Entertainment Execs, Fear Not the Net


By Alex Salkever Michael Eisner sure had a dramatic flair when he appeared before a Senate panel in Washington in the end of February. The Disney CEO railed that Internet pirates were ripping off his business. To prove his point, while senators watched, Eisner downloaded from the Web an unauthorized video clip from the current Disney movie Blackhawk Down.

Eisner and his compatriots want Congress to help them stamp out movie piracy. They want new laws to crack down on file-swapping systems and stop the millions of dastardly Internet pirates -- who also happen to be some of the movie and music industries' best customers -- from stealing their intellectual property.

Earth to Mike. The biggest threat to the movie business isn't the Internet, just as the top danger facing the music business isn't the file-swapping technology that makes it easy to download copyrighted tunes. Actually, those systems are doing what the music and movie businesses should long ago have tried to do: They're giving customers what they really want. The biggest threat is the film industry's stubborn insistence on trying to stop the parade from marching into the future, rather than to lead it.

PC STEREOS. Here's what people don't want. They don't want crappy movies that cost $7, $8, or more per ticket. And they definitely don't want CDs that contain a single hit and cost $18. One can also understand why they might dislike copyright-protected CDs that won't play on computers. When was the last time a Recording Industry Assn. of America official actually set foot in a college dorm? If any did, he or she might find that among undergraduates, the computer is really the music system of choice. That's due in part to the ease of using PCs to create custom song lists and to computers' super-high-fidelity sound systems, with sub-woofers and amps that can blow the doors off a barn.

Today, people have a fondness for mixing, matching, and managing their tunes. Rip, mix, burn might sound like a hostile mantra to the Big Five labels. But it's a lifestyle for a generation of kids -- and for an increasing number of aging baby-boomers in their 50s and 60s. You can't legislate a lifestyle. Like a digital river, the flow of content over the Web will move around any obstacles.

Witness the Napster affair. The shutdown of that service was supposed to stop file-swapping of MP3s and movies over the Web. It didn't, and now the RIAA and the big studios must face down something far more formidable. That foe is a new generation of free-floating trading systems built on an ever-changing network of PCs swapping encrypted files, a system that's everywhere and nowhere at the same time. These systems don't rely on central servers like Napster. They can function, possibly indefinitely, without any commercial entity owning or controlling them (see BW Online, 2/21/02, "Napster's Sons: Singing a Different Tune?").

ALREADY BEAT. So the music business tries to sink the pirates with a new layer of copyright protections on CDs. Guess what? The pirates already have the industry beat, even if the RIAA doesn't know it yet. Now circulating in the digital underground is powerful software that can take an analog signal and convert it back into an MP3 file for swapping or trading. That means any CD player can be transformed into a platform for taking legally purchased music that might otherwise get blocked by copyright-protection systems and converting it into a more convenient format that can play in car stereos or on portable players. You can bet agile hackers will create an interface that makes this software easy to use for anyone who wants to free their own music from the shackles of label protection.

The same situation could also be true for movie players, though it's a lot tougher to encode analog video into a compact, high-quality digital file. Video represents a complex signal. But ever-faster computers and ever-higher bandwidth capabilities on networks to point to a day when these types of file conversions might be quite possible.

Of course, the fears of Eisner, the rest of the studio bigwigs, and the record-label execs are understandable. They see their business model imploding. CD sales are plummeting, and movie box-office takes are stagnant, at best. The moguls' natural first reaction is to ask for legislative redress. Indeed, many people are violating copyright laws by trading files over the Net, and they should be dealt with according to the law.

OUTTTAKES ARE IN. But the whining about declining CD sales and movie-business troubles misses the forest for the trees. Music-trading on the Web continues to soar, much of it in older titles that people probably wouldn't have purchased in stores. Clearly, the labels don't have a demand-side problem. They have a busted delivery mechanism.

Likewise, sales of DVDs continue to climb as people warm to the added convenience and smaller size of the disks that are replacing clunky videocassettes. The outtakes and directors' narratives found on many DVDs help close sales by giving customers more than they ever got with videotapes. More and more movie studios are offering trailer clips for viewers to check out for free online. Smart idea.

And that's it in a nutshell. The real products -- movies and music -- aren't broken. But the old ways of doing things die hard, and that has lead to a massive disconnect between the purveyors of these wares and their customers. Help from Washington won't give people what they now expect -- and would probably pay for -- in their digital entertainment. That's something a savvy marketer such as Eisner, who has made a nice living giving folks what they want, should know. Salkever is technology editor for BusinessWeek Online


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