Viacom: Wrong On Almost Every Thing

from the nice-work dept

It's no secret that we think Viacom has made some really bad strategic moves recently (while sister company, CBS seems to be making the right moves). However, it's still impressive to see Viacom CEO Philippe Dauman lay out so many wrongheaded strategic positions in a single speech. Clearly, Viacom's strategic sickness comes from the top -- and it's going to strangle the company as others, who actually pay attention to basic economics and trends, run rings around Viacom over time. Let's take a look at all the issues that Dauman is wrong on.
  • DRM and watermarking: Dauman says the way to defeat piracy is for companies to "unite against piracy by installing more safeguards." How's that been working so far? Right, it's only made the problem worse and pissed off a bunch of folks by treating them as criminals. Limiting what people can do and treating them like criminals diminishes value, rather than increases it. As more and more companies are learning this, it's simply going to push people away from stragglers like Viacom.
  • Spurring creative output: Dauman insists that copy protection and watermarking are necessary to "usher in an unprecedented period of creative output across the globe." Apparently he hasn't been paying attention. We're already in an unprecedented period of creative output across the globe -- and it isn't because of copy protection and watermarking, but because of increasingly simple tools for content creation, promotion and distribution -- all of which are held back by things like DRM and watermarking.
  • Easy copying and distribution seen as a problem: Dauman apparently complained about how awful it is that "all manner of intellectual property" can now be reproduced more easily than ever "at the click of the mouse." Only in the world of someone who doesn't understand basic economics would that person lament the fact that the tools of creation and distribution are getting cheaper. For most people who recognize that they're selling benefits, not products, having the cost of production and distribution drop to virtually zero would be seen as an opportunity, not a problem. Unfortunately for Viacom, there are plenty of companies that do view the easy reproduction of content as an opportunity rather than a threat, and that's going to hurt Viacom if it continues its current policies.
  • Supporting ISP plans to filter traffic: Dauman apparently applauded AT&T's efforts to filter copyrighted content. It's not hard to see why he would support this, but it seems like a model designed to simply waste AT&T's money. There's no clear way for AT&T to profit from this -- and, if anything, it will just annoy users of AT&T who will look to go elsewhere. At the same time, given the high number of false positives in takedown notices (including those from Viacom), it's only a matter of time until this filtering effort starts blocking perfectly legitimate content. It's also not clear how AT&T determines what is and what is not infringing content. Especially as media companies start to recognize the promotional qualities of otherwise infringing content, this will only get messier.
  • Against net neutrality: While there's a good argument against net neutrality regulations, Dauman's reason for being anti-net neutrality is the false belief that if net neutrality was mandatory it would hamper anti-piracy efforts. This one is just wrong, as it appears Dauman doesn't understand net neutrality at all. And, of course, that doesn't even start to get into all the reasons why the entirety of Viacom's anti-piracy campaign is misguided (parts of which we've discussed above).
  • US pressuring foreign countries to fight copyright battles for Viacom: Funny how Dauman is against gov't intervention when it comes to net neutrality, but when it comes to having the US gov't act as Viacom's personal police in international disputes over copyright law, he's all for it. Copyright is about incentives, not protection, and different countries have learned that there are many ways to create good incentives for content creation, that don't require excessive protection. Dauman's push to have US diplomats force other countries to follow the US model threatens all kinds of interesting new business models over what is, essentially, a private commercial dispute concerning an obsolete business model.
  • The Pirate Bay: Dauman slams The Pirate Bay for making movies available, suggesting again that he's confused about how technology works. The Pirate Bay isn't making the content available, but acting as a search engine for content. It's like blaming Google for all the content on the web.
  • Speaking of Google... Dauman then goes on to defend Viacom's $1 billion lawsuit against Google for infringing content on YouTube. He may be right here that it will be a defining landmark case, but he's still on the wrong side of it for a bunch of reasons we've discussed here repeatedly. Given how many (non-Viacom) companies are recognizing the benefits of having people share their content on YouTube, asking Google to automatically block all shared content is ridiculous. It would harm all of those who are happy to have their content shared, just to protect an obsolete business model.
  • Google's reliance on intellectual property: Finally, Dauman notes that he can't understand Google's position in the YouTube suit, "given Google's own reliance on its software intellectual property." Again, this suggests Dauman doesn't actually understand either technology or intellectual property economics. Google doesn't rely on its intellectual property. Yes, it has many patents -- but that's not the basis of Google's success. The company relies on its ongoing ability to produce useful services that people want to use -- and then has built a business model that supports that (and supports it fantastically well, I might add). Studies have suggested that other sites have better technology than Google, but it's no longer the technology that keeps people coming back to Google -- but the overall experience. The clean interface, the better usability and the simple fact that many people feel that Google is trying to provide them with a useful service, rather than trying to figure out how to limit what they can do. That's not relying on intellectual property -- it's about creating a business model that supports what people want.
And there we go. All that in one speech. Almost all of it very, very wrong. It's hard to craft a forward looking strategy for a rapidly changing market when your boss seems to have nearly all of his assumptions wrong.

Filed Under: business models, copyright, drm, net neutrality, philippe dauman
Companies: viacom

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  1. icon
    Mike (profile), 4 Oct 2007 @ 7:00pm

    Re: Re: Re: Time to Get Real

    Ok – forgive me for not understanding that your defense of piracy is more fully evolved than I knew. I’m new to your column, although not to the topic.

    Sure, no problem... though I would suggest that in the future, before accusing people of something, you take the time to make sure you actually understand their position. It's harder to take you seriously when you say stuff about us that clearly is untrue.

    The first link cites to Thomas Jefferson who said that ideas become free as soon as made public. He’s right – it is the expression of an idea that is covered by copyright. In fact, because it is a fundamental value of this country that ideas be expressed and debated, an economic incentive to express them was created.

    Yes. But it's a tradeoff that Jefferson (and Madison) clearly recognized and worried about. If you can recognize that the incentive is not necessary, then you no longer need that tradeoff.

    Writers (like you) choose to write so everyone will know their opinions. Some writers choose to make their works free so they can sell the experience, others (like lessig) sell their books. Both models have a place (like in software), but book writers don’t insist that you put your works into the public domain.

    Again, we've never insisted that others put their works in the public domain. We've just suggested two things: (1) if they understand the economics, they can make more money by doing so and (2) if they don't do it and their competitors do recognize that model, then they'll be in trouble.

    Movies are expensive because talent is expensive and because there is a market for viewing the latest and greatest. Technology HAS made movie-making cheaper – bringing, for example, the latest computer animation within the means of a movie-maker. Sure, you could now do Goldfinger for less, but audiences turn out to see Transformers. Maybe you think that’s dumb, but if consumers want it, shouldn’t they be allowed to see it?

    Who said they're not allowed to see it? I said the exact opposite. There are tons of examples where the movie industry can make lots of money without relying on copyright.

    Traditional scarcity exists in the rarity of a steven spielberg or jj Abrams and so many others and the scarcity of the capital to hire them.

    EXACTLY my point. There is scarcity in every industry, you just need to make sure you're charging for the scarcity, not the abundance.

    What if some people want to see movies in theaters, others on TV – shouldn’t the market support both, without ONLY permitting the model of giving it away?

    There's nothing wrong with the market supporting both, but it does need to be *the market* supporting them both -- not artificial gov't subsidies in the form of protectionist policies. Saying that we have to support a specific model is like saying we have to support the buggy whip makers once the automobile comes along.

    There is a role for giving it away, but you would compel it. If, absent piracy, these markets go away – good riddance.

    I'm not compelling giving it away. I'm saying two things (I repeat). (1) If you understand the economics, you can make more giving it away and (2) if you don't and all your competitors do give it away, you'll be in a lot of trouble.

    Finally, the “movie business” is doing just fine argument. We used to hear that about the record business

    I'm not saying the movie industry is doing fine... I'm saying they *SHOULD* be doing much better if they actually recognized why people watch movies.

    Then when the record business began its steep decline, the argument changed to “they’re all terrible people and abuse the artists” so it’s ok that they are hurt.

    I have never made that argument, so I'm afraid I can't respond to it. I don't think that argument is true, and I'd ask that you not imply I ever said any such thing.

    The reality is that the record business used to spend a lot of money nurturing and developing talent, promoting artists and taking risks. They don’t now.

    That's not because of piracy. That's because they don't understand the market changes they're facing.

    As bandwidth and storage follow the inexorable path of Moore’s law, movies may not be far behind. If we want to see risk-taking and investment in movies and tv, producers must be free to choose free when it works and choose licenses when it works, and not have the path chosen for them.

    I'm afraid that's not how the market works. The buggy whip makers didn't choose for automobiles to enter the market.

    Put differently, parasites do well when the host is healthy, but if they aren’t checked, the host dies and the parasites with them.

    You are falsely assuming that we're discussing parasites, rather than symbiotic relationships. If you understand the economics and respond accordingly, it need not be a parasitic relationship at all. It's only parasitic if you don't understand the economics.

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