Adapting intellectual property law to the Internet is no small feat–even streaming giant Netflix is encountering issues. And it all comes back to licensing. Reports rolled in from around the web last weekend that Netflix had started cracking down on customers who use virtual private networks (VPNs) to view content not available in their country’s Netflix library. Though the company has denied any formal change in the way they tackle VPN violators–who use special proxies or extensions to change the geolocation of their IP address, thus gaining access to a larger, different library–it’s left fear in the heart of many users worldwide. But it’s also left many asking that with connections across the globe tighter than ever, why don’t we have a licensing model that reflects that?
The model in question: windowing, which is when content owners intentionally release contents in windows to maximize profit of a product. It’s a profitable practice for content owners who can boost repeat sales, but it can be inconvenient for consumers itching for new content. Releasing first in a theater and then later to at-home platforms is one form of windowing; geographic windowing is another.
David Oxenford described today’s model on his Broadcast Law Blog writing on a case involving music streaming:
The general principle in the Internet world is that a webcaster is liable for paying music royalties for listeners where the listener is located – not where the transmitting entity may be located. The same principle applies to rights to video and other content made available through the Internet – which is why your US HBO Go or Netflix subscription may not work the next time you visit London or Tokyo and try to watch a movie on your computer in your hotel room. Rights are usually granted country by country (or sometimes by region), but in many cases rights granted in one country don’t give the Internet service acquiring those rights permission to circulate the content worldwide. Thus, many large webcasters block their streams outside the US – notably webcasters like Pandora, who pulled their non-US streams back in 2007…
Thanks to geographic windowing, not all content is created equal across 50 countries worth of Netflix streaming libraries. Compared to the U.S., where Netflix customers can access about 8,660 streaming titles, Canada clocks in at around half that and the U.K. has even less with just 3,453 titles. It’s estimated that when Netflix launches in Australia in March there will already be an estimated 200,000 subscribers who are using VPNs to get Netflix, and it’s a safe bet that there are other countries where this is true as well.
Which leaves Netflix in a pickle, according to Leo Mirani at Quartz, who writes that the VPN cheat leaves the company between a rock and supplier hard place:
[Using VPNs] means the value of a piece of content—especially television shows, which spread to global television networks much slower than films do to worldwide screens—dips accordingly. Why should Australia’s Channel 9 pay full price for a season of Suits if half its prospective audience has already seen it online?
Netflix is in a real bind, says Tom Nener, an intellectual property lawyer at DWF in England. “On the one hand they say, ‘Our customers are happy. We’re not encouraging them but they’re fooling our geolocation.’ But on the other hand, they’re getting pressure from TV rights-holders and movie rights-holders to shut down.”
It also lies in a bit of a gray area: using a VPN to make it seem that your IP address is from a different country is definitely against Netflix’s terms of use, but it is generally legal in the U.S. and Canada. Even Australia, whose government recently announced a new initiative to combat online copyright infringement, made clear that VPNs were not specifically illegal under their copyright act.
VPNs could be considered a violation of the Computer Fraud and Abuse Act (CFAA), but only if VPNs are defined as a circumvention of the technical barrier. And most cases that would otherwise set precedent around VPNs involve extenuating circumstances that aren’t applicable to Netflix–that Netflix is available with or without a VPN for instance.
Netflix, who doesn’t seem to be making fighting go-arounds their top priority, is being the change it wishes to see in the world in terms of how they license their own content. As Michael Bolin writes for Huffington Post Canada:
The growth of Netflix is already putting pressure on content producers to simplify licenses, reduce wait times and put the web first.
“The more members that join Netflix, the better content that we can license,” [Netflix spokesperson Jenny] McCabe says. “Consumers don’t really understand or probably frankly care about all of that Hollywood legal licensing, it just happens to be the world that we have to live in. So we’ll put pressure on that as much as we can.”
One of the ways Netflix is applying pressure on traditional licensing models is by producing original content and releasing it the way the internet likes it: all at once and everywhere…TV makers have so far been more willing to adapt to the new digital paradigm than film studios, one of the reasons why television now accounts for 70 per cent of viewing on Netflix.
That’s according to the service’s chief content officer Ted Sarandos, who has been deeply critical of the way the movie industry continues to release films on web services months or even years after they debut in theatres. Sarandos believes this unwillingness to adapt helps explain not only piracy, but also the current “golden age” of television.
It may seem like Netflix is the only one being forced into a confusing place, but it’s not entirely a matter of Big Hollywood versus the average consumer. As a post from 2012 on the MoFo Tech blog makes clear, the movie industry is desperately trying to avoid the mistakes of the music industry:
Adverse court rulings forced Napster’s bankruptcy [in 2001], but the sophisticated piracy it heralded would take a huge bite from the music industry, which now takes in less than half of its 1999 revenues and supports about half as many direct employees—currently less than 10,000.
The U.S. movie industry is scrambling to avoid a similar fate. While it lost the recent high-profile dustup over proposed legislation—the Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA)—aimed at enlisting the U.S. government in cracking down on rogue foreign sites offering downloadable movies, that defeat also obscured the industry’s myriad forays into devising market-based solutions. These are less about thwarting pirates than about meeting customers’ demand for convenience and affordability, the absence of which is the pirates’ real opening.
In a perfect world there’d be room for both the movie industry to successfully sell their content without the consumers feeling like they’re getting the short end of the stick. Making content available online is more important now than ever, but it can’t just be Netflix releasing content with the same ubiquity as the Internet. The reality is that we aren’t there yet, and windowing isn’t a model that will work for much longer. The EU has already started working on a single digital market for licensing and other media, which could potentially be a foot in the door–and a wake up call–to those who still swear by windowing. For now we wait to see if Hollywood gets on board with the consumer’s desire, or goes the way of the Blockbuster.