A topic that comes up fairly frequently in discussions on this site is the First-Sale Doctrine. As not all of our readers may be familiar with this term and its relevance to the home video industry, we thought it would be a good idea to offer a brief explanation of this often misunderstood tenet of copyright law.
First-Sale Doctrine Defined
What is First-Sale Doctrine (hereafter referred to as FSD)? To answer, it seems appropriate to briefly mention the Copyright Act of 1976. Created in that year and effective on January 1, 1978, the Copyright Act is the basis of copyright law in the U.S. and spells out the basic rights of copyright holders. FSD is codified in this act.
The First-Sale Doctrine, which is also known as the “first-sale rule” or “exhaustion rule”, is contained in Title 17, Chapter 1, Section 109 of the U.S. Code. It reads as follows:
“. . . the owner of a particular copy . . lawfully made . . . or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy . . .”
What FSD Means to Home Video
FSD is what allows libraries, used record shops and second-hand bookstores to operate. It also ensures that purchasers do not need to negotiate with or pay additional compensation to the original copyright owner when they wish to rent, sell or otherwise dispose of purchased copies. It is what allows companies like Redbox, Netflix, Blockbuster, etc. to rent titles that they have purchased. FSD is also what has allowed Redbox to circumvent the new release delay windows imposed on it by three Hollywood studios by buying those titles at retail rather than from the studios or their distributors.
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The bottom line for FSD in relation to the home video market is this: after you have purchased a DVD you can rent it for any price and under any terms you like.
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What FSD Does Not Mean
While it allows for the rental, sale, transfer or disposal of purchased copyrighted content, FSD does not allow consumers to make or distribute illegal copies of copyrighted works. FSD does not in any way authorize piracy or intellectual property theft.
Conclusion
Because of FSD, the studios are helpless to prevent Redbox from sidestepping their delays and acquiring new releases through other methods. As frustrated as some Hollywood executives may be with Redbox’s business model, there is nothing they can do to prevent Redbox from obtaining titles from anyone it chooses and subsequently renting those titles.
While buying at retail may not be the most cost-effective or efficient method for Redbox to get new releases, the First-Sale Doctrine has allowed it–for the most part–to keep titles coming to its kiosks in the face of some major Hollywood opposition.
That’s true but of course, the studios can always raise their price on product for the first 30 days (just like the old VHS days)…let’s say to $40…making Redbox raise the price or not get the product at all…..there’s more than one way to “skin a cat or rather Redbox”
Actually that would shoot themselves in the foot entirely!
The whole purpose of the 30-day delay is to encourage retail sales at the approximated $15 ~ $30 window. If they were to force a huge markup like DOUBLE the price… no average Joe in their right mind would spend that kinda cash if they knew in 30 days that they could get the same title at half the cost.
For that reason alone, I doubt that would be a strategy that the “big three” would even consider.
That’s true that the studios could raise the price for the 1st 30 days, but that means the average joe/jane movie buyer would not buy it because they are used to buying new DVD at $15 – $20
Isn’t the problem according to the studios that they aren’t selling enough dvds at the $15-$20 price point? How exactly then would raising the price to $40 or delaying the rental release date help? Average Joe has only so much money and isn’t willing to pay as much for dvds anymore, not even $15-$20, plain and simple fact. Raising the price would only serve to entrench the customer to not buy the product at all. Delaying the rental release date would likely do nothing as customers would simply wait to rent the dvd. Lowering the price on new dvds to say $12-$10 across the board would be the first step in enticing the customer to buy the dvd. If you could get the movie with extras and digital copy for $12-$10 that would be very enticing, no?
Problem is is that if all the studios would do it – which would be required for it to work,it would be collusion… They would be smarter to go the other direction drop DVD/Bluray prices down across the board to bolster their sale…would increase profits during the holiday peak, cut down all rentals which really go down during the holidays and look like they gave a crap to consumers hurting in economic downturn
Ok, been in the rental business for 18+ years and the model you are discussing worked very well when I started. Movies cost video stores $65 + and this created a demand for customers to rent them and because they did not come down in price for 3 months or better we had plenty of time to make a profit from them. The stuidos did great with this model because of the tremendous revenue they received from us and the sales were there on the back end for them once the prices came back down to the $20 range. This all went to crap because of the spineless stuido reps that decided to cower to BB and began rev-sharing, which was the beginning of the complete failure that they all are now experiencing. They should put some thought into going back to this and after 2 or 3 months bring the retail prices down to the $12 to $13 range for selling to the public. Non of these clowns in position at the studios have enough of a brain to see the forest thru the trees.
Very well said, T.
I am right there with you T….same industry…same time span.
I can even remember…I think…it was I think Warner Brothers and the movie Conspiracy Theory with Julia Roberts. Was it much before that? They started with rev share before that but then offered the buy some at full , get extras for cheaper or free….
We all knew it was doom but had no choice but to try and keep up and buy more copies. It really is amazing how people in high places ger so much reverence but when you really look close, they just happened to be in the right place at the right time to get these exec jobs…so silly.
Agreed ! Just seems to me that if they actually spent 1 day actually thinking they could come up with a model/window that makes everyone $$$$. All that dough and no logic…. what a shame!!