Disruptive Technologies: Piracy and the Entertainment Industry

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Disruptive Technologies: Piracy and the Entertainment Industry

In a world of over-saturated technology markets, we champion disruptive technologies. Today, multiple apps, websites, and programs perform equivalent tasks—see Chrome and Safari; Uber and Lyft; Netflix and Hulu. To survive in such an oversaturated tech market, emerging companies must challenge the status quo by disrupting not only consumers but also industries at large. However, only a few remarkable startups truly deliver on their claim of being disruptive. To better understand the definition and significance of disruptive technologies, we look into the entertainment industry and the disruptive effects of pirating media.

Among the most notable examples of disruptive technology in the entertainment industry is Napster, a music file-sharing program built on a peer-to-peer network allowing users to download music for free. The program drastically changed the digital music business and, as one would expect, the wide-scale piracy of copyrighted content via Napster became a major detriment to the previous state of record label sales.

In response, many record labels attempted to prevent internet privacy by avoiding digitization;however, the preferences of paying consumers were clear — many were now opting for the digital download. Though a portion of the consumer market continued supporting physical CDs and vinyl, record labels that provided digital options saw an additional source of profit from online sales.

From this burgeoning new market of digitally-accessible music emerged Pandora, Spotify, and SoundCloud. These companies landed licensing deals with record labels and offer customers affordable subscription rates, undoubtedly owing a large part of their success to Napster’s precedent-setting services.

Beyond the changes in the market and consumer preferences, successful pirating technologies motivate a more foundational, underlying evolution in legal policy by virtue of their disruptiveness.

In June 2014, antenna and streaming service startup Aereo, Inc. was found guilty of infringing copyright law by the Supreme Court of the United States (American Broadcasting Companies [ABC] v. Aereo, Inc). We have yet to witness the full repercussions of the court decision. History suggests at least the societal effects similar to those arising after A&M Records, Inc. v. Napster, Inc. (2001). Aereo has influenced the market, consumer expectations, and the future of technology.

Aereo was fundamentally disruptive. For each subscriber, Aereo would rent out one of thousands of micro antennae located in Aereo’s centralized warehouses. When a user accessed the app or website, Aereo’s servers would tune the subscriber’s personal antenna to the desired program or channel. A transcoder translated these over-the-air signals into data transmittable via the internet. The data was then saved in the subscriber’s personal folder on Aereo’s drive, and after a few seconds of data loading, the program would begin to stream on the subscriber’s device.

aereo infographic

Aereo’s goal was to break the long-standing television broadcast business model and liberate consumers from the large corporations dominating the cable industry. To compete with the tight network of cable companies, Aereo offered an $8-12 monthly subscription for services for which companies like Comcast charged over $100.

The startup achieved its business model with the help of micro antenna design and clever legal manipulation. Aereo strategically interpreted and navigated copyright law to sidestep royalty fees for the copyrighted material it provided to its subscribers. Aereo’s antenna service effectively “pirated” over-the-air signals and re-broadcasted them digitally to its customers. Aereo operated legally this way for several months.

In addition to significantly lower fees, Aereo also made it possible for customers to stream television channels on their smartphones and tablets. With such a cheap price tag on a highly-convenient service, Aereo was met with great, albeit short-lived, financial success.

It goes without saying that disruptive technologies, amid fast-paced innovation, encounter a great deal of friction from legal policies. In ABC v. Aereo, the Supreme Court ruled 6-3 in favor of ABC, finding that the respondent infringed upon copyright owners’ “exclusive right [to] perform the copyrighted work publicly” 17 U.S.C.  §106 (4).  The formal basis of the Supreme Court decision results from the Copyright Act of 1976, which defines exclusive right as the right to:

“transmit or otherwise communicate a performance … of the [copyrighted] work … to the public, by means of any device or process, whether the members of the public capable of receiving the performance … receive it in the same place or in separate places and at the same time or at different times.”

In the struggle to keep up with the pace of innovation, technology policy is often forced to respond to disruptive technologies. The foundational argument supporting the Aereo ruling was tremendously outdated. To put it in historical context, the Copyright Act of 1976 was formed in reaction to the widespread emergence of cable television and jukeboxes, disruptive technologies of their times. Prior to this 1976 statute, coin-operated jukeboxes were not required to pay royalty fees under the Copyright Act of 1909. Berkeley Law Professor Peter Menell admits that it is “indeed creaky” and debatable logic to extend such outdated legal policy to modern technology, as was the case with Aereo.

Prior to companies like Napster and Aereo—prior to even the jukebox —the entertainment industry revolved around music sales in record shops and film premieres at cinema halls. But immense consumer advocacy reflected a newfound demand for access to music on the consumer’s terms. Today, services like Netflix and Spotify that legally operate on licensing agreements thrive from this demand for instant access to streaming media.

This effect isn’t limited to the entertainment sector: disruptive technologies play a critical role in influencing and shaping the future of technology.

Daniel Suryakusuma is a second year EECS & CEE student at UC Berkeley interested in technology policy matters.

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