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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (38692)	12/31/2002 3:11:41 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69955

Ahead of The Curve: DVD Copyright Laws - The Coming Battle Lawsuits regarding the future of copyright protection for DVD and other digital content are now reaching the Supreme Court. Justice Sandra Day O'Connor granted a stay on Friday on the decision by the California Supreme Court that Matthew Pavlovich could not be sued in California. In 1999, young Matthew posted code for breaking the DVD anti-copying software on his website while a student at Purdue. The industry coalition that created the anti-copy software, DVD Copy Control Association, sued Matthew in California. The California Supreme Court ruled that he cannot be sued in California since he does not live there. The DCCA appealed to the Supreme Court and Justice O'Connor agreed to hear their case. The issue in this particular case is limited to venue: where Mr. Pavlovich can be sued. But for technology and entertainment investors, the year 2003 should become the year to watch this legal issue develop. Technology companies (primarily software manufacturers) and entertainment companies both have something in common: large capital investments to produce high gross margin products. A large expense to create something new is recovered by selling multiple copies of the item. The actual cost of the physical delivery is minimal, but when the high profit margin covers the costs of the development, the profits can be enormous. The threat to these models is that the product is spread without the high gross margin. Protecting against piracy is a major objective in maintaining their business model. The "royalty" business model is a fantastic one when it works. Microsoft could easily be argued as the greatest company ever but it owes its success entirely to the royalty model. There is virtually no technical way to stop the copying of DVDs. There are only legal solutions. As we mentioned in a Story Stock on Friday, devices that copy a 2 hour DVD in less than 4 minutes and cost less than $500 will arrive in mid-2003. The commercial models will probably include a intangible royalty, as the "Audio CDRs" do now. (Audio CDRs carry a "royalty" fee which is contributed to a general pool managed by ASCAP and BMI - the music industries royalty police.) The threat to the entertainment industry is that internet-based delivery of the DVD video will not be recorded on the physical discs that include the "general royalty." The only solution to the problem is the same legal powerhouse that squashed Napster - which gave birth to hundreds of "children-of-napster" sites. The coming year is the year in which the DVD copyright issues will come to the forefront. There is a supreme irony here. The entertainment industry saw the "video broadband era" of the internet as the next huge explosion. Yahoo! paid $6 billion for Mark Cuban's Broadcast.com to charge people to watch movies over the internet. The net-fever created the mentality that allowed Steve Case to make Time-Warner a 45% owner of the combined company, when AOL had only 15% of the revenue of Time-Warner. The entertainment industry found it necessary to buy into the coming internet boom - with dreams of pay-per-view digital transmissions (100% gross margins!) making them salivate. Now sentiment has come full circle and the great fear is that the internet really will get hooked up to the TV and everyone will watch downloaded movies for FREE! The thought sends shivers down the spine of every Hollywood executive and they will fight hard to make sure it doesn't happen. It is now clear that next year will be the year this war is fought, as the Supreme Court asked for the DCCA to file briefs by Friday explaining their case. Some of the best business models in the stock market lie in the balance. - Robert V. Green