7 ms·

MPAA’s latest anti-piracy move accidentally screws Hollywood studios

90 points by ghosh 13y ago

zaroth 13y ago
Classification of digital goods as imports? Apparently, now we should we start getting ready for the email tax.
- twiceaday 13y ago
  Reminds me of this: http://bash.org/?142934 http://bash.org/?142934
- netcan 13y ago
  What digital goods are in this case is imported services, something that is increasing rapidly and not covered in trade policies as clearly as physical goods. If you employ an overseas statistician or buy software from an overseas supplier, you are basically importing statistics or software. The fact that these are a digital good/service makes little difference from an economic perspective.
- mprovost 13y ago
  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 13y ago
    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 13y ago
      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).
nodata 13y ago
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 13y ago
  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 13y ago
    The money and taxes are accounted for in other entities Are those other entities all based in (and taxed in) the USA?
    - beagle3 13y ago
      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.
steve19 13y ago
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 13y ago
  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 13y ago
    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 13y ago
      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.
      - 13y ago
cinskiy 13y ago
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)
mschuster91 13y ago
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.
Kiro 13y ago
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 13y ago
  Very much not the case. Especially those of us with specific skill sets related to films.
himangshuj 13y ago
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
l33tbro 13y ago
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.'”
- MWil 13y ago
  I don't but I also don't see why that's "famously" if it's from 2006. I did a grad school paper on automation/relocation/innovation regarding union busting and this stuff has been predicted since the microchip.
- mprovost 13y ago
  http://www.foreignaffairs.com/articles/61514/alan-s-blinder/offshoring-the-next-industrial-revolution http://www.foreignaffairs.com/articles/61514/alan-s-blinder/...
  - l33tbro 13y ago
    Thanks
NKCSS 13y ago
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.
nl 13y ago
So protectionism is now the next cool thing?
- darkarmani 13y ago
  > 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.
MWil 13y ago
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 13y ago
  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 13y ago
    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 13y ago
      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 13y ago
        ah, now that sounds like a much better situation. glad to hear it.
netcan 13y ago
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 13y ago
  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.
zacinbusiness 13y ago
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.
raldi 13y ago
Can someone post a short summary explaining: (1) What the MPAA's move was (2) How it screwed the studios
- antoko 13y ago
  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.
waynemr 13y ago
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.

90 points by ghosh 13y ago

zaroth 13y ago

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

twiceaday 13y ago
Reminds me of this: http://bash.org/?142934 http://bash.org/?142934
netcan 13y ago
What digital goods are in this case is imported services, something that is increasing rapidly and not covered in trade policies as clearly as physical goods. If you employ an overseas statistician or buy software from an overseas supplier, you are basically importing statistics or software. The fact that these are a digital good/service makes little difference from an economic perspective.
mprovost 13y ago
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 13y ago
  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 13y ago
    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).

nodata 13y ago

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 13y ago
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 13y ago
  The money and taxes are accounted for in other entities Are those other entities all based in (and taxed in) the USA?
  - beagle3 13y ago
    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.

steve19 13y ago

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 13y ago
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 13y ago
  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 13y ago
    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.
    - 13y ago

cinskiy 13y ago

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)

mschuster91 13y ago

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.

Kiro 13y ago

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 13y ago
Very much not the case. Especially those of us with specific skill sets related to films.

himangshuj 13y ago

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

l33tbro 13y ago

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.'”

MWil 13y ago
I don't but I also don't see why that's "famously" if it's from 2006. I did a grad school paper on automation/relocation/innovation regarding union busting and this stuff has been predicted since the microchip.
mprovost 13y ago
http://www.foreignaffairs.com/articles/61514/alan-s-blinder/offshoring-the-next-industrial-revolution http://www.foreignaffairs.com/articles/61514/alan-s-blinder/...
- l33tbro 13y ago
  Thanks

NKCSS 13y ago

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.

nl 13y ago

So protectionism is now the next cool thing?

darkarmani 13y ago
> 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.

MWil 13y ago

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 13y ago
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 13y ago
  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 13y ago
    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 13y ago
      ah, now that sounds like a much better situation. glad to hear it.

netcan 13y ago

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 13y ago
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.

zacinbusiness 13y ago

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.

raldi 13y ago

Can someone post a short summary explaining: (1) What the MPAA's move was (2) How it screwed the studios

antoko 13y ago
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.

waynemr 13y ago

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.