Opinion, Berkeley Blogs

Why the movie industry can't innovate and the result is SOPA

By Steve Blank

This year the movie industry made$30 billion(1/3in the U.S.) from box-office revenue.

But the total movie industry revenue was$87 billion. Where did the other $57 billion come from?

From sources that the studios at one time claimed would put them out of business:Pay-per view TV, cable and satellite channels, video rentals, DVD sales, online subscriptions and digital downloads.

The movie industry and technology progress

The music and movie business has been consistently wrong in its claims that new platforms and channels would be the end of its businesses. In each case, the new technology produced a new market far larger than the impact it had on the existing market.

  • 1920s the record business complained about radio. The argument wasbecause radio is free, you cant compete with free. No one was ever going to buy music again.
  • 1940s movie studios had to divest their distribution channel they owned over 50% of the movie theaters in the U.S. Its all over, complained the studios. In fact, the number of screens went from17,000in 1948 to38,000today.
  • 1950s broadcast television was free; the threat was cable television. Studios argued that theirfreeTVcontent couldnt compete withpaid.
  • 1970s Video Cassette Recorders (VCRs) were going to be the end of the movie business. The movie businesses and its lobbying armMPAA fought itwith end of the world hyperbole. The reality? After the VCR was introduced, studio revenues took off like a rocket. With a new channel of distribution, home movie rentals surpassed movie theater tickets.
  • 1998 the MPAA got congress to pass the Digital Millennium Copyright Act(DMCA), making itillegalfor you to make a digital copy of a DVD that you actually purchased.
  • 2000 Digital Video Recorders (DVR) like TiVo allowing consumer to skip commercials was going to be the end of the TV business. DVRs reignite interest in TV.

  • 2006-broadcasters sued Cablevision(and lost) to prevent the launch of a cloud-based DVR to its customers.
  • Today its the Internet thats going to put the studios out of business. Sound familiar?

    Why was the movie industry consistently wrong? And why do they continue to fight new technology?

    Technology innovation

    The movie industry was born with a single technical standard 35mm film, and for decades had a single way to distribute its content movie theaters (which until 1948 the studios owned.) It was75 yearsuntil studios had to deal with technology changing their platform and distribution channel. And when it happened (cable, VCRs, DVDs, DVRs, the Internet,) it was a relentless onslaught. The studios responded by trying to shut down the new technology and/or distribution channelsthrough legislation and the courts.


    But why does the movie business think their solution is in Washington and legislation?

    History and success.

    In the 1920sindividual states were beginning to censor movies and the federal government was threatening to do so as well. The studios set up their ownself censorshipandrating systemkeeping most sex and politics off the screen for 40 years. Never again wanting to be at the losing side of a political battle they created the movie industrys lobbying arm,MPAA.

    Bythe 1960s, the MPPA achievedregulatory capture(where an industry co-opts the very people who are regulating it,) when they hiredJack Valenti, who ran the studios lobbying efforts for the next 38-years. Ironically, it was Valentis skill in hobbling competitive innovation that negated any need for studios to develop agility, vision and technologyleadership.

    Management of innovation

    The introduction of new technology is alwaysdisruptive to existing markets, particularly to content/copyright owners whose sell through well-established distribution channels. The incumbents tend to have short-sighted goals and often fail to recognize that more money can be made on new platforms and new distribution channels.

    In an industry facing constant technology shifts the exec staff and boards of the studios have lawyers, MBAs and financial managers, but no management skill in dealing with disruption.So they rely onlobbying($110 milliona year,) lawsuits,campaign contributions(wonderwhy the President wont be vetoing SOPA?)and Public Relations.

    Ironically, the six major movie studios have agreat technology lab in Silicon Valleywith projects instreaming rights, Video On Demand,Ultraviolet, etc. But lacking the support from the studio CEOs or boards, the lab languishes in the backwaters of the studios strategy. Instead of leading with new technology, the studios lead with litigation, legislation and lobbying. (Imagine if the$110 million/year spent on lobbyingwent todisruptive innovation.)


    One of the claims that studios make is that they need legislation to stop piracy. The fact ispiracy is rampant in all forms of commerce. Video games andsoftwarehave been targets since their inception. Grocery and retail stores euphemistically call it shrinkage. Credit card companies call it fraud. But none use regulation as often as the movie studios to solve a business problem. Andnone are so willing to do collateral damage to other innovative industries(VCRs, DVRs, cloud storage and now the Internet itself.)

    The studios dont even pretend that this legislation benefits consumers. Its all about protecting short-term profit.


    When lawyers, MBAs and financial managersrun your industryand yourlobbyists are ex-Senators, understanding technology and innovation is not one of your core capabilities.

    TheSOPAbill (andDNS blocking) is what happens when someone with the title of anti-piracy or copyright lawyer has greater clout than your head of new technology. SOPA gives corporations unprecedented power to censor almost any site on the Internet. Its as if someone shoplifts in your store,SOPA allows the government to shut down your store.

    History has shown that time and market forces provide equilibrium in balancing interests, whether the new technology is a video recorder, a personal computer, an MP3 player or now the Net. Its prudent for courts and congress toexercise caution before restructuring liability theoriesfor the purpose of addressing specific market abuses, despite theirapparent present magnitude.

    What the music and movie industry should be doing in Washington is promoting legislation to adapt copyright law to new technology and then leading the transition to the new platforms.

    The U.S. State Department has been championing theInternet Freedominitiativeacross the world. Secretary of State Clintonsaid, when ideas are blocked, information deleted, conversations stifled, and people constrained in their choices, the Internet is diminished for all of us.

    Its too badthe head of the MPAA an ex Senator- made a mockery of her words when he wondered why our online censorship cant be like China?

    We wonder, Why cant the film industry innovate like Silicon Valley?

    Lessons learned

      Studios are run by financial managers who lack the skills to exploit disruptive innovation

      Studio anti-piracy/copyright lawyers trump their technologists

      Studios have no concern about collateral damage as long as it optimizes their revenue

      Studios $110M/year lobbying and political donations trump consumer objections

      Politicians votes will follow the money unless it will cost them an election