The technology exists to stream digital video files over the Internet. And yet there are many movies (hundreds? thousands?) of which digital versions exist, and yet it’s not possible to watch them streaming over the Internet even if you’re a subscriber to Netflix’s streaming video service. By contrast, if you subscribe to Netflix’s DVD rental service, you can basically get any DVD that exists in the world. This divide is clearly on some level behind Netflix’s decision to divide into two separate companies, but what explains it?
Public policy, of course!
By modern standards, DVD rentals ought to be illegal. After all, the prevailing wisdom in the United States is that copying a file you don’t have permission to copy is a form of stealing. It deserves to be called “stealing,” according to the prevailing wisdom, because even though nobody has lost a physical object a rights-holder has been deprived of potential licensing fees. When you rent a DVD — or, heaven forbid, borrow one from a friend — you are depriving the rights-holder of potential licensing fees every bit as much as if you copied a digital file. Fortunately for Redbox, though, we have a longstanding legal doctrine in this country called the “First Sale Doctrine,” which says that once you buy a physical object, you’re entitled to do what you want with it. Thus, back in the heyday of the VCR, movie studios faced a stark choice. Either don’t make a videotape of your movie, or else accept that video rental stores can buy your tapes and rent them out to customers. There was no prolonged wrangling over licensing fees. And ultimately, there’s was no incentive to hold things back from the market. All movies were released on video tape, and thus all movies were available for rent somewhere or other (albeit not necessarily at your local Blockbuster). This doctrine doesn’t apply to streaming video, and that’s why availability of streaming video is so spotty.
Clearly, you couldn’t just apply the first sale doctrine to online streaming. But that doesn’t mean Congress needs to leave us all here in limbo. The existence of licensing issues is an artifact of Congress’ decision to create copyrights in the first place, and Congress could modify the statute to create some kind of mandatory licensing plan. Anyone who wants to stream digital video online needs to pay the copyright owner $X (possibly on a declining schedule based on how old the thing is) but the owner must agree to license it for $X. Owners and streamers would be allowed to make different deals by mutual agreement, but you couldn’t keep things off the digital shelf.