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 KEY FACTS

þ The Internet has transformed the music industry. Sales of CDs in retail music stores
have been declining while sales of songs downloaded through the Internet to iPods
and other portable music players are skyrocketing.
þ Increased levels of high-speed Internet access, powerful PCs with DVD readers and
writers, portable video devices, and leading-edge file sharing services have made
downloading of video content faster and easier than ever.
þ In early 2006, major movie studios reached agreements with sites such as Cinema
Now and Movielink, which has since been acquired by Blockbuster, to sell movies
online via download.
þ What remained a question was whether the studios could replicate the success of
iTunes. However, even if customers were willing to pay a little extra, they were
getting less for their money.Most movie downloads did not come with the extra
features that are common with DVD releases.
þ Right around the time that the studios were making their foray into Web
distribution, a new challenge emerged. YouTube, which started up in February
2005, quickly became the most popular video-sharing Web site in the world. Even
though YouTube's original mission was to provide an outlet for amateur filmmaker
digital rights management issues immediately emerged.
 KEY FACTS

þ YouTube measures to discourage its users from posting illegal clips included limiting the length
of videos to 10 minutes and removing videos at the request of the copyright owner. It was,
however, a losing battle.
þ Clips from popular movies and shows were often posted by multiple users, and they could be
reposted as quickly as they were removed. And watching a two-hour movie in twelve 10-minute
pieces proved to be a small price to pay to view the movie for free.
þ Academics and media executives estimate ranges loss of material from 30 to 70 percent.
þ When Google purchased YouTube in 2006 for $1.65 billion, the site gained considerable clout
in the media world
þ The STUDIOS entered into negotiations with YouTube to establish licensing agreements that
would make copyrighted content available legally. The licensing model was already in place
between YouTube and several major music
þ In early 2007 YouTube revealed its intention to explore a revenue-sharing model with content
creators. YouTube developed filtering and digital fingerprinting technology called Video ID to
make this possible.
þ Whatever the motion picture studios' relationship to YouTube, it remains to be se en whether
streaming video can actually be profitable
þ The developments in online movie distribution have come at a difficult time for the movie
industry.
þ DVD sales in 2008 were sharply down from previous years The studios continue to seek out
more partners for movie downloads
 1

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þ New market entrants and substitute products are the two main competitive forces
challenging the movie industry.
þ SUBSTITUTE PRODUCT:
þ The traditional outlets for viewing movies ± theatres, cable television, and movie
rental businesses ± are all challenged by new ways for customers to obtain products.
With the advent of downloadable movies, the system is changing to more of a
viewer-centric process. With no controls in place, the industry cannot ensure its
receiving just payments and rewards for the work they produce.
Advancing technologies, interpretation/enforcement of copyright laws and
electronic distribution A few of the electronic channels threating traditional
business are:
þ Online Media Stores (iTunes, Amazon, etc.)
þ Video Streaming Services (YouTube, Vimeo, etc.)
þ Subscription based Rental Services (Netflix, Blockbuster, RedBox)
þ BitTorrent Services
þ Hosted File Sharing Services (HotFile, RapidShare, 4Shared)
þ The increased availability of internet access, specifically high
speed connectivity, the broadcast and motion picture industry
has begun to realize the adverse effects of the internet. As
Laudon states, ³Increased levels of high-speed Internet
access, powerful PCs with DVD readers and writers, portable
video devices, and leading-edge file sharing services have
made downloading of video content faster and easier than
ever´
þ While this allows the movie industry to capitalize on new
opportunity, slow adoption, flawed delivery and pricing
models have hindered early efforts. Due to this, free and often
illegal video downloads currently outpace paid video
downloads four to one. It is estimated that 23.8% of global
internet traffic is infringing on content copyrights
þ YouTube, and its parent company Google, are the
MAJOR ENTRANTS that have challenged the movie
industry. YouTube is the number one video site on the
internet with over 100 million video views daily. Google
is the number one search engine on the internet. These
competitive forces have created problems for the movie
industry. Illegal posting of copyrighted movies and
television programs. In fact, the industry claims that 30
to 70 percent of the YouTube content is comprised of
illegally downloaded videos
 1.problems

þ DVD sales in 2008 were sharply down from previous

years and marked the first time that DVD sales
actually decreased from the previous year, dropping
to $15.9 billion from $16.5 billion.
 1.Changes in strategy of movie studios

þ In early 2006, major movie studios reached agreements with sites

such as Cinema Now and Movielink, which has since been acquired
by Blockbuster, to sell movies online via download.
þ . These problems have caused the movie and television studios to
make changes in how they do business. Several of the major firms
entered into negotiations with YouTube in order to create licensing
that would enable copyrighted material to be shown legally.
Furthermore, the movie firms have established an agreement to
"claim" the copyrighted materials on YouTube, run promotional ads
for the movies, and recoup the revenue generated from the ads. Ä
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 2

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þ YouTube is to the motion picture industry what Napster was to the

music industry. That is, it¶s a conduit to new processes that are
more customer-driven than the old ones. YouTube has become the
most popular video-sharing Web site because it gives users what
they want when they want it. People wanted an outlet for the
creative video diaries and amateur films that they created using
inexpensive digital video equipment.

þ Disruptive technologies continually displace old technologies that,

while they are still good products, no longer serve a customer base.
That explains what is causing the changes in how customers want to
receive motion pictures
 2

þ The disruptive technology has had a significant impact on this

case. The ability to quickly download material, and have it
permeate the web, was extremely disruptive to the movie
industry. Having the movies readily available on YouTube, or
other "bootleg" resources, cut into the revenue of the
production firms. Movie firms generate their revenue from
movie theaters and movie rentals. Gaining free movie access
through YouTube bypassed the traditional movie revenue
generators, and ate away at the potential volume and profits
that they could have gained.
þ Initially, the movie studios viewed YouTube as an enemy.
Viacom sued YouTube for $1.6 billion for 150,000 copyrighted
violations that they found on the YouTube site of their
material
 3

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þ Initially, the movie studios viewed YouTube as an enemy. Viacom sued

YouTube for $1.6 billion for 150,000 copyrighted violations that they found
on the YouTube site of their material. Ultimately, the studios have
partnered with YouTube in order to hinder the illegal download market on
their site, and generate revenue for YouTube and the movie studios. The
goal of the response was to curtail the revenue loss caused by the illegal
downloads. The movie studios elected to utilize YouTube in the same way
that the music industry has utilized them. The music industry has utilized
the YouTube site to promote artists, videos, and products. The movie
studios have learned that utilizing the YouTube site in the music manner
will boost their presence, frustrate the use of illegal downloads, and enable
YouTube and the studios to generate revenue from the illegal downloads by
posting ads at those locations
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It¶s important to understand that YouTube continues to be the most

popular video sharing Web site. With Google¶s clout behind it, it
will continue to be a force to reckon with. The movie industry
should continue to work with YouTube to find ways to use the site, if
for nothing else than promotional reasons. By putting their own
short videos and film clips on the site, before others do, movie
studios can thwart some of the illegal use of their films. The average
person would rather see a well-produced video than a second- or
third-rate clip. By taking proactive measures rather than being
reactive, the industry can control (to a greater extent) what appears
on YouTube¶s site. Currently, several movie studios and television
networks utilize the YouTube service to promote new releases and
shows. In addition, publishers are now able to generate ad income
from uploads and while there has been limited success, this
additional revenue stream will continue to grow as does the
YouTube audience.
 5

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þ Illegally using copyrighted material is an act of theft. Both

users and video- and audio-sharing Web sites are equally and
legally responsible for properly using someone else¶s property.
þ Advertising is becoming a major source of revenue for many
Web sites and YouTube is no different. That¶s especially true
since Google, a company very dependent on advertising
dollars, purchased YouTube. It¶s probably true that YouTube
ads help get customers excited about seeing the actual movie.
THANK YOU