists—of which there were approximately none in attendance—put it there.
This became clear in a later panel, when the moderator asked how many people in the audience had a TiVo machine at home. Nearly every hand went up. Then he asked how many would honestly admit they used their TiVo to fast-forward through the ads. Just about every hand stayed up.
TiVo runs on Linux. It's also a product of Jim Barton and Mike Ramsay, two Silicon Valley engineers. Not Hollywood, and not the consumer electronics industry (though Sony and others quickly put money behind it, as well as brakes on its wheels).
It was around the TiVo subject that the Hollywood's disconnection from digital reality was fully revealed. That moment came in the Keynote Roundtable session at the end of day two.
When the moderator asked John Mass, Senior VP with William Morris Consulting, what he made of the TiVo phenomenon, Mass suggested that TiVo had neglected to use its most powerful marketing message: the oft-heard customer statement that “it completely changed the way I watch television”. But then Mass went on to say he's “not so worried about it” because “it's a very efficient market... just like traditional television. People watch what they want to watch, and they don't watch the junk out there.” He went on to talk about how the audience was growing because the number of programs and channels were proliferating, which meant more marketing opportunities.
But then he was interrupted by Jonathan Taplin, President and CEO of Intertainer, who said, “If TiVo scrapes off the top 30% of the demographic customers, and those people are fast forwarding through ads, there has to be some readjustment.”
Mass replied, “I won't be able to sell advertisers, that's right, and the consumers will unfortunately be the beneficiaries of that.” Then he caught himself and added “what will happen is that the consumers will not get as good programming”.
Let's look at the larger skew. There are today 380 digital television networks. Ten years ago there was one Discovery Channel. Today there are fourteen Discovery Channels. Now you cannot tell me there is fourteen times as much advertising money flowing into Discovery Channels. They have fourteen times as much programming costs, fourteen times as much satellite transponder costs.... This is a train wreck. This cannot sustain itself, especially if you add PVR (personal video recorders such as TiVo) on top.... At the end of the day...there isn't a way to sustain this.
Tom McGrath, President of Paramount Enterprises and EVP of Viacom Entertainment Group, said
“We...are heavily dependent on first-run licensing from major TV networks to survive. If you follow through the train of logic that John Taplin started with, it's not a pretty picture.... The evidence from TiVo is basically people just don't watch commercials at all. It's not a question of watching the ones they are interested in or not interested in.... It is a transformation of the industry. As producers we rely on the fact that there is a market for good programming. Right now the penetration of these devices, of VoD (Video On Demand), of this disintermediation, is not so great that we face collapse in the near or intermediate future. But it's something that we think about all the time.
It would seem to me that Viacom is probably better positioned to weather the storm that is coming than almost any other major media company. AOL Time Warner is $30 billion in debt. That means the first $3 billion of profits goes to pay the banks. Vivendi Universal has $20 billion in debt. Disney has $25 billion in debt. These are companies that have been leveraged to the neck. If you think about the deflationary economy, which is where we are going, the pricing power—whether for VoD, or DVD rental, or for advertising—is not going to happen. Viacom was smart enough not to do anything stupid in the Internet space, and will probably weather this. But I am here to say that it is going to be a very rough two or three years for the media sector.
In the panel ”Hollywood vs. Silicon Valley: Will the Federal Government Decide?“, Michael Petricone, VP of Technology Policy with the Consumer Electronics Association, wearily pointed out that the P2P technology Hollywood hates is nothing other than the Internet itself. ”P2P is not an add-on“, he said. ”It's the genius of the Internet.“ He presented a raft of statistics that show music and movie sales doing just fine, to say the least, with DVD sales up 80%. He also said the 7% decline in record sales in the current economy should count as a big success. He also chided Hollywood for its ”focus on litigation“ and for lobbying Congress to pass laws that prohibit Net-based innovations. He said ”copyright owners should continue developing ways to protect at the source“ (and not in the network or end-user devices), and ”any restrictions should be narrowly crafted.“ He summarized his advice by borrowing from the Hippocratic oath: ”First, do no harm.“
Donald Whiteside, Intel's VP, Legal Affairs and director of the company's Broadband and Content Program Office, took the same side. When he said ”Piracy is not a vision we support“, he implied two meanings: 1) he's not in favor of stealing, whatever that means; and 2) he's opposed to characterizing fair use of computing devices as piracy. He said technology was at best a ”deterrent“ and ”we need to realize that we are not here to create technology as a policing mechanism“. His strongest point was also his subtlest. Speaking for his side of the debate, he said, ”the technology industry is focused on creating a digital marketplace“.
With Linux Journal on my badge, I was challenged at schmooze time to describe the ”business propositions“ of stuff that's free. The default Hollywood assumption is, ”There aren't any.“ They chant ”You can't compete against free“ and ”You can't sell free“ as if they were mantras. Meanwhile the F-word is the most common sales pitch in the world.
So here's how I made my case. The basic Linux business proposition, I said, is simple: What can you do with a free operating system that runs on anything and supports any application you can name?
The Internet proposition, I added, was the same: What can you do with a network that connects everybody, carries everything and embodies nobody's agenda?
You always get good answers to those kinds of questions from entrepreneurs. You also get them from intrapreneurs within established companies and from technologists ready to take advantage of opportunities they see better than anybody else. But, you won't get those answers from large companies—at least not right away. Michael Miron, CEO of ContentGuard, described the situation this way: ”When you add new technologies to old industries, you get wrong answers.“
In his famous speech at the O'Reilly Open Source Convention in July, Lawrence Lessig framed the same point as a four-stanza refrain for a song:
Creativity and innovation always builds on the past.
The past always tries to control the creativity that builds upon it.
Free societies enable the future by limiting this power of the past.
Ours is less and less a free society.
But when old industries survive changes as radical as those caused by the Internet and Linux, it's often because technologists working on the inside take advantage of new conditions, usually without permission from senior management. That's what happened with the Net, and it's what's happening with Linux. Show me a company with a Linux ”strategy“, and I'll show you a company rationalizing choices already made by its own engineers.
For evidence, look no farther than Hollywood. Three years ago, film production mostly involved machines and software from SGI, Apple and Microsoft. The software was all proprietary and expensive; and in the case of Apple and Microsoft platforms, trouble-prone. Two years ago, Linux had already become the default OS for backend rendering. The movie Shrek, for example, involved Linux-based ”render walls“ involving more than a thousand processors. Today Linux is more than competitive in the frontend production workstation market, it's is winning there too—big-time.
In his August 2001 Linux Journal cover story, Robin Rowe reported on Dreamworks SKG's rapid adoption of Linux workstations and applications. Then in May of this year, he reported that the Ink and Paint department of Dreamworks' Glendale studio was using Linux frontend tools to produce Spirit, Stallion of the Cimarron. In that piece, he quotes Ed Leonard, Dreamworks' Head of Animation Technology: ”Now all the departments have been converted. For our current production, Sinbad, every workstation and the entire renderfarm is Linux.“
S, K and G, by the way, are the initials of Spielberg, Katzenberg and Geffen. Is it pure coincidence that we rarely if ever hear these gentlemen whining to Congress about piracy and theft? Or that their partner for VoD over the Net is Taplin's Intertainer, the most pioneering of the VoD companies? I'm not saying any of these guys are even close to taking technology's side in this ”war“; but it's clear they're hip to the future in departments where engineers put clues to work.
On the last day of Digital Hollywood, a local conflict broke out when Intertainer filed an anti-trust lawsuit against Time Warner, Vivendi International and Sony Pictures, accusing them of conspiracy to fix prices in digital entertainment distribution. According to Intertainer, those three companies control 56% of the movie market and 63% of the music market.
And [October 3 was] the eve of the deadline imposed by House Judiciary Committee member James Sensenbrenner for some kind of compromise among webcasters, over-the-air broadcasters, the RIAA, intermediators such as RealNetworks and AOL, and lawmakers on the issue of royalties for playing copyrighted music on the Net.
The politics of the matter are too complicated to describe, but they're easy to sort out if you apply Lessig's Lesson and draw a line between the future and the past. Linux and the Net are entirely on the future side of that line. Technology companies like Intel and Apple are crossing the line only so far as it takes to do business with the ”content providers“ of the other side. They are joined on the future's side by the Consumer Electronics Association, though CEA members like Sony and Panasonic still belong to cartels largely run by the entertainment industry. Pioneering entertainment companies like Dreamworks and Intertainer are stretching as far as they can to side with the future. Microsoft is riding high on the straddle. From the outside they appear to be siding with Hollywood; but insiders and former insiders paint a far more complicated picture.
What's clear is that technologists on both sides are siding with the future. If you care more about opportunities than threats, put your bets on those guys.
Doc Searls (email@example.com) is senior editor of Linux Journal.
Doc Searls is Senior Editor of Linux Journal
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