Not the uniquely American system of free, local television! It’s hard to read his warning with a straight face. The broadcast industry is facing a grave threat to its business model, but it has nothing to do with piracy. Rather, the broadcast TV industry faces stiff competition from pay TV services that offer more features and more channels at affordable prices. Broadcasters would do well to stop obsessing over exaggerated piracy threats and focus on luring back customers who have fled to those services. In the meantime, Congress and the courts should resist industry pressures to give the FCC the power to dictate how consumer electronics products are designed. Doing so would do little to protect intellectual property, but much to stifle innovation in the consumer electronics industry.
The days when the “big three” networks dominated the American cultural scene are long gone. Today, more than 80 percent of American households subscribe to cable or satellite services. Verizon has begun rolling out a fiber‐optic service it calls Fios, which will compete head‐to‐head with cable and satellite in the pay television marketplace, as well as offering telephony and broadband Internet. Millions more subscribe to Netflix and other mail‐order video rental services.
Cable and satellite companies have spent the last decade rolling out an impressive variety of new features and services to augment their basic television service. They have offered new premium channels with popular and award‐winning programs, digital cable, video‐on‐demand services, and TiVo‐like personal video recorders.
In this increasingly competitive environment, you might expect the broadcasting industry would do everything they can to improve the experience of their customers and persuade them not to flee to pay services. You would be wrong. Instead, they have lobbied the FCC to mandate that all consumer digital video equipment manufactured after July 1, 2005 recognize and enforce the so‐called “broadcast flag.” It specifies how recorded content may be copied and redistributed, in some cases preventing consumers from doing things they have grown accustomed to doing with traditional VCRs.
Broadcasters, and the Hollywood studios that provide them with much of their content, fret that without such a flag, consumers would be able to make perfect digital copies of transmitted content and redistribute it over the Internet. That fear is almost certainly overblown. After all, most popular movies are already available on peer‐to‐peer networks, yet they do not appear to have had a serious impact on sales. Higher‐quality pirated versions might prove more popular, but they seem unlikely to put a significant dent in industry profits.
More to the point, copy‐protection schemes like the “broadcast flag” never withstand close scrutiny. Tools to break the Content Scrambling System (which is designed to prevent copying of DVDs) are widely available on the Internet, as are tools to circumvent the copy protection scheme of the iTunes Music Store. The “broadcast flag” scheme will prove no different; hackers will quickly find weaknesses in the scheme and post circumvention tools on the Internet for anyone to use.
Crucially, it only takes one person to strip a video file of its broadcast flag and upload it to a peer‐to‐peer network. So even if such tools do not achieve wide distribution, the “broadcast flag” scheme will still do little to prevent piracy.
But it is far from harmless. Had the FCC’s order been allowed to stand, it would have set the precedent that the FCC has the power to regulate all aspects of television design that are even tangentially related to radio communication. And because any device that could potentially handle digital TV content would need to observe the copy‐protection rules, the mandate would inevitably bleed into the design of consumer video products that don’t have television receivers at all.
The broadcast flag controversy is ultimately part of a wider battle over the future of digital media. Content industries seek to place technological shackles on digital media consumers that tell them when and how they may view, duplicate, and share copyrighted content. Such controls are unprecedented in the analog world, in which users had a relatively free hand‐in fact, if not in law‐to make copies of copyrighted materials for personal use.
Indeed, we have had this debate before. In 1982, Jack Valenti, president of the Motion Picture Association of America, testified before Congress that the recently‐developed VCR “is to the American film producer and the American public as the Boston strangler is to the woman home alone.” Valenti warned that Hollywood would be devastated if Congress did not crack down on home taping of movie broadcasts. Needless to say, nothing of the sort occurred. Congress declined to limit the functionality of VCRs. Yet today, movie producers make billions of dollars from home video sales and rentals, and plenty of people still go to see movies in the theater.
Industry rhetoric aside, there is no reason to think that digital television will be any different. Yes, some people will record home movies and share them on the Internet, just as some people made illegal home video libraries in the 1980s. But the effect on content industry profits will be small, and in any event, the broadcast flag would have been unlikely to make a difference.
The DC Circuit Court of Appeals had the good sense to reject the FCC’s mandate on the grounds that the agency had exceeded its authority. But the battle is far from over. Supporters have vowed to take the matter to Congress, seeking a change in law that would give the FCC the authority it needed to enforce the rule.
With luck, members of Congress will understand that the “uniquely American system” is not free local television, as Mr. Fritts would have it, but free markets. There is nothing American about giving government bureaucrats the power to mandate the design of consumer electronics equipment. They might also want to suggest to Mr. Fritts that the businesses he represents would be more successful in the marketplace if they didn’t spend so much time in Washington lobbying for restrictions on their customers’ freedom.