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 use Has 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 cannot simply lose ability to make compilations Crash 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 EEA Restrict ability of consumers to import Restrict ability to avoid regional encoding Limit 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 aim DVDs have it technically but decreasingly economically CDs 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