Contra Lefsetz on Netflix

"They could go back to buying DVDs, but that's still a bad deal compared to Netflix."

 ~Bob Lefsetz

You go over to a buddy's house. he tells you, "Let's watch [X title]." Do you care if it's rented or "bought"? Of course not.  Does the fact that its rented give you a better "experience"?  Of course not. If you owned that video for 24 hours and sold it back to a completely fluid used market, would it make a difference to you?  Of course not. A long as that video was there when you wanted to watch it.  

Transfer of ownership via cloud immobilization is easy to do.  It's what they do in the financial world with stocks and digital banking. It just hasn't been tried.  Because influential critics like Lefsetz think "renting" and "streaming" are something magic.  The magic, instead, is in the way the Internet allows us to account for which users have rights to content, and which users don't.

Lefsetz is making a fundamental error. He is confusing modes of delivery with types of ownership.  A user doesn't care whether a video is owned or rented.  He just cares, "Am I watching this when I want it?".  When a record store was on every corner of every city block, did people care that it was "bought" rather than "rented"?  Of course not.  It was called "access".  You bought a loaf of bread.  You bought a Beatles record next door to the bakery.  You were listening to the music then and there, when it was hot.  That's all you cared about.

You can own a DVD and stream it and then sell it back to the pool if you think you'll never want to watch it again.  But if you want to watch it again, it's better to own it.  It's your choice.  But: do you think the Internet is not up to dealing with a market where everybody owns a DVD for a length of time determined by them and then resells it by a click of a button? Or lends it to a friend?  Or lends it to a stranger?   Have you not heard of "cloud computing"?   When you put stuff up in a cloud it is immobilized.  It's one-for-one.  There is no need to "rent".  Ownership changes hands within an instant.

Rental itself was born in a physical era.  Yes, we can accommodate rental on a digital exchange basis, but it is not a magical talisman.  In order to rent a copy to its customers, Netflix owns copies.  Netflix is simply a library, no different from the one in your neighborhood.  It buys stuff.  It lends it out.  Streaming is just one of several ways to distribute the content to the borrower.  The point is that we need to account for each copy and keep track of who is a Verified Accessor of that copy so that the person who is the Verified Accessor can have his or her access switched on when they go to the cloud to stream it.  When the Netflix movie is returned to Netflix then Netflix is the verified accessor until the next time it is rented out.

All of this is possible through an Exchange.  We have one patent-pending, and an embodiment in beta-test right now.  It's called the Digital Content Exchange. Once the Digital Content Exchange is up and running, it will have a log of everyone who can watch The Kings Speech, from the cloud, at that moment.  That "right to watch" could be by virtue of ownership (digital download or physically-verified DVD), renting (Netflix) or borrowing (New York Public Library).  If you own you can also download to as many devices as you like.  If you are renting or borrowing, you can only stream (the Library and Netflix don't want you making copies of stuff you borrow, and the DCE will abide that rule). It's that simple.

And now, Lefsetz:

For those who say people will never rent music, remember people rented videotapes, bought DVDs, rented DVDs and now stream movies. Don't tell me what the people want, they don't know. Furthermore, what made streaming so appealing was two breakthroughs, Netflix-compatibility in television hardware and the iPad. Yes, imagine if the music industry had enabled tech innovation instead of thwarting it, maybe it would have been prepared for the future.

In case you've been under a rock, yesterday Netflix split streaming from renting, instead of one low price you got a whopping increase if you still wanted both. People are complaining, but as stated above, what is their alternative? They could go back to buying DVDs, but that's still a bad deal compared to Netflix. As for renting, where you gonna do it? The video shop has evaporated and yes, we've got coin-operated rental machines, but inventory is limited and you've got to leave your house.

So I'm laughing. It's the cheapskates revolting.

But they've got an alternative, streaming.

 

Unfortunately, the movie business is leading.

The music business could have killed the CD, could have driven people to subscription, but afraid of the future and wedded to the past it refused to do so to its detriment. We'll see what happens now.

Carnegie's 19th century 'Cloud Storage System': a parable

Everybody knows Andrew Carnegie was a great philanthropist of libraries in the 19th century. But let us enter a fantasy world for a minute in which Carnegie sets up libraries which are made up almost entirely of books that were illegally copied.  

So now there are millions upon millions of counterfeit books stocking the shelves of newly-built libraries in towns large and small across America, Canada, Great Britain and Ireland ... and even in Belgrade. If this had really happened, is there any doubt that Andrew Carnegie would not be thought of today as a great philanthropist? Would there be any way to describe the Carnegie lbrary legacy as anything other than an unmitigated disaster for copyright and for authors?  Would it have made any difference in our estimation of Mr. Carnegie that he didn't actually create the unlawful copies himself nor was he sure that all 100% of the volumes in his library were counterfeit ?  

Why, then, is there hesitation to call Google Music Beta, Amazon cloud player and iCloud, as presently constituted without verification, an unmitigated disaster for copyright and for authors? Is this a “speaking truth to power issue”?

The dream of the buzz app with the adorable name saving copyright for all mankind (Subtitle: A long-term solution for a short-term thinking world)

"If your method is so great, why haven't I heard about you?".  

Answer:  I am not sure. Since the web is a new phenomenon, there is really nothing in history to compare it to.   What is the "way it's supposed to be done" when it comes to a problem this huge?  Tens of billions of counterfeit songs competing with paid.  Retailers like HMV at death's door.   This is unprecedented.  

Do you really think some "buzz app", with an adorable name, is going to come along and everybody's going to love it so much that they stop using their counterfeits and start paying for content all the sudden?

No.  We've got to exercise our brain muscles to find a solution.  Just like "The Revolution Will Not Be Televised",  "The Answer May Not Fit on a Bumper Sticker."

The investors in the web right now seem not to be focused on real solutions but rather on following the crowd of users.  FOMA is a big factor driving investment (Fear Of Missing Out).  (Query: Is there anything that Groupon does that somebody else cannot possibly do?)

The other problem is that the Digital Content Exchange is a new ecosystem for copyrights that helps everybody.  The stakeholders in digital media do not seem interested in doing something that helps *everybody*, they want to do something that helps only themselves.  

An exchange is defined as “a system that allows competitors to compete fairly and creates efficiency”.  Guess what?  If you are a giant stakeholder, and you have a competitive advantage, you don't want something that could potentially rearrange the competitive deck-chairs even if you are on the Titanic (like the record companies). 

And then there is short-term thinking.  As Lefsetz said this week in his column "They Should All Pay": "if you don’t think there’s short term thinking at America’s corporations read The Wall Street Journal, it’s all about quarterly profits.  Long term is almost irrelevant.  But it’s all that’s relevant if you’re a (musical) act."

So we are trying to sell a long-term solution to people for whom the long term is “almost irrelevant”. And the people for whom a long-term solution is all that's relevant by-and-large don't understand our solution because it's a smidgen on the technical side and .. after all ...  they're artists, not tech innovators.  So it is not really surprising that the Exchange is still in beta.

For the record, we've had high-level discussions with Google, the RIAA, the IFPI, the Federal IP Task Force, Apple (investment people only, not tech people).  Everyone who has bothered to understand our system has admitted, tacitly or expressly, that this ecosystem will work.  They just don't want to be the ones to bring it up to scale.  Fortunately, a lot less effort is needed now in order to bring it up to scale than a few years ago, because many of the key components that we have been recommending for the past 8 years have recently been put in place (e.g. registration, cloud storage and immobilization). 

 

A formidable DCE could be put together right now, simply with all the registration info, digital purchase info, and digital master files that already exist. If everybody who has possession of this info shared it with the Exchange.   

I'm telling you ... Users would LOVE it too.  It would be like they died and went to (cloud) heaven.  It would be the most user-centric media experience ever. But if we have to build an exchange, new user by new user, immobilized track by immobilized track  … it is going to take a while.  What can you do, from where you sit in the industry, to help get this idea out there so it can get to scale more quickly??  Or so that the idea can be just discussed?  Who in your circle needs to know about this??  Be a part of history ... Hit them up, now!