Posts Tagged ‘Netflix’

On Redbox, Netflix, and the First Sale Doctrine

The picture at left is of the video shelf of my parents’ media closet.  You’ll notice that nothing’s been added to it in close to twenty years.  There are two DVDs there.  One is a copy of Ghost still in its wrapper.  The other is a music DVD by electronic musician Tipper.  The rest of the closet is stacked to the point of overflowing with CDs, software,  books and magazines.  We’re voracious consumers of media.  However, we don’t buy tapes or DVDs.  We rent them.  Some of my most vivid memories as a kid involved the video store.  Maybe in part because I used to KICK ASS at the skill crane machine at our local Blockbuster and would always come home with a toy, but I digress.  As the video stores closed, we moved onto Netflix.  Netflix, along with its rival Redbox, has made a rather frustrating concession to the film industry that makes it harder for members to watch new releases.

Early this week, Redbox, Coinstar’s drugstore/supermarket DVD rental service, announced that it settled its lawsuit with Warner Bros. Films and would no longer offer Warner DVDs for rental in their kiosks until 28 days after their release.    Netflix struck a similar deal with Warner last month, though no litigation was involved.  The agreements grant the rental services deep discounts, rumored to be up to a 50% markdown, on wholesale discs.  The measure, which other studios will undoubtedly attempt to mimic in the near future, comes after  nearly a year of legal sparring between Redbox and the big studios.  In 2009, Redbox’s $1 a night fees accounted for nearly 20% of all money spent on DVDs.  Seeing their bottom line cannibalized by the rental services, the movie studios sprang into action, strongarming wholesalers to not sell to Redbox.  Redbox sprang into action and just sent employees to Target and Wal-mart to buy DVDs in bulk.  Absurd, hilarious, expensive, but effective.  And furthermore, completely legal under US copyright law.

Redbox, Netflix, Blockbuster, and their ilk rely on the first sale doctrine for their business.  The first sale doctrine is a carve-out in the Copyright Act that allows anyone, commercial or otherwise, to sell, lend or give away a lawfully obtained, legal copy of copyrighted material. You know that whole “For Promo Use Only” caveat on CDs sent to DJs, PR firms, industry types and radio stations?  It means nothing.  The first sale doctrine makes it completely legal to resell promo discs (assuming, of course, that the actual release date has passed).    Thus, the rental services are in the clear legally when they undercut the movie studios.  Mediawonk has a great breakdown of all the issues between the rental services and the studios as they relate to the first sale doctrine.

The big question, then, is what does this mean for the consumer?  The tech blogs are convinced that the studios’ embargo period will damn new releases to piracy, even further than they already are.  Of course, the industry vehemently disagrees. The fact of the matter is that we live in an on-demand society.  The increasing ubiquity of broadband internet makes this more and more prevalent every day.  A humorous infographic hit the net yesterday showing how much less frustrating a pirated copy of a film is versus the commercial version. People want things quick and easy.  This new move flies in the face of that.  There are very few films that will realize that much of a benefit from this move.  How many people are going to run out and buy a copy of Sherlock Holmes, The Blind Side or The Book of Eli just because they can’t get it from Redbox for a month?  Probably not that many.  Netflix won’t lose subscribers because of it, and Redbox users not way up on release dates probably won’t notice.  They’ll just rent something else.  Or go home, fire up BitTorrent and download it for free.  Good luck to the studios, though.  Keep on fighting that losing battle.