In 1975, Sony released Betamax, a video cassette recording device that could be attached to a television set and could record television programs onto its Betamax cassettes.
In 1976 Walt Disney and Universal Studios sued Sony for copyright infringement. They argued that these video cassette recorders (VCRs) could be used to copy and distribute their movies. They also argued that most people would record movies for later viewing and, when this viewing occurred, they would skip over the commercials, thereby depriving the studios of their source of revenue. The case dragged on, through various courts, until 1984, at which point the supreme court ruled in favor of Sony.
Interestingly, the movie studios failed to realize that in a few short years a market for videotapes of each of their movies would provide huge revenue streams. Needless to say, had the court ruled in their favor, movie videotapes, and therefore companies such as Blockbuster and Hollywood videos, would not have existed for many years to come, and the whole VCR market would have been pushed back by years.
Fast forward to 2004, and MGM, along with 27 other entertainment studios, is suing Grokster (remember them?) over copyright infringement for their P2P software. Much like the Betamax case, Grokster argued that their product could be used legitimately or illegitimately and, just like Sony Betamax, they were not liable for what their users chose to do. More to the point, the studios should have noticed the parallels and realized the potential for future profits in this new medium.
Unlike the Betamax case, however, the courts ruled in favor of the studios in 2005. Now, half a decade later, we are at much the same point as we were then (except other companies have taken Grokster’s position). MGM could have tried selling movies online, encoding them, providing a monthly access fee, advertising the fact that movies available through their websites were legitimate and virus-free, among many other revenue generating schemes.
Instead they chose to set back the online movie industry by years.
The status quo is always more comfortable than trying to do something new. After all, it’s worked up until now, so why change?
The alternative requires an entire organization to think creatively and take risks. The marketing department is often willing to do this. Finance might even go for it if they can get insurance without spending too much. Legal? Forget it! Better to just sue somebody and get on with business as usual.
Maybe it’s a sign of uncertain times that the legal department is calling the shots then.
On the other hand this can present opportunities for smaller but more nimble companies, although the entertainment studio business has pretty high barriers to entry.