Studio copyright battles worthy of Hollywood script
By Stefanie Olsen
The Internet's long-held promise of offering every movie ever made is facing a threat far more powerful than any studio chief, box-office star or pitbull uber-agent: the Hollywood contract.
Although the movie industry is taking steps that signal new seriousness about selling works online, complex matters of intellectual property rights could keep some titles offline for years, according to those negotiating such deals.
"Clearing rights to movies is the biggest single hurdle to Internet video on demand today," said CinemaNow Chief Executive Curt Marvis, whose company struck a deal late last year to sell first-run movies
"The studios would like to give us more, but can't clear the titles," he said. "There are strange clauses attached to almost every film because the Internet either wasn't contemplated or the contracts were loosely worded."
The movie business is hardly the first industry to encounter problems with online licensing. Internet music retailers are still seeking the rights to sell songs by The Beatles and other major artists, even after hammering out deals with all of the leading record labels. And in 2001, the U.S. Supreme Court ordered Internet publishers to pay up or pull work by freelance writers whose articles were republished online without permission.
But those cases pale in comparison to the massive battles looming in the movie industry, which typically include many more legal layers and parties who bring considerable muscle--not to mention ego--to the bargaining table.
At the same time, the studios are anxious to avoid the kind of backlash that followed the music industry's efforts to control the copying of digital songs: Several studios contacted for this story either did not return calls or declined to comment.
Ever since it became a mainstream medium, the Internet has both tantalized studio executives with hopes of new profits and tormented them with fears of unprecedented piracy. As a result, many distribution licenses are laden with tough security demands and clauses designed to protect established distribution channels such as DVD sales and pay-per-view cable TV services.
Some progress has been made. Many blanket contracts have been signed in the United States, such as the Writers Guild agreement to treat the Internet as one of its residual markets. As in the case of movies offered via pay-per-view channels, guild writers are paid fees when a film is played in its entirety over the Internet.
The picture gets more complicated overseas, where individual artists typically command far more control over their work than do their U.S. counterparts. In France and Italy, for example, the director, composer, cinematographer and many others maintain separate rights from the studio, and these participants may have strong feelings about the quality of their work online. In some cases, they may hold veto power over where and how a movie is shown.
"There's a myriad of fingers in the profit pie," said Jim Banister, former executive vice president of Warner Bros. Online. "Going through all those fingers to secure that piece of intellectual property is no trivial task."
Larry Jacobson, president of RealNetworks and a former motion picture executive at Columbia Home TV unit, said today's legal wrangling is reminiscent of the VCR revolution two decades ago.
"What we're seeing now is similar to the '80s--all the studios are hiring armies of lawyers to clear rights for Internet distribution," he said. "There isn't a deeper catalog of movies on the Internet because they're going through that process now. It will take a couple of years."
Internet movie negotiators said many of the license headaches stem from older works created before online distribution clauses were included in contracts. Most TV programs and movies made before 1990 do not include license stipulations that allow for digital distribution, they say, so lawyers must painstakingly review contracts and reach the appropriate license holders to make a film available on the Internet.
"The Internet is going to evolve as another substantial portion of a film's revenue stream," said Alex Alben, vice president of government affairs for RealNetworks. "And if you don't have the underlying rights to the music, it puts these movie rights holders in a position to hold up distribution in that new medium because very few films can be stripped of the music. Certain songs are integral to a film."
The plot thickens
Indeed, video on demand is rapidly gaining traction in the cable market, with many cable TV operators experimenting in select markets, selling movies on demand and by subscription. Most of the tests are with first-run films that include distribution agreements for the Internet and cable video on demand.
But licensing experts say that such cable offerings may run into the same problems as Internet services when it comes to backdated video catalogs, given that licenses for the Internet and video-on-demand channels are typically renegotiated simultaneously.
Some online movie operators have decided to avoid working with large Hollywood studios for now because of negotiating complexities and high licensing costs. MovieFlix, one of the longest-running online distributors, deals only with independents and production companies with midrange to small film budgets, which usually secure and own licensing rights from all parties up front.
Others that work with the major studios, such as CinemaNow, admitted to some frustrations, saying that license negotiations depend largely on the size of the studio or production house. While some studios are still afraid of placing too big a bet on the Internet, others are coming around to see film distribution online as a viable market.
Nevertheless, industry veterans say it is inevitable that people will be able to download almost any film or television program to a networked computer or TV set-top box. It will just take some time.
"In big studio deals, there's a lot more paperwork and a lot more contracts and people," said Movieflix co-founder Robert Moskovitz. "When there's a lot of money involved, things get more difficult."
These are the top-grossing movies of all time at the worldwide box office. So far, only two have been licensed for sale online.
2. Harry Potter and the Sorcerer's Stone
3. Star Wars: Episode I-The Phantom Menace
4. Jurassic Park
5. The Lord of the Rings: The Fellowship of the Ring
6. Independence Day
8. Star Wars
9. Harry Potter and the Chamber of Secrets
10. The Lion King
*Licensed for sale online.
March 1999--U.S. West, in partnership with video-on-demand service Intertainer, launches a trial in Denver and Boulder, Colo., to offer access to about 200 movies on the PC.
November 2000--CinemaNow, a Lions Gate Entertainment spinoff, unveils a pay-per-view Net movie rental service, featuring a 1997 film, "Heaven's Burning," starring Russell Crowe. The company is also backed by Microsoft and Blockbuster.
December 2000--Blockbuster and Enron Broadband Services start trials of a video-on-demand service in four U.S. cities.
March 2001--Blockbuster and Enron sever their partnership, both citing a greater ability to work successfully alone.
August 2001--AOL Time Warner creates a new division to spearhead its interactive-cable initiatives, including video on demand and cable IP telephony.
August 2001--Online film provider MovieFlix unveils a paid subscription service to second-run and independent films as well as movie shorts.
August 2001--Warner Bros. Studios, Universal Studios, Sony Pictures Digital Entertainment, Paramount Pictures and MGM form an alliance called MovieFly to introduce an Internet movie rental service.
September 2001--Walt Disney partners with Fox Entertainment Group for video-on-demand service for Movies.com.
September 2001--CinemaNow, in partnership with Microsoft, unveils PatchBay, technology designed to help companies run Web-based video-on-demand service.
October 2001--Microsoft-backed Intertainer launches, selling a broadband-subscription service over the Internet in select U.S. cities.
December 2001--The Justice Department investigates the two joint ventures run by major movie studios to ensure they don't violate antitrust laws.
April 2002--Fox withdraws from a proposed venture with Disney and Movies.com because of regulatory concerns and logistical headaches.
July 2002--The Motion Picture Association of America files a lawsuit against Film88.com, an alleged pirate Internet video Web site.
September 2002--CinemaNow makes a deal with Warner Home Video to offer its first-run movies such as "Harry Potter and the Sorcerer's Stone" online for the first time.
September 2002--Intertainer files a federal antitrust suit against AOL Time Warner, Sony, Universal and Movielink (formerly MovieFly), charging the group with collusion to impede competition.
October 2002--Intertainer shuts its doors indefinitely, citing pending litigation.
December 2002--Starz Encore, in partnership with RealNetworks, says it will let cable subscribers view first-run films on the Net.