Encoding of DVDs and CD

Michelle Childs

Head of Policy Research

Consumers’ Association UK

What does it mean?

There is no one consumer issue in encoding in CDs and DVDs

The real issues are a complex mix of intellectual property protection Market segmentation trade restriction

DVDs The regions

0 no restriction 1 USA, Canada 2 Europe, Middle East, S.Africa & Japan 3 S&E Asia (incl HK) 4 Latin America, Australasia, Caribbean, 5 India, Pakistan, Africa (excl Egypt) 6 China 7 not used 8 Special venues eg cruise ships

How it is supposed to work

DVD machines only read ‘regional’ discs

DVDs only play in ‘regional’ machines Scheme designed to:

keep film roll outs safe allow segmentation for marketing and

campaigns

What it does DVD regions are not regions – but

similar price banded markets Monopolistic price discrimination

needs: market power knowledge of consumer willingness to

pay ability to restrict trade (arbitrage)

All clearly exist in DVDs

Consumer response

Many EU retailers sell multi-region machines

Good number of websites selling multi-region DVDs

Pareto 80/20 rule applies to reasonable degree – small No. of consumers buy large No. of DVDs This has helped drive down prices

The future

DVDs could go the way of CDs in the industry trying to use IP law to restrict trade

DVD encoding open to competition challenge – Australia lead the way – others may wish to follow

CDs

A truly global product with one format and largely one delivery

Encoding mainly focused on restricting computer useHas had wider impact on usability

Fair use and CDs

‘Home taping will kill music’It didn’t – but industry did not have

technical ability to back up wrong headedness

Consumers used to making compilations and sharing music consumers are not pirates

The impact Pirates can hack CD encoding –

consumers generally cannotsimply lose ability to make compilationsCrash computers, limit right to listen to

purchases lose any ‘fair use’ rights either legal or

imagined Consumers are presumed guilty of

piracy and punished through lock out technologies

The IP/trade/competition link CD-wow case has chilling effect

HK based retailer allowing consumers to personally import CDs and DVDs

BPI sued under copyright law – case settled before the court ruled

other internet retailers next for legal action

Impact is to chill internet market for importing CDs and DVDs from outside EEARestrict ability of consumers to importRestrict ability to avoid regional encodingLimit internet retail generally where IP is strong

The future IP law is too biased in favour of rights

holders Public interest balance has largely

gone Market segmentation and price

discrimination is the real aimDVDs have it technically but

decreasingly economicallyCDs have it economically but not

technically

Conclusion

Regional encoding is anti-consumer, trade and competition

CD encryption is designed to restrict consumers rights to fair use – it criminalises all consumers

Some CD copyright cases are designed to restrict trade not prevent piracy

Where CDs go now on IP, DVD will follow and all other IP industries thereafter