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April 2005

This month's report looks at the Analog Switchoff, Windows of Exclusivity, DVD Copying, the Format War, and Digital Water Cooler Behavior.

Switchoff

Congressman Barton is encountering strong opposition to his proposal to set a hard date of 2006-12-31 as the date when analog television broadcasting will cease. The opposition is coming from broadcasters who fear that they will not survive the digital transition. They favor a 2009 date. Publicly the broadcasters say "This isn't about broadcasters. It's about consumers." So the dialog is about protecting consumers with analog sets at a time when half of all sets sold each day are still analog. "It is time for CEA to stop perpetuating this fraud on the American consumer," said Eddie Fritts of NAB. Broadcast engineers want the transition to go forward: They want to show off their new systems.

Congresswoman Anna Eshoo, who represents Silicon Valley, says she strongly supports the idea of a firm date for the switchoff, but she is opposed to any action that would inconvenience any voters. That means that she is strongly against the idea of a firm date for the switchoff. I think her opinion will by typical in Congress.

I think that broadcasting is mostly irrelevant now. Most people get their content by cable or satellite, or increasingly from Telco over IP. The market can easily reach the critical mass it needs to go digital without broadcasting. The Analog Switchoff is now just a symbolic act, and the failure of broadcasting to complete the transition tells very symbolically the status of broadcasting.

Windows

As I have reported before, most commercial DVD piracy is able to flourish because of opportunities created by the Studios' system of windows of exclusivity. Changes in business model could eliminate most forms of commercial piracy. The clearest example of this is in the window of time between the theatrical release and the DVD release. The longer the interval, the more pirated product will come to market.

Hollywood is continuing to shorten the window. Last year, major studio movies arrived on DVD an average of four months and 16 days after their theatrical release. That was 11 days sooner than in 2003 and more than two months faster than a decade ago, when the average was six months, 12 days.

According to the NATO (National Association of Theater Owners), films now make more than half of their total box-office gross within the first two weeks of release. In fact, for the Top 100 grossing films last year, the first three days of release accounted for more than a third of the total. Five years ago, the average opening weekend represented less than a quarter of a movie's total. With theatrical runs getting shorter, it makes sense to release the DVD sooner.

An extreme example of this is the recent teen film D.E.B.S.. It was released on DVD only 10 and a half weeks after opening in theatres. For many films, the theatrical release is an event to publicize the DVD. D.E.B.S. opened on only 45 screens.

Theater owners are not happy about this trend, but there is little they can do about it. I think the theaters will eventually go into the DVD business, giving theater goers a DVD of the film in addition to a ticket.

DVD Copy

321 Studios was a software company that made DVD-X Copy, a program that allowed for the copying of DVDs. The copies it made were not copyable, so it seemed a pretty good compromise between a Fair Use tool and a Piracy tool. MPAA did not agree, so it sued 321. MPAA was successful in court. 321 did not have enough money to appeal, so it was forced to shutdown last year.

So MPAA won. Or did it?

There are now lots of DVD copy programs available online. Simply google DVD-X Copy to find them. Many are from companies virtually located in countries like Antigua. The newer programs make it even easier to do the things that MPAA does not want people to do. So by driving these companies off-shore, MPAA has lost the ability to influence the feature sets and copy management features of these products.

Format War

Speaking to reporters in Japan on March 23, Sony's incoming president Ryoji Chubachi said, "Listening to the voice of the consumers, having two rival formats is disappointing, and we haven't totally given up on the possibility of integration or compromise." The trade press here took that to mean that Sony and Toshiba would somehow harmonize their designs, producing a single standard.

This was echoed by Sony's head of next-generation DVD development, Yukinori Kawauchi, who said the company wanted to avoid a clash of formats. "From the point of view to provide the best service to the consumer one format is better than two," he said. "We're open to discussions."

So far, there is no evidence that there has been any discussion. Both sides continue to prepare for their launches. One potential problem is that the AACS DRM specifications are not yet complete. HD-DVD has a headstart in going to market. A DRM delay could eliminate its lead.

Meanwhile, the computer industry has selected Blu-Ray as the next generation of optical media. The choice was easy for that industry because Blu-Ray's specifications are clearly better and the industry is not subject to the jealousy and bickering that plagues Hollywood. Toshiba is going against the industry by using its own HD-DVD in its computers. Toshiba will lose because Software Producers will not support both formats. Toshiba will ultimately be forced by the market to adopt Blu-ray in its computers.

It is possible that the two formats could live side-by-side without a format war: Silicon Valley will go with Blu-ray and Hollywood could go with HD-DVD. The Studios might imagine that HD-DVD is a more secure format if it is not built into computers. This two-format world would be bad for Microsoft's Windows Media strategy.

A more likely outcome is that the computer industry will put pressure on Consumer Electronics to adopt Blu-ray. The Studios, by failing to make a positive decision, will have given up the opportunity to decide at all. I think this is probably just as well because they would likely make the wrong choice.

Water Cooler

It is common in offices for people to gather at places like the water cooler and discuss television programs that they recently watched. That behavior is changing now because of TiVo. People with DVRs do not watch in realtime, so they tend to see programs later. They do not want to hear spoilers of programs that have not yet seen. So they want to avoid being around people who might say too much.

This is a case where the technology of personalization works against social interaction. But perhaps that works in favor of productivity: If people spend less time at work talking about television, maybe they will do more work. If so, perhaps employers should provide TiVo to all of their employees in order to boost productivity.

Family Entertainment and Copyright Act

The Family Entertainment and Copyright Act, which legalizes ClearPlay (see my 2004-06 report) and criminalizes camcorders in theaters, has been passed by both the Senate and the House. It now goes to the President for signature. He is expected to sign it into law.