In Donna Wentworth's 2004 Op-ed piece, "Dumb and Dumber: Why the Movie Industry Shouldn't Do as the Recording Industry has Done" strongly cautions Hollywood to stray away from actions taken by the music industry regarding file sharing. Wentworth points out that in 2003, movie studios profited heavily from the $41.6 billion in revenues, and enjoyed the second largest culmination of box office totals ever. Wentworth is mystified as to why the industry, and specifically the MPAA, is so worried that film piracy will destroy their business. According to her, the 6,000 lawsuits filed by the recording industry to target file sharing did little to impede illegal music downloads. The "pre-emptive strike agenda," as Wentworth calls it, will likewise be a lost cause in suppressing the prevalence of peer-to-peer file sharing, and will alienate the consumer. Wentworth goes on to reference the famous case concerning VCR use and copyright. The fact that the VCR was deemed legal in all homes allowed for Hollywood to restructure their business model, and reap the profits from VHS rentals. Wentworth also says that the digital age is no different as DVD's often make more money than their box office total. Though Wentworth makes some interesting points, I think that her statements leave a lot of statistical information to be desired. MPAA statistics show that the movie business is in fact suffering in the billions for online film piracy. This doesn't mean that the industry will go out of business in its entirety, but it does effect the output of films significantly. No doubt, the carbon copy superhero and animated films will still be green-lit, but it is the independent and more artistic films that will suffer.

This particular case involved Universal City Studios and the Sony Corporation of America, and is most often referred to as "the Betamax case."  In 1976, Sony introduced their Betamax VCR, and used the machine's ability to record television as a marketing strategy.  Universal City Studios countered that Betamax's technological ability to copy programming for was a direct copyright infringement.   Sony argued that  their consumers had the right to record various programs in the privacy of their own home.  Rulings and appeals were traded back and forth until the case reached the Supreme Court in 1984  The Court eventually ruled that the company itself could not be held accountable for its creation of a new technology, even if said technology is used for specific infringements of copyright law.  As long as the technology can be used for legal purposes, then the manufacturer is not at fault for any user infringements.  The court's reasoning behind this ruling was that the public should not be deprived of a productive technology simply because some users choose to use the product unlawfully.  This case may in fact be the most important copyright infringement case in regards to how it affects and influences the decisions made regarding piracy and, specifically, peer-to-peer file sharing.  Another extremely famous case of MGM versus Grokster used the ruling of this case to argue in their defense.  It provides a great point of reference for my paper, as it shows the way in which the early beginnings of piracy were dealt with on a legislative basis.

This source is a summary of different studies and papers regarding the VCR’s impact on consumers and media consumption. I will focus on the paper by Lin, 1995. Lin views the VCR in terms of the emerging “home entertainment culture.” The VCR has altered the dynamic between consumers and other types of media because VCRs expanded the possible forms of media use and consumption. These new uses have redefined the “home entertainment culture,” meaning video viewing and the VCR’s capabilities have become substitutes for other “leisurely family activities.” As a result of these new forms of use and increased diversity of content, the VCR causes higher levels of user satisfaction. Specifically the argument is made that VCR users are likely to be more satisfied with their television viewing experience because of their ability to time shift. The other important point that Lin makes is that VCR users represent a different socio-economic segment that normal “heavy television” users.

Importance for thesis:

This source helps me in making the claim that media companies were short sighted in initially fighting the VCR.  There were two benefits from the VCR that media companies overlooked.  First, the VCR resulted in higher user satisfaction, which led to increased media consumption by VCR users.  Second, the VCR allowed access to new market segments, which due to demographics, was a desirable result.  However, these benefits were overlooked while media companies instead tried to defend their business models and the status quo.

In this case, Universal City Studios lays out its arguments against the commercialization of Sony’s Betamax. The essence of their reasoning is that owners of video tape recorders had been recording copy-righted material, which had been aired on television. This action, they claimed, infringed their copyrights, and thus Sony was liable for facilitating infringement by marketing the Betamax to consumers. Universal Studios sought relief for these damages through money damages and an injunction against the manufacture and marketing of Betamax recorders.

In its ruling, the court explained its reasoning for supporting the legality of the Betamax. It found that the average Betamax owner uses the device to record programs he cannot view as it is aired. This practice, termed "time-shifting," widens the audience for television media consumption. Thus, the majority of copyright owners didn’t even object to this use of the Betamax. However, there were two respondents in this case who did object to “time shifting” but were unable to prove that there was any material economic harm to their copyrights. The court decided that because there were “substantial non-infringing” uses of the Betamax, Sony was not liable and would be allowed to further manufacture and market the Betamax.

The dissenting opinion gives more detail in regards to the arguments made by Universal. The Studios claimed that video recorders would result in a decrease in revenue by reducing the marketability of their works in movie theaters and through diminished demand for prerecorded videotapes. They also feared that video recorders would decrease their viewing audience, and thus the licensing fees they could charge. While these damages could not be proved, the dissenters extolled the Studios view that as long as there exists a “reasonable possibility” of harm, then the use should be considered an infringement.

Importance for thesis:

This case demonstrates the thought process that media companies went through when considering how to react to the VCR.  The emphasis that the Studios placed on protecting their current sources of revenue, despite the fact that they couldn’t prove the VCR even threatened these income streams, exemplifies their short sighted viewpoint.  Additionally, the case demonstrates how media companies fixate on maintaining their current business models without considering the larger changing competitive landscape.  The results of adopting this stance will allow me to demonstrate the negative consequences of trying to fight technological evolutions.   

The author of this article uses supply and demand econometrics to quantitatively describe the life cycle of new product introductions and their diffusion into the consumer marketplace. He establishes that there is interdependence between related products, and this is the basis by which one should study how new products are developed and introduced. Thus, color televisions and VCRs are used as the case study example.

In general, there are three steps that take place in consumer goods markets that induce new product introductions. First, once the existing product, in this case television, saturates the market to a certain level, the marginal cost to achieve sales growth exceeds marginal revenue. Second, due to disappointing growth prospects, manufacturers are induced to develop new and innovative products. In fact, with the VCR, Sony had the technology available, but only released the Betamax in 1977 when demand for television started to slow. Finally, once the new product is released, the demand functions for the two interrelated products (the VCR and TV) become intimately correlated. The overarching argument is that new products are more likely to be introduced when the demand for existing products declines due to market saturation.

Importance for thesis:

This paper helps make the conceptual argument, based on both marketing research and econometrics, that the evolution of new technologies is a market force.  Thus, when media companies try to fight this inevitable evolution, they are inherently fighting a lost cause.  This research empowers my thesis that media companies should have seen the VCR as an opportunity to grow profits, not as the end to their existence.  Also, it supports my stance that adapting to new technologies is vital, considering the evidence that new technologies are born from emerging market demands.  Thus, meeting these demands should lead to higher growth and profits than trying to stifle it.