Techdirt. Stories about "hulu"

Hulu Continues To Wobble Along That Fine Line Between Success And Failure As CEO Bails

Timothy Geigner — Fri, 11 Jan 2013 16:02:14 PST

If one were to make a short list of the top great ideas that were implimented horribly, unbelievably wrong, Hulu would have to be somewhere between The View and the United Nations (I'll let you decide what goes where, exactly). Hulu was the once promising entertainment venture that has ugly-morphed its way into a mere excuse for entertainment studios to claim they offer people what they want. All the while there's been some discussion about whether or not the studios that own Hulu are purposefully trying to tank it to keep people from cutting the cable cord. And throughout all of this, Hulu has never really caught on with the same kind of fevered pitch as Netflix or even Amazon for streaming service customers.

Reader Vidiot writes in about a Business Insider piece detailing all the reasons why Hulu may have one foot in the grave and the other foot hovering just over it. Amongst the less-than-awesome facts on Hulu's list are items such as a new request for $200 Million from investors, reported losses of $30 Million per quarter, and that Hulu is trying to compete against Netflix while spending one-tenth the money on original content and one-ninth the paid subscriber base. The article announces that because of all that, it's time to conclude that Hulu is a failure, but don't blame corporate leadership.

The fact is (CEO Jason) Kilar had an almost impossible job from the very beginning. Hulu doesn't own the content it distributes, so it only gets to keep a small portion of its revenues. Hulu is, in fact, owned by the companies that own said content. And those owners have little incentive to create healthy margins for Hulu at the expense of their own. The fact is, Kilar has, in a couple years, built a Web brand that you have heard of. Yes, this was done on the back of free TV and a big marketing budget. But it's still decently impressive.

I'm not sure how we went from failure to impressive in less than a hundred words (which is impressive, by the by), but I am sympathetic to Hulu's raw deal from the studios that own it -- something Mike has been pointing out for nearly four years. That said, I don't think Hulu is a failure that is so far failed that it can't be brought back from fail-dom. After all, I've heard that Justin Timberlake is taking some time away from bringing sexy back to work on bringing Myspace back and if that mess of a social network can rise from the internet grave, Hulu can too.

But whoever is going to try to bring Hulu back from the prep-coffin, it appears it isn't going to be the afore mentioned Jason Kilar, because he's decided to bail. By all accounts, Kilar tried, really tried to make this thing work, but despite some successes it's not wrong to say that Hulu hasn't turned out to be what some folks thought it would. Given the raw deal that Hulu has gotten, the conflicts of interest heading up the company, I don't blame Kilar one bit for leaving. Hulu needs to innovate despite its issues, or else we can get the funeral march going.

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MPAA Points To Its Roster Of Crappy Online Services And Asks What We're Complaining About

Mike Masnick — Fri, 13 Jul 2012 05:25:00 PDT

In response to Jimmy Wales reiterating the fact that Hollywood's own failings online are a major cause of infringement, the MPAA has hit back by saying: that's crazy! After all, the studios do Hulu and Netflix, so how can anyone complain?

Wales had used everyone's favorite example these days: the difficulty in finding a legitimate way to pay for Game of Thrones online...

Wales also argued that the entertainment industry needs to continue adjusting its business model so it offers people the content they want. Citing a personal example, Wales noted how he can’t watch HBO’s “Game of Thrones” series at home in London even though he’s willing to pay for it.

“I think that he media industry needs to say, 'Look, why don’t we sell people what they want to buy,’ and I think that will take care a huge proportion of the problem,” he said.

A smart and consumer-focused MPAA might note that they're trying their best but they realize there are still gaps and they hope to continue to improve. But, you know, that's not how the MPAA rolls. Instead, they send out spokesperson Kate Bedingfield -- who just recently joined the MPAA from the White House -- to insist that Wales was crazy for suggesting they need to make more efforts to please customers. You see, in the mind of the MPAA, as long as they've done something, they've clearly done enough.

“Our studios are constantly partnering and innovating new ways for audiences to watch the movies and TV shows they love: Hulu, HBO Go, Vudu, Crackle, UltraViolet, Epix, MUBI – and that just barely scratches the surface,” said Kate Bedingfield, a spokeswoman at the MPAA. “There are more legitimate avenues available today to watch movies and TV shows online than ever before, and our studios are continuing to innovate every day to bring audiences even more options.”

“At the end of the day, stealing shows and movies out of convenience still harms the people who work hard to make them,” Bedingfield added.

In other words, don't actually address what Wales said. Don't respond to his specific complaint. Insist that because you're doing something, even if it doesn't solve the problem he noted, you're clearly doing enough... and then revert back to talking point numero uno: oh, poor us, we're harmed! So harmed. Harmed into our best years ever at the box office... (oh wait, they leave that last part out).

Seriously, the MPAA needs to hire communications people who actually deal with consumers, rather than politically-focused ones. They seem to have absolutely zero sense of how to respond to the public on anything without making themselves look worse. The last two decades of RIAA/MPAA communications have been a long-term case study in exactly how to do everything wrong.

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The Short-Sightedness Of Wall Street When It Comes To Broadband Infrastructure Investment

Mike Masnick — Mon, 25 Jun 2012 09:09:00 PDT

Karl Bode, over at Broadband Reports, absolutely destroys stock analyst Craig Moffett for doing his usual song and dance. If you're unfamiliar with Moffett, Bode has the details:

Like any good short-sighted investor, Moffett has urged companies to not upgrade their networks, insiting that caps and overages are the "next generation of communications." The irony of course is those telcos who listened and didn't upgrade their networks are now having their lunch eaten by cable providers on a massive scale, which, if Moffett's firm and client investment interests lean heavily toward cable operators, is something that's working out rather well for him and them.

Less network investment, less competition, higher prices. Great for investors, not so great for you

Bode's piece focuses on Moffett's silly analysis that the DOJ's interest is in how Comcast and Time Warner are trying to stifle Netflix and Hulu and that will somehow increase prices (huh? what?!?) because they'd take away Moffett's preferred solution of anti-consumer data caps.

However, I wanted to focus in on the larger issue here: the idiocy of short-term Wall Street thinking over long term strategy. Wall Street functions on a quarterly basis mostly -- with an occasional nod to looking out a full year, but rarely anything further than that. This creates stupidly short-sighted incentives that are deathly towards anyone with any long term goals or strategy. It argues that any big strategic investments don't make sense, because they cost lots of money in the short term, but you won't see payback until outside the myopic window of vision of these Wall Street analysts.

Perhaps that's great for day traders, but as Bode notes, it's bad for the public. And here's the thing: it's actually even worse for companies. It's unfortunate how many companies find themselves slaves to Wall Street analysts views in making their strategic planning efforts. Because that holds them back from actually making the important big strategic investments they often need for the future. Every so often you have a more visionary leader who simply ignores the folks like Moffett. You get situations like Ivan Seidenberg at Verizon, who ignored Moffett and invested in fiber -- which is why it's still competitive today. Unfortunately, as Seidenberg got closer and closer to retirement (which happened last year), the company backed away from continuing its build out. Short term thinking over long term thinking.

In some ways, this is the flipside to the Innovator's dilemma. It's an explanation for why big legacy companies fail to respond to disruptive innovation: because they can't. Because they can't put in the effort to be ready for disruption and instead leave themselves wide open to such disruption by not investing in their future, but rather by listening to the Craig Moffetts of the world -- such that the money that could be building a company for the future instead ends up in the hands of Moffett's real clients: the short-term investors.

If we want to build a stronger economy that builds jobs and continues to innovate, we have to figure out a way to diminish the power of Wall Street's short-term focus, and how to incentivize companies to understand what investing for the long run means.

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DOJ Realizes That Comcast & Time Warner Are Trying To Prop Up Cable By Holding Back Hulu & Netflix

Mike Masnick — Thu, 14 Jun 2012 07:16:00 PDT

For quite some time now, we've been reporting on how the big television players were so upset that Hulu and Netflix were dragging them kicking and screaming into the 21st century (even though they owned Hulu) that they were working on plans to kill off both services -- or at least cripple them. Mostly, what this goes back to is the inevitable fact that the internet is going to subsume television. But, these days, there's so much money in TV, thanks to the ability to be a gatekeeper, that all efforts are on holding back the internet for as long as is humanly possible. Want to know why HBO refuses to offer a standalone internet streaming option? It's because of the monopolistic power of cable.

This has all been pretty obvious for years, but the Justice Department has finally begun investigating Comcast/NBC Universal and Time Warner Cable to see if any of their actions with regards to Netflix and Hulu trip the antitrust wire. In particular, they seem focused on whether or not tiered broadband plans are actually designed to keep people from using competing online services, and preventing people from cord cutting. For Comcast, the risk may be much higher. As part of the merger with NBC Universal, it made certain promises to the government concerning how it treats online services. If it's not living up to those promises, it could mean trouble.

Unlike some other antitrust investigations, this is one where you can make a strong case that these companies are making life worse for consumers, by using their natural monopoly positions to keep prices artificially high. That said, I have little faith that the DOJ will get things right with the investigation. I think it's likely that the natural economic pressure of cord cutting (which, despite denials from Hollywood and the cable industry, is very very real) is going to have much more of an impact on the eventual massive reconfiguration of the television market than any antitrust lawsuit.

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Supreme Court Orders Reconsideration Of 'On The Internet' Software Patents

Mike Masnick — Tue, 22 May 2012 12:52:00 PDT

We've been following the "Ultramercial" case for a while. This was about a company that got a patent (7,346,545 that is basically about requiring you to watch an ad before you can watch some content). Ultramercial sued Hulu, YouTube and WildTangent. The case bounced around the court system for a while, with some using the Bilski ruling to reject the patent as an "abstract idea." However, CAFC (the appeals court that handles patent appeals and always seems to have a soft spot for patents) said the concept was perfectly fine. In reading through the details, CAFC's explanation was basically that since the patent described doing this abstract idea "on the internet," suddenly it became patentable. Back in March, we wrote about WildTangent's appeal to the Supreme Court, which pointed out the ridiculousness of saying that as long as you add "on the internet" to an abstract idea that it suddenly becomes patentable.

While it felt like there was a good chance that the Supreme Court would hear the case, there was one other interesting development that happened a week later: the Supreme Court smartly rejected broad patents on medical diagnostics in the Prometheus Laboratories v. Mayo Labs case, noting that such patents are on unpatentable subject matter. Specifically, the ruling held that "A patent, for example, could not simply recite a law of nature and then add the instruction 'apply the law.'"

Many people expected the Supreme Court to use this ruling to get CAFC to reconsider its Myriad ruling that allowed gene patents -- which it did. But the big news coming out this week was that the Supreme Court has accepted the appeal of the Ultramercial case by vacating CAFC's ruling and asking it to reconsider the Ultramercial case in light of the Prometheus ruling:

The petition for a writ of certiorari is granted [G]. The judgment is vacated [V], and the case is remanded [R] to the United States Court of Appeals for the Federal Circuit for further consideration in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ___ (2012).

This actually makes a lot of sense. The Prometheus ruling makes clear that saying "general idea + apply this idea" is not patentable subject matter. And yet, CAFC's ruling in the Ultramercial case basically said the opposite, noting that "general idea + apply this idea on the internet" is patentable subject matter. So, once again, it appears that CAFC's completely out of touch view of the patent system is getting smacked down by the Supreme Court. CAFC now has these two more chances to get it right and to stop slobbering all over ridiculous expansions of the patent system. Hopefully CAFC gets it right the second time around, and the ruling in Ultramercial is useful in limiting ridiculously overbroad software patents.

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If You Think The Cost Of 'Piracy' Is High, What About The Cost Of Enforcement?

Mike Masnick — Tue, 8 May 2012 07:12:00 PDT

We've all seen the crazy high claims by the legacy entertainment industry about the "costs" of infringement. Most of these reports have absolutely no basis in reality and have been widely debunked -- even by the US government itself. But, even if we grant that there are some "costs" to infringement, why is it that we rarely -- if ever -- hear about the costs of enforcement? Julian Sanchez has a great post riffing off of the news that Hulu is thinking of requiring proof of pay TV subscriptions to get any free content, and does a neat little thought exercise on how distorting the "cost of piracy" discussions are if you don't also look at the cost of enforcement. He puts forth a hypothetical:

To illustrate, let’s imagine television show that initially streams online for free with advertising, garnering a million viewers per episode and earning $1 per viewer in ad revenues, for a total of $1 million. A small number who really dislike ads, or have connections too slow for streaming, let’s say 5,000, download pirate copies anyway—but the vast majority watch legally. After building an audience and generating some good word of mouth, the accountants suggest that it might be more profitable to stop the free streaming and instead sell ad-free episodes for $4, in hopes that enough dedicated fans will pony up to compensate for the predictable drop in viewership once the program is no longer free to watch. The paying audience does indeed drop to 255,000, which still leaves the company slightly better off for the switch, but 100,000 viewers decide to keep up with the show (at least initially) by downloading pirated copies. A subsequent price hike to $10, however, turns out to be a money loser. Now the show has only 80,000 paying viewers, while 150,000 are engaged in piracy.

Undoubtedly that piracy is costing the show’s producers something: If piracy were impossible, some unknown fraction of those who download illegally would be willing to pay the asking price. But just crudely using the actual market price at each stage—even if modified by some constant “displacement rate” to acknowledge that not every illicit download represents a lost sale at that price—yields some perverse results. As the pricing strategy for the show changes, the “cost” of piracy rises from $5,000 to $400,000 (even as revenue rises) to $1.5 million (while revenues drop by $20,000). Obviously, something is wrong here.

It’s no great mystery what: The problem is that the rate of piracy, the price of a digital good, and the “displacement rate” (the percentage of the pirates who’d buy at that price in a world of perfect copyright enforcement) are not independent variables. And, of course, the interdependency runs both ways: Pricing decisions are influenced by the knowledge that we don’t live in a world of perfect enforcement, and you can tell plausible stories according to which this might keep prices higher or lower than they’d be under perfect enforcement, depending on your assumptions about the conditions under which a particular audience will substitute the pirate for the legal good.

But it goes further than that, which is that when you factor in the cost of enforcement, the equation changes somewhat:

Returning to our imaginary program, suppose that under perfect enforcement—a zero piracy world—there would be 110,000 paying viewers at $10 per episode, netting the creators an additional $80,000 over what they’d make with their revenue maximizing strategy ($4 per episode) in the world of imperfect enforcement. That’s great for them, if not for consumers, but we haven’t factored in the costs of enforcement. Some of these are likely to be borne by the creators themselves—hiring lawyers to hunt down pirate copies circulating online and the like—but in practice they’re often shifted to taxpayers, in the form of direct enforcement expenditures, or to other parts of the economy, in the form of DMCA compliance costs or innovative services that are deterred entirely. It’s possible that, in this hypothetical scenario, the revenue maximizing strategy for the producers is to charge $10 while externalizing the costs of perfect enforcement, but the socially efficient outcome is to accept imperfect enforcement and let the producers revenue maximize against that background at a $4 price point.

As Sanchez admits, many of these numbers are theoretical, just for the sake of the thought exercise. But what we know in reality is that the cost of enforcement -- whether direct or through externalities -- almost never enters into the discussion in any meaningful way, even though it's absolutely there.

What's amazing is that even when the costs are explicit, they barely enter the conversation. Take, for example, the predecessor to SOPA/PIPA: the ProIP Act, which passed in 2008. A report by the Congressional Budget Office showed that the cost of this bill, which is almost entirely focused on increased enforcement was $435 million. Yes, you read that right. Taxpayers have been on the hook for nearly half a billion dollars for the increased enforcement initiatives -- like the spectacular flop known as Operation In Our Sites. Is this really a wise use of taxpayer resources?

Add to that, of course, the negative externalities created by such enforcement -- such as the chilling effects of increased censorship, expensive court cases and other such efforts, and it's kind of amazing that these costs never seem to even enter the public debate, even though many of them are a lot more real than the "costs" presented by the industry for "piracy."

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Hulu Puts Gun To Own Head: May Require Users To Show Proof Of Pay TV Subscription

Mike Masnick — Mon, 30 Apr 2012 10:16:00 PDT

We've discussed in the past how Hulu's owners -- the major Hollywood/TV studios -- absolutely hate that Hulu is actually useful and convincing people to watch TV online. Because of that, they've been trying to destroy Hulu. Hulu's management -- which mostly seems to understand the internet -- tried to get out from under this potentially paralyzing ownership structure, but the studios (stupidly) telegraphed the message that they would block Hulu from getting their content, meaning that no one wanted to pay the ridiculous asking price.

Well, now it appears that phase one of making Hulu absolutely useless to people who might cut the cord from pay TV is going into effect, with plans to join the networks silly "TV Everywhere" setup and require users to have a pay TV subscription in order to access parts of the service. Hulu's main (non-studio) investor, Providence Equity Partners, sold its shares last week because it heard about this plan and knew it was suicidal.

In no rational world would Hulu move in this direction on its own. Hulu's key selling point is that it's the go-to source for cord cutters, helping it build up a very large audience. Taking that crowd out of its audience makes it close to useless. While the studios love this because they make so much money from pay TV companies, it's incredibly short-sighted in the long run. It's pure protectionism of legacy revenues, done by sacrificing the one truly innovative platform they've invested in.

Meanwhile, along the same lines, the THResq story that we link to above also notes that NBC Universal will, once again, seek to marginalize its own online coverage of the Olympics, by also requiring proof of a pay TV service. Way to raise a giant middle finger to all the cord cutters out there -- guaranteeing that they seek out alternative streams for which NBC Universal gets no money.

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Holocaust History Preserver Shoah Foundation's Patents Being Used To Sue Google, Facebook, Hulu, Netflix, Amazon

Mike Masnick — Wed, 14 Mar 2012 11:43:27 PDT

The Shoah Foundation is the very famous organization put together initially by Stephen Spielberg in the 1990s to interview and record video histories of the Holocaust before those who lived through it -- either as survivors or witnesses -- died off. Most people recognize that this was a tremendously important historical project, that involved over 50,000 interviews. In 2005, the Shoah Foundation became a part of the University of Southern California. The organization has continued to do incredible work, but it appears that it's in the process of tarnishing its reputation in a massive way by allowing its patents to be used in a series of patent troll lawsuits (while trying to avoid being associated with the dirty work).

The details are a little complex, and it took some work to track them all down, since it involves some shell companies and passing things around. As far as I can tell, no one else has yet reported on this story, but it's shameful to see the Shoah Foundation associated with patent trolling. During the 90's, however, the Shoah Foundation did apply for and get a series of patents (listed at the bottom of this story), mostly around the idea of cataloguing and managing a library of digital assets.

In 2010, USC and the Shoah Foundation offered to sell an "exclusive license" to the patents via Ocean Tomo -- the patent auction house that is a goldmine for patent trolls. Ocean Tomo pitched the patents as being useful for companies "designing, using or selling database management systems," but what they probably meant is that they would be useful for non-practicing trolls who wish to sue such companies. Later that year, the deal was done for $7 million, a portion of which went to Shoah -- who still retains ownership of the patents in question.

In discussing the decision to auction off a license, rather than sell the patents outright, USC's John Sweet told the press that the license had been sold to a practicing entity:

"it was a party that would actually use the patented technology, not a company that buys up patents in order to simply sue alleged infringers."

He also told the press, "We don't want bottom fishers."

Guess what they got? Fast forward a year and a half or so, and it comes out that it's Altitude Capital Partners who holds the licenses on those patents (for what it's worth, USC insists that the patent license was actually purchased by an operating company, who later sold the rights to Altitude -- but no one seems willing to name this other company). If you don't know Altitude, think Intellectual Ventures before there was an Intellectual Ventures. It calls itself a private equity firm, but it mainly invests in patent lawsuits, which usually run through a series of shell companies. In this case, the license was given to Digital Innovations LLC (a subsidiary of Altitude) who put the patents in its own subsidiary called Preservation Technologies LLC.

And then Preservation LLC started suing. Late last year, Preservation used some of the 11 patents from USC Shoah to sue Google & YouTube, Netflix, Facebook, Sony, Dish and Amazon, Hulu, Dish again and Facebook again. Below I've embedded the specific complaint against Facebook (pdf). As with most patent lawsuits, the complaint itself isn't that enlightening beyond naming the parties and the patents.

But what's really troubling here is the idea that the Shoah Foundation -- an organization designed to do good and help preserve videos and history -- is now closely associated with patent trolling. Yes, there are a number of intermediaries in between the two, in order to provide some buffer, which I'm sure is supposed to "protect" Shoah from the blowback of patent trolling against a ton of internet companies that offer video online. But the complaints even call out the fact that the tech was developed by the Shoah Foundation. And Shoah still owns the patents in question. Shoah may never have meant for the patents to be abused in this manner, but it sold the license without any such restrictions and was happy to take the money, even knowing how the patents could (and likely would) be abused to attack innovative companies. The statement about them not wanting "bottom fishers" looks pretty ridiculous in light of what happened. If they didn't want bottom fishers, they should have made the license conditional on use. That they did not do so is their responsibility -- and thus USC Shoah should shoulder a significant portion of the blame for allowing the patents to now be used in such a fashion.

I asked USC and Shoah for a comment, and after handing me off to a variety of different people, I finally got this non-statement, which refused to answer nearly all of my questions:

USC owns a portfolio of patents for indexing and searching digital video libraries. USC licensed the portfolio exclusively to an operating company, while maintaining the right to use the patented inventions for research and education purposes. Subsequently, the operating company transferred the license to another entity. USC has learned that the current license holder has brought litigation relating to the patents. USC has no say or financial stake in the litigation.

In other words, "we don't want to talk about this." They especially appeared to have no interest whatsoever in responding to the query of whether or not such actions fit with the mission of the Shoah Foundation.

What's odd about all of this is why Shoah retained "ownership" here -- and if it did so in any real way. The deal that USC/Shoah did with Ocean Tomo was hailed as groundbreaking, in that they auctioned off a license, rather than selling the patents outright. USC/Shoah claims it kept ownership of the patents because it needed it to continue operating. But that makes no sense. Similar to the transfers of copyrights in cases like Righthaven, "ownership" of a patent is tied to the specific rights: the right to exclude and the right to sue. It appears that Shoah gave up both of those in their entirety, so retaining the "patent" is meaningless. They could have done the identical deal, in which they sold the patent, but included a license-back to Shoah for the life of the patent. I asked USC if among the rights it retained with "ownership" was included the ability to revoke the license and stop such lawsuits. At the time of posting, USC has not responded. Thus, either it does have that right and chooses not to use it -- in which case it has even greater culpability for these lawsuits -- or it really didn't retain any "ownership" of the patents in question at all. In which case the whole "we just licensed" it thing was nothing more than a PR stunt to allow for such patent trolling.

If USC/Shoah wants to proudly retain ownership of these patents, then they also need to take responsibility for how the patents are being (ab)used to shake down companies. They can try to talk a good game about being hands off and having no financial stake in the litigation effort, but that's because they already collected the cash. If the patents are being used for trolling, and USC/Shoah still owns them, then USC/Shoah has to bear the responsibility for how they're being used. That it seeks to distance itself from the lawsuits filed over patents that it still claims to own is an incredibly weak response and shows just how shameful an action this was.

The real shame in all of this, though, is that the legacy of Shoah is now tarnished by patent trolling. You would hope that the organization would think better than to have its good name sullied with such anti-innovation practices. Trying to shakedown companies like Google, Netflix, Amazon and Facebook for building their own digital library platforms... just seems wrong, and against the sharing spirit of the Shoah Foundation. An organization like that should be celebrating platforms that make it easier to preserve video and oral histories, rather than suing them. If Shoah really said that the patents wouldn't be used to sue others, then it should have made that explicit in the license. As things stand, Shoah owns patents that are being used for trolling. If it's not a troll itself, due to the licensing shell game, it clearly knew what it was getting into and enabled such nefarious trolling. It's too bad, as I've donated to Shoah in the past, but there's no way I'd donate again to an organization that has been involved in patent trolling.

USC Shoah should issue an apology in the strongest terms possible for what happened -- and this should be a reminder to everyone that even if patents are granted with the best of intentions, down the road, things may change. Shoah let greed get ahead of its mission and now its reputation will be forever tarnished for allowing such anti-innovation practices to happen with its own patents.

The patents in question:

6,199,060: "Method and apparatus management of multimedia assets"
6,581,071: "Surveying system and method"
5,813,014: "Method and apparatus for management of multimedia assets"
6,092,080: "Digital library system"
6,212,527: "Method and apparatus for cataloguing multimedia data"
6,574,638: "Method and apparatus for cataloguing multimedia data using surveying data"
6,549,911: "Method and apparatus for cataloguing multimedia data"
6,353,831: "Digital library system"

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Why Does An Unpatentable 'Abstract Idea' Become Patentable If You Add 'On The Internet'?

Mike Masnick — Mon, 12 Mar 2012 05:53:35 PDT

Back in 2009, we wrote about a case involving a company called Ultramercial, which held a broad and ridiculous patent (7,346,545) that effectively covered the process of watching an ad before you could download content (seriously). Ultramercial sued Hulu, YouTube and WildTangent over this. The case went back and forth with an initial ruling that rejected the patent, by noting that it was just an "abstract idea" and abstract ideas are not patentable. As that court ruling noted:

At the core of the '545 patent is the basic idea that one can use advertisement as an exchange or currency. An Internet user can pay for copyrighted media by sitting through a sponsored message instead of paying money to download the media. This core principle, similar to the core of the Bilski patent, is an abstract idea. Indeed, public television channels have used the same basic idea for years to provide free (or offset the cost of) media to their viewers. At its heart, therefore, the patent does no more than disclose an abstract idea.

Tragically, CAFC, the appeals court that handles patent matters and has a long history of expanding patent law, reversed the lower court's ruling and deemed the patent valid. While it didn't put it in these words specifically, it certainly appeared that the court was saying that any abstract idea can still be patentable if you just make it happen "on the internet."

In that ruling, the court discusses the fact that "abstract ideas" are not patentable, and notes that it used to use its machine-or-transformation test to determine if something was or was not an abstract idea. However, after the Supreme Court ruled in the Bilski case that this test might not always be appropriate, while failing to say what test would be appropriate, it's left CAFC with the freedom to make up totally arbitrary rules. And in this case, the arbitrary rule was effectively "we don't apply the machine-or-transformation test to 'information age' inventions." Why? Because if the inventions aren't physical, the machine or transformation test no longer applies:

While machine-or-transformation logic served well as a tool to evaluate the subject matter of Industrial Age processes, that test has far less application to the inventions of the Information Age.... Technology without anchors in physical structures and mechanical steps simply defy easy classification under the machine-or-transformation categories.

Shorter version: what would be considered unpatentable abstract ideas in the offline world suddenly become patentable if you add "on the internet" to them.

That doesn't sound right to lots of people, and thankfully WildTangent is appealing the case and hoping the Supreme Court will hear it. As the petition to the Supreme Court notes, the question presented is:

Whether, or in what circumstances, a patent's general and indeterminate references to "over the Internet" or at "an Internet website" are sufficient to transform an unpatentable abstract idea into a patentable process for purposes of 35 U.S.C.

Along with the petition, there were also two interesting filings in support, urging the Supreme Court to hear the case. One from Redhat, CCIA and EFF, which goes into great detail about how such broad patentability would seriously harm the open source world, and a strongly worded brief from Google and Verizon (yes, together) about how such a ruling would do serious harm to innovation by allowing all sorts of abstract ideas to be locked up via patent. Hopefully the Supreme Court is willing to listen -- and will push back (yet again) on a bad CAFC ruling.

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Hulu's Owners Unable To Find Idiots Willing To Overpay To Take Hulu Off Their Hands Before They Kill It

Mike Masnick — Thu, 13 Oct 2011 19:08:55 PDT

We recently noted that the attempt by Hulu's owners to sell Hulu wasn't going well, mainly because those same owners had made it clear that they hoped to kill Hulu, by limiting how much it could compete with their lucrative legacy business of cable TV. No one was willing to offer more than $2 billion -- significantly less than what Hulu's owners wanted -- other than Google. But Google would only do it if the TV companies agreed to certain conditions (i.e., not killing off Hulu by limiting content, requiring a paywall, etc.)

So it comes as little surprise that Hulu has now announced that its owners are no longer trying to sell the company off. Instead, they'll focus on suffocating it from within. Well, that part wasn't mentioned, but watch what happens to Hulu execs over the next few months. I think it's likely that we're going to start seeing some departures of key people. Hulu was an amazingly well executed offering with a really capable team... but as we predicted, the fact that the only way it could really succeed was to cannibalize the business of its owners, almost certainly meant that Hulu would never be allowed to execute on the strategy it needed to become a massive player.

Of course, what the big TV companies still fail to recognize is that killing off Hulu doesn't stop the move to an a la cart, online driven world. It just means that when it comes, they will be even less relevant, and less able to capitalize on it.

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TV Companies Plan To Make Hulu Suck Even More Making It More Difficult To Sell Hulu

Mike Masnick — Mon, 3 Oct 2011 03:01:09 PDT

We've talked about how the entertainment industry is really good at killing the golden goose every chance it gets. Any time some new online service actually gets people to move away from infringement, the industry freaks out and complains that they're not making enough money from the service and then tries to kill it. For example, the TV folks have made it clear that they'd like to kill Hulu even though they own it. They're so worried about "cannibalizing" the old revenue streams, that they're killing off the new ones as well. We predicted this would happen a few years ago, and it's amusing to see it happening in real time.

Because of the conflicts between what Hulu management (who do seem pretty clued in) and their ownership wanted to do with the company, Hulu was recently put up for sale. But, now it's coming out that the bids Hulu is receiving are much lower than the owners want -- and it's because they've made it clear they plan to cut off all free content from Hulu:

But the bidders all figured out pretty quickly that the TV companies who own Hulu now want to phase out free ad-supported content completely. So as soon as the current set of Hulu contracts expire in a couple of years, it would be back to the negotiating table.

Because of that, no one was willing to bid over $2 billion -- and the TV guys (of course) think it's worth a lot more than that, even as they're trying to kill it. Well, one exception: apparently Google was willing to pay closer to $4 billion... but it would only do that under certain conditions (which likely involve getting the TV guys to renew/guarantee future deals). So congrats, backwards looking TV guys, not only are you killing Hulu, you're killing the goodwill you build up via the company so you can't even cash out on that.

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Of Course: New Fox Delay Means More Unauthorized Downloads Of Fox Shows

Mike Masnick — Mon, 22 Aug 2011 12:24:54 PDT

Back in July, when the Fox Network announced plans to block or delay many of its popular shows from going online, we predicted this would increase the number of unauthorized downloads. This just seemed stupid. People want to access it online and they will access it online. Why not offer it to them in an easy and convenient manner that can be monetized. Of course, when others pointed out the same thing, the geniuses at the MPAA threw a hissy fit about how even admitting that Fox's stupid business decision might increase unauthorized file sharing was the equivalent of praising "stealing."

So, um, I wonder how the MPAA's brilliant strategists will respond to the news that, in the first week of Fox's delays alone, unauthorized downloads of some of its most popular shows increased massive amounts, doubling or tripling what they were before. In fact, that article notes that many of the people viewing it through unauthorized means left comments about how they tried to watch via legal channels, but couldn't.

So I'm wondering how the folks at the MPAA might explain this. Are they going to throw another tantrum and blame "reality" for supporting file sharing? Or will someone there finally buy a clue and recognize that not providing consumers what they want is a bad business decision. I guess that would require someone at the MPAA to actually have experience in business -- but they all seem to be lawyers or political flunkies.

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Hulu Sued For Violating 'TV Guide' Patent

Mike Masnick — Tue, 2 Aug 2011 12:14:01 PDT

Earlier this year, we noted that Rovi (the hip new name for DRM company Macrovision) had taken a bunch of the patents it got when it bought Gemstar/TV Guide a few years back, and sued Amazon for daring to offer a TV listing on IMDB. Apparently Rovi is having so much fun suing people for doing totally obvious things that it's expanded the effort and is now suing Hulu as well. It's interesting to see that it's actually using different patents in this case, compared to in the Amazon case, but that doesn't make them any less questionable:

6,396,546: "Electronic television program guide schedule system and method"
7,103,906: "User controlled multi-device media-on-demand system"
7,769,775: "Search engine for video and graphics with access authorization"

Yet another case where actually doing the obvious thing to provide the obvious service you want to offer... gets you sued. America's innovation system at work.

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Why Does The Entertainment Industry Seek To Kill Any Innovation That's Helping It Adapt?

Mike Masnick — Fri, 15 Apr 2011 19:39:00 PDT

The LA Times recently had a good article about Hulu's struggles with its corporate parents, the various TV companies. While Hulu itself has been massively successful, the TV companies are suddenly claiming it's a threat (even though they own it) and are seeking to cripple the service in a misguided and shortsighted bid to "protect" their legacy offerings.

Combine that with our recent story about the record labels crippling Spotify and the Hollywood studios seeking to cripple Netflix, and you've got a pattern. Any time a new service comes along that helps drag the content industries into the present, the industry's hit back by trying to kill off or cripple the golden goose.

The simplistic answer is that the entertainment industry is all about control, and they freak out about these success stories (that make them money) because they realize they're losing control. I think it's a little more complex than that, but not too much. The established entertainment business, for many, many years, has operated under the principle of being the gatekeeper to their industry. They've (incorrectly) believed that their value and the key to their business is in being the gatekeeper. But the amazing thing about the internet is that it knocks down fences and walls with ease.

Gatekeepers don't make much sense.

If you view yourself as an enabler, then these new services seem great and wonderful and a huge opportunity. If you see yourself as a gatekeeper, you see these other services as a path to route around your gate. The mistake is in thinking that the answer is to shut down or limit that alternative. That's because, the alternatives (generally) are not really gatekeepers themselves. Of course, to the existing gatekeepers they look like gatekeepers, which leads to this reaction. But the reality is quite different. In a world where there are no real walls or fences, you don't need gates, and thus you don't need gatekeepers.

Instead, you need enablers: the curators, aggregators and filters who help you make sense of the wide open world. That's what Spotify, Hulu and Netflix all do, in a legal fashion. But it's also what various unauthorized sites and services do in an often less than legal fashion. But none of that changes the fact that the gates are no longer needed and the fences are down. Spotify, Hulu and Netflix aren't the new gatekeepers. They're compelling enablers who have built the new hotspot that people want to go to, because of the additional value they provide. Knocking them down doesn't bring back the need for the gates. Those are gone forever. It just takes away one of the more useful services -- which actually does pay the copyright holders -- and drives people to the many other (perhaps unauthorized) sources.

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Hulu Realizing That Taking Orders From Every Entertainment Company Boss Isn't Effective

Mike Masnick — Tue, 15 Mar 2011 20:58:00 PDT

We've discussed in the past how Hulu really is in a somewhat impossible predicament, in that to be truly innovative, it needs to disrupt the classic TV business model. But the "classic TV businesses" are the ones who own Hulu -- and who want to cripple the service. We keep hearing that the folks at Hulu really do understand what they need to do to be successful, but they're seriously held back by their ownership. So it's interesting to see that Hulu is planning to downsize its board of directors, potentially getting rid of Disney's CEO and News Corp's COO in order to, as they say, "streamline decision-making." That's pretty clear code for "our board is killing us." Will be interesting to see if Hulu can actually get enough separation from its ownership to do what it clearly needs to do.

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Hulu Owners Looking To Make Hulu Even More Useless

Mike Masnick — Mon, 31 Jan 2011 04:28:39 PST

It's been almost two years since we suggested it might be impossible for Hulu to survive, given that it was in a bit of a "rock and a hard place" situation. The only way for it to really succeed long-term online was to disrupt the existing TV business. Because, if it didn't do that, others could and would kill Hulu. However, Hulu is owned by the existing TV business, and that means the company can't do what it needs to do. The WSJ is reporting that NBC management is upset with the way Hulu is undercutting its current business model, and is now pushing to change Hulu entirely into an "online cable channel" rather than an aggregator and service for watching television shows. Of course, as many are pointing out, this would almost certainly kill off Hulu.

This is all pretty unfortunate. From a technical standpoint, Hulu appears to be a great service. The only thing really holding it back has been a bunch of owners and licensees who think that the path to the future is to apply all sorts of limitations on what can be done with their content. That's the exact opposite of the path to success these days. Putting limitations on content is not the solution. Enabling people to do more with your content is the solution. Hulu put in place a platform that could do that... but it's owners are choosing to go in a totally different direction, and they don't even seem to realize that they're making a huge mistake.

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A Look Back On Andrew Keen's Failed Predictions

Mike Masnick — Thu, 27 Jan 2011 15:10:00 PST

In writing my recent post about the failure of Google's Knol, I went back to look at what I had written previously about it and I dug up a post from October of 2008, in which I discussed a series of predictions from Andrew Keen that struck me as particularly shortsighted and wrong. It was right after the latest economic crisis had shifted into overdrive and Keen had predicted that this economic change would lead to the end of "open source" and "free" business models because people would have to actually start making money. He also predicted that things like Facebook and Twitter would collapse in the economic realities of 2009:

The altruistic ideal of giving away one's labor for free appeared credible in the fat summer of the Web 2.0 boom when social-media startups hung from trees, Facebook was valued at $15 billion, and VCs queued up to fund revenue-less "businesses" like Twitter. But as we contemplate the world post-bailout, when economic reality once again bites, only Silicon Valley's wealthiest technologists can even consider the luxury of donating their labor to the latest fashionable, online, open-source project.

How's that prediction looking today? Right. (Update: For those who missed it, there's a sarcmark around that "Right")

In that article, he predicted the success of a bunch of websites and how they'd beat the "free" or "open" competitors. I picked out a series of those that I thought were particularly unlikely to happen and asked Andrew if he'd like to put some money behind his predictions -- with the bet being decided by who was right in October 2010 (I didn't choose all of Keen's predictions, because some of them were nonsensical and did not involve actual competitors). Here's what I wrote:

I'd like to make a bet. While there are different estimates as to how long any recession might be, the general consensus is that we should hopefully start pulling out by the end of 2009 or early 2010. So, let's pick a few of these that we can measure, and I'll bet Andrew Keen $100 (really money, Andrew) that in two years, on October 22, 2010, Wikipedia still gets more traffic than Knol, that Google is still much, much, much bigger than Mahalo (if they're even considered competitors any more), and that YouTube gets more traffic than Hulu.

If any one of those is untrue, I'll write him a check.

Tragically, when October 22, 2010 came around, I had forgotten about this original post. Also, Keen never responded to the bet, either because he was unaware of it or because he didn't really believe his own predictions. Either way, it looks like he made the right decision, whether on purpose or not, because every one of the predictions I made were correct compared to his predictions. Knol didn't beat Wikipedia. Mahalo did not beat Google. Hulu did not beat YouTube (though, Hulu is doing well for now).

I had never met Keen when I wrote that original article, though I have had some fun conversations with him in the past year, so I'm interested to see if he's willing to revisit his original predictions and to admit that perhaps he was wrong with his analysis of how "free" and "open source" would be knocked out by the economic crisis.

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Hulu Realizes That It Can't Go Public Because Its Business Plan Is Hindered

Mike Masnick — Tue, 21 Dec 2010 21:00:00 PST

We've been pointing out for a while that Hulu, as well designed as the website is, is always going to run into trouble as long as it's controlled by the TV companies who won't let the company do the disruptive things it really needs to do to move the industry forward. For example, rather than really innovate, Hulu's been focused on this disastrous attempt to create a paywall, that has been such a disaster that Hulu has even admitted it sucks, and has already dropped the prices, because very, very few people subscribed. Hulu had announced plans for an IPO a while back, and there have been rumors ever since it did that Wall Street just didn't buy Hulu as a sustainable company. In fact, we've heard that the key driving force for creating the paywall was to try to show Wall Street that the company could make money beyond advertising.

However, with the failure of the paywall, the IPO plans have now gone away as well -- and with it, the hundreds of millions the company hoped to raise. The end result may mean that the company will need to go back to its current entrenched TV company owners for more cash, which will only make Hulu even more beholden to them, making it that much harder for Hulu to do the truly disruptive things it needs to take things to the next level. Instead, it's going to be some upstart (whether legal or not) that will convince people that TV online can be done quite differently than it's being done today.

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Dish Network Wants To Make Hulu Even More Useless

Mike Masnick — Thu, 4 Nov 2010 11:12:57 PDT

It's really sad watching the TV industry shoot itself in the foot. You would think that, given the opportunity to watch the music industry and the movie industry screw up their attempts to deal with the online world, the TV folks (of everyone) might recognize that fighting "free" and fighting what consumers want to do is a mistake. And yet, we've seen over and over again, the TV guys are fighting the internet as much as possible, because of various deals that make them billions (at the expense of consumers) and from which they have no desire to go away. It's why they remain in complete denial that people are actually cutting the cord and going online-only.

However, while they're in denial publicly, they clearly are afraid of the internet. It's why they keep forcing Hulu to do stupid things that limit what users want, guaranteeing that the real disruption in the TV-online space will come from companies other than Hulu. But, even so, the TV guys keep looking to make Hulu even worse for consumers than it already is. The latest example is a Dish Network exec claiming that Hulu shouldn't make content available for free right after it airs, instead saying that it should wait 30 days. Why? Because Dish wants people to be forced to keep their satellite subscription to Dish, where they can catch up on missed shows via the disastrous "TV Everywhere," plan.

There is no good reason for Hulu to support this. All it does is encourage unauthorized access to content by making it harder to find legally. But what it does show, quite clearly, is that a company like Dish doesn't care at all about what consumers want or what's best for consumers. Yet another reason why it's ripe for disruption.

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If Google TV Has To Pay To Make Hulu Available To Viewers, Will Mozilla Have To Pay To Access Hulu Via Firefox?

Mike Masnick — Fri, 22 Oct 2010 08:29:51 PDT

Ah, Hulu. The online TV streaming service has been leading a life of contradiction from day one. It's been trying to build a service that can successfully "compete with free," while being owned by the TV companies, who are scared to death of cannibalizing their own business. We've discussed in the past how this puts Hulu in an impossible position. The fact that it regularly has to have its engineers block access to any device or software that surfs the web over a TV is just one ridiculous example. Danny Sullivan perhaps sums it up best in his review of Google TV, after discovering that Hulu is (of course) blocking access to anyone using Google TV:

Hey Hulu -- you kind of suck. I'm not trying to access you from Google TV. I'm trying to access you using a web browser, which just happens to run through Google TV. Explain to me again why if I hook my computer up to my TV, and navigate to Hulu to watch the shows you offer for free, that's OK. But if I use my Google TV computer, that same free content is verboten -- and the only way for me to get to it is if in the future, you decide to make the free content available through your not-so-free $10 per month Hulu Plus service that's not even available beyond special invites on your own site.

Here's a thought. Enough of blocking Google TV and apparently other services like Boxee. Either block EVERYONE on the web or block no one, because in the end, you turn people who love you when they reach you on their computers (like me) into people who hate you when they're blocked in other places (like me).

Admittedly, Hulu is apparently getting pressure from the TV companies to do these blocks, but it still makes no sense. All things like Boxee and Google TV are doing is providing a browser. As Danny notes, if I just hooked up my laptop to the same TV, I could watch Hulu just fine. Why is it a problem if it's using a different piece of hardware? It makes no sense.

Of course, Google is now negotiating with the networks to "allow" their content to be viewed on Google TV. Is it just me or is this extremely troubling? How would people react if, say, the New York Times suddenly announced that it would not be viewable on Dell computers or in Firefox, unless Dell or Mozilla paid up? People would go nuts. Yet, that's exactly what is happening here.

In the meantime, we've already covered Hulu's ridiculous paywall plans, which even the company admits completely suck. Rumors are now spreading that so few people are interested in getting pretty much nothing for $10/month, that Hulu is now planning to cut the fee in half. Of course, if they're blocking access to random browsers for whatever ridiculous reason (and still not going ad free), then why would anyone pay?

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Fox Extends Cablevision Blackout To Hulu... Temporarily

Mike Masnick — Mon, 18 Oct 2010 06:05:54 PDT

These days, fights between the TV networks and cable providers are so common that we stopped bothering to report on them. Basically, every few months, there's a fight over how much money should be paid to carry the networks, and the two sides get angry, a public relations brawl ensues with threats of channels being removed (or, the channels are removed for some time). Eventually a price is agreed upon between the networks and the cable providers... and the consumers pay more. Great, huh? Of course, some have been suggesting that these fights could drive the push for people to ditch cable altogether, and switch to going purely online.

Except, in the latest such fight, between Fox and Cablevision in New York, things took an odd twist, with Fox not just pulling its network from Cablevision, but somehow getting Hulu to block access to Fox shows to anyone accessing the site from Cablevision. Apparently, after people started asking questions, Fox/News Corp. changed its mind and let Cablevision subscribers view Fox content on Hulu again.

However, this does raise a bunch of pretty serious questions. First of all, why did Hulu consent to this move? If Hulu were serious about its offering, it wouldn't agree to take part in a silly fight like this, singling out people on a particular ISP. Once again, though, this shows how Hulu is way too beholden to the content providers. Second, while this is not really a "net neutrality" issue, it's somewhat surprising that Fox/News Corp. would take a step like this that undoubtedly will be talked about in "net neutrality" terms. Any move that specifically restricts content to a certain class of users isn't going to be looked upon kindly. Finally, in what world did News Corp. think this was a smart move? Did they actually think that users would be so upset that they'd asked Cablevision to raise their bills to bring Fox on Hulu back? Of course not. They're simply going to blame Fox (and Hulu) for pulling their shows.

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Does Steven Levitan Also Want A Cut Every Time You Buy A TV?

Mike Masnick — Wed, 1 Sep 2010 07:31:06 PDT

We recently wrote about how TV producer Steven Levitan was publicly complaining that content creators deserve a cut of any IPO proceeds that Hulu gets, if it does go public. We pointed out what a ridiculous sense of entitlement was involved in such a sentiment, but rather than back down, Levitan is apparently only just beginning. The Hollywood Reporter interviewed him about his views on this, and he simply kept on repeating the same ridiculous concept that as a content producer he somehow deserves the money that Hulu makes. He also complains that TV companies should either keep shows offline under the false belief that TV shows are less likely to be pirated (no, stop laughing, he's serious) and that if they must go online, they should include all of the commercials seen on TV. Because, apparently, recognizing that you're dealing with people watching shows under very different circumstances and in very different ways apparently has not occurred to Levitan.

The more he argues, the deeper a hole Levitan seems to dig in his reasoning. He complains that if we don't figure out a way to make his shows profitable, the only thing left to watch will be "sneezing pandas." This is a version of the movie industry's "$200 million myth." It's the "well, it costs me $x to make this, so if we can't make that back, no one else could possibly make quality content for less." It's incredibly elitist and wrong. Not only is there good content made for less money out there (beyond the sneezing pandas), but if there's really demand for his shows (and there appears to be), then there are smart business models you can pursue that don't involve pissing off your fans or demanding an equity pay out from a company you didn't actually invest in.

Of course, the Hollywood Reporter doesn't help when it asks silly questions like:

Rupert Murdoch also has been an advocate of content creators getting paid for use of copyrighted content online. Has he reached out?

This assumes, falsely, that folks who are working on things like Hulu or who support alternative business models don't want to get content creators paid. Look, we all want content creators to get paid, we just think they should do it with smart business models, rather than by restricting content, pissing off fans and running to the government for greater protectionism.

In the meantime, since Levitan still seems to think he deserves a cut of Hulu's eventual IPO take, I have to ask if he also thinks he deserves a cut from every TV sold, or from whatever money TV companies raise from the capital markets?

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Hulu: We Know That Hulu Plus Sucks, But It's Not Our Fault

Mike Masnick — Mon, 30 Aug 2010 12:57:01 PDT

We were among many, many folks who were completely underwhelmed by Hulu's subscription plan for Hulu Plus. It was $10 for... not much. In fact, new reports are showing that 88% of Hulu Plus content is available via regular Hulu. On the whole, if they are going to lock up content, I'm actually glad to see them keep most content for free, but it's still not clear what additional value they're offering to get people to pay up, and customers are noticing. It seems that Hulu actually recognizes this, however. Consumerist has an email that someone from Hulu sent to an unhappy Hulu Plus customer about the weak selection and the need for ads even though she had paid, and the letter basically admits that Hulu knows Hulu Plus sucks, but they're limited by annoying contracts and they're trying to change it. Yes, it's a bit of a paraphrase, but that's certainly what's implied here:

In the ideal world, we would absolutely love and want nothing more but to be able to get every popular show out there that users love, and acquire the legal rights to stream them across every fancy device imaginable at the price that everybody wants. Unfortunately, due to stringent contract agreements on how content can be shared through certain devices, we are not able to have all of the content that everyone wants at this time.

Of course, this all comes back to the same thing we've said before. Hulu's in such a difficult place because the company needs to keep other companies so happy that it can't disrupt the businesses it needs to disrupt. You simply don't disrupt legacy businesses by working within their guidelines.

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Sense Of Entitlement? TV Show Creator Wants A Cut Of Hulu IPO Proceeds

Mike Masnick — Mon, 23 Aug 2010 11:40:00 PDT

AdamR points us to yet another sickening example of the serious sense of entitlement held by entertainment industry execs. Steven Levitan, a Hollywood producer of various TV shows is apparently pissed off that Hulu might be going public. He apparently complained on Twitter about how unfair it was that the makers of the shows wouldn't get a cut of any IPO proceeds:

"Some estimate Hulu IPO could bring in $2 billion. What do the content providers get? Zero. What is Hulu without content? An empty jukebox"

Yes, and where are those TV shows without Hulu? Most of them are shared online via unauthorized means where the content providers get nothing. When they're on Hulu, at least they do make money. Hulu is going public because of the service it provides, not because of the content. If it does well in the IPO, then it has more money to invest in the service which, in theory (if they don't muck it up -- and there are signs that they are very much mucking it up), should help the content providers make more money. To claim that they shouldn't go public without giving some of those proceeds to the content providers is totally missing the point, and shows a fundamental misunderstanding of how technology and capital markets work (from a Hollywood producer? what a shock...).

But, really, this is yet another example of the entitlement mentality. Yes, the content producers made the content. That's great. But they didn't build Hulu. They didn't invest in Hulu. They didn't pay the bandwidth costs or develop the interface. They didn't pay the salaries or negotiate the licensing agreements. Yet now they just want money handed to them... even though the company already does, in fact, pay content providers for the content that it licenses? Pure entitlement. Levitan is asking for money he doesn't deserve. Anyway, if he really wants to feel better, he should be happy to note that Wall Street doesn't think much of the IPO idea.

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Court Rejects Patent On 'Watch An Ad To Get Content'

Mike Masnick — Fri, 20 Aug 2010 15:15:41 PDT

Last fall we wrote about how a company named Ultramercial had sued Hulu, YouTube and WildTangent over patent 7,346,545 for requiring people to watch an ad before being able to access content. It resulted in an interesting discussion in our comments, where some patent system defenders insisted that the patent was perfectly legit. Unfortunately, the court disagrees with those folks. It has ruled that the patent is not valid (the ruling covers Hulu and WildTangent -- YouTube was dismissed from the case). Perhaps most interesting is the fact that the court chose to use the "machine or transformation test" for judging the patent. While some have read the Bilski ruling to "reject" the "machine or transformation" test, that's not quite true. It just said that's not the only test. The court in this case went through an explanation for why it felt this was still an appropriate test:

It is important to note, however, that even after the Supreme Court's decision in Bilski, the machine or transformation test appears to have a major screening function--albeit not perfect-- that separates unpatentable ideas from patentable ones. Indeed, four of the Justices, listed on Justice Stevens's concurring opinion, would have taken the machine or transformation test to its logical limit to hold that business methods are categorically unpatentable. Id. at 3257 (Stevens, J., concurring). Joining a concurring opinion, Justice Scalia, who signed on to parts of the plurality opinion as well, would not hold all business methods unpatentable, but would agree with Justice Breyer that "not [] many patentable processes lie beyond [the] reach [of the machine or transformation test]." Id. at 3258 (Breyer, J., concurring). In sum, at least five (and maybe all) Justices seem to agree that the machine or transformation test should retain much of its utility after the Supreme Court's decision in Bilski. Therefore, even though the machine or transformation is no longer the litmus test for patentability, the Court will use it here as a key indicator of patentability.

And, using that test, the court finds this particular invention not patentable subject matter. It also points out that the patent is really just covering an abstract idea (the reasoning used by the Supreme Court to reject the Bilski patent):

At the core of the '545 patent is the basic idea that one can use advertisement as an exchange or currency. An Internet user can pay for copyrighted media by sitting through a sponsored message instead of paying money to download the media. This core principle, similar to the core of the Bilski patent, is an abstract idea. Indeed, public television channels have used the same basic idea for years to provide free (or offset the cost of) media to their viewers. At its heart, therefore, the patent does no more than disclose an abstract idea.

I'm guessing this will likely be appealed, so it should be an interesting case to follow. You can read the full (quite clear) decision below:

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