MAY 2000





Which Right Is It Anyway?


The Internet is forcing us to think globally and, more importantly, it is changing how business is conducted - not only in the filmed entertainment field, but in many industries. The presence of the Worldwide Web affects the fabric of our everyday lives, business culture, and our social environment.
In his article for The Business of Film, Special Cannes Edition, Greg Bernstein details the varying platforms, and looks at how the Internet, in three to five years, will change the dynamics of distribution of filmed entertainment worldwide. And, it's not too soon to consider the implications of how the Internet affects individuals and companies alike

Greg S. Bernstein

The internet. Have you thought about how this mode of distribution will replace most methods of distribution of films as we know it? Have you thought about what internet distribution rights you have? What rights you have given away? What rights you did not know existed? Or how the various rights might interconnect with each other or traditional distribution methods? Is distribution over the internet video, television, pay-per-view, VOD or something else? Is there any territorial limit to the internet?

The past year has seen tremendous acceleration of potential for internet distribution of motion pictures. Still, many see the internet as some pie in the sky notation that may or may not affect films. Certainly the internet is today no significant source of revenue. But the internet does in fact have the potential in probably only 3 to 5 years, to replace most modes of distribution as we know it. While most see how the internet is capturing market share in the sale of goods and services, and could be a real competitor in the near future, most don't recognize its real potential. Many of us have already made purchases over the net. Today, in cities such as Los Angeles, you can order merchandise over the net and have it delivered to your home within an hour, probably at about the same price as if you had gotten in your car and driven to the mall, but with out all the hassles. But viewing a movie or TV program over the net is not quite like buying a toaster or printer. Waiting an hour or more to watch a jerky picture on your computer screen is not an "entertaining" or convenient experience.

Just as consumers are turning to the internet as a convenience in shopping, so too will the internet be a convenient source of entertainment. The only reason this has not yet occurred has been due to phone line limitations on data transmission. The key to expansion entertainment services over the internet is to speed up data delivery so that a viewer can watch a program as easily as turning on the TV set. Well, that kind of "reception" over the internet is just about here. It is what is called broadband.

Most of the world (over 80% of computer users in the United States as of February 2000) uses phone modems to connect to the internet. Phone modems do not deliver data very fast. Trying to download a single picture could take a minute or two. Trying to download an entire movie could take days. But all of that is changing as high speed data transmission is being made available on a wide, and inexpensive, basis to the consumer. DSL and cable modems, two forms of broadband service, started to become widely available in major cities in the United States in late 1999. By the end of 2000 most major metropolitan areas should have these services available to consumers. Recent surveys indicate that 40% of those using phone modems will switch to broadband within a year, as such service becomes available and the prices drop. The single factor cited for the switch has been speed. These broadband services provide the capability of receiving data almost as fast as if you were hardwired to the server. In entertainment terms, viewing a movie over the internet is almost to the point of being able to view the program as if it were being transmitted over cable or satellite. To get that kind of quality and speed there are some sacrifices in color and other factors, but essentially, virtual instantaneous viewing is possible. Within another year or so, DSL and cable modems will be replaced with other, faster, forms of broadband that will in fact make viewing programming over the net the same as viewing programming via television cable.

Even though some understand that the internet will replace television delivery, and maybe even video delivery, few comprehend how the internet could be the great equalizer, eliminating the middlemen (distributors and broadcasters) as a necessary component in delivery to consumers. Even fewer understand, or have even attempted to understand, the nature of the rights to be exploited and how they interact with traditional distribution, media and markets.

Consider that distribution over the internet could replace all forms of distribution of films as we know it, and one begins to understand the impact of this medium. Consider that the internet offers the ability to deliver a film direct from the producer and make it available worldwide to an audience without any assistance by another entity whatsoever and one can begin to comprehend how the industry may undergo a massive change, Unlike television, which required a enormous infrastructure of either cables, transmission towers, satellites or other equipment to bring the film to the consumer's television set, or video, which requires a manufacturing and distribution I structure to bring the film to the local video store, the internet has no such capital or infrastructure requirements. The infrastructure exists and is readily accessible to anyone. A producer with a computer terminal can, theoretically, reach every consumer in the world with his film and make it available to the consumer for viewing as television programming or downloadable for recordation on a CD/ROM or, soon, a DVD disc. Putting aside self distribution, delivery via the internet provides some unique licensing issues.

The most obvious is that of territorial limitations. Any one in the world can access data made available over the internet. After all, it is called the "World Wide Web." For the most part, companies broadcasting films over the internet today either have worldwide rights to such films or are attempting to limit reception by the honor system in which a consumer represents that they are located in this territory or that territory. Not exactly the best method of preventing unauthorized distribution. But there is presently no viable technological method of preventing world wide transmission. So allowing any exhibitor today to make filmed entertainment available over the net is essentially broadcasting over the world. It is predicted that technology will eventually be able to track the exact location of the receptive terminal, but for now I suggest all licenses contain restrictions on broadcast over the internet until territorial restrictions on transmission are developed and implemented.

Another problem with broadcast over the net is that unless certain technologies are employed, a digital copy of the program, that can be pirated, is being made available. I don't think most of us would hand each consumer a D- 1 tape master. But essentially that is what you are doing. So again, for now, until technology develops methods of copy protection, internet distribution should be restricted. (Those producers out there might also want to think about the fact that trying to audit the number of downloads of a program is not quite as easy as reviewing the manufacturing invoices from the video duplicator. But that is another article).

Once the technological issues are solved, then the remaining concern is clearly defining the rights being granted. One needs to understand what is meant by "internet distribution rights". Internet distribution rights can be as narrow as the right to advertise and promote a film over the internet, or as broad as the ability to broadcast the film over the internet, sell downloadable versions of a film over the internet or otherwise exploit a film over the internet by any and all means now known or hereinafter devised. Most people predict that within the next five years all forms of distribution as we know it, theatrical, television and video will be exploitable via the internet. So crafting the most limited, or broadest, depending upon your prospective, language is critical.

The method of delivery of the film to the consumer over the internet will determine whether video rights, pay cable, basic cable, theatrical, nontheatrical, VOD, or broadcast television, to name a few, are being exploited. How can the internet be all of these forms of distribution. Well think about it. If a site allows consumers to view all programming for free, and is essentially supported by advertising, it is probably akin to broadcast television.

Then there are the sites that charge a monthly fee to enter their site. Once paid, any and all programming on the site is made available for viewing. Sounds like pay cable, except that there may not be a set programming schedule. The consumer can determine which program they want to watch and when. So what is this form of exhibition?

As hotels, hospitals, airlines and others make computer terminals available to their customers, and these terminals allow purchases of filmed entertainment for viewing, do we have non-theatrical exploitation? Or does non-theatrical eventually become extinct.

Then there are sites that will allow the consumer to download the entire program, for a fee. It may be that the program is encoded so that it can only be viewed once or twice, or maybe the consumer can keep it on their hard drive and view over and over, or they can burn it on to their own CD. This method of delivery is already available for computer programs. Retailers offer the consumer the choice between receiving a traditional boxed CD/ROM program to be shipped to them, or the right to download the program right there and then, for a price savings. So if a film is downloaded like this, is this not similar to the sale of a video copy of the program, even though the program was not fixed in a medium? Most video distribution agreements define video as delivery of the program on some medium (tape, CD, etc). So will this electronic mode of delivery usurp most video distribution contracts. Quite possibly. What about the download that limits viewing to one or more showings or is limited in duration. Is this not akin to video rental? Or is this pay per view since the film is being delivered via a form of television and not hard copy? Or is it VOD (video on demand) since one should be able to make the purchase and view the film any time one desires? The question of whether VOD is cable or video has never really been answered. Video distributors consider it to be video and cable companies consider it to be cable. I think the internet will decide this dilemma by requiring a very clear description of the rights being granted.

Every form of delivery of a film can be accomplished instantaneously over the net. Even theatrical can be delivered by transmission via the net to a theater for projection. With digital modes of communication. the projection quality should be more pristine than the print that could have been manufactured and shipped to the theater that Will Ultimately degrade as it is used.

0n a going forward basis, most licensors and licensees are being cautious with respect to the rights they are granting or demanding, respectively. But what about existing licenses. The language in a typical distribution contract may be broad enough to unintentionally grant the right to distribute a film over the internet, or may be narrow enough to limit such rights. Video definitions may be restricted to physical medium. Cable and TV licenses may be limited in scope to "pay" or "free" services. But pay-per-view may be an area that is broad enough to encompass delivery over the net, especially given the fact that most internet distribution, at least in the beginning is on a pay per transaction basis. Either way, the future looks bright for those who recognize the potential of the internet, and for those lawyers who must sort out the various rights being contested.

As the availability of such fast internet connections becomes as common as a phone line, consumers will start to purchase their entertainment via the internet. Why will they purchase their entertainment via the net and not traditional modes of delivery? For the very same reasons that they have started to purchase cars, computers and almost every other type of good or service via the net. Convenience. Instead of cable and telephone service, one will use the internet for all forms of communication. Want the news, tune in all of the various news services. Want to watch a movie, you can have it right then and there on a pay per transaction basis. Want to own the movie, You can download it and burn it on to your own CD. All without ever leaving your easy chair.



Reprinted with permission by The Business of Film

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