OPINION: Taking the handcuffs off

It wasn’t really news last week when reports resurfaced that Blockbuster Video is working on a plan to stream movies to a set-top box of some sort for viewing on users’ TV sets.

The retailer had said as much before, and those plans were a principal factor behind Blockbuster’s acquisition of Movielink last year.

We also know one main reason it hasn’t happened yet: Blockbuster has been unable to secure the rights it needs from the studios under a formula that would allow it to integrate such a service with its existing business.

True, Movielink came with some electronic rights to about 6,000 major-studio titles. But most of those are older titles and not all of Movielink’s rights agreements permit streaming to a TV set-top.

Many are also subject to conflicting licenses, particularly during the pay-TV window, when they would become unavailable to Blockbuster customers.

And of course, they’re not available for streaming or downloading during the DVD window.

The same torturous rights situation has inhibited the growth of any number of other, would-be operators looking to deliver movies electronically to set-top boxes.

Netflix, for instance, has negotiated deals with multiple STB providers and has secured some electronic rights for its Watch Now service. But it faces the same restrictions as Blockbuster.

Even mighty Apple had to settle for restrictive rights when rolling out iTunes Movie Rentals for the Apple TV STB.

“Let’s do VOD first and EST [electronic sell-through] later,” New Line Television president Jim Rosenthal told VB of the studio’s deal with iTunes. “This is an extension of the VOD business, where the consumer is in control.”

Actually, what it reflects is a misguided effort by the studios to retain control over how their movies are offered to consumers.

Imagine what the streaming video business might look like today if retailers had the same sort of flexibility with electronic formats as they had under the first-sale doctrine with physical formats.

Thanks to the first-sale doctrine—an explicit limitation on rights owners’ ability to control the downstream market for their works—entrepreneurial retailers came up with an innovative business model based on renting videocassettes.

The studios, predictably, were at first horrified that someone was building a business on the backs of “their” movies, without their consent. But in time, it became clear that those retailers were also building a business for the studios’ movies, and the home video market became the most lucrative part of the movie business.

The question of how to apply the first-sale doctrine to digital formats is a somewhat unsettled area of the law. But there’s nothing stopping content owners from simply allowing retailers to experiment with business models until they come up with a formula consumers will embrace.

If Blockbuster, or Netflix, or Wal-Mart had the rights to merchandise movies electronically with the same sort of flexibility in pricing, terms, packaging, etc., as they have with DVDs, every set-top-box maker on the planet would be scrambling to embed a Blockbuster or Netflix application into their boxes so people could easily stream movies to their TV.

Competition among retailers to get onto as many boxes as possible would boost demand for the studios’ movies, and Hollywood would again have a growth market.

Electronic distribution might undercut the retailers’ core DVD business, but as participants in both markets, they’d be highly motivated to figure out the best way to transition between formats.

Innovation and entrepreneurship happened in the home video business because content owners’ ability to control the market was limited.

The same could happen in the digital home entertainment business, but only if the same conditions applied.

Get more of Paul Sweeting's analysis here.