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Last fall, Seattle-based RealNetworks released RealDVD, software that allows users to legally save a copy of any DVD that they own to their computer or laptop for later viewing anywhere or anytime. The motion picture studios—including Disney, Paramount, Sony, Twentieth Century Fox, Warner Bros., and Viacom—have filed a lawsuit against RealNetworks to have the new product banned, which threatens to hamper competition and technological innovation in one of the most dynamic sectors of the economy. The trial begins on April 24th.
1. RealDVD does not remove the content scramble system (CSS) that protects copyrighted material, which ensures that it does not run afoul of Digital Rights Management (DRM) requirements. In addition, a new layer of encryption is added that locks the copy to a single hard drive and eliminates the possibility of making additional copies for distribution, removing the threat of piracy.
2. Consumer rights could be dramatically curtailed or even eliminated if the courts determine that the Digital Millennium Copyright Act (DMCA) trumps the long history of legal decisions that define fair use. If the studios win their legal challenge to RealDVD, the courts, in effect, will be asserting that the DMCA adds significant new restrictions to what consumers are allowed to do with DVDs they have legally purchased.
3. The DMCA has given the content providers a virtual monopoly on platforms for the distribution of their products by requiring all new technologies be licensed by the DVD CCA. But a copyright is a negative right. That is, it is a limitation on others using the creator’s work. It does not provide the creator with the right to do something with a copyrighted work, and it certainly should not create a monopoly for the technologies that consumers may purchase.
4. The case against RealDVD is the most recent attempt by content providers to limit competition and technological innovation. New technologies have reduced costs and introduced new models of production and distribution. Rather than adapt, the studios are using litigation to defend old business models.
5. Shifting the burden of content protection to consumers and other technology sectors can have significant impacts and costs for the economy. New restrictions will affect innovation and slow the inevitable transition to a digital economy, which can threaten productivity in one of the most dynamic sectors of the economy.
6. The allegations of increased piracy made by the studios are sweeping and require empirical support before they can be used as a basis for denying consumers the use of a new product. In fact, there is little evidence that has been provided to demonstrate that RealDVD actually increases piracy and therefore harms the movie studios.
7. The impact is, in fact, just as likely to be neutral or actually beneficial to the movie studios. RealDVD includes a number of features that may, in fact, boost the demand for DVDs, raising a direct challenge to the motion picture studios’ assertions that a product like RealDVD detracts from their revenues. Allowing consumers to view their DVDs without having to carry the discs or a drive that plays DVDs increases the value of the DVD, which can increase demand.
8. While attempting to reduce copyright infringements, the DMCA has actually stifled innovation and reduced consumer choice while doing little to stem the flow of piracy. For DVD pirates, the impact of RealDVD will be minimal—it offers little advantage to those seeking to copy DVDs for widespread distribution. Banning a product that maintains the DRM encryption and adds another layer of protection will do little to quell piracy.
9. The studios, in essence, are asserting an exclusive claim not just to the creative content they provide, but to the technologies used by consumers to view DVDs, something that goes far beyond their copyright protection to spur innovation.
10. RealDVD is just the latest target of the Hollywood studios. However, their troubles go well beyond just one product or one market. Quite simply, DVD revenues—which have been a cash cow for the industry—are plummeting. Much like the music industry, the studios are scrambling to deal with new technologies and new consumer preferences. Movie studios must come to grips with the increasing prominence of the internet, a valid and growing competitor to the old model of producing for movie theaters with an aftermarket of televisions.
The Top Ten Bad Votes of Rep. Pete Sessions
1. Pete Sessions Voted for the Wall Street Bailout (T.A.R.P.)
Rep. Sessions voted for the over $700 billion bailout of Wall Street, leaving taxpayers to pay for the big banks’ bad decisions. He voted for both the original bailout plan (2008, Roll Call Vote 674), which failed, and then a second time to pass it (RCV 681).
2. Pete Sessions Voted for the Ineffective “Super Committee” Debt Hike
(2011, RCV 690) Rep. Sessions voted for the Budget Control Act, which allowed President Obama to raise the debt ceiling by over $2 trillion. In return, taxpayers got stuck with the “super-committee”, which failed to come up with any agreement on targeted spending cuts and gave us sequestration instead.
3. Pete Sessions Voted for the Fiscal Cliff Tax Hike
(2012, RCV 659) Rep. Sessions voted for the infamous New Year’s Day 2013 “fiscal cliff” deal that raised taxes on 77 percent of U.S. households, with extra tax hikes on higher income earners.
4. Pete Sessions Voted against Reining in the NSA
(2013, RCV 412) Rep. Sessions voted against the Amash Amendment to rein in the NSA. The amendment would have defunded the NSA’s ability to conduct blanket data collection on Americans without a warrant.
5. Pete Sessions has Consistently Voted for the PATRIOT Act
Rep. Sessions first voted to pass the intrusive and anti-4th Amendment USA PATRIOT Act in 2001 amidst the fearful environment of 9/11. However, after several years passed and significant privacy concerns about the act began to gain steam, Sessions nevertheless voted to make most of the Patriot Act permanent (2005 RCV 627), and to reauthorize the rest in 2006 (RCV 20) and again in 2011 (RCV 376).
6. Pete Sessions Voted for Medicare Part D
(2003, RCV 669) Rep. Sessions voted to pass Medicare Part D, a massive entitlement expansion that conservatives rightly predicted would tremendously expand the deficit and add trillions of dollars in long term unfunded liabilities to the federal deficit.
7. Pete Sessions Has Voted to Raise the Debt Ceiling Eight Times
Since entering office in 1997, Rep. Sessions has voted to raise the debt ceiling eight times. Raising the debt limit only encourages reckless spending in Washington. Congress needs to cut spending and balance the budget—not continue to increase our national debt without any spending reforms or reductions.
8. Pete Sessions Voted for Big Agriculture’s Corporate Welfare Bill
(2013, RCV 286) Rep. Sessions voted for the initial 2013 Farm Bill, which created a brand new crop insurance entitlement program while achieving no measurable reforms to the rampant corporate welfare contained within the bill. Worse, as Chairman of the House Rules Committee, Rep. Sessions engineered a floor procedure that prevented almost any of the best conservative amendments to the Farm Bill from even coming to a vote on the House floor.
9. Pete Sessions Voted for Massive Pork-Barrel Spending
(2005, RCV 453) Rep. Sessions voted for SAFETEA-LU, the infamous 2005 transportation spending bill that contained over 6,000 earmarks (including the infamous “Bridge to Nowhere” in Alaska). This massive pork spending bill became the defining symbol of the out-of-control government spending that led to the Republicans losing the House in 2006.
10. Pete Sessions Voted for Gas Mileage Standards and Massive Subsidies for Green Energy
(2007, RCV 1177) Rep. Sessions voted for the 2007 Energy Independence and Security Act, which raised mandatory fuel mileage standards, provided for extensive subsidies to all manner of green energy projects and alternative fuels, and created new green building and appliance standards. This is also the bill that effectively banned the production of the incandescent light bulb in the U.S.
The Top Ten Bad Votes of Rep. Pete Sessions1. Pete Sessions Voted for the Wall Street Bailout (T.A.R.P.) Rep. Sessions voted for the over $700 billion bailout of Wall Street, leaving taxpayers to pay for the big banks’ bad decisions. He voted for both the original bailout plan (2008, Roll Call Vote 674), which failed, and then a second time to pass it (RCV 681).2. Pete Sessions Voted for the Ineffective “Super Committee” Debt Hike
You remember the NSA, right? Big, shadowy agency recording everything you say, write or do online or on your phone? It was in all the papers about four and a half scandals ago.
To refresh your memory, the National Security Agency is basically the intelligence nerve center for planet earth. The 30,000-person organization is working on a nearly $1 billion supercomputing center at its Fort Meade, Md., headquarters, while they finish their new $1.2 billion cybersecurity data center in Camp Williams, Utah.
All this information technology has made the NSA a supercomputing powerhouse, allowing it to scan billions of digital messages for those few communiqués deemed to be a threat. Forget finding a needle in a haystack, NSA computers are designed to find a teardrop in the ocean.
Surely such a data-mining colossus would have no problem searching its own employees' email to answer a freedom of information request, right?
(That question was rhetorical since the headline gave the answer. Probably should have put a “spoiler alert” up there.)
ProPublica, an independent journalism non-profit, asked the NSA for emails between their employees and the National Geographic Channel. The network had aired a very positive documentary on the agency and ProPublica wanted to make sure there was no funny business.
A few days later, NSA FOIA officer Cindy Blacker said they — get this — didn’t have the technology. “There's no central method to search an email at this time with the way our records are set up,” Blacker said, adding that the system was “a little antiquated and archaic.”
After spending untold billions on the NSA’s digital supercomputers, their lowly little email service isn’t searchable? AOL lets you search an inbox, for crying out loud. The majority of companies large and small can bulk-search their email since it’s often essential for legal purposes.
“It’s just baffling,” says Mark Caramanica of the Reporters Committee for Freedom of the Press. “This is an agency that’s charged with monitoring millions of communications globally and they can’t even track their own internal communications in response to a FOIA request.”
Federal agencies’ public records offices are often underfunded, according to Lucy Dalglish, dean of the journalism school at University of Maryland and a longtime observer of FOIA issues.
But, Daglish says, “If anybody is going to have the money to engage in evaluation of digital information, it’s the NSA for heaven’s sake.”
There have been moves on Capitol Hill to end the NSA's authority under the Patriot Act, preventing them from collecting records unless an individual is under investigation.
The White House is so worried that it released a late-night statement to "oppose the current effort in the House to hastily dismantle one of our Intelligence Community's counterterrorism tools." It added, "this blunt approach is not the product of an informed, open or deliberative process."
The NSA is, by definition, a secretive agency. But as part of the federal government they are subject to FOIA laws just like every other office. As the public and lawmakers grow more concerned about PRISM and other controversial initiatives, the NSA and the rest of the Obama administration must not interfere with proper oversight.
And before we hand them another billion-dollar data center, maybe they can upgrade their email service from America Online.
Follow Jon on Twitter at @ExJon.
You remember the NSA, right? Big, shadowy agency recording everything you say, write or do online or on your phone? It was in all the papers about four and a half scandals ago.
Top Ten Ways ObamaCare Sticks It to Young Adults
By Dean Clancy
[Note: a .pdf version of this post can be found at the bottom of this page]
ObamaCare should really be called the Unaffordable Care Act, especially when it comes to adults in their twenties and thirties. ObamaCare’s “individual mandate,” which takes full effect on January 1, 2014, requires all Americans to purchase expensive government-controlled health insurance, even if they don’t want or need it. (1) The defenders of this mandate, and especially the health insurance lobby, claim a mandate on all of us is necessary to “help the uninsured.”
In fact, the mandate’s real purpose is to prevent the system’s new government-run “health exchanges” from collapsing. Young adults are being singled out as the group who will have to bear the brunt of preventing this collapse. They’re being asked to sacrifice their dollars and their freedom.
Eighty percent of 20-somethings who earn more than about $18,500 a year will see their health insurance costs go up as a result of ObamaCare. In California, the cost of a basic plan for a 25-year-old male will jump as much as 92 percent, in Ohio as much as 700 percent! Meanwhile, the Administration is enforcing ObamaCare selectively, having granted more than 1,200 waivers to politically connected labor unions and corporations over the past three years, and more recently exempting all large businesses.
In short, ObamaCare is unfair, unnecessary, and harmful to our health. No wonder it’s so unpopular, even before it has been fully implemented. We call on all Americans, and especially millennials, to “burn their ObamaCare card,” join the “health care draft resistance” movement, and help us hasten the replacement of government-centered care with patient-centered care.
Here are the top ten ways ObamaCare sticks it to young adults:
1. Raises insurance costs for adults under 40 (on purpose)
2. Reduces access to workplace health insurance
3. Shrinks workplace health benefits
4. Reduces work-hours
5. Kills jobs
6. Increases debt
7. Raises taxes
8. Is unfair
9. Is unnecessary
10. Is insulting
1. Raises insurance costs for adults under 40 (on purpose)
ObamaCare sticks it to young adults by driving up their health insurance costs. On purpose. That’s right, the law is designed to drive up costs for people in their twenties and thirties, in order to keep the new ObamaCare exchanges from collapsing.
Unless a lot of young, healthy people sign up to pay for insurance through the government exchange, premiums will spiral upward as too many old and sick people sign up, which will cause the system to collapse. Thanks to ObamaCare’s numerous mandates, the health insurance in most cases will cost more than it’s actually worth, especially for young adults. Hence the need for a mandate requiring people to pay into the system. The young are, in effect, being drafted into compulsory national service.
How does ObamaCare drive up rates? Primarily by forcing insurance companies to accept all applicants, regardless of age or health status (“guaranteed issue”) and by forcing them to charge all applicants roughly the same price (“community rating”). These mandates make insurance more expensive, especially for healthier folks, some of whom naturally respond to the higher expense by becoming uninsured -- the opposite of the law’s alleged goal. Younger people tend to be healthier. That’s why they also tend to be uninsured -- the high cost isn’t worth it for them, relative to the benefit. The largest negative effects of guaranteed issue and community thus fall on younger people.
ObamaCare imposes a host of other mandates. One is to make insurers cover adults up to age 26 on their parents’ policy. That sounds nice, until we realize that it costs each of us an additional $100 to $400 a year on our health insurance premiums. (And by the way, since when it a 26-year-old a child?) Another mandate requires insurance companies to cover all services deemed by the government to be “preventative,” including “reproductive health services,” “free of charge.” That too sounds great, until we remember that there’s no free lunch. Mandates raise prices. Period.
How much will premiums rise for folks under 40? (2)
The uninsured (two out of three of whom are under 40) have average annual health care expenditures of around $800 to $1,200. Since health insurance will cost a good deal more than that, they have an incentive to be uninsured. They need low-cost, economical coverage. ObamaCare gives them the opposite. (6)
By the way, premiums will only go down for older folks if young adults voluntarily swallow ObamaCare’s big rate hikes. If young adults opt instead to take a pass on the insurance and just pay the law’s $95 tax penalty “user fee,” rates will go up for older folks. (7)
You can’t defy the laws of economics. If we want to get more Americans insured, we have to enable insurance to cost less. ObamaCare makes it cost more, for the majority of Americans, and especially for young adults
2. Reduces access to workplace health insurance
ObamaCare sticks it to young adults by incentivizing many employers to stop offering health benefits. When an employer stops offering health benefits, workers must either: a) rely on a relative’s health insurance; b) go into the ObamaCare “health exchange,” b) enroll in Medicaid or other government program for which they may be eligible, or c) join the ranks of the uninsured. Younger workers will often find themselves in the last category: uninsured.
About 156 million Americans (roughly half the U.S. population) get their health insurance through the workplace. Credible experts predict ObamaCare will cause anywhere from 7 million to 35 million Americans to lose their workplace health benefits over the next few years.
Wait. Would employers really do that? Would they really drop coverage? Yes, it seems, they would:
Most of this “employer dumping” will occur among small businesses. That will disproportionately affect adults under 40. (12)
3. Shrinks workplace health benefits
ObamaCare sticks it to young adults by incentivizing employers to offer stingier workplace benefits. Those employers who choose to offer health benefits will be under pressure to try to save money by making the benefits “thinner.” We already have reports of some employers switching to “skinny” plans, which are plans that don’t cover certain items, such as hospital stays. (13) Yes, “skinny” plans are allowed under the statute. (14)
4. Reduces work-hours
ObamaCare sticks it to young adults by causing employers to cut back on workers’ hours. (15) The law’s “employer mandate” requires all employers with 50 or more full-time employees, beginning January 1, 2014, to offer expensive, government-regulated health insurance. (16) “Full time” is defined under the law as 30 or more hours a week. (The average American works about 32 hours a week.) So unsurprisingly, many firms are reducing workers’ hours to 29 hours or below, in order to avoid the expense. According to the Los Angeles Times:
[B]ig restaurant chains, retailers and movie theaters are starting to trim employee hours. Even colleges are reducing courses for part-time professors to keep their hours down and avoid paying for their health premiums. Overall, an estimated 2.3 million workers nationwide, including 240,000 in California, are at risk of losing hours as employers adjust to the new math of workplace benefits. (17)
5. Kills jobs
ObamaCare sticks it to young adults by causing employers to eliminate jobs, especially low-end, minimum wage positions. ObamaCare is causing a hiring slowdown. Part of the problem is uncertainty: employers are afraid to hire because they still don’t know how exactly the extremely complicated law will be enforced. But the bulk of the problem is the employer mandate itself: firms are avoiding new hires to avoid hiring that incredibly costly 50th employee. A health insurance plan can cost anywhere from $8,000 to $20,000 a year. The law says that if you offer coverage, it must be “affordable,” as defined by the government. That means you, the employer, must pay for roughly 92 percent of the plan’s cost. Many small firms simply can’t afford that. Right now, unemployment among Americans under 24 is a staggering 16.2 percent, and thanks to our economy’s anemic 2 percent a year growth rate, these Americans’ employment prospects are dismal. The ObamaCare-induced hiring slowdown only makes this problem worse, disproportionately affecting entry- and lower-level positions and thus younger adults trying to get their start in life.
6. Increases debt
ObamaCare sticks it to young adults by driving up the national debt. The national debt has recently soared above $16,000,000,000,000 (sixteen trillion dollars), an historic high. Uncle Sam has additionally racked up nearly $100,000,000,000,000 (one hundred trillion dollars) in future, unfunded promises. That mountain of debt must be paid back by current and future generations. The cost of the law’s coverage provisions alone, over the first ten years of full implementation (2014 to 2023), is around $2,400,000,000,000 (two trillion four hundred billion dollars). The law will likely drive the deficit up by more than $700,000,000,000 (seven hundred billion dollars). (18) The problem boils down to basic math. As one analyst has summed up the problem:
Health spending now averages about 21 percent of households' personal income ... [but the] health care legislation presumes that those in an exchange shouldn't have to pay more than 10 percent of their income for a health insurance policy. (19)
That means someone is going to have to subsidize people who get their coverage through an exchange. Who is going to be on the hook for that subsidy? Current and future taxpayers, of course. How will it be paid for? Mostly through borrowing. (Uncle Sam currently borrows more than one-third of every dollar he spends.) So now young adults, who already carry historically high levels of student-loan debt, will have to help pay for the massive ObamaCare debt as well. (20) How thoughtful.
7. Raises taxes
ObamaCare sticks it to young adults by increasing taxes. ObamaCare imposes eighteen new taxes, including an expensive tax on medical devices and the first-ever tax on workplace health benefits -- even a new tax on the sale of your home. Those new taxes are projected to bring in a total of $514,000,000,000 (five hundred fourteen billion dollars) in additional federal revenues over ten years.
ObamaCare’s 18 New Taxes
8. Is unfair
ObamaCare institutes basic intergenerational unfairness. Sixty-four-year-olds typically spend six times as much on health care as 18-year-olds. Logically, their health insurance rate should be six times higher. But ObamaCare says insurers can charge older folks no more than three times what it charges a young person. This 3:1 community rating forces millennials to pay about 75 percent too much for insurance, so folks in their early 60s can underpay by about 13 percent. Nice! (21)
9. Is unnecessary
The tragedy of ObamaCare is that it isn’t even necessary. There are less coercive, less expensive ways to help the uninsured. Here are some simple ways to reduce health care costs and thus increase the number of insured people, without costly government mandates or price controls:
This robust agenda would benefit young adults and indeed all Americans by promoting patient power in the health care marketplace. It would help lower the excessive cost of health care, which is the real problem, by reducing meddlesome government mandates, which are the real culprit.
10. Is insulting
ObamaCare insults young people’s intelligence by trying to make them believe they are benefiting from a policy that actually targets them for the biggest pain.
P.S. There’s an eleventh reason ObamaCare sticks it to young adults: its inevitable negative effects on the quality and availability of medical care. With the new system’s top-down, centralized approach, there will be higher costs, longer wait times, and incentives for doctors and hospitals to scrimp on care.
Conclusion: Burn Your ObamaCare Card!
ObamaCare was rammed through Congress in the name of “helping the uninsured.” What it really does is hurt the young. Two-thirds of the uninsured today are in their twenties and thirties. Most of the uninsured make a rational choice to go without insurance because government policies have made it too expensive, relative to its value for them.
The individual mandate, ObamaCare’s linchpin, will hit young adults the hardest. Eighty percent of 20-somethings who earn more than about $18,500 a year will see their health insurance costs go up as a result of ObamaCare. In California, the cost of a basic plan for a 25-year-old male will jump as much as 92 percent, in Ohio as much as 700 percent! The individual mandate, ObamaCare’s linchpin, is unjust, unnecessary and harmful to our health.
Millennials would be better off “burning their ObamaCare card” and resisting the “health care draft.” We call on Americans who can do so to “opt out” of the ObamaCare mandate and instead pay the small penalty tax “user fee” for being uninsured (or for not having ObamaCare-compliant coverage). (23) If enough Americans join the resistance movement, we can hasten the collapse of the exchanges, reverse the Washington takeover, and pave the way for a health care system that works for, rather than against, patients. (24)
1. Tens of millions of Americans are statutorily exempted from the individual mandate, including prisoners, illegal immigrants, certain religious sects, Native Americans, Americans living overseas, Americans who don't have to file a tax return, Americans whose employer offers them coverage that would cost them more than 8 percent of their income, and any American granted "hardship" status at the discretion of the Health and Human Services secretary. Patient Protection and Affordable Care Act, section 1501.
2. The following estimates are for insurance in the individual or nongroup market. That is, not for coverage received through the workplace or the government.
4.Louise Radnofsky, “Ohio Complains of Higher Health-Insurance Premiums,” Wall Street Journal, June 6, 2013, http://blogs.wsj.com/washwire/2013/06/06/ohio-complains-of-higher-health...
5. Avik Roy, “The War On Bros: Exchange Subsidies Won't Protect Young People From Obamacare's Higher Insurance Premiums,” Forbes, June 7, 2013, http://www.forbes.com/sites/theapothecary/2013/06/07/the-war-on-bros-exc...
6. ObamaCare supporters try to downplay “rate shock” figures like these, by noting that costs will go down for some older folks. True. But how much comfort is it for a millennial faced with a 92 percent premium increase to know that his 64-year-old neighbor will enjoy a 10 percent decrease? Supporters of the law also say that folks earning up to about $45,000 a year will get a relatively generous subsidy, on a sliding scale, to help them afford the premiums (courtesy of the taxpayer), if they buy coverage in the government exchange. Also true. But that taxpayer subsidy is only available to people whose employer doesn’t offer “affordable” coverage, as defined by the government (and whose state doesn’t offer Medicaid to people earning more than 100 percent of poverty). It’s hard for anyone to know for sure whether he qualifies for the subsidy and will remain qualified for it, since third parties (employers, state policy makers) are the ones making the critical decisions affecting his eligibility.
7. Here is now the individual mandate penalty works. The IRS will levy penalties on individuals who don’t buy government-approved insurance. The annual fines will equal the greater of $95 per adult or 1 percent of income (in 2014); $325 or 2 percent (in 2015), $695 or 2.5 percent (in 2016); and then will rise with inflation. The fine for uninsured children equals one-half the adult fine. Additionally, many people are exempted from the mandate, such as those for whom premiums exceed 8 percent of household income. Hence, as premiums increase, more and more people will be exempted from the mandate.
8. Seven million figure comes from: CBO, Effects of the Affordable Care Act on Health Insurance Coverage—February 2013 Baseline,” February 5, 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900_ACAIns.... Twenty million figure from: CBO, “The Effects of the Affordable Care Act on Employment-Based Health Insurance,” March 15, 2012, http://www.cbo.gov/publication/43090. See also: CBO, “How Has CBO’s Estimate of the Net Budgetary Impact of the Affordable Care Act’s Health Insurance Coverage Provisions Changed Over Time?” March 20, 2013, http://www.cbo.gov/publication/44008. CBO does think it possible that the number of people in employer-based coverage could go up, by 3 million; but the agency designates as its “best estimate” a 7 million person drop in workplace coverage
9. Douglas Holtz-Eakin and Cameron Smith (American Action Forum), “Labor Markets and Health Care Reform: New Results,” May 2010, http://americanactionforum.org/files/AAF_Labor%20Markets%20and%20Health%....
10. McKinsey & Company, “How US health care reform will affect employee benefits,” June 2011, http://www.mckinsey.com/insights/health_systems/how_us_health_care_refor...
11. Deloitte, “2012 Deloitte Survey of U.S. Employers: Opinions about the U.S. Health Care System and Plans for Employee Health Benefits,” July 2012, http://www.deloitte.com/view/en_US/us/Insights/centers/center-for-health....
12. Some workers will lose what the law deems to be “affordable” benefits, as their employers offer “unaffordable” plans intentionally, knowing that doing so will drive their lower-income workers to look outside the firm for health coverage, which will save the employer money (because paying a $3,000 federal penalty fine is cheaper than paying for a $8,000 to $20,000 insurance policy). Some economists predict that we may see a lot of firms restructure themselves into two “sister firms”: one for higher-wage workers who will continue to enjoy company health benefits, and one for lower-wage workers who will be “dumped” into the government exchange. In other words, lower-income workers will get the short end. And guess which age group will be hardest hit by that? Yep, young adults.
13. Brett Norman, “ACA Penalties Spawn ‘Skinny’ Plans,” PoliticoPro, July 16, 2013, http://www.politico.com/story/2013/07/some-workplace-health-plans-will-b....
15. The employer mandate will take effect on January 1, 2014. In July 2013, the Obama Administration surprised everyone by announcing it was unilaterally cancelling the mandate for a year, pushing the effective date back to January 1, 2015. While this cancellation is illegal, so long as the mandate is only delayed temporarily the incentives for employers to cut back on hours and hiring will remain essentially unchanged. The one-year delay will probably cause more employers to “dump” their workers into government health exchanges in 2014 than would otherwise have been the case. This, we suspect, is exactly what the Administration intends.
16. Here is now the employer mandate penalty works. The IRS will level a tax penalty on businesses with more than 50 full-time employees who fail to offer health coverage. The fine is $2,000 per employee after the first 30 employees. Employers will also be fined for failing to offer “affordable” coverage, as defined by the law. The fine is $3,000 per employee if coverage costs more than 8.5 percent of that worker’s income.
17. Chad Terhune, “Part-timers to lose pay amid health act's new math,” Los Angeles Times, May 2, 2013, http://articles.latimes.com/2013/may/02/business/la-fi-part-time-healthc....
18. Estimate by Senate Budget Committee Republicans, based on CBO projections, for the years 2014-2023.
19. C. Eugene Steuerle (Urban Institute), "Fixing the Nation's Four-Tranche Universal Health System: Next Steps for Both Republicans and Democrats," October 28, 2010, http://www.urban.org/publications/901386.html
20. ObamaCare supporters protest that the law “doesn’t add a dime to the deficit,” citing the official CBO cost estimates for the legislation. But that claim doesn’t stand up to scrutiny. The law only appears “deficit neutral” on paper, because of massive budget gimmicks like these. In reality, ObamaCare will cost taxpayers dearly, with younger taxpayers getting hit the hardest. The law includes $700 billion in ten-year Medicare reductions (to help pay for the new entitlement) that the Chief Actuary of the Medicare program assumes are unlikely to take effect, because they would cause 15 percent of hospitals to go out of business by 2019. (Source: CMS Chief Actuary Richard S. Foster, Memorandum on Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended, April 22, 2010, http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/Actuari....) Members of Congress will never voluntarily allow large numbers of hospitals in their districts to go out of business. They will move to provide federal relief. And the relief will most likely come in the form of reversing the Medicare payment reductions. The Chief Actuary also points out that the law assumes a series of deep, automatic, annual reductions in Medicare payments to doctors that Congress has historically never allowed to take place.
21. Avik Roy, “Putting the ‘Insurance’ Back in Health Insurance, Forbes, May 21, 2012, http://www.forbes.com/sites/theapothecary/2012/05/21/putting-the-insuran...
22. Dean Clancy, What Should Replace ObamaCare, July 17, 2012,
See also: Avik Roy, “The Tea Party’s Plan for Replacing ObamaCare,” Forbes, April 7, 2012,
23. For many people, especially younger citizens, it will be more financially sensible to just pay the fine than to buy overpriced health coverage. The fine is small (only $95, or 1 percent of one’s income, whichever is higher, in 2014). If you refuse or neglect to pay the fine on your yearly tax return, the statute prevents the IRS from punishing you, other than by withholding any tax refund you are owed. So you could theoretically sidestep any penalty whatsoever by adjusting your income tax withholdings to avoid being owed a refund.
24. Jacqueline Bodnar, “FreedomWorks Announces “Burn Your ObamaCare Card” Campaign to Resist the Compulsory Health Care Law” (press release), July 11, 2013, http://www.freedomworks.org/press-releases/freedomworks-announces-%E2%80.... See also: Dean Clancy, “Burn Your ObamaCare Card,” Washington Times, July 10, 2013, http://www.washingtontimes.com/news/2013/jul/10/burn-your-obamacare-card/
Top Ten Ways ObamaCare Sticks It to Young Adults By Dean Clancy[Note: a .pdf version of this post can be found at the bottom of this page]
The FreedomCast: Episode 13: Seton Motley on Internet freedom and CISPA
On today’s edition of The FreedomCast, I’m joined by Seton Motley, president of Less Government to discuss internet freedom, the unholy alliance between the Democrats and Google and how government wants more access to your personal data...what could go wrong?
For more information on CISPA and how to stop Congress from invading your privacy, check out our action item here.
Have a suggestion for an upcoming FreedomCast episode, or a comment? Send it to me on twitter @KristinaRibali.
Subscribe to The FreedomCast on iTunes here.
Follow today's guest @SetonMotley on twitter.
Our podcast is fabulously produced by @BradWJackson.
The FreedomCast: Episode 13: Seton Motley on Internet freedom and CISPA
There are dumb ideas, really dumb ideas, and then there are government ideas. Faced with $15 billion of debt, dual defaults on their retiree benefits, and a hopelessly out-of-date business model, the U.S. Postal Service is trying desperately to get out of the red.
A few weeks ago, the Postal Service hiked stamp prices. Days later, they begged Congress to let them stop Saturday mail delivery. I’m sure if they keep reducing services and raising prices, they’ll be back on top in no time.
But punishing customers isn’t their only bright idea. At long last, the postal service has finally decided to step into haute couture. Cliff Clavin, meet Derek Zoolander:
The cash-strapped U.S. Postal Service is launching a new line of apparel and accessories under the brand name "Rain Heat & Snow," playing off USPS' unofficial motto "Neither snow nor rain nor heat nor gloom of night stay these couriers from the swift completion of their appointed rounds."
Following quarter after quarter of billion dollar losses and declining mail volume, the agency has pledged to find new ways to generate revenue. So why not fashion?
"This agreement will put the Postal Service on the cutting edge of functional fashion,” said Postal Service Corporate Licensing Manager Steven Mills in a statement. “The main focus will be to produce Rain Heat & Snow apparel and accessories using technology to create ‘smart apparel’ — also known as wearable electronics.”
Do you look like a hot mess? Not anymore, thanks to the Fabulousmaster General. Pick up a sequined slate-blue minidress with peek-a-boo hiking heels and matching messenger bag. I’ll be working some fierce jeggings and a retro-logo jacket matched with an ironic pith helmet. Look out Paris and Milan!
I’m such a skeptic. Maybe USPS polls show that kids revere Seinfeld’s Newman as their sartorial lodestar. Perhaps hordes of teenage mallrats and fashion-forward DJs are chomping at the bit to buy all the prêt-à-postal merch that Chinese factories can sew up and spit out. Why couldn’t Katy Perry wear bedazzled letter-carrier cullottes in her next video?
The financial troubles with the Postal Service aren’t going to be fixed by a penny stamp increase, removing weekend delivery, or, heaven forbid, a fashion line. Their problem is far deeper than that.
Where there is no competition, everyone suffers. The customer pays higher prices for worse service while innovation atrophies. Interestingly, the USPS is doing pretty well in package delivery – the one area where they have plenty of competition from other delivery giants. Where they are losing the most money is first-class mail. One would think that a monopoly guarantees success, but as shown by Amtrak, this is rarely the case.
Instead of incremental changes that just delay the inevitable, it’s past time to consider privatizing the postal service. It would help long-suffering customers, taxpayers and the postal service itself.
Congress, make it work.
There are dumb ideas, really dumb ideas, and then there are government ideas. Faced with $15 billion of debt, dual defaults on their retiree benefits, and a hopelessly out-of-date business model, the U.S. Postal Service is trying desperately to get out of the red.
By: Jim Hoft and Rachel Pulaski
The 2012 Legatum Prosperity Index found that the "American Dream is in jeopardy" and "The national ethos of the U.S. is under threat." The assessment of prosperity is based on material wealth and personal well-being. The Prosperity Index benchmarks countries in eight categories: Economy, Entrepreneurship & Opportunity, Education, Governance, Personal Freedom, Health, Safety & Security, and Social Capital.
The Unites States dropped out of the global prosperity ‘top ten’ for the first time to the twelfth position in the worldwide prosperity rankings and fell eight places in ‘Entrepreneurship & Opportunity’. The assesment found fewer US citizens agree that "hard work gets you ahead."
"The London-based public policy institute pegged the precipitous drop in the U.S. to a decline in consumer and voter confidence, along with a bleak economic and entrepreneurial outlook; four percent fewer citizens believe that "hard work gets you ahead," and business startup costs as a percentage of Gross National Income (GNI) have doubled in the past two years.
In fact, the U.S. economy sub-score dropped to twentieth and its personal freedom score dropped four points to fourteenth, just above Uruguay."
The report was first released on October 30, 2012, the group was hoping the report would have "electoral implications" but as always MSM remained silent:
"As the US struggles to reclaim the building blocks of the American Dream," Gedmin noted, "now is the time to consider who is best placed to lead the country back to prosperity and compete with the more agile countries that have pushed the U.S. out of the top ten."
List of the top 20 countries:
By: Jim Hoft and Rachel PulaskiThe 2012 Legatum Prosperity Index found that the "American Dream is in jeopardy" and "The national ethos of the U.S. is under threat." The assessment of prosperity is based on material wealth and personal well-being. The Prosperity Index benchmarks countries in eight categories: Economy, Entrepreneurship & Opportunity, Education, Governance, Personal Freedom, Health, Safety & Security, and Social Capital.
FreedomWorks Foundation has just released a new Issue Analysis that looks at a lawsuit that the motion picture studios have filed to ban RealDVD. They claim its all about piracy and protecting intellectual property, but what it really does is threaten technological innovation in the digital economy.
Check it out:
FreedomWorks Foundation has just released a new Issue Analysis that looks at a lawsuit that the motion picture studios have filed to ban RealDVD. They claim its all about piracy and protecting intellectual property, but what it really does is threaten technological innovation in the digital economy.Check it out:http://www.freedomworks.org/publications/issue-analysis-number-125-hollywood-vs-consumers
Fighting a slump in DVD revenues and a rapidly changing marketplace, the motion picture studios recently filed a lawsuit to ban RealDVD, new software that allows consumers to make a single backup copy of DVDs they have legally purchased to the hard-drive of their computer. While doing little to quell illegal DVD piracy (one cannot use RealDVD to burn movies onto a disc or load movies onto the web), banning new products will impose substantial new limitations on consumers and their use of the DVDs they purchase. Should the motion picture industry succeed with their lawsuit, which will be heard later this week in a Federal courtroom in San Francisco, consumers will lose fair use rights that have been carefully defined and protected by the courts. Banning new products such as RealDVD will also hamper competition and technological innovation in one of the most dynamic sectors of the economy.
Introduction & Summary
Technological innovation drives change in every sector of the economy. It is also the source of new challenges as markets evolve and businesses continually adapt to new conditions and consumer demand. Nowhere is this more evident than in the entertainment world, where the digital revolution has fundamentally altered the market for creative content. Technology’s dramatic pace of change has provided consumers a stunning array of new choices with respect to both content and equipment.
The emerging new marketplace is not without a certain degree of concern for those who produce and provide content, creating new challenges for the movie industry. But rather than adapt to, compete with, and ultimately embrace new revenue streams, some key industry players hope to maintain the status quo and resist changing market forces and consumer interests by using litigation to shut down innovation.
The tensions generated by technology played out most notoriously in the recording industry, where the public clash between content owners and consumers generated new laws for digital rights management and lawsuits against those who ignored these laws. Instead of learning from the mistakes of the recording industry by seeking out new revenue streams and looking to get ahead of the consumer curve, the motion picture industry has remained a few paces behind the changes in the recording world that consumers now take for granted.
The most recent example is the launch of RealDVD last fall. The software, created by Seattle-based RealNetworks, allows users to legally save a copy of any DVD that they own to their computer or laptop. Consumers can load copies of DVDs they have purchased onto a hard drive for later viewing anywhere or anytime. To avoid piracy and copyright violations, RealNetworks developed a product that does not remove existing digital rights management (DRM) encryption, and actually adds another layer on top to lock the copy to the specific hard drive to which it was downloaded.
Nonetheless, the motion picture studios—including Disney, Paramount, Sony, Twentieth Century Fox, Warner Bros., and Viacom—have filed a lawsuit against RealNetworks to have the new product banned, and on October 3, a temporary restraining order was issued by the court, taking the product off the market less than a week after its launch.
Clearly, such legal wrangling will be a significant factor determining RealDVD’s viability in the marketplace. But for consumers, the legal battles may have a far broader impact that will define—and perhaps restrict—how they use DVDs that they have legally purchased. In essence, consumer rights could be dramatically curtailed or even eliminated if the courts determine that the Digital Millennium Copyright Act trumps the long history of legal decisions that define fair use.
RealDVD—A Legal Way to Copy DVDs
RealDVD offers the next logical step in the development of digital entertainment, allowing users to save an exact copy of a DVD image to an internal or portable hard drive. It will not, however, allow users to download a DVD that can then be used to burn multiple copies. RealDVD initially allows the consumer to use the product on a single computer. If he or she would like to watch downloads on additional computers, up to four additional software licenses can be purchased for $20 each.
There are a variety of reasons why consumers would choose to make a back-up of DVDs they have purchased, including protecting discs from “scratches and damages,” and “saving your movies legally, and with confidence.” One prominent use for such software would be in conjunction with a laptop, allowing the user to load DVDs that can be viewed on the go and at any time. For many consumers, the flexibility to copy their DVD to a hard drive is an important attribute, much like copying music CDs to a hard drive. In a recent poll by the National Consumers League, 90 percent of the respondents felt that consumers should be able to back up their DVDs.
But it is the claim of legality that makes RealDVD a unique offering when compared to the many DVD rippers easily found on the internet. This claim is also what sparked the lawsuit from the motion picture industry.
For starters, RealDVD does not remove the content scramble system (CSS) that protects copyrighted material, which ensures that it does not run afoul of Digital Rights Management (DRM) requirements. In addition, a new layer of encryption is added that locks the copy to a single hard drive and eliminates the possibility of making additional copies for distribution, removing the threat of piracy. RealNetworks licenses the encryption software from the DVD Copy Control Association, just as a hardware manufacturer producing DVD players would.
This stands in clear contrast to the many DVD rippers that are obtainable for free or a minimal charge. These products work by specifically targeting the CSS for removal, unlocking the DVD so that it can be freely copied and distributed as well as translated into any number of formats that allow viewing on computers, game consoles such as PlayStation, and personal media players such as an iPod. Under current laws, such DVD rippers are clearly illegal. They are also the major source of illegal copying; nonetheless, the major studios have opted to target RealDVD, a product clearly designed to limit illegal copies.
From DVDs to the 21st Century
The convergence of computers, home theaters, and stereos is redefining how people consume music and videos. In fact, more than 75 percent of consumers who have the capability will view DVDs on computers, and three out of five consumers would like to copy a purchased DVD to their iPod, laptop, or home computer.
Along with music, DVDs and video are migrating to a digital platform that can be accessed from any room in the house—with different rooms able to listen or watch independently from one another. Just as products such as Sonos and the Logitech Squeezebox provide an opportunity for streaming digital music throughout a house, Popcorn Hour has introduced a product that allows digital video streaming. These products are a marked departure from standalone systems and rely on a central archive of content.
Whole-house solutions are becoming the norm, not the novelty, just as offices have transitioned from desktops to networks. Already a variety of whole-house digital products are being offered, from the high-end Kaleidescape to the more moderately priced Windows Home Server. The basic goal of all these systems—and the direction that technology is heading—is to provide a central location that can store and archive digital and audio media that can be accessed from anywhere. Requiring a DVD to be physically inserted prior to watching a movie remains the only solution if the motion picture industry is successful in its effort to control technological innovation.
While RealDVD has limited functionality with respect to home theater systems, RealNetworks recognizes the future of the home video market, and its literature suggests increasing functionalities along these lines in future releases of the software.
Notably, one home media server won an important legal challenge against the motion picture industry. Kaleidescape, which produces a high end server that allows consumers to copy their DVDs into an archive that is then locked to prevent further copying, was sued by the DVD Copy Control Association (DVD CCA), which alleged this violated the licensing agreement. The court ruled in favor of Kaleidescape, claiming that the language on which the DVD CCA relied for its lawsuit was actually in a secondary document and not the license itself. Kaleidescape, therefore, was not violating its contract with the DVD CCA and its product is considered legal—at least for now; the DVD CCA has appealed the decision.
Importantly, the DVD CCA avoided a direct challenge to fair use rights, relying instead on a technical argument about the license. But as technology advances and consumers are offered new ways to view video content, the clash between the DMCA and fair use must be addressed, making the legal challenge to RealDVD a significant case for consumers.
The motion picture industry has countered that they are providing new products as part of their DVD sales that would allow the transition to new technologies and new viewing habits to proceed unimpeded. Digital downloads and the inclusion of a DVD that can be copied with the purchase of a regular DVD would facilitate the use of a home server. It also facilitates the monopoly rents of Hollywood by banning competition in the ancillary market for technological innovation for home video.
The studios, in essence, are asserting an exclusive claim not just to the creative content they provide, but to the technologies used by consumers to view DVDs, something that goes far beyond their copyright protection to spur innovation. More accurately, the major studios are in a struggle to protect fading revenue streams and are failing to embrace new revenue streams being created through innovation. As one commenter noted, “Effectively, the Big Content players believe that they own their industries, and innovation should come from the top down through the paths that they choose. Thus, these sorts of lawsuits will continue until the management of these firms recognize that innovation is a bottom-up phenomenon. Or, the big firms go out of business. Whichever comes first.”
Copyright, Fair Use, and the DMCA
Since its founding, the United States has recognized the importance of copyright, as well as its ambiguity from a property rights perspective. Article I, Section 8 of the Constitution—often called the Copyright Clause—states that Congress has the authority “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” A period of exclusive ownership or copyright provides an incentive to produce works that might otherwise not be undertaken.
Congress first exercised this authority in 1790 when it passed the Copyright Act that determined a copyright to last for 14 years, with an option for an additional renewal of 14 years. Over time, Congress has revisited this definition, most recently in the Sonny Bono Copyright Extension Act of 1998, which extended copyrights to include the life of the author plus 70 years, or in the case of corporate authorship 120 years from the year of creation or 95 years from the year of publication, whichever comes first.
Clearly, the Congress has provided an increasing level of exclusivity for copyright holders over time. But this exclusivity has always been balanced by the doctrine of fair use, which, under certain circumstances, allows limited use of copyrighted materials without first seeking permission from the owner of the copyright. Typically, such use is based on a four factor test:
• The purpose of the use
• The nature of the work being infringed
• The amount taken from the original work
• The effect of the use on the potential market for, or value of, the work.
The fair use doctrine attempts to provide a common sense balance to copyright. Without a fair use doctrine, many trivial and uncontroversial uses of copyrighted material would be illegal. The courts have traditionally navigated this netherworld between copyright protection and violation, addressing much thornier questions of use to determine what is fair.
Congress’s continuing extensions of copyright protection suggest that the importance of copyright as an incentive for innovation and production is well established. Often overlooked, however, are the economic benefits generated by fair use. A number of industries rely crucially on fair use, from education to broadcasting to new internet technologies. Indeed, some of the fastest growing sectors of the economy rely on to some degree on fair use. One study found that fair use generated more than $2 trillion in added value to the U.S. economy in 2006.
In practice, the doctrine of fair use is a discovery process that is continually refined and updated in light of technological innovation that redefines how consumers can use copyrighted materials. As Fred von Lohmann of the Electronic Frontier Foundation states, “The fair use doctrine operates as a ‘safety valve’ not just for free expression, but also to mediate the tension between copyright and new technologies. As new technologies develop, courts generally have the first opportunity to apply copyright law to them, with Congress lagging behind. This spares the public, technologists, and copyright owners from having to apply to Congress for a legislative solution for each new technology that is developed.”
In this sense fair use doctrine is a “loose joint” that allows the courts to balance the interests of consumers and copyright owners in a constantly changing world. This process was perhaps most famously displayed in the Supreme Court’s Betamax case in 1984. The court ruled that recording a television show for later viewing—“time shifting”—was a legitimate fair use for consumers. More so than any other decision, this case has shielded technological advance from aggressive copyright claims. The court acknowledged that a VCR could be used for copyright infringements, but ruled there were legitimate non-infringement uses that must be considered. Simply because a new technology can be used for illegal purposes does not mean that its use by consumers should be banned.
Since the Betamax decision, the copyright lobby, led by the motion picture and recording industries has sought to tighten the constraints on potentially infringing technologies, both in the courts and in Congress. Most controversially, a successful legislative effort in 1998 led to the passage of the Digital Millennium Copyright Act (DMCA), which criminalized some infringements and included new legislative language that limited the loose joint of fair use doctrine and recast the balancing act conducted by the courts. In particular, the DMCA made the production or distribution of any device, technology, or service that circumvented copy protection technologies such as DRM a criminal activity.
The DMCA’s impact has been significant, but not in ways that benefit consumers or reduce illegal reproductions of copyrighted materials. With respect to piracy, DRM has been virtually useless. While an impediment to the average consumer, anyone seeking to illegally reproduce and distribute copyrighted materials can easily bypass DRM protections. Piracy of both recordings and motion pictures have increased in the wake of the DMCA’s passage. In discussing the vote on the DMCA, former Rep. Bob Barr points out how the DMCA has moved far beyond its original intent: “When [the DMCA] was introduced it was about piracy. The protection of encryption was about preventing piracy. That was the bill we passed. But now you see [copyright owners] using it in ways that have nothing to do with piracy.”
Technologies and services available to the consumer have been restricted under the DMCA. Many practices that would withstand the traditional fair use test have been found to be illegal. The DMCA has given the content providers a virtual monopoly on platforms for the distribution of their products by requiring all new technologies be licensed by the DVD CCA. But a copyright is a negative right. That is, it is a limitation on others using the creator’s work. It does not provide the creator with the right to do something with a copyrighted work, and it certainly should not create a monopoly for the technologies that consumers may purchase.
Unfortunately, that is precisely what the DMCA has created. The case against RealDVD is the most recent attempt by content providers to limit competition and technological innovation. There are numerous reasons an individual may want to archive a copy of a legally purchased DVD. However, the ability to do so is now under fire from the motion picture industry.
Studios thus far have avoided a direct challenge on the important question of whether the DMCA trumps the case law defining fair use. In this instance, RealDVD makes the case that it preserves the encryption while adding another layer to lock it to a specific hard drive, so there has been no circumvention of the DRM system. Additional copies cannot be made or distributed. If the case is decided on this narrow ground, the purpose of the circumvention (for example, a personal copy of a legally purchased DVD) under the fair use doctrine still may not be addressed.
Ultimately, however, this legal challenge could force the courts to address the tensions between fair use and the DMCA, which can have far reaching implications for consumers. If the studios win their legal challenge to RealDVD, the courts, in effect, will be asserting that the DMCA adds significant new restrictions to what consumers are allowed to do with DVDs they purchase.
Economic Realities vs. Piracy
While RealDVD is one of the latest targets of the Hollywood studios, their troubles go well beyond just one product or one market. Quite simply, DVD revenues—which have been a cash cow for the industry—are plummeting. Much like the music industry, the studios are scrambling to come to grips with new technologies and new consumer preferences.
Publicly, the slump has been blamed on the economic downturn, and this may in fact play a part. Piracy, too, plays a role in the decline, with the Motion Picture Association of America estimating losses to piracy in the United States to be $1.3 billion in 2005. But there are larger trends at work that threaten to reduce revenues even in the absence of piracy and a slumping economy.
The losses are more systemic than a drop in consumer spending. In fact, the space in which DVDs compete is dynamic and has evolved in ways that are forcing studios to revisit more fundamental business questions. Television broadcasters, for example are moving to stream more free content on the internet as they see their market in flux. Movie studios must also come to grips with the increasing prominence of the internet, a valid and growing competitor to the old model of producing for movie theaters with an aftermarket of televisions.
New technologies make streaming over the internet easier and new business models must evolve to capture consumers who opt for the internet over televisions or DVDs. Internet streaming with advertising and subscription services are being examined by various studios, and ultimately may generate new products and revenues.
At the same time, home libraries of DVDs have hit saturation levels, exacerbating the decline in DVD revenues. Since a peak in 2006 of $24.1 billion, DVD sales were off by $2.5 billion in 2008. The industry hoped to see an increase in sales as new, high-definition DVDs became available, but sales have been sluggish, despite the resolution of the format wars and the emergence of Blu-Ray as the new standard. The studios also are seeking to boost the sales of standard DVDs by adding new features such as downloadable disks that provide consumers flexibilities similar to those offered by RealDVD.
Finally, the internet has provided consumers additional forms of entertainment, from videos produced for online consumption to video games and online gaming that compete directly with DVDs.
While piracy is clearly a concern for the studios, there are other trends unfolding that also have a significant impact the studios’ business model. The internet and personal technologies have splintered the market and introduced new forms of competition.
Like the recording industry and the newspapers, the studios are being challenged to come up with new ways of doing business. Banning consumers from making copies of legally purchased DVDs only threatens to alienate consumers while offering little to address the more fundamental concerns of the industry’s evolving business model. As Martin Peers notes in the Wall Street Journal, “Whichever way entertainment companies jump, they will likely have to accept lower revenue than in the past.”
Stopping the Real Pirates
When challenging RealDVD, the motion picture industry’s strongest argument relies on the claim that the software allows users to save copies of DVDs they do not legally own, commonly portrayed as “rent, rip, return.” Under the fair use standards of the Betamax case, however, the ability for infringement should not make a technology illegal. In a case where the underlying technology does not even circumvent the DRM requirements, the fair use exception should still be applicable.
Assume, for an instant, however, that the motion picture studios can demonstrate that RealDVD coupled with a rent and burn mentality leads to reductions in revenue. Even then, it is not intuitively obvious that the best solution to the problem is to ban products such as RealDVD from the marketplace.
In 1960, Nobel prize winning economist Ronald Coase wrote “The Problem of Social Cost,” one of the most influential articles in the economics literature. Simply put, Coase suggested that if there are costs or benefits not captured in the price of a transaction—termed externalities by economists—then the most efficient solution is to place the burden of minimizing the externality problem on the “least cost avoider.” The cost of solving the problem should be borne by the party who can do so most efficiently.
As Coase noted, “Analysis in terms of divergences between private and social products concentrates attention on particular deficiencies in the system and tends to nourish the belief that any measure which will remove the deficiency is necessarily desirable. It diverts attention from those other changes in the system which are inevitably associated with the corrective measure, changes which may well produce more harm than the original deficiency.”
In the case of RealDVD, the potential externality is piracy. The MPAA assumes that the cheapest way to resolve the threat of piracy is to ban products such as RealDVD from the marketplace. This imposes significant costs on RealDVD for what actually may be a trivial reduction in piracy.
As mentioned earlier, most individuals seeking to pirate and copy DVDs rely on software freely downloaded from the internet that allows more flexibility with respect to the number of copies and format of copies that are pirated. A more efficient solution to piracy, therefore, might be a ban on the software that allows illegal downloading.
But providers of illegal software are often located offshore beyond the reach of the law, and the ease of circumventing DRM makes it difficult to prevent new entrants in the piracy market. Nonetheless, that does not make a ban on products such as RealDVD the efficient solution to a piracy problem.
In fact, from a broader perspective of reducing large scale piracy, perhaps the Coasian solution would be to place the burden on companies such as Netflix that supply the DVDs that are eventually illegally copied, or even the DVD manufacturers themselves. DVDs that are widely circulated as rentals could possibly require a technological marker that identifies them as rental copies and makes it more difficult to copy. Indeed, RealNetworks has expressed a willingness to work with the studios and other key players in the market to implement such a system; nonetheless, the major studios have opted to seek a ban on RealDVD rather than cooperate to solve the problem.
But even this approach is only an option to be evaluated; a thorough analysis of the entire industry is required to determine the most efficient resolution to the problem. Banning a product that is clearly inferior for those seeking to pirate DVDs will do little to quell the illegal reproduction and distribution of DVDs.
Shifting the burden of content protection to consumers and other technology sectors can have significant impacts and costs for the economy. One study found, “The potential shifting of costs of content protection to the consumer electronics and information technology industries poses a challenge to one of the most dynamic sectors of the U.S. economy. Not only would such cost-shifting reduce the incentives of the content distribution industry to manage the transition to the digital world—and place the incentives on a sector farther from the source of the problem—but, by imposing design constraints, it would also challenge the information technology industry’s ability to innovate. That innovation has resulted in enormous investment in information technology over the last decade (a critical factor in the economic successes of the U.S. in the 1990s) and contributed substantially to the upward trend in productivity growth that emerged in the U.S in the late 1990s.”
RealDVD Boosts the Demand for DVDs
The allegations made by the MPAA are sweeping and require empirical support before they can be used as a basis for denying consumers the use of a new product. In fact, there is little evidence that has been provided to demonstrate that RealDVD actually increases piracy and therefore harms the movie studios. The impact is, in fact, just as likely to be neutral or actually beneficial to the movie studios.
Pirates will rip, burn, and copy any DVD with the goal of maximizing the number of DVDs they can acquire, paying no heed to copyright laws. For pirates, the impact of RealDVD will be minimal; it offers little advantage to the pirate seeking to copy DVDs for widespread distribution.
The response of the online technology community to RealDVD’s rollout suggests as much. Some tech-related websites greeted the product with a yawn, complaining that the product did not unlock DVDs while adding more encryption. Reviewers questioned whether consumers would actually use the product, when there were more versatile—albeit illegal—products available for free on the internet.
As one commenter noted, “In the end, it may not matter whether RealDVD survives (or even launches). The majority of folks savvy enough to contemplate archiving DVDs have probably already discovered methods that incur no additional DRM (I use Handbrake on Mac and FairUse on PC). DMCA or not, I doubt any individual consumer would end up facing consequences in ripping DVDs for personal usage—assuming they steer clear of file sharing networks.”
The relevant figure, then, is the net increase in copying by law-abiding consumers of DVDs they have not purchased. The motion picture industry has provided no evidence that directly addresses this question, instead making a blanket charge of increased piracy. Yet a recent poll by the National Consumers League suggests that the threat of increased piracy may, in fact be small. The survey found that almost 80 percent of consumers had no interest in copying DVDs. Before attempting to eliminate the consumer’s rights to use legally purchased materials they already own, this question must be specifically addressed.
Moreover, RealDVD includes a number of features that may, in fact, boost the demand for DVDs, raising a direct challenge to the motion picture studios’ assertions that a product like RealDVD detracts from their revenues. Allowing consumers to view their DVDs without having to carry the discs or a drive that plays DVDs increases the value of the DVD, which can increase demand.
In fact, the enhancements in value added by products such as RealDVD must be included in any analysis of economic harm. Providing a more durable backup, allowing DVDs to be loaded onto laptop computers, increasing parental control, and even allowing DVDs to be loaded onto a media server are all qualities that benefit consumers and increase the demand for DVDs. These benefits must be included in any assessment of RealDVD’s impact on the revenues of the major studios.
RealDVD also can provide additional benefits, such as recommendations for other DVDs of interest, much the way Amazon.com makes recommendations for its customers. Consumers can also search for new movies by title, genre, and actor. These innovations encourage the purchase of additional DVDs by consumers, which can boost sales of DVDs. Given these qualities, in economic terms, RealDVD may actually be a complement—not a substitute—for content provided by the motion picture industry. Increased demand through an improved experience for the consumers would have to be included in any assessment of potential revenue impacts of a product like RealDVD.
In fact, the recent National Consumers League poll found that while 40 percent of consumers surveyed said they would purchase fewer DVDs one year from now due to the economic slowdown, an equal number said they would increase their purchases if they included enhancements that increased the value they derive from the DVD. RealDVD does just that, providing greater convenience and versatility, and this should be included in any assessment of RealDVD’s impact.
Likewise, broad accusations of piracy must be more carefully scrutinized. There is an important distinction between illegal copies and legal copies that keep digital rights management protocols intact. RealDVD offers few incentives for the DVD pirate (who will opt for readily available freeware when making illegal downloads) while offering significant benefits for the average DVD consumer.
The Market May Be Changing, But Consumer Choice Is Increasing
Clearly, business models are in flux across the entertainment industry as new opportunities and challenges emerge. But from the consumer’s perspective, the market is thriving. New technologies have reduced costs and introduced new models of production and distribution. In the music world, for example, while the major labels face unprecedented challenges, consumers enjoy access to perhaps the widest array of music ever available. From classical to experimental electronic music, consumers can select from traditional labels as well as a thriving and growing group of independent labels. Digital downloads offer a new way to purchase music, which has, in turn, allowed a shift in consumer preferences from purchasing albums of music to downloading particular songs.
At the same time, social networking sites such as MySpace and Facebook allow consumers to explore new artists while providing new marketing channels for the artists. These innovations will affect the major studios as well. Legitimate concerns over piracy may be a challenge for the traditional studios, but they are also facing intense new forms of competition from within and without the motion picture industry.
But as the music industry has learned, declaring war on the consumer does not offer a viable long-run business plan. Yet the case against RealDVD does just that, limiting the rights of the consumer to use legally purchased DVDs.
Film has moved from celluloid to VHS to DVD, and rapidly is being pulled further into the digital world, where it is the bits and bytes of data rather than its physical format that matters. New technologies offer consumers a host of new opportunities to enjoy video content. The copyright laws were created to protect those who create this content, and the courts have always used the fair use doctrine to balance the interests of consumers and producers.
In recent years, however, legislation has impeded the balancing act, particularly the DMCA and its DRM provisions. While attempting to reduce copyright infringements, the law has actually stifled innovation and reduced consumer choice while doing little to stem the flow of piracy. The recent case against RealDVD clearly demonstrates the DMCA’s potential to deny consumers non-infringing uses of copyrighted materials they have legally purchased.
The tensions between fair use doctrine and the DMCA have been mounting and the case against RealDVD is just the most recent clash in the struggle to define fair use. To date most cases have avoided the direct question of whether the DMCA has trumped fair use, but for consumers this question is becoming increasingly urgent, as they may lose the right to use materials they have legally purchased. If, in fact, the courts rule against RealDVD, the DMCA will figure much more prominently, much to the detriment of fair use, innovation, and competition.
Wayne T. Brough is Chief Economist and Vice President for Research at FreedomWorks Foundation in Washington, D.C.
Download a .pdf version of the full study complete with footnotes by clicking here! Executive Summary
For too long the Florida Public Service Commission has maintained a stranglehold on the state’s telecommunications market. This vital sector of Florida’s economy moves much faster than government bureaucrats can keep up with, but still cumbersome regulations and oversight authority unnecessarily burden the marketplace, putting the Sunshine State at a competitive disadvantage with other states that have made regulatory reform a priority.
Fortunately, legislation is currently under consideration in the Florida Legislature that will allow consumers the benefits of telecommunications reform and increased competition. HB 1465 and SB 2626 will help get government out of the way, promoting investment and encouraging innovation in the telecommunications market.
Floridians deserve the benefits of increased competition amongst telecommunications providers. By removing regulatory barriers that the Florida Public Service Commission currently has in place, HB 1465 and SB 2626 go a long way towards leveling the playing field and making the market truly competitive. Consumers will see the benefits through more choices and competitive pricing and service options.
In addition, streamlining telecommunications regulations has added benefit for Florida’s economy. As companies see the state opening up the market and tearing down barriers to competition, Florida will become a more attractive option for them to invest in more jobs and infrastructure building as well.
Contact your legislators and the governor TODAY!
1. Use FreedomWorks Toll-Free Hotline to the Florida Legislature – (866) 946-1928 – and ask to be connected with you legislators. If you need help identifying your state legislators click here and use the “find your legislature” feature by entering your zip code.
2. Send an important message to your legislators and the governor on this issue by clicking here and urge them to support HB 1465 and SB 2626!
Remind them that these bills take a de-regulatory approach and will streamline and modernize existing law to encourage economic growth and healthy competition. They will strip out unnecessary and over-burdensome regulation that will better enable the free market to work in the telecommunications industry. Especially in such turbulent economic times, Florida consumers and the economy as a whole should reap the benefits of increased competition in the form of more choices, better service, and competitive prices!
For too long the Florida Public Service Commission has maintained a stranglehold on the state’s telecommunications market. This vital sector of Florida’s economy moves much faster than government bureaucrats can keep up with, but still cumbersome regulations and oversight authority unnecessarily burden the marketplace, putting the Sunshine State at a competitive disadvantage with other states that have made regulatory reform a priority.Fortunately, legislation is currently under consideration in the Florida Legislature that will allow consumers the benefits of telecommunications reform and increased competition. HB 1465 and SB 2626 will help get government out of the way, promoting investment and encouraging innovation in the telecommunications market.TAKE ACTIONFloridians deserve the benefits of increased competition amongst telecommunications providers. By removing regulatory barriers that the Florida Public Service Commission currently has in place, HB 1465 and SB 2626 go a long way towards leveling the playing field and making the market truly competitive. Consumers will see the benefits through more choices and competitive pricing and service options.In addition, streamlining telecommunications regulations has added benefit for Florida’s economy. As companies see the state opening up the market and tearing down barriers to competition, Florida will become a more attractive option for them to invest in more jobs and infrastructure building as well.Contact your legislators and the governor TODAY! 1. Use FreedomWorks Toll-Free Hotline to the Florida Legislature – (866) 946-1928 – and ask to be connected with you legislators. If you need help identifying your state legislators click here and use the “find your legislature” feature by entering your zip code.2. Send an important message to your legislators and the governor on this issue by clicking here and urge them to support HB 1465 and SB 2626!Remind them that these bills take a de-regulatory approach and will streamline and modernize existing law to encourage economic growth and healthy competition. They will strip out unnecessary and over-burdensome regulation that will better enable the free market to work in the telecommunications industry. Especially in such turbulent economic times, Florida consumers and the economy as a whole should reap the benefits of increased competition in the form of more choices, better service, and competitive prices!
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