I have a short article in CIO Insight this month about the href="http://www.cioinsight.com/c/a/Opinion/A-Virtual-Battle-for-Value/">real meaning of the Writer's Guild of America strike.
The three-month strike was remarkable in that the sole issue, one the industry was willing to spend over $2 billion fighting, was when and how revenues from new and future digital channels would be allocated. What's remarkable about that is that so far there are no such revenues.
On-line distribution of movies and especially TV is a recent phenomenon, powered by ever-faster transmission speeds, the continued spread of broadband technologies into the home, and improved protocols for encapsulation and compression. It seems certain that some profitable models for delivering Hollywood content to computers, PDAs, cell phones and other non-TV/non-theater devices will emerge. But in these early days, as with music before it, it hasn't yet and it isn't clear what those models will be. Advertising-supported? License? Purchase? Some hybrid?
Meanwhile, as with earlier, less bandwidth-intensive content, much of the innovating is being done by users (YouTube and all the variations), who don't bother with the niceties of intellectual property law in the interest of speed and experimentation. (Viacom has a $1 billion lawsuit in progress against YouTube and Google.)
Why did the writers risk so much, and why did the studios spend so much, fighting over revenue that doesn't yet exist from channels that haven’t been invented? The writers took a stand here and now, in large part, because they did not do so in the early days of videocassette sales and rentals (now the largest share of media income by channel) and felt that as a result they got a much worse deal when the profitable models finally arrived.
The studios, by contrast, argued that until it was clear how and when money was to be made from digital distribution, assigning residual royalties to writers would limit their ability to experiment with different distribution and partnership approaches. (They made the same argument with regard to videotape.)
Was the strike worth the $2 billion it cost the industry, as well as other intangible damage caused by disappointed consumers who may have found other ways in the interim to spend their time and money? Did the writers get a good deal in agreeing to the royalty rates that are part of the new contract? Was now the time to wage war over future value from new, largely unknown uses of existing IP?
We don't know. We don't know largely because the tools for valuing IP, even for present uses, are terrible. You will look in vain at the balance sheet even of companies whose sole assets are IP (much of the entertainment industry, as well as professional services) to find any useful measure of the current or future value of copyrights, patents, trade secrets, and trademarks.
Ironically, the biggest reform in balance sheet accounting of the last 50 years, the Sarbanes-Oxley Act, did nothing to make more “transparent” the fastest-growing class of assets in the information age. The data warehouse is worth nothing, according to the financial statements. And many executives set their tactical strategies to maximize balance sheet value so…no value, no investment.
Another problem, related to the first, is that the systems for collecting data about current revenues are embarrassingly bad. A well-known musician friend of mine tells me, for example, that the recording industry is still applying an allowance against “breakage” when calculating royalties for digital downloads through iTunes and other paid-music sites! (Musicians, it was reported last week, have so far received nothing from the settlements and judgments against Napster, Grokster and Streamcast, even though those lawsuits were brought, according to the rhetoric of the plaintiffs, to restore the income of the musicians. The industry says it can’t calculate, yet, what the musicians’ share should be.)
Too many business leaders and their lawyers, even those who have the most to gain and lose, equate the difficulty of valuing future IP uses with low probability of those uses existing, and discount them to zero. That is, until someone else wants a piece of the action. Expect more of these very real battles for virtual value.