All Things Digital

Well, that didn’t take long at all, did it? The Motion Picture Association of America has filed suit against RealNetworks (RNWK), seeking an injunction to stop the company from distributing its RealDVD DVD-ripping software. The MPAA argues that RealDVD violates the Digital Millennium Copyright Act because it circumvents the copyright protection that protects DVDs from piracy.

The MPAA “RealNetworks’ RealDVD should be called StealDVD,” said MPAA Executive Vice President and General Counsel Greg Goeckner in a statement. “RealNetworks knows its product violates the law and undermines the hard-won trust that has been growing between America’s movie makers and the technology community. The major motion picture studios have been making major investments in technologies that allow people to access entertainment in a variety of new and legal ways. This includes online video-on-demand, download-to-own, as well as legitimate digital copies for storage and use on computers and portable devices that are increasingly being made available on or with DVDs. Our industry will continue on this path because it gives consumers greater choices than ever. However, we will vigorously defend our right to stop companies from bringing products to market that mislead consumers and clearly violate the law.”

Turns out RealNetworks Inc.’s new DVD ripper, RealDVD, is as legal as its creator is litigious. RealNetworks (RNWK) debuted RealDVD this morning and along with it, a preemptive lawsuit against the Hollywood interests that will inevitably attempt to litigate it into oblivion. Brought against the DVD Copy Control Association and a who’s-who of major studios, the suit asks the court to rule that RealDVD complies with the DVD Copy Control Association’s license agreement not only by retaining the “content scramble system” used to protect DVDs, but by enhancing it with an additional layer of digital rights management protection.

“RealNetworks took this legal action to protect consumers’ ability to exercise their fair-use rights for their purchased DVDs,” the company said in a statement. “We are disappointed that the movie industry is following in the footsteps of the music industry and trying to shut down advances in technology rather than embracing changes that provide consumers with more value and flexibility for their purchases. For nearly 15 years RealNetworks has created innovative products that are fully legal, great for consumers, and respectful of the legitimate interests of content creators and rights holders. RealDVD follows in that tradition. We expect to successfully defend our right to make RealDVD available to consumers and consumers’ rights to use it.”

We’ll see, I guess. Clearly the silly little “RealDVD is for saving a DVD you own” disclaimer attached to the software isn’t going to cut it with Hollywood. I imagine we’ll be hearing from the Motion Picture Association of America before the day is out.

About the best thing to be said about Amazon Unbox, the mediocre, odiously restrictive, video download service the retailer launched last year, is that it was … er … Windows-only, I guess. Which, obviously isn’t saying much. Amazon (AMZN), of course, knows this better than anyone. Which is why the company is enhancing Unbox with a new video store that its customers may actually want to use. Called Amazon Video on Demand, the store streams movies and television programs just like a cable video-on-demand service. “For the first time, this is drop-dead simple,” Bill Carr, Amazon’s vice president for digital media told The New York Times (NYT). “Our goal is to create an immersive experience where people can’t help but get caught up in how exciting it is to simply watch a movie right from Amazon.com with a click of the button.”

Ah, one-click cinema. Seems that Amazon’s finally realized that there simply aren’t enough media junkies to support the download model it embraced with Unbox. “The people who pay to download video are extreme media-philes,” Forrester (FORR) analyst James McQuivey told Variety last year. “They are not the tip of an iceberg. They may grow their own spending, but there aren’t many people like that left. In the video space, iTunes (AAPL) is just a temporary flash while consumers wait for better ways to get video. They’re already coming.”

I’m not so sure that the whole issue really is one of commercial avoidance. It really is a matter of convenience–so you don’t miss your favorite show. And quite frankly, we’re just training a new generation of viewers to skip commercials because they can. I’m not sure that the driving reason to get a DVR in the first place is just to skip commercials. I don’t fundamentally believe that. People can understand in order to have convenience and on-demand [options], that you can’t skip commercials.”

–ABC President of Advertising Sales Mike Shaw, July 2006

Leave it to ABC to devise a service that offers all the convenience of video-on-demand with all the annoyance and vapidity of broadcast TV in one joyless package. This morning the network and its affiliates announced fast-forward-disabled video on demand, which prevents viewers from bypassing commercials.

Designed to combat the now nearly ubiquitous DVR, the service offers viewers the chance to watch ABC shows like “Lost” and “Desperate Housewives” for free, at any time they choose, as long as they’re willing to suffer through the advertisements that accompany them. And just to make sure that they do, participating affiliates will disable their video-on-demand services’ fast-forwarding capability. “This does counter the DVR,” Anne Sweeney, the president of the Disney-ABC television group (DIS), told the New York Times. “You don’t need TiVo if you have fast-forward-disabled video on demand. It gives you the same opportunity to catch up to your favorite shows.”

And your not-so-favorite commercials. Which would seem to make it about as uncompelling a proposition as … well, as over-the-air broadcast TV. But ABC, which has been testing the service with Cox Communications in Orange County, Calif., insists it’s got an audience. The company says 93% of users it surveyed said they would be willing to give up the fast-forwarding option and watch the commercials if they were given VOD programming for free.

So perhaps the 30-second TV ad has a few more years left in it still. But only a few. According to a study by the Association of National Advertisers and Forrester Research, 62% of marketers believe TV advertising has become less effective in the past few years. And 87% said they plan to increase their online ad spending this year, while many said they will cut their TV ad buys substantially when DVR penetration tops 50%.

“Comcast 3.0.” That was the subject of Comcast CEO Brian Roberts keynote address at the Consumer Electronics Show today. And what is “Comcast 3.0?” Well, like Web 2.0 and 3.0, it’s a marketing term–in Comcast’s case, one for its transformation from “broadband” provider to a “wideband” provider.

In 2008, said Roberts, Comcast will begin upgrading its network to offer significantly faster download speeds. “Wideband takes four channels and bonds them together and will enable speeds to go up from 12 to 16 megabits a second to over 100 megabits a second,” he explained. The technology will be rolled out to “millions” by the end of this year, with more to come–”if it’s as popular as we expect,” he added.

And it undoubtedly will be. At speeds like that, Roberts noted, you could download an HD copy of “Batman Begins” in about four minutes. “Superfast movie downloads are only the beginning,” Roberts said. “This will open a whole new world of Web-based innovation.”

A few other points worth noting:

• Roberts also announced “Project Infinity,” an effort to exponentially expand its video-on-demand programming. “Comcast will put 1,000 HD choices in every Comcast HD home by the end of the year,” Roberts said. “What satellite says they’ll offer pales in comparison.”

• Comcast is now the country’s fourth largest residential phone provider.
• Finally, he pitched Fancast.com, a new online-entertainment portal that gathers film, TV and videos scattered across the Internet in one place. “It’s the content-hungry consumer’s dream,” Roberts said. “With user-generated content, there’s the possibility of millions of choices. You’ll never want to get off the couch.”

Burst has added another notch to its patent-infringement settlement belt. The scrappy three-man company, which once beat a $60 million settlement out of Microsoft over charges that the software giant had stolen its streaming media technology, has managed to squeeze a few million out of Apple as well.

Bringing an end to an often contentious legal battle that began about two years ago, Apple on Wednesday agreed to pay Burst.com $10 million to settle charges that it illegally incorporated the company’s audio and video-on-demand media delivery solutions into the iTunes ecosystem. In return, Burst agreed to grant Apple a nonexclusive license to its patent portfolio–with certain eyebrow-raising exceptions and caveats. The settlement specifically excludes from Apple’s license one issued and three pending Burst patents on digital video-recorder technology. But it also precludes Burst from suing Apple for any future infringement of the those patents. Now that’s an odd twist, isn’t it? Especially since a patent license is often little more than a covenant not to sue the licensee.

Why promise not to sue for infringement, but refuse to license? Why accept a settlement of just $10 million ($4.6 million after court and attorney fees), when a damages award might have been many, many times greater? And why announce the settlement of a bitter legal battle on the eve of the Thanksgiving holiday when so few people will pay attention to the news? Why do all that, unless there’s something more here? An acquisition in the works, perhaps. Or something else entirely.

Time was, when a movie bombed at the box office, Hollywood studios could always slap it onto a DVD, ship it off to retail outlets and make some or all of their money back.

No longer. The salad days when you could rush dross like “Police Academy: Mission to Moscow” and “From Justin to Kelly” out of empty theaters, onto digital media and into the living rooms of those willing to actually sit through them are over. Total DVD sales are down 7% so far this year. Which is a far cry from the double-digit growth the industry enjoyed just two years ago. High-definition DVDs were supposed to offset this decline, but the silly format war between the HD DVD and Blu-ray supporters has curbed adoption of the next-generation format. Worse, according to analysts, the sparring between the two camps is likely to continue for another 18 months. Which means sales of high-definition discs likely won’t be substantial enough to improve studio revenue this year or next.

So what’s the movie industry to do? Put more emphasis on video on demand and explore digital downloads? Tough call. “While the music and television industries are likely to benefit from an increased array of opportunities in digital distribution, it is not clear to us how the movie industry benefits,” Pali Research analysts Richard Greenfield and Mark Smaldon wrote in a 2006 report. “We believe the inherent value of what a movie is implies that most consumers will want to view most movies in a high-quality experience … the more we think about the movie industry, we keep thinking, what is the benefit from digital? Cheaper distribution and no physical inventory? That sounds great at first, but if the product has to be sold at a discount (comparable to the lower cost to create/distribute) because it is inferior to physical DVDs (in picture quality and usage restrictions/DRM), how does it help the studio business?”

Hey, you guys are the analysts … Anyway, bottom line is this: Film industry screwed for time being. Said Greenfield and Smaldon: “Keep an eye on 2007 film industry profits. We suspect the risk to expectations is increasingly to the downside, with downside risk growing into 2008 unless there is a notable acceleration in next-gen DVD sales and/or a more attractive business model emerges for digital movie distribution.”

From top to bottom, Blockbuster is deliberately and willfully infringing on our patented methods. Netflix invented a 100 percent better mousetrap that Blockbuster copied.
- Netflix spokesperson Steve Swasey, April 5, 2006

Apparently, Blockbuster isn’t as hopelessly tethered to its VHS rental-business past as you might think. Yesterday, the video-rental retailer acquired studio-owned movie download service Movielink and with it a potentially significant foothold in the video-on-demand market. Terms of the deal were not disclosed, but early this year when rumors of an acquisition first began to circulate, analysts had estimated that Blockbuster might pay as much as $50 million.

Founded in 2002, Movielink is backed by Paramount Pictures, Sony Pictures, Metro-Goldwyn-Mayer, Universal Studios and Warner Bros. Studios. But while its impressive catalog makes it one of the Web’s largest digital-movie libraries, the service hasn’t caught on because of its strict digital-rights management software and prices (roughly the same as a typical DVD). Still, it’s likely a good acquisition for Blockbuster, whose market value has declined to just over $800 million from $8.4 billion, largely because of its failure to buy Netflix when it had the chance.

Blockbuster chair and CEO Jim Keyes called the deal the next “logical” step in the company’s transformation. Presumably, that means the next phase in Blockbuster’s re-creation of the Netflix business model, which the video-rental chain has been diligently following for the past few years. Netflix, of course, is spending some $40 million this year on its own VOD service, which is already up and running.