A difficult challenge in thinking about public policy is understanding which innovations have not happened as a result of bad government policies. For example, it’s generally believed that the Bell phone monopoly stifled innovation in the telecommunications sector during the 1950s and 1960s. But if we had been assessing things from the standpoint of the mid-1960s, it would have been hard to say exactly which innovations were missing. It wasn’t until after the Carterfone decision in 1968, and further liberalizations in the 1970s and 1980s, that we started to see just how many innovations could be unleashed by a competitive market: modems, answering machines, fax machines, competitive long distance service, etc.
We face a somewhat analogous situation with the Digital Millennium Copyright Act. Like a lot of other people, I’ve made the argument that the DMCA has stifled important high-tech innovations. And the DMCA has been on the books long enough that if we’re right, then we’re probably missing out on some important innovations. But it’s difficult to say exactly what they are; they’re what Bastiat called “what is not seen”, and what Don Rumsfeld called unknown unknowns.
But while we can’t say for certain which innovations have been precluded by the DMCA, we can find plenty of hints. Just last week, Apple CEO Steve Jobs commented that “the whole category [of ‘digital living room’ video devices] is still a hobby right now. I don’t think anybody has succeeded at it. And actually the experimentation has slowed down. A lot of the early companies that were trying things have faded away.”
What’s striking about this is how different the evolution of digital home video products is from the explosion of digital audio products a decade ago. The period between the introduction of the first MP3 players in 1998 and the release of the iPod in 2001 was a period of fevered innovation in both hardware and software. Numerous companies, some of them fairly small, introduced music players. By the time Apple entered the scene in 2001, it was entering an already-crowded market. In contrast, we’ve seen only a trickle of new digital video devices. The Video iPod, Slingbox, and YouTube were all introduced in 2005. These are all great products, but they’re also curiously limited. We haven’t seen general-purpose video devices that replace DVD players and cable boxes the way the iPod has largely replaced CD players and is gradually replacing the radio. Today’s home video experience would be completely unsurprising to someone from 10 years ago.
How is the video market different from the audio market was? There are obviously a lot of factors, but it seems to me that the DMCA is one of the most important ones. It has made it effectively illegal to rip video from their DVDs the way people ripped audio from their CDs a decade ago. And the ability to rip CDs into MP3 files created the foundation on which the digital music device market was built, eventually leading to the iPod.
Consider two products that have not been widely adopted, due largely to DMCA-related legal problems. One is the XBMC Media Center, which used to be known as the XBox Media Center before Microsoft’s lawyers came knocking. Two years ago, I pointed out that the XBMC had significantly more functionality than a lot of “legitimate” media players. I think that’s still true today. One of the most important features was the ability to rip DVDs and store them on your hard drive for later playback. Unfortunately, the DMCA makes it essentially impossible for mainstream technology companies to duplicate this functionality.
XMBC, or other software like it, could have been the WinAmp of video, allowing law-abiding people to build libraries of legitimate video in an open format. That, in turn, would have created a market for digital video hardware to store, play, and manipulate these files, just as WinAmp and other MP3 software made the MP3 player market possible. But because the DMCA makes DVD-ripping effectively illegal, there is no legal way for people to get their existing DVD libraries into an open format, which drastically reduces the demand for open video devices.
Or consider Kaleidescape, an innovative, and very expensive, DVD-jukebox device that was introduced almost five years ago and has faced legal trouble almost from its inception. As Ed put it back in 2004:
DVD-CCA [the cartel that controls the DVD standard] is trying to maintain its control over all technology related to DVDs. In the good old days, copyright law gave copyright owners the right to sue infringers but gave no right to stop noninfringing uses just because the copyright owner didn’t like them. These days, copyright interests seem to want broad control over technology design.
Kaleidescape ultimately won its lawsuit, but the decision turned on fairly narrow contractual grounds that don’t provide much room for others to enter the market. The bottom line is that it’s still effectively illegal to sell a product that will rip DVDs to an open video format.
It’s not like Hollywood hasn’t been trying to produce a viable video platform. Way back in 2003, Hollywood had two proprietary download services called MovieLink and CinemaNow. Unfortunately, they crashed and burned. This part of the story is actually strikingly similar to the music industry, which had a proprietary download services of its own that did just as poorly.
What’s different is that video entrepreneurs don’t have the freedom that audio entrepreneurs did to opt out of the incumbents’ preferred platforms and build their own. It’s worth remembering that the recording industry tried to sue the first MP3 players out of existence. What we’re seeing in the video market is what the digital audio marketplace would have looked like if the recording industry had won its lawsuit against the first MP3 players. The recording industry lost that lawsuit, and entrepreneurs went on to build products that were much better than the “official” ones being pushed by the labels. Unfortunately, entrepreneurs in the digital video market don’t have that same option.
If the DMCA were not on the books, it seems likely that products like Kaleidescape and the XBMC would be growing rapidly in popularity. Many of us would have set-top boxes with 500 GB hard drives capable of ripping dozens of DVDs to an open, standard format for subsequent streaming to any display in the user’s house. The existence of those boxes would spur the creation of a wider market for other digital video products designed to interoperate with the emerging open video standard.
Unfortunately, that’s not how things have gone. Hollywood has managed to do what the recording industry was unable to do: to ban users from converting their legally-purchased content to open formats. As a result, the market for open digital video devices is a pale shadow of what it would be in a competitive market. We’re stuck with clunky, proprietary, and non-interoperable products like Apple TV that require users to re-purchase their existing movie collections in order to watch them on the new device. I think everyone would agree that it was a good thing that the courts didn’t let the recording industry shut down the MP3 player market a decade ago. So why do we tolerate a law that effectively shuts down the analogous market for DVD jukeboxes?