Apples and Oranges

I haven’t blogged about the controversial anti-piracy bill that recently stalled in the House and Senate (mostly because there isn’t anything I could have written about it that wasn’t already being said by more knowledgeable folks) but yesterday TheWrap published an article on the topic that really got my attention.

Edward Jay Epstein, who has been railing against Netflix for as long as I’ve been reading TheWrap, just wrote an outrageous article entitled “How the Pirates of the Internet Are Killing Hollywood’s Golden Goose.”  In the article, there is no mention of illegal downloading or off-shore enterprises that manage to avoid U.S. legal jurisdiction — all the usual culprits that the Motion Picture Association of America typically go after when they try to make their case.

No, the “pirates” Mr. Epstein are referring to are content streaming companies such as Netflix.  The reason Hollywood wants anti-piracy legislation, according to Mr. Epstein, is in order to combat the expansion of legal, subscription-based content streaming.

What?

The article is littered with errors and inaccuracies.  He begins by trying to argue that the key to Hollywood’s survival is television licensing fees:

In 2010, according to sources at Time Warner, Warner Bros. harvested over $4 billion from worldwide licensing to TV.  Nearly 80 percent came from just four cable customers — HBO, Turner, ABC Family, and NBC Universal’s cable channels.  Not only did this far exceed its share of theatrical box-office receipts, which were $2.4 billion in 2010, but this licensing is highly profitable: the studio pays none of the cost of advertising, prints or logistics.

This is a meaningless comparison.  How much did Warners get from licensing its movies to premium channels in 2010, or from DVD and Blu-ray sales of those movies, or from VOD returns from those movies?  Epstein doesn’t say.  His point seems to be that television rights are worth more to that studio than theatrical motion picture rights, and any additional information is therefore unnecessary.

Now that he’s set up his premise — that studios need to protect TV licensing fees — he swoops in for the kill.

But these golden geese are in danger of being strangled to death by video streaming.  New age companies, notably Netflix, Amazon, Apple and Google, now compete with cable TV by streaming movies and other video directly over the Internet.

Where do I start?  Let’s go back a paragraph.  He mentions that in 2010 Warners received 80% of its TV licensing revenues from HBO, Turner, ABC Family, and NBC Universal.  HBO (which is of course owned by Time Warner) won’t do business with Netflix or the other streaming companies, so that revenue is not jeopardized by streaming.  But ABC Family and NBC Universal each recently extended multiyear deals with Netflix, for record-setting amounts of cash.   In fact, when Netflix and NBC renewed their deal last July, Amazon swooped in and signed a similar deal with NBC, essentially giving NBC twice as much money for the same content rights.  And then when ABC Family renewed with Netflix in October, Amazon did it again!

Is Epstein claiming that Warners is not sharing in any of the added revenues that ABC and NBC received from those deals?  It just doesn’t seem plausible that some of that additional money won’t find its way back to the production companies that supplied the content.

Here’s where it gets really weird.

Netflix, for instance, offers unlimited streaming for $1 extra a month with its mail-in service, Amazon offers free streaming to its 10 million Amazon Prime customers, and Google offers YouTube free.

Where has Mr. Epstein been?  Netflix raised their prices last summer, splitting their DVD-by-mail and streaming services and thereby infuriating their customers in the process.  And Amazon Prime doesn’t give programming away for free.  It charges $79 a year for the service, which includes access to content on their new Kindle Fire devices as well as faster shipping on qualifying on-line orders.  And YouTube?  You can watch a bunch of cat videos on YouTube for free, but you’re not going to find episodic copyrighted television content.  There is no hard and fast rule about which clips are forced to get pulled from YouTube if they are found to infringe on a studio’s copyright (some studios, for instance, choose to look the other way when copyrighted music videos or excerpted scenes from movies or TV shows appear on YouTube as long as certain conditions are met, conditions that vary from company to company), but, by and large, if a studio asks YouTube to take down copyrighted material, the clip disappears.

“I don’t see how cable can compete with free transmissions,” a savvy top executive of Time Warner told me, pointing out that Netflix, after sublicensing Starz’s content, offers it for a fraction of what Starz charges its subscribers.

Again with the free argument?  Netflix isn’t free.  It charges its customers a separate $8 monthly fee for streaming services.  And Netflix has been forced to pay increasingly high licensing fees to the studios in order to retain content rights to popular programs and remain competitive with Amazon.  And the Starz deal is old news, as it was signed long before streaming exploded in popularity.  Epstein goes on to say:

No doubt Starz will end this bargain rate when its Netflix contract ends in October 2011, but so long as transmission remains free, streaming will chip away at the cable audience.

So this article, published on January 19, 2012, references negotiations that were taking place between Netflix and Starz way back in the second half of 2011, before September 1, 2011, when Starz very publicly announced it would not be renewing its deal with Netflix (reportedly leaving $1.5 billion on the table, according to the LA Times).

Did Mr. Epstein simply cut and paste his data from a previous article that he wrote prior to the extremely public tussle between Netflix and Starz?  Maybe.  It would be ironic if he did, given that he’s supposedly writing an article about copyright infringement — though, of course, in this case he’d only be guilty of stealing from himself.

The Hollywood studios not only risk losing billions of dollars in licensing revenues, but their corporate parents own almost all the big cable networks.  Since anti-trust law prevents the studios from meeting to restrain trade, they must act through the MPAA.

Is that the real concern then, that media conglomerates may have to rethink how their cable divisions will pay for and receive content?  What of the recent explosion in licensing fees paid to the studios by Netflix and Amazon Prime?  Shouldn’t studios look forward to discovering additional revenue streams for their content?  No mention of this in Mr. Epstein’s article.

Enter Dodd.  While technically prohibited from lobbying Congress until 2013, he can provide guidance to the MPAA’s massive D.C. lobbying operation.  And as a former chairman of the Democratic Party and former head of the Senate Banking Committee, he knows how the who-gets-what system in Congress works.

Wait a minute.  Dodd is not simply providing “guidance” to the MPAA.  He is that group’s president and chief lobbyist!

The PR-acceptable issue that Dodd can use his considerable skills and connections…and lobby Congress is internet piracy.  So we now have the MPAA-supported Stop Online Piracy Act (SOPA).  The formidable roadblock to it is the powerful influence that the internet titans have over the Obama administration.  Hence the current war over SOPA.

Honestly, this last bit of editorializing is nonsense.  Who exactly is Mr. Epstein speaking for?  (In another paragraph, he seems to lend his support to Net Neutrality legislation, which, if enacted, would punish services such as Netflix by forcing their customers to pay additional fees for content streamed over the internet — in other words, another bit of MPAA lobbying that would favor the major studios.)  He makes no mention of the fact that anti-piracy legislation was severely wounded in the past few days, or of the enormous public outcry against it.  Epstein writes as if the highly successful blackout spearheaded by Wikipedia and Google this week, leading to sudden reversals among previous sponsors of the bills on Capital Hill, never happened.  And he also somehow manages to get in a dig at Obama?

Regardless of one’s own personal views on this issue, it’s a major stretch of the facts to argue that internet piracy legislation was somehow necessary due to the business practices of streaming companies such as Netflix, and it’s downright irresponsible for a publication such as TheWrap to make such an insinuation.

Advertisement