Does legal action win market share

MARCH 1, 2010
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There are currently two ways of establishing market dominance for a consumer media device: a format war or a legal battle.

The fight between Blu-ray Disc and HD DVD was a format war with the clear outcome of a single universal standard benefiting consumers and content providers alike. Today, you can have any high definition packaged media format you want as long as it’s Blu-ray and, with very few exceptions, any disc will play in any player.

Format wars are fought in the open market place with claim and counter-claim confusing the consumer until one side or the other retires hurt and the winner goes on to greater things. They may be expensive – sometimes fatal – for the companies involved but in the long term the free enterprise approach has its advantages and a single format emerges. “Standards are good, that’s why there are so many of them,” as the saying goes.

Sometimes, however, the struggle for standards is subsumed in a series of skirmishes as multiple players struggle to define what system will be adopted and which one will fall by the wayside. It is hard enough for consumers to decide what is best when there are two competing formats but when multiple options are on offer it can take years for the best legal minds in the world to adjudicate on who invented what and when and award a pyrrhic victory to one side or the other. For instance, take the smartphone.

Money for patent lawyers

The suppliers of mobile phones, including Apple, Nokia, Sony Ericsson and the Blackberry inventor, RIM, appear set on spending large sums of money on patent lawyers rather than work towards a single media format. The aim may be a single unified platform, as with packaged media, but unlike the partners in the Blu-ray project, the competing organisations appear unwilling to share the proceeds that standardisation would bring.

“We can sit by and watch competitors steal our patented inventions or we can do something about it. We’ve decided to do something about it. We think competition is healthy but competitors should create their own original technology, not steal ours,” said Apple CEO Steve Jobs as his company announced legal action against Taiwan phone manufacturer HTC, which produces smartphones using the Android operating system from Google.

HTC started life making phones for others before the agreement with Google allowed it to gain almost 7% of the market with handsets such as the Nexus-1, a figure that is expected to rise to 10% by the end of 2010. Market analyst IDC has forecast that at the current rate of growth, the Android operating system could be in second place by 2013.

While the proportion of US iPhone users that access the internet declined by 10.2% in the year to February 2010, the Android share of the market rose by 95.3% to take second place. Although coming from a much lower starting point than iPhone, the threat to Apple’s dominance has not gone unnoticed. Rather than go for Google directly, they decided to take on HTC first.

Apple is determined to protect its dominant market position. iPhone generated $13 billion for the company in the year ending Sept. 31, nearly one third of its total revenue. A patent battle with Nokia is already underway with claim and counter-claim on both sides as Nokia seeks to force Apple to license some of its technology. Apple COO Tim Cook refuses to consider the idea, telling shareholders “We’re certainly not in the business of licensing good ideas. That’s not what our business is about.”

Blackberry manufacturer RIM settled an argument with patent owners Visto last year by paying $267.5 million for the rights to “a perpetual and fully-paid license” that ensured the Blackberry would continue. The company previously had settled another licensing lawsuit with a massive $612.5 million payment to NTP Inc. The benefit has been the continued growth of the Blackberry platform but a question mark remains regarding their ability to take on the market leaders when every innovation is likely to engender legal action.

Struggle between giants

For the content industry, and in particular the providers of filmed entertainment, the struggle between these giants should be a major concern. Apps have become part of the everyday vocabulary of the smartphone user, whether acquired from Apple, the Android Market or the OVI store. Consumers expect more of everything on their smartphone including games, TV and film content. The problem is that there are many different and incompatible operating systems in use, forcing developers to create multiple versions for a wide and increasing variety of handsets.

Speaking in advance of his presentation at the forthcoming IPTV World Forum in London later this month, Frédéric Tapissier, President of the Technical Committee of the France HD Forum, said that content providers already have to deal with multitude of platforms. “The exponential costs of setting up complex workflows will drive content providers to limit the number of platforms they will address and favour a standard that will allow reaching wider audiences with just one production tool,” he told IPTV News.

Smartphones are multi-tasking devices capable of being an entertainment system one minute, a communications device the next and a GPS navigator a moment after. Powerful though the Hollywood studios might be, there is no one group that can bang the heads of the mobile industry together and demand a single format for entertainment content on these devices. If and when Apple win their court case against HTC, a lot of people could find themselves cut off from the entertainment content they had come to expect.

Real Networks finally conceded defeat in its long-term battle with Hollywood on Wednesday, when the company agreed to abandon all its attempts to overturn the injunction prohibiting the sale or distribution of the disc ripping software, RealDVD. It will also refund the $30 that each customer paid for the software and pay $4.5 million to the six major studios and others who brought the case against the company.

The main casualties, apart from founder and former CEO Rob Glaser, who left the company in January this year, will be the shareholders in what was once a leader in digital delivery business. Net revenue for the full year 2009 declined by 7% compared to 2008, even before the legal judgement was announced.

Bob Kimball, who took over from Glaser as CEO once it became clear that the case was lost, said in a statement, “With this litigation resolved, I hope that in the future we can find mutually beneficial ways to use Real technology to bring Hollywood’s great work to consumers.” In all probability, Hollywood has moved on while Real’s attention was focused elsewhere.

The company arrived early in streaming media, back in 1995, with an aggressive acquisition of intellectual property that gave it a head start over some of the competitors. At a time when Apple’s Quick-Time and Microsoft’s Video for Windows were focused on playback within a local computer, Real was one of the first to spot the potential of online video and, more importantly, to work out how to monetise the technology.

All went well for several years with a big boost for the company’s fortunes coming from the BBC when the Real Player became the core of the Corporation’s iPlayer audio service. Unfortunately for investors, Glaser decided that ripping DVDs would be good business, a decision that ultimately brought him and the company into a head-on confrontation with the MPAA and the Studios.

Instead of acknowledging his mistake and concentrating the company’s efforts on the growing multitude of digital video devices, Glaser led Real into a legal battle against Hollywood, with predictable results.

Members of the legal profession spend many years rising to positions of authority in the highest courts where their wisdom becomes an invaluable contribution to the defence of our way of life. Unfortunately, their experience does not equip them with the ability to decide between Apple and Android, Symbian and RIM or even Windows Phone 7 Series.

The madness of myriad formats that oblige the BBC to spend so much maintaining multiple platforms for iPlayer has to stop. Mobile phone designers should take note of what happened with Blu-ray and support a set of standards that would be as universal as HTML and as ubiquitous as MP3. And of course, they should allow voice communication anywhere in the world.

After that, they can add as many bells and whistles as the makers can offer for the money.