"I don't want to be tagged with an anti-investor legacy," Schapiro wrote in an e-mail to [Corporation Finance Director Meredith] Cross with the subject line "Please don't forward."

"In light of all that's been accomplished, that wouldn't be fair, but it is what will be said ..."

The possible extension of the telephone system’s “sender-pays” rule to the Internet is a contentious international political issue under consideration at the World Conference on International Telecommunication (WCIT). This paper examines whether higher international telephone rates support or impede telecom sector growth in the receiving country. It uses data on international telephone rates from the US from 1992-2010 to explain growth in foreign telecom sectors during the same period. I find that higher international calling rates are correlated with slower growth in the telecom sector, which suggests that countries are not primarily using higher charges to finance additional expansion. These findings cast doubt on proposals that would extend sender-pays to the Internet sector.

We analyze the effects of a court ruling in France and several court rulings in Germany on VC investment in cloud computing firms in these countries. These court rulings were seen as negatively affecting the development of cloud computing, and our findings confirm this view by showing that these rulings regarding the scope of copyrights had significant, negative impacts on investment. Specifically, we find that VC investment in cloud computing firms declined in Germany and France, relative to the rest of the EU, after the French and German rulings. Our results suggest that these rulings led to an average reduction in VC investment in French and German cloud computing firms of $4.6 and $2.8 million per quarter, respectively. This implies a total decrease in French and German VC investment of $87 million over an approximately three year period. When paired with the findings of the enhanced effects of VC investment relative to corporate investment, this may be the equivalent of $269.7 million in traditional R&D investment.

• The broad definitions in the bill create tremendous uncertainty for nearly every site online. This sounds like hyperbole, but it is not. Defenders of the bill like to claim that it is "narrowly focused" on foreign rogue infringing sites. Nothing could be further from the truth. While PIPA targets only foreign sites, the mechanism by which it does so is to put tremendous compliance and liability on third party service providers in the US. SOPA goes even further in expanding the private right of action to domestic sites as well. We've already seen how such laws can be abused by looking at how frequently false takedown claims are made under the existing DMCA. Of course, under the DMCA, just the content is blocked. Under SOPA all money to a site can be cut off. Under PIPA sites will just end up in court. Or, with both laws, an Attorney General can take action leading US companies to have to effectively act as network nannies trying to keep infringement from being accessible. None of this is good for anyone building a startup company these days. The massive uncertainty around this, combined with the need for a huge legal department sitting in "the garage" as a startup begins, will certainly slow down the pace of innovation in the US, while likely driving it elsewhere.
  
  And the definitions are ridiculously broad. Under SOPA, you can be found "dedicated to the theft of US property" if the core functionality of your site "enables or facilitates" infringement. The core functionality of nearly every internet website that involves user generated content enables and facilitates infringement. The entire internet itself enables or facilitates infringement. Email enables or facilitates infringement. They have significant non-infringing uses as well, but the definition leaves that out entirely. Under SOPA, there's also a risk if you take "deliberate actions to avoid confirming a high probability" of infringement on a site. Of course, it's not at all clear how one takes deliberate actions to avoid taking action. The only way to read this clause from a tech company perspective is that it requires proactive monitoring, which is effectively impossible for a user generated content site. PROTECT IP's definitions are equally broad, again using the "enabling" or "facilitating" language.



• The risk of these broad definitions on perfectly legitimate companies is not theoretical: Defenders of both bills continue to insist that they're only meant to deal with the worst of the worst. If that were really true, the definitions would be a lot tighter and a lot more specific. Even if this is the intention of the authors of both bills, the simple fact is that the very broad definitions in the bill, mean that any entrepreneur today will need to take significant compliance costs just to avoid the possible appearance of fitting the criteria.
  
  Defenders also like to brush off the idea that a bill like this would target something like YouTube. But we know that's not accurate since Viacom is still engaged in a huge lawsuit against YouTube, in which Viacom's claims certainly appear to cover the definitions found in these bills. While it seems unlikely that anyone would try to shut down YouTube completely, given the public outcry it would create, the real fear is what happens to the next YouTube, or just the fear that a rights holder could strike into any company by threatening them under the private rights of action in each bill. It becomes a form of legalized extortion. Threaten to bring action under these bills, and watch tech companies crumble.
  
  And, already there are indications that companies are interested in bringing broad actions for infringement against organizations that most people would consider perfectly legal. Advertising giant GroupM recently asked its entertainment industry customers to compile a list of "sites dedicated to infringement," not unlike what's found under PROTECT IP. Universal Music, Warner Bros. and Paramount were three key providers to that list, which ended up covering a large number of perfectly legitimate sites including the famed Internet Archive (widely recognized as the library for the internet). It also included numerous innovative startups that are frequently used by content creators to get their works out, such as SoundCloud and Vimeo. Even more worrisome, it included a variety of publications and blogs, including Vibe Magazine, the quintessential hip hop and R&B magazine founded by Quincy Jones, as well as Complex, a popular lifestyle magazine recently recognized as one of the most valuable startups in New York.
  
  Even worse, it appears that Universal Music also included the personal website of one of its own top artists, 50Cent. The hiphop star has a personal website as well as a website owned by Universal Music. The personal website is much more popular... and it appeared on the infringement list. Suddenly, you can see how letting companies declare what sites are dedicated to infringement can lead to them looking to stifle speech and competition.
  
  Similarly, Monster Cable, who has stated its support for PROTECT IP, has put together its own list of "rogue sites" and it, rather stunningly, includes sites like eBay, Craigslist, Costco and Sears. It even includes consumer rights groups like Which? in the UK, and various popular shopping search engines like PriceGrabber.
  
  These companies clearly take an expansive view of what constitutes "dedicated to infringement," and have no problem suggesting they would like to stop these sites. Internet companies and site owners have every right to be extremely afraid of what laws like PIPA and SOPA would do when they give much more power to these private companies to take actions that could shut down these sites, tie them up in court or merely cut off their funding and advertising.
  
  
• That uncertainty has very real and quantifiable effects on jobs in this country. President Obama has noted that the internet adds approximately $2 trillion to the annual GDP (pdf). The amount of jobs created by the tech industry are massive, and represent a large percentage of all new job creation today. IDC has predicted 7.1 million new jobs and 100,000 new businesses created in the next four years from the tech sector. An astounding 3.1 million people are employed thanks to internet advertising -- jobs that simply did not exist a decade ago.
  
  And these jobs go way beyond just the jobs at tech companies themselves. The important thing in tech platforms is not in how many jobs are at those companies, but how many jobs they enable elsewhere. eBay has been said to have empowered 750,000 people to build their own small businesses. Facebook's app platform has, by itself, created somewhere around 200,000 new jobs (pdf). It's likely that Apple's iOS app platform has created significantly more than that, given how popular it is. Google's tools have been shown to create $64 billion (with a b) in additional economic activity.
  
  Do we really want to stifle all of that growth and activity with regulations that will stifle innovation and jobs, even (as noted above) as the evidence shows that merely adapting and providing a better service makes everyone better off?



• That uncertainty has extreme and quantifiable effects on investment in new startups. A very detailed look at the uncertainty in the cloud computing space, prior to and after the decision in the Comedy Central v. Cablevision case, which effectively set the framework for the legality of cloud computing, showed much greater investment when the law was clarified to be in favor of letting these new services thrive. Take that away, and investment in this engine of growth likely would be much lower. Considering that politicians claim to be so concerned about the economy and jobs these days, the idea that they would push forth a bill that quantifiably would reduce investment in one of the only sectors creating new jobs is really stunning.



• Broadly expanding secondary liability is a dream for trial lawyers, but will be a disaster for business. There's been a move, associated with these bills to somehow demonize important concepts of safe harbors from secondary liability. The suggestion is that secondary liability somehow "allows" bad activity. Nothing is further from the truth. Illegal activity is still illegal. The point of safe harbors from secondary liability is blaming the party actually doing the action that breaks the law. We don't allow people to sue AT&T because the telephone was used in commission of a crime and we don't sue Ford because someone crashed their pickup truck into another car. Liability should be properly applied to the parties doing the action that breaks the law. The safe harbors have just made that clear -- and allowed innovation to flourish. Empirical studies have pointed out that "the rich informational ecosystem we know today... is a function of the 'breathing space' Internet intermediaries currently have under the law."
  
  Other studies have shown that pulling back on such secondary liability safe harbors would mean that investors would need an astounding 13x to 20x return on investment to make the risk worthwhile. That triples or quadruples the standard risk level that most angel investors deal with.
  
  The key way that both PIPA and SOPA function are to drastically scale back that breathing space, by attaching secondary liability and compliance costs to US companies, in an attempt to keep users from infringing via other sites. That would represent a massive shift in the legal framework that has allowed the internet to flourish, and yet no research or studies have been done to look at the possible impact of all of this.



• The technical measures described in both bills is tremendously problematic. Looking to use DNS blocking is just a bad move. It's why a group of core internet infrastructure experts spoke out very early on (about COICA, in the pre-PIPA days) to explain how DNS blocking would set back a decade or more's worth of work on online security standards, would make people less safe online, and has the risk of fragmenting the internet. It's why the founder of the world's largest independent DNS provider, OpenDNS, in charge of protecting one-third of all schools in the US, has noted that under these laws, he likely wouldn't have started the company, or might have started it in another country.


• Having a judge determine the best network architecture is a bad idea. SOPA's attempt to address the "DNS blocking doesn't work" argument by adding a vague standard in which courts can order sites to take "reasonable measures" to block even more is also not encouraging. Does anyone really think that we want some judges determining what are "reasonable measures" for managing how the internet works? Wouldn't it be better to trust the long line of experts, drop any thought of DNS blocking, and move on?



• Going down the slippery slope of censorship is fraught with peril, both domestically and abroad. Supporters of the law get angry any time people bring up censorship, but as law professor Derek Bambauer has made clear, any effort to block content is a form of censorship. What we can argue is whether or not this form of censorship makes sense or is a policy that people think makes sense. But no one should deny that bills that lead to blocking access to websites is a form of censorship.
  
  There is reasonable debate as to whether or not this level of censorship goes violates the First Amendment. Constitutional scholar Laurence Tribe has argued that it does violate the First Amendment. Well over 100 of the country's top legal scholars have made the same argument. Arguing on the other side is well respected First Amendment lawyer Floyd Abrams... but even he admits that under SOPA and PIPA protected speech would get censored. He just deems that as acceptable collateral damage, as being merely "incidental." We can argue over whether or not it really is incidental, as we've already seen actions against sites under current law that seek to stifle large amounts of protected speech outside of any infringement.



• The functional setup of such site blocking -- via DNS blocking -- is effectively identical to how the Great Firewall of China works. While the intended purpose is obviously different, the actual mechanism for blocking is nearly identical. This creates significant cover for repressive regimes to resist any diplomatic efforts by the US to push back against attempts by the US to promote internet freedom. Furthermore, we have seen how countries, such as Russia, have used copyright law to censor political opposition, using the law to go against activists challenging the government. Even if the intended purpose of SOPA and PIPA are to protect against infringement, opening up the door to censorship for one purpose makes it nearly impossible to avoid it being used for other purposes. It also basically gives the perfect blueprint for repressive regimes. They merely need to claim that their Great Firewalls are designed to stomp out infringement, and then can use it to intimidate and block political opponents. Adding to that is the massive expansion of the diplomatic corp. pushing for greater enforcement, and it's almost as if we're begging countries to set up their own Great Firewalls that will certainly be abused.
  
  
• Countries abroad are watching us, and already noting the seeming hypocrisy concerning our statements. Media in other countries, who already are known for suppressing speech and censoring the internet, are already mocking the US for even considering such legislation at the same time as the US State Department claims to be promoting internet freedom. Talking about the importance of internet freedom on the one hand, while pushing countries to put in place the very tools that will be used to undermine internet freedom is not a particularly consistent message. This can be seen in VP Joe Biden's recent speech on internet freedom that presents all the arguments for why SOPA and PIPA should not be supported (in an unintended manner).
  
  
• Changing what counts as a felony for copyright, without understanding the implications or common usage of technology puts many at risk. This does not apply directly to PIPA, but its companion legislation in the Senate, S.978. Similar provisions are found in SOPA as well, making certain forms of "streaming" a felony. Supporters of these actions insist that they're merely harmonizing criminal and civil copyright laws, since the felony parts of the criminal copyright statute cover reproduction and distribution, but not performance. What they fail to recognize (or admit) is that there's a reason why performance rights were left out, and it's because it's pretty ridiculous to think of a felony performance in normal contexts. But it becomes even more troublesome in the online context, because "performance" is so vaguely defined in an era when streaming works via a simple one-line embed. To embed a video is no different -- from a technical standpoint -- from linking to a video. And most people would have significant problems with the idea that you could face five years in jail for merely linking to content you have no control over. Yet, the streaming portions of SOPA and of S.978 make that entirely possible. Merely putting a single line of code on a site, pointing to content on another server that you have no control over, potentially makes you a felon. This will have massive unintended consequences and puts at risk millions of Americans who embed videos all the time.

The Player Piano

“I foresee a marked deterioration in American Music…and a host of other injuries to music in its artistic manifestations by virtue – or rather by vice – of the multiplication of the various music reproducing machines” -- John Philips Sousa, 1906

The Video Cassette Recorder

"But now we are faced with a new and troubling assault on our fiscal security, on our very economic life, and we are facing it from a thing called the Video Cassette Recorder" -- MPAA President Jack Valenti in 1982

Cassette Tapes

"When the manufacturers hand the public a license to record at home...not only will the songwriter tie a noose around his neck, not only will there be no more records to tape, but the innocent public will be made accessory to the destruction of four industries" -- ASCAP, 1982

Digital Audio Tape


The Mp3 Player

“Diamond's product Rio was destined to undermine the creation of a legitimate digital distribution marketplace..." -- RIAA President Hillary Rosen in 1998

The Digital Video Recorder

"It's theft...Any time you skip a commercial or watch the button you're actually stealing the programming." Turner Broadcasting CEO Jaime Kellner in 2002

Our findings suggest that decisions around copyright scope can have significant impacts on investment and innovation. We have tested a number of models and consistently find that the U.S. Second Circuit Court of Appeals’ decision led to additional incremental investment in U.S. cloud computing companies compared to the EU experience. As shown in the figure in Appendix B, estimates of increased VC investment in U.S. cloud computing from our seven models range from $728 million to approximately $1.3 billion, with an average of $936 million. When paired with the findings of the enhanced effects of VC investment relative to corporate investment, this may be the equivalent of $2 to $5 billion in traditional R&D investment.

Follow me @glynmoody on Twitter or identi.ca, and on Google+

Per the AMPAS rules that govern the qualification for the Oscars, paid ads needed to run in conjunction with a seven day, official theatrical engagement. This was a bitter pill to swallow, as we’ve sold lots of Red State tickets all year long without running a single paid ad. But a rule’s a rule, so after the AMPAS folks signed off on the New Beverly for the home of our Los Angeles run, we spent $9,316 on newspaper ads.

It still makes me queasy – solely because it’s money not well-spent. We’d sold out all of our weekend screenings before the ad ever ran in either of the three papers we bought space in: the LA Weekly (six inch ad), the LA Times (same), and the west coast edition of the NY Times (1/2 page ad).

we ran the flick for a week at Quentin Tarantino’s New Beverly Cinema in Los Angeles (big thanks to Julia!), where we did two screenings a night, which I followed with 30 minute Q&A’s. Tickets were $20 for the Friday to Wednesday screenings and were followed by post-show Q&A’s with Fatty McNoFly, scourge of the skies.

Since few movie sites ever wanna include us in their box office wrap-up pieces (nor mention that we had the highest per screen average for the last two weeks), here’s the financials for how Red State performed that week…

Friday August 19th
6:30PM 215 – tickets sold $4300
9:00PM 215 – tickets sold $4300
Total for Friday, 8/19: $8600

Saturday August 20th
6:30PM 215 – $4300
9:00PM 215 – $4300
Total for Saturday, 8/19: $8600

Sunday August 21st
6:30PM 215 – $4300
9:00PM 215 – $4300
Total for Sunday, 8/19: $8600

Monday August 22nd
6:30PM 154 – $3,080
9:00PM 215 – $4,300
Total for Monday, 8/19: $7,380

Tuesday August 23rd
6:30PM 168 – $3,360
9:00PM 215 – $4,300
Total for Tuesday, 8/19: $7,660

Wednesday August 24th
6:30PM 215 – $4300
9:00PM 228 – $4560.00 (oversold)
Total for Wednesday, 8/19: $8,860

Friday to Wednesday total: $49,700

On Thursday, I didn’t Q&A after the screenings at all, as per AMPAS rules (regarding leaving filmmaker-free screenings open for Academy members so they can watch the flick without influence). Thursday’s ticket price was only $7 for the movie only ($7 is the normal New Beverly admission price, although usually that’s for a non-first-run double-feature). Even that did solid numbers…

Thursday August 25th
6:30PM 175 x $7 = $1225.00
9:00PM 191 x $7 = $1337.00
Total for Thursday, 8/19: $2,562

Friday to Wednesday total: $49,700
Thursday total: $ 2,562
New Beverly Total: $52,262

Of the 2,675 seats available from Friday to Wednesday, we sold 2,580. From Friday to Wednesday, over the course of twelve screenings, merely 95 seats ever sat empty. Had our start time been 7:30 each night, we likely would’ve sold those seats as well (it’s a bitch getting anybody out in L.A., let alone at 6:30 at night; folks are still getting home from work).

Like let’s say Red State is showing at your local multiplex. But then right after the movie ends, a live, interactive Q&A with the filmmaker starts, beamed into the theater via satellite. Even if you’re not there in the room, you’re Tweeting questions from your theater and getting responses from the guy on the big screen. And then, after three hours of movie and interactive Q&A? Boom: LIVE PODCAST! That’s four hours of once-in-a-lifetime entertainment for less than $20: a movie, a show, then another show.

Now, before some old dick like ol’ cranky Mr. “GET OFF HOLLYWOOD’S LAWN!” tries to make a beef with me and theatrical exhibitors in their ongoing war with the studios over the shrinking theatrical window and premium VOD’s role in decreasing box office revenue, let me remind REGAL and AMC, CINEPLEX or any other theater chain that I’m not the enemy. Please don’t lump me in with people trying to take money out of your pockets, Exhibitors. This is a (not-so) new way to make money and fill your empty buildings when there isn’t a Transformer to save you. On a fucking Monday night, no less.

Want fresh eyes and asses in your theaters? Try a one-night-only screening of a movie, a Q&A, and a live podcast: all for under $20 a ticket. The positive feedback you’ll receive from your paying customers alone will be worth it, but the concessions loot you’ll rake in that night will make you richer than the pharaohs (my people like to eat snacks). And if I can make this work? That means anybody can make this work. And that means more people coming to your theaters. Jump into digital bed with us: there’s not enough money going around anymore to quibble over restrictions that shouldn’t apply to a specialized film in the first place. I can sell these events out and make you money without spending money to do so – all while giving a normally slow night a massive shot in the arm. If not, no worries: there are lots of Mom & Pop single-screens out there who’ll welcome us warmly as well.

Over the course of the 15 shows of the Red State USA Tour, we made almost one million dollars from ticket and merchandise sales. A few times, we had the highest per screen average in the country. We started out with a record-making show at Radio City Music Hall and went on to average 1100 people per screening. Had we booked ourselves into smaller houses, we could’ve SOLD OUT every show; but being in the larger houses cost us nothing extra.

And apparently, we managed to pull 1100 a night solely from our podcasts: when asked nightly if they heard about the show from a show at SModcast.com, an overwhelming 85/90% of the audience indicated yes (Jon swears it was 100% in Seattle). That bodes well for SIR.

You take what we made on the tour, you add that to the $1.5mil we’ve pulled in from foreign sales thus far (with a few big territories yet to sell). Add to that $3mil we’re on the verge of closing for all North American distribution rights excluding theatrical (which means VOD/HomeVideo/PayTV/Streaming).

The flick cost $5mil to make, but $4mil after the California tax incentive. One of the only things Jon and I promised the Red State investors in exchange for letting us handle American theatrical distribution ourselves was that their $4mil would be covered as soon as possible – something very few other production entities can promise or even offer. Invest a million dollars in almost any production, and you rarely if ever get your money back within five years, let alone the one year it’s looking like it’s gonna take for our guys to make their money back.

Add up all those figures above and you’ll notice our gains are higher than our spending. And without any dopey marketing figures to have to recoup, once we close the aforementioned deals (which Jonn Sloss & LawCo are working to close as we speak), simple math dictates Red State is in the black – long before any wide release. That’s music to the ears of any investor who only put up their money in September.

Net neutrality/reclassification opponent Thomas Seitz (Height Analytics and previously Barclay) today joined the parade of top analysts doubting the claims that Net Neutrality rules would produce a serious cutback in broadband investment. Washington is inundated with claims NN will clobber investment, but the carrier CFO are telling Wall Street it won't be a determining factor. Seitz joins John Hodulik of UBS (voted #1 telco analyst), Craig Moffett (voted #1 cable analyst) and Michael Rollins of Citigroup as well as several others who haven't gone on the record.

"Investing in music is the core mission of record companies," says [IFPI] boss John Kennedy. "No other party can lay claim to a comparable role in the music sector. No other party comes close to the levels of investment committed by record companies to developing, nurturing and promoting talent."