Web media: The 5 biggest stories of 2012

That\’s what digital movies, music, and books are supposed to be about. But for the people who create and sell the stuff, it\’s been all crumbs, crumbs, crumbs.

The past year was another tough one for the sale of entertainment media on the Web. The irony is that as more entertainment fare is sold online, the less profitable the businesses become.

Few, if any, online music services are profitable. In Web movie distribution, download sales are dismal. Even Netflix, the Web\’s top video rental service, saw a slow down in the rate it added subscribers. But the sector also saw some triumphs. Here\’s our list of the most important stories of 2012.

1. The MegaUpload bust
The biggest story in online entertainment this year began with the thumping sound of helicopter blades beating the air. In January, choppers carried New Zealand police, armed with semi-automatic weapons, to the grounds of the mansion leased by MegaUpload founder Kim DotCom. He and other members of the company\’s management were arrested.

In an indictment, the United States Attorney accused the group of encouraging people across the globe to store pirated media in MegaUpload\’s digital lockers. This allowed managers to generate more than $175 million from the sale of ads and subscriptions. The defendants were charged with criminal copyright infringement.

The amount of force used in the police raid stunned the tech world. Typically copyright disputes are settled in civil court — not at the point of a gun. The bust quickly prompted some of MegaUpload\’s competitors to shut their doors. DotCom and the other defendants say they\’re innocent and are fighting U.S. attempts to extradite them.

2. Netflix struggles to win back customers\’ faith
For most of this year, Netflix trudged down the same rocky path it ended 2011 on. CEO Reed Hastings was once a Silicon Valley star, but last year investors and customers lost confidence in his leadership when he botched a price increase and then stoked the anger of already bitter customers by trying to spin off the company\’s DVD operations. This year, Netflix fell short of projections for adding new customers and was again criticized for offering a stale streaming library. Customers asked where all the newer titles were.

In addition, some of what were likely embarrassing details about Hastings\’ past goofs, such as how he alienated some top lieutenants and his fib about where the idea for Netflix came from, were revealed in a CNET story as well as in \”Netflixed,\” a book by author Gina Keating. But Hastings and company may finally be ready to break out of their slump.

Earlier this month, Netflix stunned the digital entertainment world by signing an exclusive deal with Disney to distribute the studio\’s new movie releases right after they\’re made available for sale on DVD and by download. This distribution window is typically reserved for pay-TV channels. Netflix climbed into that window and became the first Web subscription service ever to deliver films during the period.

3. Apple, book publishers accused of fixing e-book prices
Apple and five of the country\’s largest book publishers conspired to fix e-book prices and in the process betrayed consumers, according to a complaint filed in April by the U.S. Department of Justice. The DOJ accused Apple of convincing Hachette, Macmillan, Penguin, Simon & Schuster, and HarperCollins to swap the industry\’s decades-old business model for one that would enable them, instead of retailers, to control e-book prices. The DOJ contends that the plot was hatched to hobble Amazon, which had discounted prices heavily and owned about 90 percent market share.

The accused publishers raised prices nearly in unison and that was just one of the reasons the government\’s case appeared strong from the beginning. Then, HarperCollins, Hachette, and Simon & Schuster (owned by CBS, parent company of CNET) quickly settled. Those three publishers agreed to give back control of pricing to retailers and pledged not to share information with each other. They also stopped guaranteeing that Apple would offer the lowest prices available online. Apple, Penguin, and Macmillan deny wrongdoing and are fighting the DOJ in court.

4. Entertainment sector\’s antipiracy effort suffers blow when SOPA gets crushed
In 2011, the entertainment sector labored to win support in Congress for legislation known as the Stop Online Piracy Act (SOPA). Backers said the bill would give law enforcement officials a freer hand in shutting down accused pirate sites. In January 2012, the tech sector rose up and easily snuffed out any chance of the bill passing.

Some of the most trafficked Internet sites, such as Google and Wikipedia, helped generate opposition to SOPA by urging users to request that their representatives on Capitol Hill vote no. Not only did many former Congressional supporters reverse course but President Barack Obama also distanced himself from SOPA.

At one time, the trade groups of the big music labels and film studios cast big shadows in Washington. The SOPA defeat, however, was a sign that the tech sector has begun to eclipse them. The talk coming from the big media companies now is about building consensus with tech companies on piracy issues. SOPA is dead.

5. Aereo challenges big TV
Tick off the different major media categories — newspapers, video games, music, movies, books, radio, and TV — and they\’re all online save one.

Live television is the last holdout, and the companies with huge investments in live TV are trying to keep it that way. In a story that\’s been under-reported, New York-based Aereo is being sued for distributing live, over-the-air broadcast signals to subscribers via the Internet. ABC, CBS, NBC, PBS, and Fox have filed lawsuits and accuse Aereo of violating their copyrights and owing them retransmission fees.

Aereo, backed by former television executive Barry Diller, says it doesn\’t owe a cent because it doesn\’t retransmit. The signals that Aereo provides come from dime-size antennas that the company\’s customers control with help from the Web. It is they who are capturing the signals and Aereo argues that they have every right to access the freely available broadcasts. Aereo prevailed in district court against an attempt to shut the service down earlier this year, but the broadcasters have appealed. Stay tuned.a

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