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Hollywood's control freaks

The studios' desire to manage how people use their products can create obstacles to new technologies that could increase consumption.

August 17, 2009

Hollywood won a long-sought victory last week when the World Trade Organization ordered the Chinese government to stop monopolizing the distribution of films, DVDs and other media within its borders. The WTO ruling, which China may still appeal, should be a boon to competition and freedom in that country's market for entertainment. But recent developments in the U.S. show that the major studios actually like the idea of centralized control over how people consume their products. They just want to be the ones holding the power.

Consider the problems that Redbox, whose DVD rental kiosks offer movies for $1 a night, is having with 20th Century Fox, Universal Pictures and Warner Bros. Concerned about the threat to retailers and rental outlets that pay higher fees, the three studios have instructed their DVD distributors not to make discs available to Redbox until well after they have been released to its competitors. The edicts drew lawsuits by Redbox against Fox and Universal, alleging an unlawful restraint of trade. Fox and Universal, and Lions Gate Entertainment

When Hollywood tries to preserve last century's business models and "release windows" that restrict availability, it risks missing the opportunity that new technologies present to increase consumption. Redbox, whose kiosks promote impulse rentals, is just one example. Other targets include companies that use new technologies to improve consumers' experience with the movies and television shows they've acquired. Last week, for example, the major studios and an affiliated licensing group won court rulings against products that enable consumers to copy DVDs onto a PC or home video jukebox -- even though the resulting copies were better protected against piracy than the original DVDs.

RealNetworks' RealDVD software and Kaleidescape's home servers drew fire in part because they can make permanent copies of the rented or borrowed discs. But people who are so inclined can do that already with tools that are cheaper and less restrictive. More important to the studios, RealNetworks and Kaleidescape add value to a movie collection by making it easier to manage and watch. In so doing, they increase the incentive to own a movie rather than just rent it.

One lesson from the technology industry is that there is a trade-off between controlling products and unleashing the innovation that spurs growth. Just look at how well the iPhone has fared since Apple invited independent developers to create applications for it. Hollywood should remember the principle underlying the case against China: Centralized control stifles a market. Rather than trying to stop potentially disruptive technologies and business models, Hollywood should find a way to harness them.

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