Friday, September 29, 2006

What to do with YouTube

I’m a big fan of YouTube, if for no other reason than that I’m not really up on things generally and it is useful to me when friends send me emails saying, “I know you live with a family of raccoons in the woods, so you might not have seen this when it ran on TV, but I think you might enjoy it.” (Fortunately, my raccoon family has high-speed Internet access.) Also, without YouTube, I couldn’t post interesting things on this blog, such as “Bill Clinton gets mad and Chris Wallace smirks”, “Now that’s the Ann Coulter we know and love!”, “The funniest thing I've seen this week”, “More on Ann Coulter and something on Henry Rollins” or “Ann Coulter is a deconstructionist”. (Ok, I’ve got an unhealthy fascination with Ann Coulter…). I would also include “Joe Biden should stay out of Dunkin Donuts”, but the National Journal was kind enough to put that link up on its own website.

My point, and the point made by Mark Cuban on Blog Maverick and the Wall Street Journal's Law Blog, is that most of this material is pirated. In other words, it is copyrighted material that somebody (not me) posted to YouTube without the copyright owner's permission. Cuban is predicting that YouTube will go the way of Napster, in that it is making money off of this pirated material and it is only a matter of time before the powerful copyright owners shut it down.
The thing is the shock that until Universal Music Group apparently started to put the pressure on them, no one had sued them. Considering the RIAA will sue your grandma or a 12 year old at the drop of a hat, the fact that Youtube is building a traffic juggernaut around copyrighted audio and video without being sued is like.... well Napster at the beginning as the labels were trying to figure out what it meant to them. With the MGM vs Grokster ruling, its just a question of when Youtube will be hit with a charge of inducing millions of people to break copyright laws , not if.

I disagree, and the reason is that YouTube operates under a very different technological environment and, most significantly, because Cuban misses what video content providers are selling.

Technologically, of course, there is a big difference between an MP3 music file and a video file. Downloading music files is quick and the storage capacity of even a cheap computer today (an even a basic MP3 player) means that downloading and uploading entire albums is easy and the quality of the final product is good. The result has been a dramatic decrease in album sales — to the point where recording companies have begun to lose millions (if not billions) in revenue.

Video files, of course, are massive and current Internet technology means that downloading entire pirated episodes of television shows (let alone movies) is prohibitive. Storing such downloaded files is also problematic. Quality is also an issue. While few ears can tell the difference between a higher-quality MP3 version of a Metallica tune from it's CD counterpart, anyone can see that a matchbox-sized .wmv-version of "The Office" leaves something to be desired.

But technology changes and it is safe to say that many of these issues will be resolved. However, what likely won't change is the nature of the product that video producers are selling.

Recording companies sell records, and Napster, Grokster and the rest chewed significantly into the sale of those records. Movie production companies sell movies, and any sharing technology that would cut into the number of people going to the box office or renting DVDs would also cut into their bottom line (though, at this point, movie producers have much more to fear from DVD pirates than YouTube, given current technology). Television producers, by contrast, do not sell television shows. They sell eyeballs. And this is a reason that Fox News, for example, hasn’t asked YouTube to remove copies of the Wallace interview.

YouTube is free publicity, and it costs Fox nothing in terms of lost royalties. The folks who download the Clinton interview to see Slick Willie get all red in the face would not pay Fox to see the clip. Many would not even go to the Fox News website to see the clip (where Fox might eke out a little in ad revenue), perhaps out of prejudice (I have liberal friends who have used their V-chip to lock out Fox News) or other reasons (i.e, Fox News might make you watch ads before getting to the good stuff). However, when viewers see the interview on YouTube, Fox may gain a few new viewers, who want to see more such interviews.

Of course, Napster made the same argument (kids download one pirated song, then go out an buy the whole album), but that was ridiculous on its face. Kids could download the whole album for free, and recording companies made money selling albums. However, television networks make money off ad revenue, and, for them, anything that attracts eyeballs — including copyright piracy— also increases ad revenue.

Not every wronged copyright holder, of course, will view YouTube in such an enlightened fashion. And, as CBS News has pointed out, other issues arise when copyrighted material is altered and then posted on YouTube. (Though some alteration, of course, might bring the material into the realm of parody, and thus give it greater protection against charges of copyright infringement, if the nature of the parody is clear.) That said, whether YouTube fends off potential lawsuits depends entirely on who’s rights are being infringed. Lawsuits are expensive, for both parties. A plaintiff can use a lawsuit to extract a hefty settlement from the defendent, but, unlike the recent mess with Blackberry, no single clip on YouTube is essential to its business model. It can respond to a lawsuit by pulling the offending clip and arguing that damages have been mitigated. The plaintiff then has to argue that it has suffered serious economic losses, all the while its legal bills are mounting.

This changes, of course, with a large company with deep pockets, which probably has a better chance of arguing that it suffered very serious economic damages, even prior to YouTube pulling the offending material. That said, these are precisely the big players that have an incentive to set up some agreement with YouTube on royalties. For them, the calculation has to be, does YouTube rob them of viewers that it might otherwise have — are there people out there who would otherwise watch Fox News but who are now not doing so because they can always find the juicy clips later on YouTube? This seems unlikely, for several reasons. The first is timeliness — YouTube is always after the fact. The second is price — watching television is free (or at least marginally free, once you pay your cable bill and buy a television). Consequently, it seems much more likely that a television network will gain viewers than lose them.

Another factor working in favor of YouTube is the recording companies’ experience with Napster. The recording companies, unlike the television networks, were desperate because MP3 download services were significantly cutting into their revenue (something that YouTube doesn’t seem to be doing). However, after going after Napster, the download services merely moved offshore, where it has proven much more difficult for the recording companies to sue them. They have now moved on to suing individual users in an ad terrorem approach, something that may or may not work, depending on whether illegal downloaders realize that the odds of them all being sued is extremely low.

The television networks are now at the same crossroads that the recording companies were 10 years ago, and they have the benefit of hindsight. I think they are much more likely to work with YouTube than try to shut it down. (And as for ad revenue, Tivo poses a much greater threat than YouTube ever will.)

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