CHAPTER 2

Intellectual Property Assets Enabling Distribution

The Business of Creating, Marketing, and Protecting an Idea

More content from this chapter is available at www.focalpress.com/9780240824239

The process of creating a property for production and sale, though often perceived as more fun than building a standard widget, is still very much a business proposition. Being an art, there are exceptions and patrons who may ignore the commercial aspects; however, the production business is predominantly a for-profit endeavor. This means business choices are made even at the root stages of creating content. (Note: For an interesting perspective on “art for art’s sake” and the conflict between creative endeavors versus business, see Richard Caves’s book Creative Industries.)

This chapter will explore some of the business choices surrounding the development process (e.g., What should be made and why? Can we sell it?), as well as address the business and art of marketing and selling an idea (aka, pitching). While nuances are different, the principles of selling creative ideas are no different than any other business. What differs are the risk factors, as captured famously by Oscar-winning screenwriter William Goldman’s famous rule about the correlation between a developed idea and commercial success: “Nobody knows anything.”¹

Finally, it is the underlying nature of intellectual property that allows pieces of content to be divided and licensed in a myriad of ways, enabling the distribution side of the business. The essence of distribution is then figuring out how best to carve up and exploit rights (whether traditional or relating to new online and digital outlets) in a way that maximizes the return on the whole. Given that the parceling and licensing out of rights derives from the underlying intellectual property rights and rules governing their exploitation, it is important to understand some of the fundamentals of how the legal framework functions to authorize, foster, and protect a vibrant market for content.

The Development Process

In a sense, development and distribution are the bookends to exploiting media content. Development kicks off the cycle, and can be likened, in part, to product development. First, an idea or product is roughed out and analyzed. After beating up the idea a bit, a decision will be made to archive the idea or invest in a prototype. The prototype will be built, and likely go through a few iterations of refinement before testing. Finally, after testing and debugging the assembly line, the product will be marketed and shipped. Unfortunately, the analogy is far from perfect because a creative good is subject to infinite variance, and the outcome is largely unknown until the property is produced and then distributed for viewing.

Further underlying the challenge of development and the “nobody knows” principle is the concept of creative products as experience goods (see Chapter 3 for further discussion), such that an individual cannot truly know if he or she likes something until he or she consumes it. If you accept this proposition, then development and distribution may be less bookends than the blind leading the blind. This, I would argue, is where economic “what ifs” and reality clash, for there are no doubt methods to improve the odds: I digress a bit below into issues of pitching and marketing ideas, because methodology matters, I describe certain breaks with orthodoxy, because some have figured out a way to beat the supposed impossible system (e.g., Pixar), and I relate distribution, because it is stuck with optimizing the result in the face of waiting for the consumptive verdict on the experience good.

Development in Stages

With a creative business, the first stage of development is generating a range of ideas for projects. This could mean that a single individual originates concepts, or in the case of an organization, such as a network or studio, development executives take pitches from “creatives.” Whatever the context, a variety of ideas will rise to the top, and there is a winnowing out of concepts until finalists are selected. Once there is a choice regarding which to pursue, the “development process” begins in earnest: an idea is taken from concept to script (the prototype). Once the script is written, it will need refinement, which can mean many drafts, and may even require fresh blood in the form of different writers (redesigning and refining the prototype). Once the script is ready, the similarities stop, because it just is not possible to test a script.

The TV industry has solved the problem with the concept of a pilot, which pushes the prototype concept out one step. Pilots are still risky and expensive, but clearly short of the full investment of a 13-or-more-episode commitment. There is no exact parallel in film, although executives try to review and test at relevant stages. Dailies and rough cuts are scrutinized, and decisions made to fix problems as soon as possible, even if that means reshooting; on occasion, directors will also utilize animatics to rough out the story (see further discussion in the section “Mock-Ups and Storyboards”, page 67). Online is more akin to TV (and may in fact be TV of the future—see Chapters 6 and 7), and pilots can be created, although the medium is still evolving, and everyone is struggling to figure out what content works best and whether the medium is better adapted to testing content for other media (e.g., TV) or for creating new forms of self-sustaining online properties.

Development in the Context of Distribution

I talk about development for the same reason that William Goldman laments that writers are infrequently consulted or involved after tendering a script, even though it is their blueprint and nuance that grounds the project. The quandary is: Why do elements so inextricably interdependent become so separated in the production chain? It is a peculiar Hollywood (and perhaps, more generally, creative production) practice that first the executive producer, then the writer, then the director knows best; as the responsibility baton is passed, judgment and authority over the whole tend to be transferred, too, often disenfranchising a key guiding force. Perhaps this explains the passion over credits (and the need for public thank-yous), which, at a root level, ensures that each contribution continues to be valued. In the continuum of segmenting value (or input), distribution and marketing rarely have input at the development stage, even though each represents the beginning and end of the chain and is ultimately dependent upon one another. Is there a way to fix the chain, or is William Goldman correct that inherent in the creative process “nobody knows,” and so no one is worse off from a system that may allow somewhat isolated inputs in an otherwise collaborative endeavor? Can it not be argued that this structure jeopardizes the whole while fostering a culture of plausible deniability by being able to blame the producer or “suits” on failure (“it was the product,” “marketing screwed it up,” “they didn’t know how to handle it …”)?

Vesting Control with the Director, and Pixar Breaking the Mold

Sometimes a radical break with orthodoxy can lead to success, and here, and later in the chapter, I will cite Pixar as an exception driving true innovation. I was honored to have Ed Catmull, president and cofounder of Pixar, speak at my Media and Entertainment class at the Haas School of Business (Berkeley), and asked him the straightforward question: What, if anything, does Pixar do differently that has led to the unbroken streak of hit after hit? After all, no one in the history of the motion picture business has a batting average anywhere near that of Pixar’s, starting with Toy Story and continuing with virtually every film since. His answer was, at once, simple and earthshaking: Pixar, essentially green-lights people, not projects, and puts its faith in directors to come up with a story and see it through. In an article titled “How Pixar Fosters Collective Creativity” in the Harvard Business Review, Mr. Catmull punctuated this very point:

We believe the creative vision propelling each movie comes from one or two people and not from either corporate executives or a development department. Our philosophy is: You get great creative people, you bet big on them, you give them enormous leeway and support, and you provide them with an environment in which they can get honest feedback from everyone.²

Directors such as Brad Bird (The Incredibles), Andrew Stanton (Finding Nemo), or John Lasseter (Toy Story) will know the next picture is “theirs” and proceed with a mini-team to develop a handful of ideas from which one is chosen. Of course, there is debate over ideas, and the ability to beat up concepts and refine as a team, but Pixar’s ability to build up a “creative brain trust” (as Catmull puts it) that can check egos and collaborate with brute honesty for the benefit of the whole is no doubt unique. Clearly, there are multiple factors at play, but one common thread rarely mentioned or given credence is the continuous link from concept to completion.

I always hear a similar theme from luminary directors such as George Lucas, a vocal proponent of protecting the director’s vision, and he is, of course, right, as long as the director acts responsibly. The problem is that ceding too much control to a director without the ability to manage the budget has often been the bane of Hollywood. For those who want to read the ultimate business management disaster story, Steven Bach’s classic Final Cut recounts how director Michael Cimino’s Heaven’s Gate (made following his multiple-Oscar-winning film The Deer Hunter) virtually brought down United Artists’ studio (note the book’s subtitle: Art, Money and Ego in the Making of Heaven’s Gate, the Film that Sank United Artists).

Is There an Optimal Feedback Loop?

Coming back to distribution: Is it not possible to create a better relationship among distribution, marketing, and development than already exists, or innovate a new methodology, much as Pixar has achieved, at least on the development front? On the one hand, any creative executive will bristle at “suits” telling him or her what to do—often rightly so. But there is a difference between input and decision, and as long as the creative executives have final say, would it be productive for them to have input from those people responsible for selling what they plan to make? Would any other business decide to put a new product into production without direct feedback from the people responsible for bringing it to market? At some level, this is the filter that is supposed to be provided by studio heads, but they have their own predilections, and may have scant experience on the sales and marketing side. When I was CEO of the animation studio Wild Brain (producer of multiple TV series), I stayed relatively hands-off from the development meetings, but once a slate was recommended, I used to refer to myself as the “are you out of your mind” filter. The issue was: Am I the best person to fill that role, or is that a fair expectation for anyone?

There are, obviously, plenty of examples of trying to create a productive feedback loop, and the challenge is balancing the yin and yang of these different sources of studio power. I was fortunate enough to create a TV show that became a hit on Disney Channel, a preschool animated series called Higglytown Heroes (featured on Playhouse Disney). When Disney was evaluating the rough idea, and then after focus testing a trial, it involved a number of divisions, most notably merchandising. The question was: Could this lead to successful toys, etc.? As described in Chapter 8, merchandising can be a driver for production, and in the case of children’s fare, particularly animated fare, this is often the case. Here is an example of the end-sellers becoming involved at the outset, so that the whole team is vested in success. However, is the tail wagging the dog here, and, as creative executives will argue, should merchandising and similar considerations be driving or diluting the creative, when an equal argument can be made that too much input such as this will homogenize creativity and doom a production? Not an easy call, but, again, I would argue that constructive input is always a good factor, as long as lines are drawn. It is the ability to balance such factors and make the correct call that is the art of surviving as a studio chief.

Is Online Different?

Development for original online media, while talked about as new, has been around for more than 15 years. Again, referring back to Wild Brain, in the late 1990s, the studio produced a range of online original animated series in Flash (Figure 2.1)—many of which premiered on Cartoon Network’s online Web Premiere Toons.

The difference with online “series” then and now tends to be length, as Web-original series are often only a few minutes long, tailored to the surfing mentality of online viewers; although less a factor today, Web series running times were originally limited due to connectivity concerns and bandwidth costs for streaming.

Also similar today is the tendency to view shorter Web content as a live development test: successful series may be picked up as TV series, and the total development costs are relatively small, because a company can produce multiple Web series for less than the cost of a TV pilot. While there are instances of pickups, such as Sophia’s Diary by the UK’s Channel 5 from online and social networking site Bebo (developed for TV by Sony Pictures International TV), where the series had become an online sensation, this is still an infrequent exception, and most Internet fare is targeted and designed for a different viewing experience (and, in fact, Sophia’s Diary subsequently returned for additional seasons to the Internet via Bebo). Time will tell whether convergence applies and Web series become a viable laboratory for traditional TV, but, at least to date, the success has been sparse. As discussed in Chapter 7, online leaders, including Netflix, Amazon, YouTube, and Hulu, are now all starting to branch out into original programming. With the stakes raised and such leading companies competing both with each other and traditional media (e.g., pay TV), it is likely longer-form and high-quality content will raise the online bar and lead to more TV-like programming, truly blurring the lines between Web and TV development and programming.

Another trend that is evolving is producing complementary second-screen programming, where original content tied to an ongoing television series is developed to augment the brand and increase engagement. USA Networks, the leading basic cable network for original programming in the U.S., with hits ranging from Burn Notice to Psych, White Collar and Suits, has created a variety of online extensions of its series. One prime example is the hit series Psych, where the network produced a companion online piece, Hashtag Killer, helping to bridge seasons and provide a new form of lead-in to new season launches. (See also Chapter 9 regarding marketing and USA’s Club Psych.) I asked Jesse Redniss, SVP Digital at USA Network, and responsible for the network’s online initiatives, how the development process had changed given new opportunities tied to the second screen, and he noted:

Figure 2.1

A great deal has changed in the last six months to a year. We have seen a lot of success in our synched show experiences—Hashtag Killer and Psych was just such a colossal success, not just for the show, but for the network as a whole. That season, we launched Hashtag Killer leading into the season. We are trying two-screen participation on Suits and NCIS. Our development process now routinely includes meeting with our producers and writers to identify the shows that have the potential for that type of activity. We like to do everything, though, as a handcrafted opportunity—it’s like creating batches of bourbon: every story is carefully crafted. It is really important that we don’t homogenize our gamification and transmedia experiences. We want each experience to be a uniquely important story.

The ability to dovetail shorter-form online originals with successful series is, in part, enabled by the dual advantages of built-in branding (leveraging crossover marketing) and lower production costs. This helps distinguish experiments, such as USA has launched, versus simply using the Web as a lower-cost test bed—in fact, a pure lower-budget (i.e., lower investment risk) strategy may actually prove an impediment to shows being picked up on TV. This is because an inexpensive show without the budget to attract top talent may only be able to pull in limited revenues from nascent Web advertising. This, too, will evolve, with top directors and producers starting to test the Web experience. Marshall Herskovitz and Ed Zwick (Thirtysomething) produced Quarterlife, an original online series debuting on Myspace, which then was touted as the first high-profile U.S. Web series to make the jump to broadcast when it was picked up by NBC. After a disappointing launch, however, the show was quickly canceled.³ Another high-profile early trial was ABC’s In the Motherhood, starring Leah Remini (former star of King of Queens) and Jenny McCarthy (MTV), which, in March 2009, tried to make the leap from Web series to network sitcom. This online series, which was reputedly higher cost than typical Web fare, combined top talent with a Web-sponsorship angle, as the successful online series was backed by Unilever and Sprint and produced by WPP’s entertainment affiliate, Mindshare Entertainment.⁴ These advantages, though, failed to catapult the show to success on network. A variety of companies continue to seek programming that can bridge the online–TV channel divide: Comedy Central, in 2012, commissioned a couple of TV pilots, including a Will Ferrell-produced viral Web series, Drunk History Across America,⁵ and Tiny Apartment, based on a Web series of the same name.⁶ Additionally, Nickelodeon ordered 21 episodes of Fred: The Show, a short-form (11-minute episodes) live-action comedy focused on the Fred character made popular on YouTube.⁷

These types of experiments will continue, and Web series will, on occasion, cross over, but the struggle, in part, is symptomatic of the premise discussed above: the Web is a different medium, with its own viewership quirks. Producers, whether those starting with the Web or those with success in other media trying to adapt, are challenged when figuring out how to make an online original successful, let alone strike a chord that will create equal or greater success in the longer-form, linear, and largely formulaic outlet of television. While many are eager to point to crossover potential, and even discuss how transmedia storytelling can change how we conceive of programming, the fact is that Web series remain extraordinarily niche. It is not surprising that outlets such as Comedy Central are mining the Web for edgy content that complements its lineup, with an upside of breaking through; however, this still is relegated to experimental, despite the continued growth of Web viewing and the dramatic expansion of access points (e.g., tablets) over the last few years. Save for the recent foray into originals by online leaders such as Amazon, Netflix, YouTube, and Hulu (see Chapter 7), I had to search harder to find examples of Web-inspired TV pilots and shows in writing this revised edition than I did back in 2008.

What I believe could become a trend is creating online spin-offs from successful TV fare. In theory, if there is strong online marketing tied to a series, and networks such as USA Network are able to build a targeted community and communicate with registered users, then that community should be able to sustain original programming. I again turned to Jesse Redniss and asked whether he foresaw series migrating to online once network ratings diminished to the point that the show could not be sustained on-air, and yet there was still a strong enough community of viewers that could support the series in the less demanding and more niche world of online viewing. He agreed this was likely a future trend, and noted:

There is a lot of opportunity for this strategy to lead to spin-offs or even online versions of a show. We are already developing many secondary storylines around our shows. This past summer, we launched “Neal’s Stash” (tied to White Collar). Suits has “Suits Recruits.” Covert Affairs has “Sights Unseen.” If we get to a point when a show is too cost-prohibitive to keep on the air but there is a model where we can keep it through digital distribution through other mediums, it is definitely a possibility we will move in that direction. Arrested Development is a great example of this already happening.

(Note: See also Chapters 6 and 7 discussing elements of the future of TV, including, for example, aggregators launching online originals and continuing series cancelled on-air, such as Netflix’s production of a new season of Arrested Development, and Hulu’s plans to bring back classic soap operas such as All My Children.) Whether looking at how networks view the online opportunity, or the broader scope of content coming from the sea of creators leveraging the Internet, what is undoubtedly clear is that the Web, which has a barrier to entry of virtually zero, fosters an extraordinary variety of creativity. With no gatekeepers, anyone can post just about anything. Moreover, in the flat world of the Internet, ideas can come from anywhere, and individuals can be influenced by trends and ideas in a virtual world. Great artistic movements have often dovetailed with the congregation of like-minded creators in a location, such as the art schools in Paris. Today, an individual interested in X no longer needs to travel to Y to be part of the Z movement, and can be tapped into ideas and influenced by a circle of friends who have never met in person. We are truly at ground zero of this new melting pot, which, in theory, should spur innovation.

A fascinating corollary to this unparalleled access to global peers and elimination of filters to express creative concepts is that the content can be critiqued by anyone, with a feedback loop of favorites, top picks, etc., rising to the top from online voting and metrics. Figure 2.2 shows a form of network effect, where popularity is driven from the masses in an inverted pyramid from the historical development process.

Figure 2.2 The Network Effect

Development Guidelines

When there is a filter, and “gatekeepers,” there will typically be a series of questions asked in selecting an idea/concept to develop. What those questions are, however, is not formalized: no standard checklist exists, and unquestionably lots of executives go on their “gut.” If that does not sound scary, it should. The companion website outlines a number of threshold questions (e.g., Is the idea sustainable, or “big enough”?) that illustrate the filtering process that film executives may employ, and an idea that can run this gauntlet will improve its odds of moving from concept to production. The companion website also addresses the related issue in selecting projects of market timing, where questions such as “Is the genre hot?” or “Is there a growing demographic?” are addressed.

Development Costs

Development costs money, both in terms of hard costs and labor. A typical development department would have the following line items in its budget:

■  people/overhead

■  fund for writers

■  fund for acquisitions/options

■  legal costs for negotiating deals

■  travel and entertainment costs

■  marketing costs

■  rent, phones, and general office costs

More importantly, it is a department of all costs and no revenues—development is a pure overhead category.

The ratio of properties produced to those developed is never 1:1, and, in fact, the ratio can vary dramatically from company to company. A 5:1 or 10:1 ratio is not extraordinary, and it is easy to see how costs can mount up quickly. This is especially true once projects enter script stages, where screenwriters cost, at minimum, tens of thousands of dollars per draft, and often in the hundreds of thousands (even reaching sums in the millions with superstar writers). I have been involved with projects that were green-lit with development costs ranging from under $100,000 to several million, and no one was trying harder in one scenario versus another. In all cases, the unspoken focus remains on ROI, with higher development costs justified by the belief that certain “proven” talent will more likely lead to a project’s success.

The development process requires many stars to align, including the clicking of the underlying creative, the satisfying of various egos and executives, and the luck of timing. Simply put, there is no magic formula. What most outsiders perceive as relatively easy, to insiders is recognized as a very difficult, often frustrating and time-consuming process. As Jim Morris, former president of Industrial Light & Magic and producer of Pixar’s Wall·E (as well as general manager of Pixar Animation Studios) told me, “I’ve never met a director who was trying to make a bad movie.”

Mock-Ups and Storyboards

In the quest to implement systems that reduce costs and risks, and stage phases before full production costs are committed, directors are always seeking new tools or systems. As noted previously, the concept of pilots tempers risk in TV, but there is no similar scheme in film production. Certain projects, though, and especially animated features, lend themselves to mock-ups. Detailed storyboards together with temporary voice tracks can be pieced together to gain a sense of timing and story—it is at this stage of “putting it up on reels” that the producer can gain a glimpse of whether the characters, humor, etc., are working as intended. Additionally, this can become a milestone after which approval of the more labor-intensive and expensive production phase of full animation and lighting a film may be green-lit. With technological advances, this process can now be computerized, and it is possible to construct an animatic for any type of film. While, on occasion, this may prove helpful with effects-intensive projects where, concepts are difficult to visualize, it is not utilized in most instances, given the dependence of live-action films on actors’ performances.

Optioning Properties

An option has evolved as the standard means of acquiring film and television properties. Not unlike an option in other markets, an option in the media context represents an economic compromise, balancing issues of time, exclusivity, value, and uncertain conditions of moving a project forward.

Accepting the proposition that with books, comics, and life stories there is a limitless source of ideas for projects, the market has developed to value these ideas while putting constraints on the time an acquirer can take to turn the property into a film or TV show. The owner of a book, for example, may be thrilled that someone wants to turn it into a film, but also wants assurance that if he or she entrusts that process to a producer, he or she will deliver. What happens if the producer starts working on a script but the script does not progress as hoped for, or, worse, the producer (if not a studio or network) is unable to secure financing and distribution? Months or years can pass, so there needs to be a mechanism in place to dissolve the relationship and help find a new partner.

Efficiency of Options

Producers who develop properties are ultimately middlemen. They are an efficient source of developing content for studios and networks (and now online outlets) in that they scour the world for interesting ideas. Producers, together with agents who package creative talent and properties, then bring other talent into the mix, evolving and ultimately transforming the idea into a production; however, producers know that for every project produced, their office is littered with many more properties that died along the way or are in limbo. In essence, a producer acquires a property believing he or she can then add value to it and sell it to a third party who will distribute and finance the production (even if he or she contributes financing, he or she will ultimately need a broadcast or distribution partner). Because the odds are significantly against any optioned project actually making it to production, the producer acquiring the property wants to invest as little upfront in the option as possible.

The option market functions as efficiently as other option markets, governed by the simple principle of supply and demand. If a property is not famous and/or has limited exposure, few people are likely to be competing for the rights; the option price will be low, and, in cases, can even be zero. For a book by a well-known author who has had other properties successfully translated to film, the price can be in the millions. The elasticity of the price is then tempered by factoring in subjective elements such as: (1) Is there other value in the parties working together, such that it is worth lowering or raising a fee to close the deal? (2) Is there a strong belief that the party has a better chance of securing financing and distribution, therefore increasing the odds this project will make it to production? (3) Is there a synergy between the parties or related products or divisions?

Options effectively balance this time–money–uncertainty continuum by carving out a middle ground protecting both property creators and acquirers from respective downsides (predominantly, time on the creator side, and risked capital on the acquirer side). The option agreement also sets out a formal agreement for success, ensuring who has what rights and financial stake assuming the project moves forward to production and release or broadcast.

At a certain point, the option holder needs to make a commitment to buy or release the property. All option contracts have a “purchase price,” and the option holder has the right to acquire defined rights in the property (usually all rights, including copyright ownership) by paying an agreed sum before the expiration of the option period. This is where real money is paid. While option payments are often in the low thousands of dollars, purchase prices tend to be in the hundreds of thousands or millions of dollars: this is the transfer of ownership. (See the companion website for a short overview of option contracts.)

Marketing Ideas (aka Pitching)

There are no set rules or formulas for pitching an idea, but there are certain conventional practices that seem to have evolved. This is ultimately not magic, but pure marketing. How do you grab someone else’s attention, get him or her excited about an idea, and convince him or her that your idea is the one worthy of their time and investment?

Also, movies and television are consumed in a short period relative to the time it takes to read a book. Accordingly, at some level, they are formulaic to ensure that the audience has been sucked in and brought through a roller coaster of emotion within a short period of time. (The companion website delves into a bit more detail on the strategy of setting up pitches, who should make the pitch, and what materials may be appropriate.) In the next section, I will simply address the rhythm of how film story beats are crafted, and provide an example illustrating some of the threshold questions a development executive may need to navigate on the road to green-lighting a project.

Rhythm of the Story, Walk Me Through the Story

All films have what are referred to as “story beats,” which are a very rough equivalent to acts in plays or musicals. They define the pace and the emotional arc that the story takes us through. In marketing a story, a good creative executive should be able to address the following items when explaining and trying to sell his concept.

What are the main story beats? The creative executive should try to make sure that a story has enough twists and turns and depth to satisfy the following type of hierarchy:

■  Once upon a time …

■  And every day …

■  Until one day …

■  And because of this …

■  And because of that …

■  Until finally …

■  And ever since then …

What are the main plot points? Namely, what are the dramatic twists that change the direction of the story and/or character? Think about how many times you have seen a movie and things are going along fine until … someone dies, someone is attacked, someone is kidnapped, or something precious is stolen. Then, something needs to be found or someone saved or avenged—we are drawn into the story.

Toy Story as an Example

■  What is it about? In two or three sentences, whose story is it and what happens?—It is a story about a boy’s favorite toy, a cowboy doll named Woody (and all the toys are alive!). When Woody loses his leader-of-the-toys role and is abandoned in favor of the newfangled spaceman toy, Buzz Lightyear, Woody ousts Buzz. Woody ultimately redeems himself and reclaims his cherished position by leading the other toys to rescue Buzz from the jeopardy Woody has put him in.

■  Make me care: What is the lead character’s goal?—Woody is driven to make Andy (the boy) love him and be his favorite toy—Woody wants to be left on Andy’s pillow and taken on trips, not thrown in the closet to gather dust.

■  Who are the lead characters? What is the personality of the lead characters?—Woody is a lovable jokester. Buzz Lightyear is a haughty, by-the-book Mountie in space gear who you know has a soft spot (because, after all, he is a toy).

■  What is the core conflict? Who is the villain, or who or what opposes the protagonist?—Buzz Lightyear threatens Woody’s position (stature, life, etc.)

■  What changes? How has the key character grown/transformed, what lessons have been learned, what are the consequences for the story’s arc?—Woody comes to like and respect Buzz, not view their relationships as a “me-against-him” contest for Andy’s attention: there is room for both.

■  Who is it for? What is the target demographic?—Kids of all ages.

■  What is the best analogy for the story? Is it like Superman meets…?— (The more original, the harder it is to come up with something.)

■  Who would you cast? Who would make your perfect lead, friend, villain?—It would be Tom Hanks as Woody and Tim Allen as Buzz Lightyear.

■  What is the setting? Where does it take place?—It takes place in a stylized, animated version of an American suburb.

■  What is the tone and style? Is it a comedy, or is it action … is it a live-action mix?—It is a comedy adventure, produced entirely in computer graphics animation.

■  Can you capture the spirit with a one-line premise?—What if all your toys were alive?

■  What are the two (or more) driving plot points? What spins the audience around from Act I to Act II, and Act II to Act III?

1.  Buzz arrives on the scene, instantly upsetting Woody’s world and security.

2.  Buzz is put in jeopardy: left behind outside the house and needs to be rescued.

3.  Woody to the rescue.

Protecting Content: Copyright, Piracy, and Related Issues

Ideas in their raw form are not protectable. It is only when they are committed to writing or a tangible form of expression that they transform from a thought or verbal description to a concrete expression of that idea that is afforded copyright protection. The following is not meant to be a legal primer, but a brief introduction to the main vehicles used to protect the expression of creative content. Most critically, by properly protecting an idea, one creates property, namely a piece of intellectual property—it is the development and exploitation of individual pieces of intellectual property around which the entire film and television business (and, by extension, online content business) is based.

Copyright

Copyrights are the primary and historical method by which intellectual property in the film and television business is protected. The idea of copyrights is rooted in the United States Constitution, which states: “The Congress shall have Power … To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”⁸

Copyright Law Basics

(Note: The following discussion tracks U.S. law, but global copyright laws mirror the same basic pattern.) The specific copyright law is contained in federal law, which covers both what can be copyrighted and what rights are granted by copyright. In terms of the “what,” the law enumerates several categories of “works of authorship” and specifically includes “motion pictures and other audiovisual works”—a category that easily encompasses film, video, television, etc.⁹

In terms of the rights affixing to copyrighted works, the law then defines a bundle of exclusive rights that an author possesses by owning the copyright to his or her work. These rights include the right to copy, distribute, perform, and display works, together with the right to make derivative works (e.g. sequels); more importantly, these are the rights that enable the licensing and exploitation of movies and TV shows (all video-based content), and ground the distribution side of the business. As codified, the specific language of the law grants copyright owners the right:

1.  to reproduce the copyrighted work in copies or phonorecords;

2.  to prepare derivative works based upon the copyrighted work;

3.  to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer or ownership, or by rental, lease, or lending;

4.  in the case of literary, musical dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; and

5.  in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly.¹⁰

There are, of course, nuances to the application of these general principles (e.g., international applications), but a detailed discussion of copyright law is far beyond the scope of this book; however, I do at least want to mention the doctrine of fair use. Basically, “fair use” is an exception category that expressly allows certain uses of a copyrighted work without the permission of the owner, including for criticism, news reporting, teaching, and research.¹¹ Moving from this high-level description to a practical set of rules is more complicated, as the law includes a set of factors by which fair use can be judged, such as how much of the work is used/copied in relation to the whole, and what is it being used for. A body of case law has evolved dealing with the enumerated factors and how they are to be balanced; nevertheless, it is easy to imagine the complications and arguments arising in the fair use context, and how case law has had to evolve to define mind-boggling permutations. Simply pose the question: What is news?

The final two points I want to highlight about copyright regard length of protection and divisibility of content. In terms of length, the duration of copyright protection has changed over time due to amendments in the act, with studios and other owners of key brands lobbying for extensions. An extension in 1998 was, at the time, jokingly referred to as the Mickey Mouse extension, due, in part, to vigorous lobbying efforts by Disney, which faced Mickey Mouse entering the public domain. (Note: U.S. copyright for movies is now generally for the life of the author plus 70 years, or in the case of corporate authorship, the earlier of 95 years after publication or 120 years after creation.) Perhaps the most important element of copyright ownership in terms of distribution is that intellectual property is divisible; namely, any or all of the exclusive rights vested in the copyright owner may be transferred or licensed separately. Hence, the licensing of various rights, such as rights for TV exhibition or online streaming, are grounded in copyright and enable the distinct licenses that embody the windowing of content. Moreover, it is the infinite permutations of licenses that create the different distribution rights discussed throughout this book.

Grant of Rights and Digital Complications

In the context of digital rights and new technology, it is interesting to note the evolution of the language “whether now known or hereafter devised,” which is frequently used in a grant of rights. This language developed as a direct result of technology. Methods of exploitation continue to be invented that creators of content could not have envisioned when producing the original work. When David Lean made Lawrence of Arabia, the studio could never have anticipated that one day that film would not only be shown in theaters and possibly TV, but that it would be stored “in the cloud,” and viewed on DVDs, over the Internet, and by digital file sharing. Inevitably, when a new delivery medium generates significant revenues, people will argue that this area was not covered by the original contract or grant of rights and is reserved. This argument was quite common when the videocassette market emerged. Accordingly, this catch-all language grew to protect against rights that the original owner might later claim were reserved, because the rights/market never existed at the time of the grant.

Nature of Copyright Allows Segmenting Distribution Rights—Licensing Content Rights is Complicated

Coming back to an earlier point, revenues are derived from multiple distribution streams (theaters, TV, video, merchandising, online, etc.), and it is the ownership of copyright and the nature of intellectual property that allows rights and revenues to be segmented and applied separately to each of those distribution streams. The copyright owner of a film could, in theory, parcel off each possible distribution right to a different party, creating one license for pay TV, one for free TV, one for film clips, one for a soundtrack album, and on and on. In fact, it is this divisibility that allows the interplay of factors outlined in Ulin’s Rule, discussed in Chapter 1, where the value of a single asset is a function of maximizing value by balancing time, differential pricing options, exclusivity, and multiple platforms for repeat consumption.

Complicating the challenge of segmenting rights into bits are the dual factors that licenses can be bounded in multiple ways (e.g., exclusive versus nonexclusive, in perpetuity versus limited periods of time, worldwide versus in discrete territories), and that third parties often retain stakes in, or approvals over, the use of the content being licensed. While, at one level, there is an owner (who may or may not be the creator) and a consumer, between the two is a labyrinth of rights, inputs, and approvals. Licensing content is fundamentally complicated (see Figure 2.3).

Figure 2.3 Licensing Content is Complicated

Copyright in the Digital Age—New Laws and Evolving Boundaries

The 1998 Digital Millennium Copyright Act (DMCA) represents a major overhaul of U.S. copyright law, and among its several provisions was an attempt to promote Internet access by insulating carriers from claims based upon content they helped transport but did not screen/review. An ISP or phone company would be reluctant to carry messages and content over its lines or network if it could be sued by someone based upon carried content. The section of the DMCA that provides for the limitation of liability—in fact, a bar on monetary damages—for copyright infringement (a “safe harbor”) was thrust into the public spotlight by a $1 billion suit by Viacom against YouTube (see also the discussion in Chapter 7).

The practical application of the law has been to insulate service providers from liability from third-party postings on websites (which have recently grown exponentially with user-generated content, and social networking sites), and YouTube and others argue that as long as they are acting to “take down” infringing content when placed on notice, they should be able to avail themselves of the law’s safe-harbor protections. In 2010, the court found in favor of YouTube, supporting this key tenet of the DMCA and ensuring that sites acting responsibly to take down content would be shielded from infringement lawsuits based upon content uploaded by third parties. Despite this ruling (which also upheld the DMCA underpinning an appeal in 2013)¹², many continue debating the line of what is fair use and what is infringing—a debate that is not new, as elements of this line have been challenged in the digital space before (e.g., in the context of peer-to-peer file-sharing services) and will likely persist so long as technology innovations enable quicker and easier methods to access content and blur lines.

Peer-to-Peer File Sharing, Piracy, and the Seminal Supreme Court Grokster Case

It is in the file-sharing space—first highlighted in the music industry by Napster, and then in the film space by Grokster, Morpheus, Kazaa, and other similar services—where peer-to-peer file-sharing services raised novel copyright issues. At stake was whether certain activities were non-infringing legitimate copyright activities or pirate activities that could result in damages or even criminal penalties.

Peer-to-peer networks allow disparate computer users to share electronic files of content. Peer-to-peer systems differ from other systems in that they are not funneled through a central server, but rather operate by sharing information directly between the different computers tapped into the system. If a popular file, such as a copy of a movie not yet publicly available, is on a computer, then others who are notified of the availability can start swapping bits to download and simultaneously share that file. The advantages are speed, as data is parceled out in bits, and cost, since there are no central bandwidth or server storage costs; in fact, it is the free access and remarkable efficiency of the systems that led them to grow so rapidly. Peer-to-peer networks and technology grew so fast that some articles estimated that upwards of one-third of all Internet traffic in 2006 utilized BitTorrent, a highly efficient peer-to-peer technology initially created by its whiz-kid founder as a publishing tool.

Anxious to avoid the chaos and downturn experienced in the music industry (which, to some extent can be bounded as the time between when Napster skyrocketed until Apple’s iTunes offered a legal and compelling download alternative), the studios, acting through their trade organization, the Motion Picture Association of America (MPAA), were keen to resolve the legal landscape and prevent a Napster-type scenario in the film and video business. (Note: P2P and piracy issues are global concerns, and the MPAA works in concert with its sister arm, the Motion Picture Association (MPA), whose focus is international markets.) There was a sense of urgency, for, as broadband penetration continued to increase, there was a belief that it was simply a matter of time before compression and storage enabled larger video files to be downloaded quickly and easily. Fortunately for the film and TV business, a major U.S. Supreme Court case (Grokster—see below) clarified the field and curtailed the spread of illegal peer-to-peer video file sharing before some of the technology issues improved enough to enable simple massmarket adoption.

The seminal case addressing the peer-to-peer issue, supported by the MPAA, was Metro-Goldwyn-Mayer v. Grokster, Ltd. (popularly known as the Grokster case). A unanimous Supreme Court decision (June 2005) prohibited the Grokster service, and sent notice to peer-to-peer services that encouraged illegal downloads that they would be held accountable and shut down. The services could not argue that they were neutral bystanders while culpability rested with the actual users downloading files. Justice Souter, in delivering the opinion, summarized: “We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.”

The Grokster case also revisited elements of the famous Sony Betamax case, which enabled the videocassette industry and the upgraded technological iterations, including DVD, that followed. In Chapter 5, the landmark Supreme Court case of Sony Corp of America v. Universal City Studios, Inc. is discussed in the context of permitting home use copying via videocassette recorders (VCRs). The underlying issue in that case was whether Sony, a manufacturer of VCRs, was liable for infringement when VCR owners used their VCRs to tape copyrighted programs. The court held no, arguing that “time-shifting” (recording a program to view at a later time) was a fair and non-infringing use; in essence, the video industry was saved by the Supreme Court’s reasoning that because a VCR was capable of “commercially significant non-infringing uses,” Sony (i.e., the manufacturer) was not liable for copyright infringement.

This history is important because, in the Grokster case, the Supreme Court had to revisit elements of Sony to assess whether peer-to-peer copying represented a similar fair and non-infringing use. In finding in favor of the studios, it first set the moral or value equation, noting, “The more artistic protection is favored, the more technological innovation may be discouraged; the administration of copyright law is an exercise in managing the trade-off.”¹³ In a sense, it was an easy case because the facts showed “a purpose to cause and profit from third-party acts of copyright infringement”;¹⁴ in an opinion so politically charged, the court likely did not want to stray further than necessary, and in some ways took the easy path in relying on somewhat egregious facts tipping the scales in favor of defining the activities as infringement.

In so doing, however, the implications were clear and the path was set. The real world does not wait like law-school professors to argue the nuances: Grokster had lost, induced copyright violations via peer-to-peer file sharing were considered illegal, and services such as Grokster were henceforth branded pirates.

Wrinkles from Cloud Services, Remote Storage, and On-Demand Catch Up

For a brief period, the “Cablevision” case (Cartoon Network et al. v. CSC Holdings, Inc. and Cablevision Sys. Corp.) threatened to put a new spin on the Sony Betamax case when a U.S. District Court (Southern District of NY) ruled that there was a copyright violation in enabling DVR recordings via remote servers—in essence, the copyright owner’s rights of exclusive reproduction and public performance rights would be violated by the process of ingestion buffer copies and server playback copies. Ultimately, the Second Circuit reversed the decision, holding that neither buffer copies (essentially transitory copies) nor the server copies (enabling consumers’ playback/viewing) were directly infringing.¹⁵ This was an important ruling in the digital sphere, for cloud and streaming services are dependent upon remote servers, which all involve elements of transitory storage—were it not for this outcome, services such as Amazon VOD and UltraViolet (discussed in Chapters 5 and 7) could have been undermined.

Another spin on storage and access arises from a Fox lawsuit against Dish Network for its serviced called AutoHop. The service automatically records the whole schedule of the four major U.S. broadcast networks, making the programming available to subscribers for a week afterwards, and further enables users to push a button to skip ads when taking advantage of catch-up viewing. Fox, in 2012 filings for an injunction, argued that Dish’s actions amounted to “wholesale copying of Fox’s copyrighted programming in order to offer its subscribers an on-demand library of commercial-free programs, in violation of copyright law and its contractual obligations.”¹⁶ At issue, in part, in the case was a new variant of whether the storage of content for later viewing was akin to the type of fair use that was sanctioned by the Sony Betamax case. These examples, and other similar cases that will no doubt arise as companies try to store and funnel content for on-demand applications, serve as a reminder of the struggle between content owners/distributors and those seeking to gain iterative rights to satiate the appetite of viewers craving evermore flexibility in viewing.

Beyond Sony and Grokster

The Web knows no geographic boundaries, and accordingly Grokster can be seen as merely a starting point in a global battle to curb Internet piracy. As discussed briefly below, and also touched on in Chapter 7, the MPAA and MPA work on enforcement and education worldwide, trying to defeat safe havens. This is a particularly challenging problem because a few individuals with powerful servers (e.g., capable of tracking which computers have downloaded file elements), can literally set up anywhere and cause significant damage from remote locations.

Technology Titans versus Hollywood

The focus of shutting down pirate bays/sites overseas has unexpectedly pitted Hollywood against technology leaders: the debate is now about Internet censorship versus Hollywood’s legitimate concern about Internet piracy. House and Senate bills, including the Stop Online Piracy Act (SOPA), backed by Hollywood and the MPA, would have enabled the Justice Department to obtain court orders requiring U.S. Internet service provides (including search engines, ad networks, and payment processers) to block foreign websites linked to online piracy. In December 2011, cofounders of Google (Sergey Brin), PayPal (Elon Musk), Yahoo! (Jerry Yang), and eBay (Pierre Omidyar) joined with other Internet pioneers in signing “An Open Letter to Washington” (republished in several leading publications, including the New York Times, Washington Post, and Wall Street Journal), attacking the legislation and likening the chilling effect as allowing the U.S. government the power “to censor the Web using techniques similar to those used by China, Malaysia, and Iran.”¹⁷

The backlash caused by the open letter snowballed into a series of online protests, including a coordinated effort on January 18, 2012 whereby thousands of sites, including Wikipedia (English language), shut down their services for a day in protest to raise awareness (Figure 2.4).

The actions effectively stopped the legislation in its tracks, and the SOPA bill was pulled and debate halted shortly afterwards. A few months later, the European Parliament overwhelmingly defeated the Anti-Counterfeiting Trade Agreement (ACTA), which called for Internet service providers to enforce copyrights. While sounding benign, echoing the themes that upended SOPA, those against argued that its passage would lead to a form of Internet police. Sounding similar alarms, and politicizing the issue, opponents after the votes stood holding placards reading “Hello Democracy, Goodbye ACTA,” with the International Herald Tribune publishing a symbolic photo of the lawmakers celebrating the defeat under a sub-headline reading “Internet Freedom Groups Rejoice in Victory as Media Firms Lament Vote.¹⁸

Figure 2.4 Wikipedia, January 18, 2012

Beyond enforcement/piracy issues, permutations of content distribution in the digital realm continue to lead to new debates and novel issues. The next iteration of copyright debate arose not in the download/file-sharing medium, but in the area of digital access to streaming video on services such as YouTube (e.g., applying the DMCA’s notice and takedown provisions to user postings of third-party copyrighted content, which had grown in scale, as highlighted by the earlier mentioned lawsuit filed by Viacom against YouTube/Google) and in access to programming in remote servers (e.g., the Cablevision case, with its implications for cloud-based services).

Streaming Live TV—the Threat of Enabling Cord-Cutting

Cord-cutting, the process by which viewers can gain access to TV programs over the Internet without subscribing to cable TV, is the essence of much of the over-the-top market (see Chapter 7), and an obvious fear for cable providers and over-the-air broadcasters whose channels are retransmitted via cable. A number of companies have experimented with how to grab free broadcast signals over the airwaves and make them accessible via the Web; however, when media mogul Barry Diller (who counts among his accomplishments the creation of the Fox network) invested in start-up Aereo, the networks took particular note and sued. Aereo provides users a tiny antenna that picks up broadcast signals, allowing them to gain access to channels over the Web—which the networks argue is rebroadcasting their programming without paying license fees. Although the argument is couched in these legal terms, the underlying concern is the economic loss, and, in describing the beef, the Hollywood Reporter noted: “The prospect of cord-cutting worries broadcasters who fear that since nobody is measuring those who watch Internet streams, ad buyers won’t pay up for them without a verifiable ratings system.”¹⁹

Because these systems also include DVR capability, arguments harken back to Sony. Aereo, playing the “we’re just an extension of permitted technology” card, issued a statement to Venture Beat defending its position, and the legality of accessing over-the-air broadcast signals with an antenna and enabling an individual to make a recording for his or her personal use; interestingly, they went so far as to specifically cite the Cablevision case (which, as noted above, authorized the recording and playback of individual recordings via a remotely located DVR).²⁰ The stakes were then significantly raised when the U.S. Court of Appeals refused to shut down Aereo, and NewsCorp’s COO Chase Carey proclaimed that if the courts continued to sanction Aereo’s model, he would entertain taking the Fox Network off the air and converting the network to a paid channel: “This is not an ideal path we look to pursue, but we can’t sit idly by and let an entity steal our signal. We will move to a subscription model if that’s our only recourse.”²¹ The publicity ripple soon caused others to support the threat—Univision agreed with Carey, and CBS CEO Les Moonves announced he was considering disconnecting their freely available signal and opting for cable in areas where Aero was operating.²² Given the overall attack networks feel they are under from OTT operators and other digital access means, it is not surprising that they will fight fiercely to preserve turf via the type of absolute boundaries that legal or regulatory lines can preserve. (See also Chapters 6 and 7 regarding the variety of threats that TV is under from OTT providers.) Cases such as those noted involving Aereo, AutoHop, Cablevision, and YouTube are continually setting new boundaries in the evolution of copyright law (and related communications/regulatory rules)—a process that is likely to be ongoing for years, with questions about display, access, storage, and copying all pushing the edge of legal doctrine that is struggling to keep pace with the changes enabled by new digital and online applications.

Trademarks

Trademarks complement copyright in the context of protecting a film or TV property: whereas copyright will protect the whole as well as fundamental elements, trademarks serve to protect elements of the property that identify the brand, and, in turn, can brand specific products that have distinct value as a result of the association with the brand. For example, the movie Toy Story is the subject of copyright protection, but the name of a key character (e.g., Buzz Lightyear) will be separately protected to brand a Buzz Lightyear action figure toy or a Toy Story T-shirt featuring a cast of characters. Trademarks are denoted by a word, name, or symbol that identifies the source of a good and differentiates it from another good; consumers are accustomed to seeing a “™” notice, indicating a property claim on the item. For a detailed discussion of trademarks, an easy reference guide can be found at the United States Patent and Trademark Office’s website.²³

Trademarks as Anchors of a Merchandising Program

Trademarks in the entertainment arena are very important when a property is used to sell commercial merchandise (see Chapter 8 for a discussion of merchandising). Batman action figures, Mickey Mouse T-shirts, The Lord of the Rings puzzles, and Star Wars toy lightsabers are all examples of merchandise where the product is branded by its association to the related film or film character. The trademark on the merchandise, in the form of a word, name, or symbol, indicates to the customer the source of that product.

(The companion website includes a brief discussion of the administration of a trademark program, together with a short overview of patents and their application in the production/distribution realm.)

Piracy and Fighting Illegal Copying and Downloads

Piracy is a fancy word for copyright theft, and historically piracy of content was limited to illegal copies of prints and tapes. Namely, antipiracy efforts were focused on stopping people from going into theaters and camcording a film to make copies, or from obtaining a copy (legally or illegally) of a videocassette and replicating that copy without a license for additional sale. The digital age creates a plethora of new piracy categories, from making digital copies to sharing files. The MPAA and film studios mince no words about equating piracy with theft:

Movie pirates are thieves, plain and simple. Piracy is the unauthorized taking, copying, or use of copyrighted materials without permission. It is no different from stealing another person’s shoes or stereo, except sometimes it can be a lot more damaging. Piracy is committed in many ways, including Internet piracy, copying and distribution of discs, broadcasts, and even public performances.²⁴

Digital theft has grown so rapidly that MPAA member studios’ losses from illegal downloads now rivals or likely exceeds bootlegged piracy losses. (Note: regarding scale, an MPAA study in 2006 found that of an overall estimated $6.1 billion loss to MPAA studios in 2005, $3.8 billion was from “hard-goods” piracy, such as illegally manufactured or copied DVDs, but that approximately $2.3 billion was lost to Internet piracy, such as illegal downloads.²⁵) Quantifying the effect of piracy, either substantiating an amount of lost revenue in a sector or the overall impact on the economy, is extremely challenging, but, in the context of supporting SOPA, the MPA, in a press release, suggested a staggering number: “According to the Institute for Policy Innovation, more than $58 billion is lost to the U.S. economy annually due to content theft, including more than 373,000 lost American jobs, $16 billion in lost employees earnings, plus $3 billion in badly needed federal, state, and local governments’ tax revenue.”²⁵

It is impossible to overstate the industry’s concern over illegal downloading, hence the MPAA’s stance in the Grokster case. When Warner Bros. released The Dark Knight (2008) despite robust advanced efforts to protect prints and keep the film from illegal streaming sites, media measurement firm BigChampagne, as cited in a New York Times article titled “New Wave of Pirates Plunders Hollywood,” estimated that the movie had been illegally downloaded more than seven million times worldwide by the end of the year of release.²⁷ There is little doubt that established losses as a result of illegal downloads and streaming will in time, dwarf losses from “hard-goods” piracy (if, in fact, this has not already happened).

Among the most recent examples of taking down Internet pirate sites, and perhaps the most public case since those of Napster, Grokster, and Pirate Bay, is the shutting down of Megaupload and the criminal prosecution of its notorious founder Kim Schmitz (aka Kim Dotcom). Flaunting his wealth via online videos cavorting in yachts and private jets, and operating out of a 25,000-square foot mansion in New Zealand worth more than $20 million, some of the facts reported about Kim Dotcom and Megaupload include: (1) the site at its peak being the 13th most visited site on the Web, with upwards of 180 million users; (2) accumulating wealth of more than $200 million and earning more than $40 million in 2010 alone; and (3) causing, according to the racketeering and criminal copyright infringement complaint, in excess of $500 million in losses to copyright holders (including all of the six major Hollywood studios).²⁸ What is interesting about Megaupload (beyond the obvious) is that Kim Dotcom exploited the same technology that is disrupting traditional distribution. Megaupload encouraged people to “rip” digital copies of content and then upload them to its site; the company would then leverage cyber-lockers to distribute content to users for download, allowing a certain amount for free and then charging by tiers (e.g., $13 per month of $78 per year) as if it were a legitimate service. In essence, Megaupload utilized distributed servers and cloud service to solve storage and download issues, yet did not play on the same level playing field as other services enabling digital lockers (e.g., Amazon), which (as discussed in Chapters 5 and 7) are changing the nature of video rental, transactional video-on-demand, and on-the-go access; namely, they stole rather than licensed the content, and then unjustly profited from the exploitation. Some argue that the case may be challenging to prove because it is being pursued on criminal grounds rather than a civil action. Regardless, few question that the service enabled blatant copyright infringement, and the case and the profile of Megaupload evidences how the fight against piracy has had to move to new frontiers.

While Megaupload provides an example of mass-scale piracy, there are countless smaller operations where pirates defeat security systems (e.g., hacking smart cards, card-sharing servers) and offer services (e.g., free access to pay TV) and lower-cost subscriptions as if they were legitimate cable or pay providers. When cheap set-top boxes can download Internet streams (often utilizing software illegally designed to defeat security systems/encryption) and offer both legitimate and pirated content, it can be challenging to bring prosecutions—an issue that is especially troubling when mom-and-pop pirate services offer subscriptions to hundreds, thereby profiting handsomely but operating on a small enough scale that authorities often cannot devote resources to thwarting the newest culprit in a never-ending game of whack-a-mole.

Are There Innocent Infringers, or is All Piracy Bad?

When thinking about piracy, an interesting facet is that the pejorative term has become a catch-all for a variety of actually quite different behaviours—some of which could be aptly likened to innocent actions rather than criminal acts. Stuart Rosove, while VP Marketing for Irdeto (a global media distribution technology company that, among a variety of services, provides content security), described how Irdeto has developed an approach to help its customers, which looks at the spectrum by segmenting piracy into different baskets (see Figure 2.5):

Most people think of a pirate as a malicious ill-intentioned individual. In this evolving digital ecosystem, that’s simply not the case anymore. The Piracy Continuum is a proprietary framework (trademarked and owned by Irdeto) that accurately describes the mechanics of the market and provides Irdeto customers a corporate governance perspective on the market, enabling them to better manage threats and capture opportunities. The continuum expresses the variety of “pirate types.” Each one, in many ways, has intent to capture content, but each has very different motivations.

The existence of the continuum, coupled with increasingly sophisticated and professional looking pirate sites, is making combating the problem increasingly challenging. CommunicAsia, in discussing Irdeto’s Piracy Continuum (Figure 2.5), noted in an article entitled “Some Pirates are More Equal than Others”: “In many cases, the sites offering pirate content look fabulous and carry big-brand well-trusted advertising. Sometimes they even charge for access. So how’s a person to know?”²⁹ (Note: As a disclaimer, during the writing of this second edition, I changed jobs and currently serve as general counsel of Irdeto.)

When pirate sites can attract perhaps innocent customers and charge for access to content they themselves have not legitimately/legally acquired, the stakes for fighting piracy take on an even greater sense of urgency—this is no longer an example of opportunity costs (how much revenues are lost to pirates), but a more quantifiable theft perpetrated by those so emboldened (e.g., Megaupload) that they have the chutzpah to charge subscription fees.

Figure 2.5 The Piracy Continuum

© Irdeto 2012; www.irdeto.com

Fighting Piracy

The MPAA is the principal agent for fighting film piracy, and all of its member Hollywood studios contribute a percentage of film revenues to fund the organization generally. A sizable portion of the MPAA’s budget is then specifically targeted toward bolstering copyright laws and funding global antipiracy efforts. Many of the MPAA’s employees in its antipiracy efforts are former law enforcement officers who have experience planning raids and working with local, national, and international law enforcement agencies.

The MPAA fights piracy by employing a variety of tactics. In its own words, from the “Piracy and the Law” tab on its website, the organization notes that “it takes a multi-pronged approach to fighting piracy, including educating people about the consequences of piracy, supporting the prosecution of Internet thieves, assisting law enforcement authorities to root out pirate operations, and encouraging the development of new technologies (e.g., encryption) that foster legal Internet and digital media uses”³⁰ (see Figure 2.6). In a form of technology battling with technology, to counter piracy, studios and other content suppliers are employing a range of tactics beyond encryption, including embedding markers into product (e.g., watermarking), and requiring digital rights management (DRM) systems. (See Chapter 7 and the online supplement for a further discussion of DRM.) Additionally, altering windows to release product day-and-date is, at once, a market response to the reality of piracy, as well as an attempt to blunt its impact.

Figure 2.6 The MPAA Fights Piracy

Reproduced by the permission of the Motion Picture Association of America

As noted above, the losses incurred from quantifiable piracy are staggering, and are made that much worse when factoring in opportunity costs from markets that have either not matured or are simply unavailable due to piracy factors. Most of the video market in China and Russia is lost to piracy. Given that these are among the fastest-growing major economies in the world, and present some of the greatest upside for growth to the Hollywood studios and networks, the efforts to fight piracy there are among the highest-priority items of the MPA. China and Russia have begun to mature on the theatrical side, with both countries posting some of the largest market gains for box office revenue in the world (see Chapter 4); video and TV, however, continue to lag behind, especially in China, elevating intellectual property and piracy to key issues in trade negotiations at the political/government level.

How to turn a pirate market into a legitimate market is obviously a tricky equation. To succeed against legitimate distribution, pirate prices need to be lower—the essence of piracy is earlier, or at least simultaneous, access and lower prices. Lower prices, though, mean lower margins, not to mention limited distribution to the extent major retail channels enforce stocking legitimate product. If you can show pirates a way to improve distribution and increase margins as a simple business proposition, they will start seeing that working with the rights owners will yield more money. Like a diplomat talking to the enemy, product suppliers sometimes need to work with pirates to help convert them. This is what started happening in select markets, with key suppliers first accelerating windows to start competing with pirates (starting to erode their market share) and then working with the “pirates” to establish new and higher sustainable price points. Through this process, markets can start to evolve legitimate distribution.

Of course, diplomacy only goes so far, and the surest way to stop piracy is via legal enforcement. In the digital sphere, this is a never-ending battle, pitting content creators and distributors, through trade organizations such as the MPAA, against pirate sites such as Megaupload. Because the scale of the battle is global, and pirates can literally operate from servers based anywhere, the challenges are enormous, and local government cooperation is necessary to shut down even the most egregious offenders. Although many countries may have laws on the books that seem tough, those laws are only as good as the willingness of local authorities to enforce them. When those vested with defending the value of content then work to support laws with a stated goal of making it easier to thwart pirates and bolster copyright protection find themselves rebuffed—such as occurred with the SOPA and ACTA legislation—it strikes a nerve. Approaching the issue with a mentality of “How could anyone be against this?” it seems almost unfathomable that legislation inherently designed to prevent theft can be struck down in the name of democracy. This is a stark example of complications arising from media distribution over the Internet, and how a gulf has opened in a matter where parties should, in theory, be natural allies. Google, as discussed in Chapter 7, is investing heavily in original content and channels via YouTube, and in no manner endorses copyright theft. Content producers and distributers alike understand that legitimate distribution and the prevention of piracy is the bulwark that preserves content value—without protecting the ecosystem, key drivers in Ulin’s Rule fall apart. How to reconcile this agreed principle (piracy is bad) with the utopian promise of an open net (net neutrality) is simply proving to be more politically challenging than anyone in the media business ever imagined.

I asked Kasia Lasota Heller, current chair of European Digital Media Association (EdiMA), an organization focused on the digital industry,³¹ how she saw the sides coming together in the future:

In her opinion, the recent battles and disagreements here are not about the protection of copyright, but have more to do with the relationship between generations. The older generation is used to waiting patiently for content to be accessible in the traditional sequence: cinema, rental, pay TV, and public TV, and the current system of distribution offers access to content according to a schedule of distributors. The younger generation, on the other hand, wants to benefit from the digital technology that makes it possible to access desired content whenever and wherever a user wishes to, namely as soon as a work has been created, and on a medium of the user’s choice. Kasia firmly believes that a step in the right direction in the fight against piracy would be to make it possible for users to access the desired content according to the users’ wishes in terms of timing, medium, and payment method. If stakeholders fail to start down that path, it will be to the detriment of consumers, and piracy is unlikely to decrease.

This issue is further discussed in Chapter 6, in which I suggest that the Hobson’s choice of accepting piracy or succumbing to the preferences of consumers to have content earlier (and via sources they choose) can be akin to window blackmail if viewed on a by-distributor basis. Should HBO have to offer its next hit to those without a cable subscription, or else be subject to piracy? Forbes suggests just this, and even states that when looking at rampant piracy of Game of Thrones in the face of overwhelming demand, HBO only has itself to blame for not making it easily available on alternative platforms such as Netflix.³² Perhaps piracy, markets, and a generational clash will ultimately force distributors’ hands, but delay in access (i.e, windows) is not a plot to tease would-be viewers, nor an invitation to piracy; rather, as described throughout this book, windowing is a tried-and-true and arguably optimized system that is crucial to how content is monetized and, as a corollary, financed. Is granting a company who has invested $100 million in a movie (or millions of dollars in TV episodes) the right to decide where, when, and how to offer that content to customers somehow wrong, or indeed trumped by those who feel they are entitled to that content earlier, for less, or even for free? Unfortunately, beliefs of entitlement on both sides have created a stalemate between factions that need each other to achieve their goals—thus becoming a classic political dilemma, frustrating younger consumers and leaving producers and distributors to scratch their heads.