Saving King Kong

by on April 28, 2006

Here’s David Levine’s response to the King Kong question:

The short response is pretty simple: until they lost the VHS tape case, the only source of revenue for movies was for theatrical releases. Even if DVDs can be freely copied and given away for free, the revenue from theatrical releases can still sustain large scale productions. The key point is that it is wrong to focus on the copies to which copyright applies as the sole source of revenue to pay for creative efforts. Open source software works because the complementary good produced – “expertise” – in the process of producing software, is scarce and so commands a premium in the market. So even if copies generate little revenue, as long as something else complementary is scarce, there is still a revenue source to pay for creation. In the case of movies the obvious candidate is theatrical sales.

I don’t think this works because the scarcity of theater viewings is based on the fact that most movie theaters still rely on primitive 20th century technologies to play movies. Canisters with photographic film in them are bulky, expensive, hard to steal, and difficult to duplicate if you don’t have the master. So it’s reasonable to expect that you can protect all (or virtually all) the film copies of a movie from piracy, and thereby ensure that only authorized theaters can offer customers the big-screen experience.

But this is changing fast. As projector technologies improve and bandwidth costs fall, theaters will increasingly move to all-digital distribution technologies. A theater will download a (probably encrypted) copy of a movie from the studio and play it on a high-end LCD projector. Once that happens, the task of preventing leakage without the benefit of copyright would become all but impossible.

Here’s how I imagine the theater industry would work in a copyright-free world: There would be large chains of pirate movie theaters, who specialize in showing bootleg copies of movies. They offer large cash payments to anyone who can slip them a pristine, illicit copy of the copyrighted movie. Once they get the copy, they redistribute it to all the theaters in their chain, and begin showing the movies for free (they can make the money up on popcorn).

Now, the relevant question is how quickly the pirate theaters could get their hands on the movie? In the status quo, the peer-to-peer networks generally have copies of movies (albeit far from perfect) before the theatrical opening, leaked by studio insiders or people who went to previews. Clearly, the studios would tighten up their operations, but on the other hand there would also be a much stronger financial incentive to pirate, since the illicit copy would be so valuable. So it’s hard to predict with any precision whether leaks would become more or less common.

But the important point, I think, is that a lot of big-budget movies would leak within weeks, if not days, of their release. That would mean two things. First, the window of opportunity for charging full freight on them would be rather short. For the majority of movies, opening weekend would probably be the only weekend in which authorized theaters would have exclusivity. Secondly–and more devastatingly–consumers would know that if they waited a week or two, they would be able to see the movie for free. So even if you did have a monopoly for a week or two, you’d only get the consumers who were aching to see your particular movie. Most consumers would simply wait the extra week or two when it would be available for free.

So I don’t think I buy it. In the absence of copyright, I think it’s unlikely there would be any movies with 9-figure budgets. We can debate whether that’s a bad thing (I think it would be for reasons I hope to lay out in a future post) but I think that’s definitely what would happen.

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