Congress

Hollywood Tries to Wash the Web with SOPA


In the spring of 1982 a House of Representatives subcommittee decamped to Los Angeles to hold hearings about a new gadget called the VCR. Movie studios believed home viewing of feature films would destroy theaters and, ultimately, their entire industry, and they wanted Congress to do something to stop it. The late Jack Valenti, president of the Motion Picture Association of America, warned the committee, “The VCR is to the American film producer and the American public as the Boston Strangler is to the woman home alone.” Home video is now Hollywood’s most profitable business.

Nearly 30 years later, movie industry executives flew back East to warn of a new threat: online subscription services that stream movies. Early this month, members of the MPAA met in Washington with White House Chief of Staff Bill Daley, Vice-President Joe Biden, and members of Congress to promote a bill—now in the House—that will attempt to shut down illegal streaming sites.

The studio heads have grudgingly come to accept free peer-to-peer file sharing. “Yes, you’ll have people who want to camcord the movie, be the hero in their mother’s basement,” says Jim Gianopulos, head of Fox Filmed Entertainment (NWS). “And yes, we live with that.” It’s the infringing for-profit services Gianopulos and his colleagues are after. Hollywood is no longer just worried about theft. It’s worried about competition.

The Stop Online Piracy Act—SOPA—introduced in October by Representative Lamar Smith (R-Tex.) has broad support in both parties. If it becomes law, it would authorize the Justice Dept., with a court order, to direct U.S. companies to stop hosting or providing payment services to foreign sites that illegally stream American content. It could tell search engines to stop listing those sites and instruct domain-name registrars—the companies that ensure when you type in “jeffbridges.com,” you reach The Dude—to direct traffic elsewhere. Studio executives insist the bill targets foreign sites, but it also allows copyright holders to obtain a court injunction that would hit domestic sites in some of the same ways. The studios point to an appeals process, yet offenders would have to fight a court battle to prove their innocence after they’d already been disappeared from the Internet. A similar bill, called the Protect IP Act, is moving through the Senate.

As with many fights about the Internet, this one pits Google (GOOG) and much of Silicon Valley, which have a financial interest in keeping the Web open, against Hollywood, record labels, and software companies, which have an interest in keeping it closed. In a Jan. 12 speech in Washington, Google Chairman Eric Schmidt said Smith’s bill would “criminalize the intermediaries” (like Google). Barry Meyer, head of Warner Bros. Entertainment (TWX), claims the studios are being “death-paneled” by the bill’s opponents.

The two sides are having an argument about the bill’s unintended negative effects, but there isn’t much to suggest there will be intended, positive ones. In a 400-page survey of piracy in emerging markets published in January, the Social Science Research Council, a New York think tank, discovered little evidence that enforcement efforts had “any impact whatsoever” on the supply of pirated goods. What worked, it concluded, are “firms that actively compete on price and services for local customers.” At least one studio has recognized this. In June, Warner Bros. announced a deal with You On Demand Holdings (CBBD) to stream movies in China, where piracy has eroded sales.

This may make sense in the American market, too. Joe Karaganis edited the emerging markets study, and now works on digital issues for the American Assembly, a research institute at Columbia University. In an August poll, he found that of the 30 percent of Americans who have illegally downloaded videos, 40 percent say the emergence of legal streaming services has made them less likely to do so. (Google funded the study.) As the studios point out, foreign websites charge Americans $40 for unlimited, illegal streaming of new releases. Hollywood sees these sites as an affront. Eventually—if the history of the VCR is any lesson—it will come to see them as a business model.

The bottom line: Among Americans who have illegally downloaded movies, 40 percent say they now do so less, because of legal streaming services.

Greeley-brendan-190
Greeley is a staff writer for Bloomberg Businessweek in New York.

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