

MPAA’s latest anti-piracy move accidentally screws Hollywood studios - ghosh
http://pando.com/2014/02/25/revenge-of-the-nerds-how-tech-geeks-found-a-secret-weapon-in-their-fight-against-big-hollywood/

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netcan
This article is a little rambling and is only loosely related to anti-piracy

(1) There are all sorts of subsidies internationally for movie related
industries/services. (2) US studios are "exporting jobs" by taking advantage
of these subsidies to to various editing tasks overseas. (3) This is unfair
because of various WTO rules and principles of free trade. (4) US states are
responding by doing the same (5) Anti piracy is a higher priority for the US
industry.

I don't really see the last point as related to the first 4. The other points
are part of a bigger picture in the ongoing globalization process. Countries
are "competing" with each other in all sorts of ways. They compete for jobs,
FDI & tax revenue in ways they didn't previously, at least not as much. This
gets translated into tax breaks, subsidize and lots of other things.

IMO the most interesting part of all this is that a movie cannot be said to be
a US, French or South African production anymore. Shooting takes place all
over the place. Editing and post production now happen place all over the
place too. "Quality" in the form of the best actors or best special effects
people is important. Money always flowed more freely than goods, services or
labour so that comes from everywhere too as it always has.

IMO the industry is in a unique position. Much of the work is easy to parcel.
The 'firm' comes into existence to make a film and then goes away so personal
relationships, buildings, equipment and other things that keep firms
monolithic (reduced transaction costs is usually considered the biggest
advantage large firms have over individual actors transacting in spot markets,
Ronald Coase's theoroms) are not much of a factor.

~~~
cratermoon
More than "a little" rambling. All it seems to say really is that MPAA efforts
to combat "piracy" might also be construed as justification for more action on
free-trade violations.

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NKCSS
What a horrible article. I've stopped half-way through because it would just
refuse to report the 4 lines that make up this news, instead making it look
like a clip-show in a cartoon, going off on a side road after every 2 words of
content.

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nodata
If the administration wants to do something about this, three little words
will do it: investigate hollywood accounting.

And then go after the amount lost in tax revenue.

~~~
beagle3
Little to non is lost in tax revenue due to hollywood accounting; The money
and taxes are accounted for in other entities.

It's just the reporting of anything other than gross (and contracts based on
that reporting) is misleading.

~~~
rahimnathwani
_The money and taxes are accounted for in other entities_

Are those other entities all based in (and taxed in) the USA?

~~~
beagle3
I have no knowledge; I suppose some are, some are not - yet, that's not
illegal and not what Hollywood accounting is all about.

Apple, Microsoft, Google, Ikea and anyone else who can are all doing the same
(google "Double Irish Sandwhich" for an example). I think it should be
illegal, but apparently it isn't, and if Apple can do it, Hollywood can too.

Hollywood accounting is all about making sure that there is no direct profit
booked, so that profit sharing (which they manage to sell even to people who
should know better like Stan Lee) essentially become free labor/assets.

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steve19
If the states compete with subsidies, I cannot see how small countries with
small populations and economies (such as new zealand) cannot also offer tax
breaks. They would be laughed out of court. Not to mention all the farming and
energy subsidies paid by the federal government at the detriment of other
countries.

This is just a flimsy case for protectionism.

~~~
mprovost
It's actually a case for free trade. CVDs are meant to balance out the
advantages of foreign subsidies (protectionism) and provide a level playing
field for domestic (US) industries. As far as I'm aware there aren't any such
laws about free trade between states, so when Louisiana passes subsidies and
takes work from California, I don't think there's anything you can do about
it. But once it goes international, various treaties come into effect. Of
course they were designed around things like cotton and steel but there's no
reason they can't be applied to high tech industries.

~~~
CWuestefeld
_so when Louisiana passes subsidies and takes work from California, I don 't
think there's anything you can do about it._

Sorry for straying off topic, but doesn't this send up any flags?

I mean, on one hand, we can see that states can compete against each other (so
long as they don't interfere with trade). And on the other hand, the economy
of the USA is the most prosperous in the world, ever.

Could it be that protectionism isn't really helping anything in the big
picture, and in fact introduces inefficiencies into the system?

~~~
chongli
Protectionism and free trade are loaded terms. The real issue is the balance
of power between the public and private sectors. For several decades the power
has shifted more and more toward the private sector. Is it a coincidence that
inequality has grown in lockstep? Probably not.

~~~
CWuestefeld
Perhaps we have different ideas in mind with the terms "public" and "private".
The power of both the government (i.e., "public") and corporations (i.e., the
business part of the "private" sector) are interdependent, and they wax and
wane together.

When we citizens complain about a problem, asking the government to stop it,
the legislature makes laws intended (if we're feeling charitable) to rein in
the actions of industry. This is done by creating regulatory agencies. But who
to staff those agencies with? We need regulators who actually understand what
the industry does. Thus, the regulators wind up being staffed by people _from_
the industry, or at least people having a mental paradigm matching that of the
status quo. This is called "regulatory capture", and the effect is that over
time, the forces intended to bind industry winds up reinforcing the industry.

So what we see is that giving the government more power, intentioned to
protect us, winds up subverted and perverted to protecting the industries that
were in the crosshairs. This _necessarily_ happens, despite best intentions;
see "public choice economics". The more you empower government with the
intention of controlling corporations, the more power eventually winds up
being wielded by those captured regulatory agencies, _helping_ the
corporations.

And the result is that our system today is frequently referred to as
"corporatist", meaning that the power of government serves to keep industry
afloat.

Corporations wield much more power today, yes. But that's only because we've
been suckered into giving more power to the government (ostensibly to control
industry). So the power increases in lockstep, and if you want to decrease the
power of industry, you need to strip the government power that they've
captured. Weaken the corporations by weakening the government, in other words.

~~~
chongli
_When we citizens complain about a problem, asking the government to stop it,
the legislature makes laws intended (if we 're feeling charitable) to rein in
the actions of industry._

This is at the very heart of what I'm trying to explain. The basic idea that
_the government is a separate entity to which ordinary citizens make appeals_
is a symptom of the waning power of the public. In FDR's day the public
organized itself and forced him to levy large taxes against wealthy
corporations and individuals. Since then, corporations have waged a successful
PR battle to destroy the public's confidence in their own organizations and
rob them of political power.

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zaroth
Classification of digital goods as imports? Apparently, now we should we start
getting ready for the email tax.

~~~
mprovost
How do you place value on an import? Let's say you import an Airbus, and you
have to declare its value. Do you just add up the kgs of aluminium and
plexiglass and carbon fibre and steel? Or do you itemise it and say you paid
this much for the engines and this much for the fuselage? How do you account
for the labour? Or the R&D? Nevermind the computer system(s) that flies the
thing.

In the world of physical things we know the value of something based on how
much someone is willing to pay for it. That should include all the materials
and labour and R&D etc. So we can know how much someone paid for the Airbus
and that's it's market value.

In the past, if you filmed something overseas or maybe just did the VFX work,
you would send back reels of film. I imagine that most of the time when
getting them through customs just the physical value was declared - ie $10k
for some Kodak film. Nevermind the fact that you may have paid someone
overseas $100 million for the completed movie. From a customs point of view
it's impossible to tell the difference between someone's student film and a
Hollywood blockbuster, the medium is the same.

Now deliver the film digitally and all trace of it goes away. So Hollywood can
send a check for $100 million to the UK and get back a digital copy of a film
which doesn't show up as being imported at all.

The complicating issue here is that someplace like the UK might offer a 25%
subsidy to make the movie there, so you spend $100 million, get a digital copy
of the film and a check for $25 million from the UK (or just pay $75 million
depending on how it's arranged). Which causes jobs to be lost in the US, but
it's harder to see than when someone changes the price of steel because the
actual product is invisible to the normal import process. Why is a movie
different than an Airbus? (This could be used as an argument against tariffs
and import duties in the first place (even on Airbuses), ie free trade, which
is why they're pursuing CVDs which came into effect through various free trade
agreements.)

~~~
gcb0
Not really. If the studio is HQed in California, and they paid a studio in
Taiwan, they must declare that money. it is trivial to trace that and tax
_service_ accordingly.

What they do, is to "hire" those people as contractors just for that job, pay
the upfront price of setting up a fake shop, and avoid all those service
taxes.

Similar to you paying someone overseas for a work, versus your company having
a research dept in india while HQ in Palo Alto. The upfront costs for the
later are higher, but the return if you want to have the indian team larger
than the US team will be better in the long run.

~~~
mprovost
Of course Hollywood has accountants that have figured all of this out, they're
notorious for it. It's even easier when you do business everywhere, so you can
just keep profits from showing movies in the UK in your bank account in
London, and the next time you want to make a movie there just pay them out of
that account, and export the finished movie back to LA, and the US govt will
never see any of that money.

The example about India is a good one, as we know lots of development work is
outsourced. The point that this article is making is that the MPAA has argued
in court that intellectual property should be imported like any other
property. Of course they're doing this to stop "piracy", but the unintended
side effect could be that their own IP (the original films) becomes subject to
free trade agreements. If that's true, then it could also affect the software
industry which is doing essentially the same thing (possibly without
subsidies, just taking advantage of different costs of living and wages).

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zacinbusiness
So how does this affect other people? Let's say I do work for a European
company, but I live and work in the US as a freelancer. Are the services I
provide and the files I transmit now considered exports? Do I have to deal
with yet more complexity come tax time? Sounds like it could be a huge pain in
the ass.

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cinskiy
Say, if someone posts some text on a website like Pastebin, and another person
copies and pastes it in another country, would it be considered as an import?

(Additional irony if text is a Python computer language program)

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raldi
Can someone post a short summary explaining:

(1) What the MPAA's move was

(2) How it screwed the studios

~~~
antoko
1) They argued that moving digital good around should be subject to import
tax/duties just like physical goods (steel/ lumber). The case they were making
was for finished digital products.

2) The same argument can be used for the unfinished digital goods of the
movies - the special effects. Currently large studios outsource the post
production work to cheap labor markets.

Using the same justification as the MPAA uses for finished movies, labor
activists in the domestic FX industry can have the government slap an import
tariff on the special effects digital content as it comes into the country,
wiping out the cost savings from outsourcing it in the first place.

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MWil
If it's true, I don't understand why it took one guy hiring a lawyer on his
own who did the detective work necessary to help out the rest of the industry.

You know, instead of like the concerted efforts of the industry itself. Does
the VFX arm of the industry just not care to get involved in lobbying/lawyers?

*understanding I read the part of the article that mentioned it's "difficult" because they have no union. If you don't have jobs, you don't have union busting employers - it's literally the best time to make a union.

~~~
mprovost
The industry only has 6 customers (the studios) who often negotiate as a
single entity (the MPAA) and who are big fans of subsidies, so for a a VFX
studio to pursue something by themselves would essentially blacklist them and
put them out of business. The brilliance of this plan is that it's being
organised by the workers whose lives are being affected.

~~~
MWil
But this plan wasn't organized by workers, it was done by one blogger. He may
be donating this strategy to any collection of workers willing to make use of
it but he paid the lawyers and they only shared it with him.

~~~
mprovost
He crowdfunded the money to pay the lawyers to look into it, quite a few
people in the industry donated, it wasn't all his money. He published the
lawyers' findings on his blog. As is often the case, there is one person who
is leading the charge and acting as spokesperson, but there are a lot of
people involved in this. See how many show up for the march outside the
Oscars.

~~~
MWil
ah, now that sounds like a much better situation. glad to hear it.

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waynemr
This is interesting. Essentially, if offshore development work is done
somewhere that a significant subsidy is involved, it may be illegal according
to WTO and US trade rules, if the digital product itself is defined under the
same regulations as "manufactured goods." It seems that the MPAA has actually
weighed in on a separate anti-piracy measure regarding 3d printers, where they
argue that digital works should be regarded as manufactured goods with the
same protections.

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l33tbro
Anyone got a source for this comment referenced in the article?

"In 2006, Princeton economist Alan Blinder famously warned that the critical
economic divide in the future will 'be between those types of work that are
easily deliverable through a wire or via wireless connections with little or
no diminution in quality, and those that are not.'”

~~~
mprovost
[http://www.foreignaffairs.com/articles/61514/alan-s-
blinder/...](http://www.foreignaffairs.com/articles/61514/alan-s-
blinder/offshoring-the-next-industrial-revolution)

~~~
l33tbro
Thanks

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himangshuj
reminds me of
[http://en.wikipedia.org/wiki/Junger_v._Daley](http://en.wikipedia.org/wiki/Junger_v._Daley).
Need to write digital content on paper and claim 1st amendment

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mschuster91
Haha, serves the bastards all right. I'm with the VFX artists on that one,
even if I live in a German city with a fairly prominent movie studio.

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Kiro
I thought visual artists were in super high demand and could get a job
anywhere. I only skimmed the article but is this not the case any longer?

~~~
hayesdaniel
Very much not the case. Especially those of us with specific skill sets
related to films.

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nl
So protectionism is now the next cool thing?

~~~
darkarmani
> So protectionism is now the next cool thing?

It looks like countries have been doing subsidies for a long time, so
protectionism is an old thing. Slapping a tariff on those imports is one way
to neutralize that kind of protectionism.

