Understanding DRM: back to the days of Edison & the Motion Picture Patent Company

The monopoly that created the independents that created the studios

Imagine having to pay a license fee every time you filmed something or screened your work. At the start of the 20th century, the Motion Picture Patent Company (MPPC) in America controlled patents around cameras, film and projectors, and demanded fees for anyone screening or filming anything. The MPPC were able to dictate what could get filmed and screened, telling a young Alfred Zukor who had just bought the rights to a big French success: “The time is not ripe for features, if it ever will be” (as described in Timothy Wu’s excellent Master Switch).

Zukor, who would later head Paramount, became an early rebel who refused to play along, as was Carl Laemmle who declared himself ‘an independent’ – the first to use that name. Laemmle wasn’t independent for long, his company Universal became one of the biggest studios on the planet, as did those from other ‘rebels’ and ‘independents’ Willhelm Fuchs (20th Century Fox) and the Warner brothers Jack, Sam and Henry. When Laemmle started to make ‘independent films’ without paying a licence, he was sued 289 times in a three-year period by the Edison Trust, and eventually fled New York to the west coast with Fuchs, Zukor, the Warners and others, further from the MPPC ‘spies’ and lawyers, and closer to the Mexican border if a quick escape was needed.

It’s hard to avoid the irony that the founding of Hollywood was driven by people trying to dodge the copyright and patents on technology. But these patents had created an unhealthy monopoly, and had they prevailed they could have prevented America’s rise to dominate cinema (France at the time produced twice as many films as the US). And yet the film industry’s view of open video today – which similarly believes that video technology is too important to be owned, locked down and controlled by one company – has undoubtedly been damaged in the piracy debate.

One US producer, well respected for his web-savvy approach, confided to me in 2008 that he didn’t like Open Source, calling it "the same as piracy" - in spite of thousands of open source projects from Wordpress and Mozilla to Redhat and Canonical running large, multi-million dollar, legitimate businesses. Somehow the issue of open technology – which powers every website in the world through HTML and the majority of smartphones through Android – has become confused with the fact the open internet has - as a side-effect enabled effortless piracy and sharing of anything digital. Digital has brought lots of financial benefits to film, but it's near impossible to control. An open license around technology is not the same as saying every film must also be shared for free: open technology is about freedom from monopolies, not freedom from profit.

Free as in speech, not as in beer

Nowhere is the confusion of open tech and piracy more entwined than in the subject of digital rights management, the copy protection added to content to attempt to limit the ways consumers can use that content. As an architecture that can stop you playing the DVDs you bought overseas on holiday when you get home, or moving your Kindle files between tablet and phone, or accessing purchased downloads after you upgraded your computer, DRM has long been unpopular with consumers, yet to much of the film industry has been viewed as an unfortunate but important way to limit the risks of piracy. Hundreds of millions is spent by DRM-companies marketing their systems as the answer to the film industry's problems. 

If you ever tried to copy or sample a rented VHS as a kid you might remember how in a pre-digital age, copy-protection succeeded in limiting small-level copying – copies ended up a technicolor mush. But in the digital era it’s redundant. At best it is an inconvenience: but no system exists that’s uncrackable as people can always digitise their audio or video output (or film the screen). And once a DRM-free copy exists, anywhere in the world, it destroys the economic value of the DRM-encumbered version.

How DRM punishes non-pirates

In other words, from the moment a DRM-free version is available, be it on a friend’s hard drive or a torrent network, it becomes a superior product to legitimate DRM-protected versions: people with the DRM-free version are able to move the file between devices and watch it however they wish, without having to install or upgrade extra software on their computer. The file will still work if they want to watch it again in ten years and they can watch it without the unskipable trailers, adverts and ‘do not pirate’ notices often hard-coded into the start of legitimate copies. If they want to move the file from their computer to their tablet to finish watching it in bed, they can; with DRM, often they can’t.

On top of this, from the moment a DRM-free version is available, all subsequent copy protection is meaningless. The DRM is added to prevent people from making copies or pirating it – but as soon as one DRM-free digital file is in existence then that fight is lost. Anyone can copy from that infinitely as freely as they wish, be it over networks or on shared hard drives.

If it could be shown that there was a huge gap from a film being released with DRM to it being available ‘illegally’ DRM-free then there might be an argument to say it’s still worth it; i.e. that DRM provided a 6-month piracy-free window to make money within. But in reality, the pirate versions are often available within hours of the digital files first appearing – often while the film is still on theatrical release and not even available to buy digitally. DRM doesn’t stop these copies appearing, but it does punish those who have chosen to buy the film rather than pirate it. On top of these arguments, there’s a third reason why DRM is hurting the film industry.

Is DRM creating a new Motion Picture Patent Company?

DRM is typically expensive to set up and manage, with regular licence fees to the DRM patent holder. This not only creates a barrier to entry for small film platforms, it also locks the film content within walled gardens. The lack of a meta-search engine to tell me if the film I want to see is available on Netflix, Amazon or Hulu, is in many ways linked to the lack of openness around these services’ video systems - it’s impossible to aggregate their data. And though they may claim otherwise, lock-in through DRM is a way these services can maintain their market dominance because it lets them hold on to their users.

On this level, DRM supports monopolies, creating a system where it's much harder for rights-holders to negotiate better terms. A very good example of this was with the sale of music on the iTunes store. Steve Jobs was originally only able to convince the major record labels to offer their catalogues on iTunes when it launched by creating a copy-protection system, FairPlay. However, this gave Apple end-to-end control from iTunes to iPod of both playback device and distribution. If you wanted to listen to the music you bought from iTunes on a personal device, you had to buy an iPod; conversely if you owned an iPod, the only way to buy music from the major music labels was through iTunes. This granted Apple an incredible power over the music industry – as if Sony had owned not only the Walkman but every cassette tape in the world. And of course savvy consumers were able to strip the DRM from the music to do what they wanted with it. DRM-free tracks made up some 97% of the typical iPod, according to Jobs. In February 2007 he shared his thoughts on the subject, recognising that the only way to allow true competition between platforms, devices and distributors was the removal of DRM. Starting with EMI, the labels agreed and began offering their catalogues DRM-free. As a result, more and more people continued to buy digital music: the removal of copy protection had no downward impact on sales, with digital music sales worldwide at $5.6bn for 2012 up from around $2bn at the time. Apple still has 63% of that market but it has fallen from the 80-90% they enjoyed when FairPlay gave them a monopoly.

How DRM-free supports independent sales

On a much smaller scale I’ve experienced this with the digital sales of the Film Finance Handbook. We quietly released a digital version at the start of 2012 for Kindle. Amazon has used Kindle’s DRM to be vertically integrated like Apple from storefront to device, and with this dominant position (boosted by subsidised devices) has been able to levy a whopping 65% commission on books over $10 (compared with around 35% for a printed book) and also deduct the cost of bandwidth for the download and, for overseas sellers, a US sales tax of 30%. This leaves me with £5.47 on a £15.64 book sale on amazon.co.uk, or $12.25 from a $34.99 sale on amazon.com, which after 30% ‘US tax withholding’ is $8.58 - less than 25%. This might be bearable if we were getting lots of sales - but instead they sell, at most, one copy a month, far fewer than the printed version.

A few months later I started selling copies through our own website fundyourfilm.com without any form of DRM. Copies can be bought as ePubs (for iPhone or Nook), Kindle or PDFs – and buyers can copy or print these as they wish. To my surprise we outsold Amazon by a factor of ten to one. Indeed the PDF version is six times more popular than ePub or Kindle; and the overall sales of a six-year old book are remarkably close to what we were making from printed books three years ago.

In other words, DRM-free supports decentralised selling and doesn’t noticeably hurt our sales. More than this, it’s the easiest way to recreate the open market of shops/warehouse/distributors that allows anyone to sell DVDs from any of the film studios, which can be watched on any make of TV set or DVD player. It keeps the power with the content owners to set prices and terms of sale, rather than the platforms. End-to-end DRM allows platforms to build a walled garden around their consumers while dictating the prices to filmmakers (I heard from a British distributor that LoveFilm was offering them £100 per feature film for unlimited streams).

Power to the content owners, not the platforms

This is a key issue for the film industry to address as direct-distribution via the web moves into the living room. It’s also an issue currently running right to the heart of the web’s architecture as the web’s guiding body, the W3C, has signalled allowing for the first time DRM to become a part of the core specification around HTML. The reaction from the tech community has been hugely critical - in the comments under Tim Berners Lee’s blog post on the subject it’s almost impossible to find a supporting voice other than his own.

Many suggest that it could be the first step in ending the decentralised and open nature of the web that has defined its success, moving it closer to something like the AOL of old; others argue it’s a move to protect the web from losing out to phone apps and smart TVs. The irony though is that all of these changes are seemingly being done at the behest of the film and TV industry – the proposed DRM change to HTML has been driven by Google, Netflix and Microsoft who claim that the film industry demands it.

Yet film could in the process end up creating our own modern tech version of the MPPC who control film distribution from end to end. It’s easy to wonder how we got to this point. Perhaps the entire argument has been skewed by the DRM vendors whose businesses and jobs depend on wider uptake of their products, rather than a serious examination if it’s working in anyone’s interests – either filmmakers', sales platforms' or the consumers' on whose support we depend more than ever.

This blog is part of a series written for the Scottish Documentary Institute Blog as part of the Virtuous Circle project, funded by Creative Scotland.

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