1 00:00:00,390 --> 00:00:02,330 Speaker 1: Robert Smith, my children don't believe me when I tell 2 00:00:02,370 --> 00:00:06,150 Speaker 1: them this, but it's true. There was a time when 3 00:00:06,190 --> 00:00:08,770 Speaker 1: if you wanted to watch something on TV, you had 4 00:00:08,810 --> 00:00:11,610 Speaker 1: to watch it when it was on TV. 5 00:00:11,990 --> 00:00:17,160 Speaker 2: There was, in fact, a guide, a published magazine that 6 00:00:17,220 --> 00:00:20,660 Speaker 2: would tell you in excruciating detail the time that everything 7 00:00:20,680 --> 00:00:22,260 Speaker 2: you wanted to watch was on, and which channel. 8 00:00:22,380 --> 00:00:26,710 Speaker 3: If you wanted to watch Columbo at 8.30 on Channel 6, 9 00:00:26,710 --> 00:00:29,990 Speaker 3: 8.30 Eastern, 7.30 Mountain, you had to watch it at 10 00:00:29,980 --> 00:00:34,339 Speaker 3: 830 Eastern, 730 Mountain, on Channel 6, or you didn't 11 00:00:34,360 --> 00:00:35,000 Speaker 3: get to see it. 12 00:00:35,900 --> 00:00:42,199 Speaker 1: And then the Sony Corporation invented the Betamax, a magic 13 00:00:42,240 --> 00:00:45,260 Speaker 1: machine that let you record Columbo or anything on TV 14 00:00:45,380 --> 00:00:49,030 Speaker 1: on videotape so you could watch it whenever you wanted. 15 00:00:49,909 --> 00:00:53,990 Speaker 1: Akio Morita, the head of Sony, called it time-shifting, like 16 00:00:54,030 --> 00:00:59,070 Speaker 1: a magic trick. Companies that made Columbo and other shows 17 00:00:59,990 --> 00:01:02,450 Speaker 1: Didn't like this. They thought it'd be bad for business. 18 00:01:02,490 --> 00:01:05,870 Speaker 1: They owned these shows. And in their mind, Sony had 19 00:01:05,930 --> 00:01:10,509 Speaker 1: just invented a machine that was designed to steal their 20 00:01:10,530 --> 00:01:11,490 Speaker 1: intellectual property. 21 00:01:11,850 --> 00:01:12,289 Speaker 2: Criminals. 22 00:01:13,090 --> 00:01:16,530 Speaker 1: So a couple companies that made TV shows sued Sony. 23 00:01:17,190 --> 00:01:18,150 Speaker 1: And the case went all the way to. 24 00:01:18,130 --> 00:01:18,860 Speaker 2: The Supreme Court. 25 00:01:20,020 --> 00:01:23,740 Speaker 1: And the question at the center of the case is 26 00:01:23,819 --> 00:01:27,459 Speaker 1: one that is still urgent, that we still talk about today. 27 00:01:27,580 --> 00:01:31,830 Speaker 1: And that is, When a company invents a new technology, 28 00:01:32,490 --> 00:01:36,270 Speaker 1: who is responsible for what people do with that technology? 29 00:01:36,290 --> 00:01:37,770 Speaker 1: I'm Jacob Goldstein. 30 00:01:37,870 --> 00:01:40,430 Speaker 2: I'm Robert Smith, and this is Business History. I'll do 31 00:01:40,450 --> 00:01:43,050 Speaker 2: it again for those of you recording. Three, two, one. 32 00:01:43,350 --> 00:01:46,250 Speaker 2: This is Business History, a show about the history of business. 33 00:01:46,290 --> 00:01:48,130 Speaker 1: Tell a friend about the show or follow us on 34 00:01:48,170 --> 00:01:54,590 Speaker 1: social media. We're at businesshistorypod on Instagram and TikTok. Today 35 00:01:54,630 --> 00:01:57,410 Speaker 1: on the show, we are doing the Sony Corporation of 36 00:01:57,510 --> 00:02:04,900 Speaker 1: America versus Universal City Studios Inc. Oh, and just one 37 00:02:04,920 --> 00:02:05,340 Speaker 1: more thing. 38 00:02:05,380 --> 00:02:08,680 Speaker 2: Just one more thing. Great Colombo impression. How did Sony 39 00:02:08,720 --> 00:02:13,720 Speaker 2: invent the VCR but still lose out to a rival format? 40 00:02:13,780 --> 00:02:16,579 Speaker 1: VHS! Those of you over 40 will know what I'm 41 00:02:16,620 --> 00:02:19,650 Speaker 1: talking about. My daughter, who is a teenager, doesn't even 42 00:02:19,660 --> 00:02:20,290 Speaker 1: know what a VCR is. 43 00:02:20,330 --> 00:02:21,049 Speaker 2: Just roll your eyes. 44 00:02:21,290 --> 00:02:32,840 Speaker 1: We'll talk about that at the end of the show. So, Robert, 45 00:02:32,880 --> 00:02:36,290 Speaker 1: this is a story about technology and about intellectual property. 46 00:02:36,310 --> 00:02:38,049 Speaker 1: We're going to start with the technology side. We're going 47 00:02:38,070 --> 00:02:41,350 Speaker 1: to start with Sony, which is arguably, you kind of 48 00:02:41,370 --> 00:02:44,230 Speaker 1: forget it now, but Sony was arguably the most important 49 00:02:44,410 --> 00:02:46,950 Speaker 1: consumer electronics company of the 20th century. 50 00:02:47,180 --> 00:02:48,840 Speaker 2: If you go to Sony Hall here in New York, 51 00:02:48,900 --> 00:02:52,160 Speaker 2: you can walk by a display. Sony Hall? It's called 52 00:02:52,200 --> 00:02:52,620 Speaker 2: Sony Hall. 53 00:02:52,660 --> 00:02:53,540 Speaker 1: I don't know what Sony Hall is. 54 00:02:53,560 --> 00:02:55,400 Speaker 2: It's called Sony Hall. There's performances there, but there's a 55 00:02:55,480 --> 00:02:57,660 Speaker 2: display wall of all their technologies over the years, and 56 00:02:57,720 --> 00:03:00,570 Speaker 2: it is amazing technology. what they have made, of course, 57 00:03:00,950 --> 00:03:03,350 Speaker 2: the Walkman and cameras and everything. 58 00:03:03,370 --> 00:03:06,430 Speaker 1: The transistor radio they were huge in, and the PlayStation 59 00:03:06,430 --> 00:03:09,870 Speaker 1: 2 more recently. I think still the best-selling video game 60 00:03:09,889 --> 00:03:15,470 Speaker 1: console of all time. Also, interestingly, they were hugely influential 61 00:03:15,680 --> 00:03:18,320 Speaker 1: to Steve Jobs. Steve Jobs looked to Sony as a 62 00:03:18,360 --> 00:03:20,840 Speaker 1: model for Apple. And in fact, you know his mock turtleneck? 63 00:03:21,240 --> 00:03:23,859 Speaker 1: He actually, he went to Japan, saw that all of 64 00:03:23,940 --> 00:03:27,820 Speaker 1: the factory workers there had this uniform and came back 65 00:03:27,840 --> 00:03:29,880 Speaker 1: and was like, hey, Apple, we all gotta have a 66 00:03:30,000 --> 00:03:32,120 Speaker 1: uniform in the studio. Of course, it's Silicon Valley. They're like, 67 00:03:32,400 --> 00:03:35,240 Speaker 1: no way. But Jobs wound up going back to the 68 00:03:35,280 --> 00:03:38,700 Speaker 1: guy who designed the Sony uniforms and got that guy 69 00:03:38,740 --> 00:03:41,960 Speaker 1: to design him his mock turtleneck that became his uniform. 70 00:03:42,140 --> 00:03:47,809 Speaker 2: That is Sony guts. So the key figure at Sony 71 00:03:48,090 --> 00:03:49,330 Speaker 2: is Akio Morita. 72 00:03:50,190 --> 00:03:54,690 Speaker 1: He's born into this sake brewing family. He's supposed to 73 00:03:55,150 --> 00:03:57,570 Speaker 1: run the business, you know, as his father and grandfather 74 00:03:57,590 --> 00:04:00,570 Speaker 1: said before him. But he falls in love with physics 75 00:04:01,010 --> 00:04:06,690 Speaker 1: and electronics. And in 1946, he co-founds the company that 76 00:04:06,730 --> 00:04:09,390 Speaker 1: will become Sony. It's not called Sony at first, but 77 00:04:09,410 --> 00:04:12,570 Speaker 1: they're gonna name it Sony partly after sonus, the Latin 78 00:04:12,610 --> 00:04:16,170 Speaker 1: word for sound. Oh, interesting. Yeah, because it is initially 79 00:04:16,210 --> 00:04:20,590 Speaker 1: an audio company. And just around the time the company 80 00:04:20,630 --> 00:04:24,950 Speaker 1: is being founded in Tokyo. Back in New Jersey, at 81 00:04:25,930 --> 00:04:30,680 Speaker 1: Bell Labs, people are inventing the transistor. William Shockley. I 82 00:04:30,860 --> 00:04:33,320 Speaker 1: think we talked about this in the Silicon Valley show. 83 00:04:33,580 --> 00:04:38,080 Speaker 2: Takes the place of big glass vacuum tubes, which, it's 84 00:04:38,120 --> 00:04:39,659 Speaker 2: hard to be portable. They use a lot of energy, 85 00:04:39,700 --> 00:04:40,720 Speaker 2: they get very hot, they break. 86 00:04:40,839 --> 00:04:44,800 Speaker 1: Yeah, they're big. And so, the transistor is clearly this 87 00:04:44,839 --> 00:04:48,219 Speaker 1: profound breakthrough. It's going to transform the 20th century. It's 88 00:04:48,260 --> 00:04:51,900 Speaker 1: going to make computers as we know them possible. And 89 00:04:51,930 --> 00:04:57,390 Speaker 1: a few years after the transistor was invented, Morita's co-founder 90 00:04:57,550 --> 00:05:00,770 Speaker 1: at Sony traveled to America and learned that AT & 91 00:05:00,250 --> 00:05:04,120 Speaker 1: T was going to license the transistor. And so Sony 92 00:05:04,279 --> 00:05:07,460 Speaker 1: paid for the license and started trying to develop a 93 00:05:07,760 --> 00:05:11,080 Speaker 1: radio that use transistors instead of vacuum tubes. 94 00:05:11,400 --> 00:05:13,480 Speaker 2: And this is a huge breakthrough because at the time, 95 00:05:13,500 --> 00:05:16,000 Speaker 2: a radio is a piece of furniture. It is a 96 00:05:16,180 --> 00:05:19,180 Speaker 2: giant wooden box that you gather around. I wish it 97 00:05:19,200 --> 00:05:21,680 Speaker 2: was still that way. But it's a giant piece of furniture, 98 00:05:21,700 --> 00:05:24,250 Speaker 2: and so it is a big leap to say that 99 00:05:24,550 --> 00:05:28,890 Speaker 2: thing could fit in your pocket. You could carry it anywhere. 100 00:05:28,950 --> 00:05:31,470 Speaker 1: Robert, do you not have a vacuum tube radio in 101 00:05:31,490 --> 00:05:33,710 Speaker 1: your living room that you gather around with your children? 102 00:05:33,730 --> 00:05:35,830 Speaker 2: I do not, but lots of radio people I know 103 00:05:35,910 --> 00:05:37,969 Speaker 2: have the old-fashioned ones just for display. 104 00:05:38,790 --> 00:05:41,930 Speaker 1: So, yeah, as you say, Morita and his partner and 105 00:05:41,950 --> 00:05:45,469 Speaker 1: the people at Sony see early, really more broadly, this 106 00:05:45,610 --> 00:05:48,800 Speaker 1: idea of miniaturization. They're not inventing the idea, but it 107 00:05:48,839 --> 00:05:51,940 Speaker 1: becomes central to, of course, the computer revolution, to a 108 00:05:52,000 --> 00:05:54,219 Speaker 1: lot in the 20th century. And they get to work 109 00:05:54,740 --> 00:05:57,760 Speaker 1: on miniaturizing the radio. And they, in fact, develop a 110 00:05:57,880 --> 00:06:01,440 Speaker 1: radio made with a transistor, a transistor radio, if you will. 111 00:06:02,580 --> 00:06:05,080 Speaker 1: And it's about the size of like a book. It's 112 00:06:05,120 --> 00:06:08,430 Speaker 1: not tiny like they'll become, but it's profoundly smaller than 113 00:06:08,470 --> 00:06:12,990 Speaker 1: the big vacuum tube radios. And they don't sound great. 114 00:06:13,350 --> 00:06:15,530 Speaker 1: It's a little bit of kind of disruptive innovation here 115 00:06:15,610 --> 00:06:19,029 Speaker 1: on at least that axis. They're worse than the vacuum 116 00:06:19,050 --> 00:06:22,339 Speaker 1: tube radios. And Marina goes to the U.S. to try 117 00:06:22,400 --> 00:06:27,470 Speaker 1: and sell these new small radios. And there's not that 118 00:06:27,610 --> 00:06:30,850 Speaker 1: much demand. The salespeople are like, we're Americans. We have 119 00:06:31,270 --> 00:06:33,680 Speaker 1: big houses. We have plenty of room for a big radio. 120 00:06:34,040 --> 00:06:36,099 Speaker 2: Lots of room for vacuum tubes everywhere. We can put 121 00:06:36,120 --> 00:06:37,620 Speaker 2: vacuum tubes in the living room. They don't yet know 122 00:06:37,660 --> 00:06:38,979 Speaker 2: you can sit on a street corner and listen to 123 00:06:39,020 --> 00:06:40,200 Speaker 2: a ball game on a folding chair. 124 00:06:40,240 --> 00:06:42,219 Speaker 1: Well, so what Marina tells them, and this is like 125 00:06:42,339 --> 00:06:46,360 Speaker 1: an example of him being a genius salesman, is, yes, 126 00:06:46,440 --> 00:06:49,880 Speaker 1: in your big American house, you have many rooms. And 127 00:06:49,920 --> 00:06:53,760 Speaker 1: with our transistor radio, you can have a radio in 128 00:06:54,000 --> 00:06:57,770 Speaker 1: every room. And this, you know, this is sort of 129 00:06:57,920 --> 00:07:02,980 Speaker 1: pointing toward the Walkman. This idea of personal electronics is 130 00:07:03,040 --> 00:07:05,300 Speaker 1: kind of emerging here at this moment. 131 00:07:05,520 --> 00:07:07,680 Speaker 2: This is the start of not seeing your kids all 132 00:07:07,720 --> 00:07:09,860 Speaker 2: day long because they're in their room listening to their 133 00:07:09,880 --> 00:07:13,150 Speaker 2: transistor radios, slash TVs, slash phones. Yes. 134 00:07:13,830 --> 00:07:16,630 Speaker 1: It's also an example of Morita doing this thing that 135 00:07:16,670 --> 00:07:21,130 Speaker 1: he calls educating the market, which is also a very 136 00:07:21,270 --> 00:07:26,280 Speaker 1: Steve Jobs, Apple kind of idea, which is... People don't 137 00:07:26,380 --> 00:07:28,720 Speaker 1: actually know what they want. You know, there is this 138 00:07:28,860 --> 00:07:30,920 Speaker 1: idea in business, oh, what does the customer want? Let's 139 00:07:30,960 --> 00:07:34,680 Speaker 1: go ask them. And if you're Accio Morita or Steve Jobs, 140 00:07:34,720 --> 00:07:37,080 Speaker 1: you think, no, no, people aren't clever enough to know. 141 00:07:37,120 --> 00:07:39,500 Speaker 1: Or even, you know, the famous Henry Ford line, if 142 00:07:39,520 --> 00:07:41,730 Speaker 1: I had to ask people what they wanted in 1910, 143 00:07:41,730 --> 00:07:45,030 Speaker 1: they would have said a faster horse. It's that. And 144 00:07:45,070 --> 00:07:47,050 Speaker 1: so this is this idea that if you're a real innovator, 145 00:07:47,130 --> 00:07:49,570 Speaker 1: you figure out the next thing and you go tell 146 00:07:49,630 --> 00:07:51,090 Speaker 1: everybody why they should want it. 147 00:07:51,290 --> 00:07:52,590 Speaker 2: Yeah, and you could create a new market. 148 00:07:53,550 --> 00:07:57,429 Speaker 1: And Morita does. Morita and Sony have this hit transistor radio. 149 00:07:57,990 --> 00:08:00,710 Speaker 1: People are buying it, and they want to keep making 150 00:08:00,750 --> 00:08:04,150 Speaker 1: it smaller. Miniaturization is their thing. And Morita has this 151 00:08:04,210 --> 00:08:08,000 Speaker 1: dream for a transistor radio that'll fit in your pocket. Remember, 152 00:08:08,040 --> 00:08:10,660 Speaker 1: the first one's like the size of a book. Small, 153 00:08:10,700 --> 00:08:12,580 Speaker 1: but not like you could put it in a shirt pocket. 154 00:08:13,020 --> 00:08:16,020 Speaker 1: So he's got the engineers at Sony working, working, trying 155 00:08:16,040 --> 00:08:17,980 Speaker 1: to make it smaller. And they come up with a 156 00:08:18,020 --> 00:08:21,780 Speaker 1: radio that is smaller, but it is just slightly too 157 00:08:21,840 --> 00:08:25,710 Speaker 1: big to fit in a shirt pocket. And so, Morita, 158 00:08:25,890 --> 00:08:30,270 Speaker 1: in one of my favorite sales moves of all time, 159 00:08:31,090 --> 00:08:35,429 Speaker 1: designed special shirts for his salespeople with shirt pockets that 160 00:08:35,490 --> 00:08:38,590 Speaker 1: are slightly bigger than usual. So. 161 00:08:39,010 --> 00:08:40,790 Speaker 2: That fit the transistor radio. 162 00:08:40,809 --> 00:08:42,910 Speaker 1: That fit the transistor radio. And so they can go 163 00:08:43,050 --> 00:08:46,930 Speaker 1: out and sell the world on a pocket-sized radio, asterisk 164 00:08:47,090 --> 00:08:49,100 Speaker 1: if your pocket is a little bit bigger than usual. 165 00:08:49,120 --> 00:08:52,420 Speaker 2: No lie. They did eventually make them smaller. I have 166 00:08:52,440 --> 00:08:54,140 Speaker 2: a tiny one that fits in your hand that I 167 00:08:54,440 --> 00:08:56,480 Speaker 2: still listen to to this day in the shower. 168 00:08:56,540 --> 00:08:58,020 Speaker 1: Yeah, you told me you bought it off of Amazon 169 00:08:58,059 --> 00:09:00,220 Speaker 1: and the picture for it was two people who are 170 00:09:00,260 --> 00:09:02,480 Speaker 1: a hundred years old ballroom dancing or something. 171 00:09:02,500 --> 00:09:04,500 Speaker 2: Ballroom dancing to a little transistor radio. 172 00:09:04,830 --> 00:09:05,120 Speaker 1: I hope. 173 00:09:05,230 --> 00:09:05,540 Speaker 2: I wish. 174 00:09:06,710 --> 00:09:09,210 Speaker 1: So the transistor is what put Sony on the map. 175 00:09:10,190 --> 00:09:14,050 Speaker 1: But it's recording technology that is gonna make them great. 176 00:09:14,190 --> 00:09:18,590 Speaker 1: And in fact, they were working on tape recorders alongside 177 00:09:19,300 --> 00:09:21,360 Speaker 1: the transistor, you know, reel-to-reel tape. 178 00:09:21,780 --> 00:09:23,580 Speaker 2: This is like Robert Smith's This Is Your Life. 179 00:09:23,640 --> 00:09:24,840 Speaker 1: It really is. 180 00:09:24,860 --> 00:09:25,820 Speaker 2: I have all these things. 181 00:09:26,420 --> 00:09:32,160 Speaker 1: And Marina here is actually echoing Thomas Edison, which, you know, 182 00:09:32,350 --> 00:09:33,990 Speaker 1: one of the first shows we did on Business History 183 00:09:34,000 --> 00:09:38,790 Speaker 1: was Thomas Edison inventing the phonograph. First time people could 184 00:09:38,830 --> 00:09:40,350 Speaker 1: record and playback sound. 185 00:09:40,630 --> 00:09:42,609 Speaker 2: If you haven't heard the episodes, it's time-shifted. You can 186 00:09:42,630 --> 00:09:42,950 Speaker 2: go back. 187 00:09:43,690 --> 00:09:46,420 Speaker 1: You can listen to it anytime you want. When he 188 00:09:46,780 --> 00:09:50,310 Speaker 1: was marketing this device, it was not primarily for Edison 189 00:09:50,350 --> 00:09:54,010 Speaker 1: a way to, you know, listen to a Bach partita 190 00:09:54,110 --> 00:09:57,350 Speaker 1: in your own home and feel this sublime human accomplishment. 191 00:09:57,850 --> 00:10:00,959 Speaker 1: For Edison, mainly the phonograph was a way for a 192 00:10:01,320 --> 00:10:04,020 Speaker 1: businessman to dictate a letter to somebody telling them that 193 00:10:04,040 --> 00:10:06,040 Speaker 1: their payment was late. It was a business device. 194 00:10:06,140 --> 00:10:08,520 Speaker 2: Which is super smart. Who has money for a new technology? 195 00:10:08,980 --> 00:10:12,069 Speaker 1: Right, business people. If you can convince a business person 196 00:10:12,400 --> 00:10:14,770 Speaker 1: that this technology is going to make them more money, 197 00:10:15,510 --> 00:10:19,590 Speaker 1: they will buy your thing. And Marina sells the tape 198 00:10:19,630 --> 00:10:24,530 Speaker 1: recorder the same way. He goes out to institutions, to 199 00:10:24,590 --> 00:10:28,689 Speaker 1: music schools, to police departments, to courts, to aid stenographers, 200 00:10:29,350 --> 00:10:31,770 Speaker 1: and it works. And they're out there selling this, and 201 00:10:31,910 --> 00:10:34,830 Speaker 1: of course, Sony being Sony, they're figuring out a way 202 00:10:34,929 --> 00:10:37,970 Speaker 1: to make tape recorders that are smaller and cheaper so 203 00:10:38,010 --> 00:10:41,380 Speaker 1: that they can sell them to consumers en masse. So 204 00:10:41,400 --> 00:10:44,599 Speaker 1: they've mastered audio, and now it is time for Sony 205 00:10:44,720 --> 00:10:45,640 Speaker 1: to pivot to video. 206 00:10:45,780 --> 00:10:46,140 Speaker 2: Classic. 207 00:10:46,679 --> 00:10:50,390 Speaker 1: Everybody's favorite pivot. By this time, Robert Smith, this is 208 00:10:50,429 --> 00:10:55,410 Speaker 1: your life. A company called Ampex. Ampex! Remember Ampex? 209 00:10:55,650 --> 00:10:57,230 Speaker 2: Maker of reel-to-reel tapes. 210 00:10:57,250 --> 00:11:00,410 Speaker 1: Reel-to-reel tape. Also, early employer of Nolan Bushnell. Shout out 211 00:11:00,470 --> 00:11:03,960 Speaker 1: our Atari show, founder of Atari. By this time, Ampex, 212 00:11:03,980 --> 00:11:08,099 Speaker 1: so we're in like mid-50s now, has invented video recording. 213 00:11:09,190 --> 00:11:11,250 Speaker 1: And of course, you know, we think of like everything 214 00:11:11,270 --> 00:11:15,010 Speaker 1: that is moving pictures now as video. But that wasn't 215 00:11:15,050 --> 00:11:17,490 Speaker 1: true up until this point. Before this, it had been film. 216 00:11:18,090 --> 00:11:21,450 Speaker 1: And film, as those of us old enough to remember, remember, 217 00:11:21,770 --> 00:11:24,100 Speaker 1: was a thing where you would capture the image and 218 00:11:24,120 --> 00:11:25,880 Speaker 1: then you'd have to send it off for processing. You 219 00:11:25,900 --> 00:11:27,470 Speaker 1: couldn't just play it back and watch it. 220 00:11:27,520 --> 00:11:29,260 Speaker 2: We've come to that point. We have to describe film. 221 00:11:29,300 --> 00:11:31,880 Speaker 1: Yes, it's true. And the beauty of video is you 222 00:11:31,900 --> 00:11:34,240 Speaker 1: could record it and then immediately play it back or 223 00:11:34,280 --> 00:11:34,599 Speaker 1: watch it. 224 00:11:34,880 --> 00:11:37,140 Speaker 2: Which is useful for news and all sorts of businesses. 225 00:11:37,160 --> 00:11:42,959 Speaker 1: Yeah. And initially, again, video recording was this machine system 226 00:11:43,000 --> 00:11:44,880 Speaker 1: that took up a whole room. So, you know, a 227 00:11:44,920 --> 00:11:49,240 Speaker 1: TV station might use it. Sony gets involved, starts doing 228 00:11:49,540 --> 00:11:54,280 Speaker 1: the miniaturization thing. But this time, they make what's really 229 00:11:54,300 --> 00:11:56,719 Speaker 1: an interesting business move and a move that's going to 230 00:11:56,740 --> 00:11:59,980 Speaker 1: be central to the VHS versus Betamax part of the 231 00:12:00,000 --> 00:12:04,109 Speaker 1: story coming later. And they, uh, go to other big 232 00:12:04,230 --> 00:12:08,610 Speaker 1: Japanese electronics companies and they say, let's work together on 233 00:12:08,630 --> 00:12:13,199 Speaker 1: this video project. Let's come up with a standard format 234 00:12:13,300 --> 00:12:16,980 Speaker 1: so that everybody's videotapes can be used in everybody else's machines. 235 00:12:17,840 --> 00:12:19,840 Speaker 1: And Sony's going to take the lead on the project. 236 00:12:20,100 --> 00:12:23,780 Speaker 1: But together, they can all work together on this standard 237 00:12:23,820 --> 00:12:27,210 Speaker 1: and everybody can make money. And other companies, in fact, 238 00:12:27,309 --> 00:12:27,890 Speaker 1: sign on. 239 00:12:28,429 --> 00:12:29,490 Speaker 2: And it's interesting, right? 240 00:12:30,230 --> 00:12:30,870 Speaker 1: You want. 241 00:12:31,380 --> 00:12:34,820 Speaker 2: the same format, especially if it's your format that you're developing. 242 00:12:34,860 --> 00:12:37,959 Speaker 2: Because otherwise, everyone will fight each other and they'll be 243 00:12:38,000 --> 00:12:40,290 Speaker 2: on different formats. And then a format might win, but 244 00:12:40,610 --> 00:12:42,069 Speaker 2: that might not be the best company. It might just 245 00:12:42,090 --> 00:12:43,410 Speaker 2: be the format that people prefer. 246 00:12:43,570 --> 00:12:49,950 Speaker 1: Yeah. And it's this really interesting case because almost always 247 00:12:49,990 --> 00:12:52,480 Speaker 1: we feel like competition is good, right? Competition is the 248 00:12:52,550 --> 00:12:55,459 Speaker 1: fundamental engine that makes market economies work, that makes things 249 00:12:55,500 --> 00:12:56,500 Speaker 1: get better and cheaper. 250 00:12:56,760 --> 00:12:59,120 Speaker 2: And then we got charging cords and we're like, Why 251 00:12:59,179 --> 00:12:59,980 Speaker 2: can't they collude? 252 00:13:00,000 --> 00:13:02,339 Speaker 1: Why can't we just have one cord for everything? Yeah. 253 00:13:02,420 --> 00:13:04,600 Speaker 1: And in fact, in the instance of USB-C, I think 254 00:13:04,640 --> 00:13:07,130 Speaker 1: it was that Europe basically was like, OK, enough. Everything 255 00:13:07,150 --> 00:13:10,050 Speaker 1: has got to be USB-C. And there is this interesting 256 00:13:10,090 --> 00:13:14,309 Speaker 1: tradeoff here. In this instance, Sony's pitch to these other 257 00:13:14,350 --> 00:13:20,700 Speaker 1: Japanese companies works. And crucially, this company, JVC, which is 258 00:13:21,020 --> 00:13:26,610 Speaker 1: part owned at this point by Matsushita, a giant... company, 259 00:13:27,350 --> 00:13:32,360 Speaker 1: now Panasonic, JVC agrees. JVC agrees to participate with Sony 260 00:13:32,510 --> 00:13:36,480 Speaker 1: in this video kind of standard, collective. And so, with 261 00:13:36,520 --> 00:13:39,579 Speaker 1: the support of JVC and other companies, Sony develops this 262 00:13:39,620 --> 00:13:42,740 Speaker 1: video system called the U-matic. And this is like, it's 263 00:13:42,780 --> 00:13:44,700 Speaker 1: not a room, but now it's like a big machine 264 00:13:44,760 --> 00:13:47,439 Speaker 1: on a cart. You can picture, like, the AV guy 265 00:13:47,620 --> 00:13:48,720 Speaker 1: at your high school. 266 00:13:49,340 --> 00:13:51,450 Speaker 2: Perhaps it was you, Robert Smith. It was me, coming 267 00:13:51,490 --> 00:13:52,120 Speaker 2: with the U-matic. 268 00:13:52,250 --> 00:13:54,910 Speaker 1: Coming with the U-matic. Out of my way, U-matic coming through. 269 00:13:55,660 --> 00:13:57,819 Speaker 1: And it works. It works. This is a product in 270 00:13:57,840 --> 00:14:02,300 Speaker 1: the world now. Sony keeps doing its thing. Miniaturization, cheaper. 271 00:14:02,840 --> 00:14:03,800 Speaker 1: We know where they're going. 272 00:14:04,660 --> 00:14:05,140 Speaker 2: Into the home. 273 00:14:05,360 --> 00:14:10,980 Speaker 1: Into the home. In 1974, Sony goes back to JVC 274 00:14:11,020 --> 00:14:15,420 Speaker 1: and Matsushita and their other partners, and they are like, behold, 275 00:14:15,980 --> 00:14:19,800 Speaker 1: we have, you know, Eureka. We have developed this machine 276 00:14:20,260 --> 00:14:23,570 Speaker 1: that is small enough and convenient enough and cheap enough 277 00:14:24,000 --> 00:14:27,240 Speaker 1: that ordinary people can buy it, and in the comfort 278 00:14:27,260 --> 00:14:32,460 Speaker 1: of their own home, they can record live television in beautiful, 279 00:14:32,600 --> 00:14:38,220 Speaker 1: high-fidelity video. Sony calls it Betamax. Works with video cassettes. 280 00:14:38,330 --> 00:14:42,610 Speaker 1: Just insert and push play or play record. Remember, play record? 281 00:14:42,770 --> 00:14:43,330 Speaker 2: Two fingers. 282 00:14:44,250 --> 00:14:47,730 Speaker 1: And you could put an hour of TV on a 283 00:14:47,750 --> 00:14:54,380 Speaker 1: single tape. Incredible. And yet, JVC and the others are like, Well, 284 00:14:54,500 --> 00:14:56,359 Speaker 1: we'll let you know. We'll get back to you on this. 285 00:14:56,580 --> 00:15:00,440 Speaker 1: They do not immediately say yes. And it's not, at first, 286 00:15:00,520 --> 00:15:04,360 Speaker 1: clear to Sony what's going on. But behind the scenes, 287 00:15:04,600 --> 00:15:07,580 Speaker 1: a few things were going on. One, Sony made more 288 00:15:07,660 --> 00:15:11,020 Speaker 1: money and got more credit for the U-matic, that big machine, 289 00:15:11,110 --> 00:15:13,710 Speaker 1: than JVC and the others, because Sony was the lead 290 00:15:13,770 --> 00:15:16,220 Speaker 1: on it and they were a little... Sort of bitter 291 00:15:16,280 --> 00:15:20,820 Speaker 1: about that, JVC was. And two, JVC was worried that 292 00:15:20,980 --> 00:15:23,460 Speaker 1: an hour was not long enough, right? These Betamax tapes 293 00:15:23,500 --> 00:15:25,790 Speaker 1: were an hour, seemed a little short. You know, you 294 00:15:25,830 --> 00:15:29,370 Speaker 1: can't record a movie. You can't record a football game, 295 00:15:29,430 --> 00:15:33,130 Speaker 1: a baseball game. And Sony didn't know it at the time, 296 00:15:33,550 --> 00:15:37,830 Speaker 1: but JVC was already working on a different format, which 297 00:15:37,890 --> 00:15:40,000 Speaker 1: come to be called VHS. 298 00:15:40,220 --> 00:15:41,520 Speaker 2: Love that they were covering their bases. 299 00:15:41,720 --> 00:15:46,080 Speaker 1: Different machine, different tapes, didn't work together. And, of course, 300 00:15:46,280 --> 00:15:49,250 Speaker 1: we know what's coming now, this famous format war between 301 00:15:49,290 --> 00:15:53,150 Speaker 1: VHS and Betamax. And we will talk about that later 302 00:15:53,170 --> 00:15:57,470 Speaker 1: in the show. It's a classic business story. But first, Sony, 303 00:15:57,530 --> 00:16:01,170 Speaker 1: after getting ghosted by JVC, decides they're just going to 304 00:16:01,480 --> 00:16:03,200 Speaker 1: bring the Betamax out on their own. They're not going 305 00:16:03,220 --> 00:16:05,060 Speaker 1: to try and get everybody together on the same format. 306 00:16:05,080 --> 00:16:08,460 Speaker 1: They're just going to go forward. They start selling this 307 00:16:08,520 --> 00:16:12,060 Speaker 1: incredible machine that lets people record TV shows and watch 308 00:16:12,120 --> 00:16:14,960 Speaker 1: them whenever they want. And the people who make those 309 00:16:15,000 --> 00:16:18,280 Speaker 1: TV shows are not gonna like that one bit. 310 00:16:19,240 --> 00:16:19,760 Speaker 2: After the break. 311 00:16:23,140 --> 00:16:28,830 Speaker 1: The year is 1976. We cut to the office of 312 00:16:28,970 --> 00:16:29,930 Speaker 1: Sid Sheinberg. 313 00:16:30,250 --> 00:16:31,670 Speaker 2: Sid Sheinberg's office, may I help you? 314 00:16:31,690 --> 00:16:32,970 Speaker 1: The place is Hollywood. 315 00:16:32,990 --> 00:16:34,310 Speaker 2: Of course. 316 00:16:34,350 --> 00:16:37,550 Speaker 1: Actually, it's the San Fernando Valley, but whatever. It's the 317 00:16:37,590 --> 00:16:42,950 Speaker 1: movie business. Sid Sheinberg runs Universal Pictures. maker of such 318 00:16:42,990 --> 00:16:47,730 Speaker 1: 70s classics as Jaws and The Sting, and also maker 319 00:16:47,770 --> 00:16:51,390 Speaker 1: of popular TV shows like Kojak and Columbo. 320 00:16:52,250 --> 00:16:54,720 Speaker 2: Kojak was the bald one, he was the hard-bitten New 321 00:16:54,740 --> 00:16:58,420 Speaker 2: York cop, and Columbo was the one with the rumply 322 00:16:58,520 --> 00:17:01,620 Speaker 2: jacket who would come in and be disorganized. 323 00:17:01,880 --> 00:17:08,369 Speaker 1: One day, Scheinberg gets a memo, and this memo informs 324 00:17:08,430 --> 00:17:13,270 Speaker 1: him that the Sony Corporation is planning to run an 325 00:17:13,410 --> 00:17:18,859 Speaker 1: ad for their new Betamax machine. And this ad will say, 326 00:17:19,170 --> 00:17:20,600 Speaker 1: Robert Smith, what's the ad going to say? 327 00:17:20,910 --> 00:17:23,679 Speaker 2: Now you don't have to miss Kojak because you're watching 328 00:17:23,740 --> 00:17:27,619 Speaker 2: Columbo or vice versa. Look at that. Choice. 329 00:17:27,700 --> 00:17:30,420 Speaker 1: People love choice. So this is the pitch for Accio 330 00:17:30,440 --> 00:17:34,659 Speaker 1: Morita's magic trick, time shifting. This is Morita educating the 331 00:17:34,720 --> 00:17:36,700 Speaker 1: market on this new thing they could do. There was 332 00:17:36,740 --> 00:17:39,820 Speaker 1: another ad at the time for the Betamax that said, 333 00:17:40,260 --> 00:17:44,250 Speaker 1: watch whatever, whenever. Which is a great copy, right? Especially 334 00:17:44,270 --> 00:17:47,659 Speaker 1: for the 70s. So this memo has wound up in 335 00:17:47,720 --> 00:17:50,240 Speaker 1: front of Sheinberg, of course, because he runs the company 336 00:17:50,280 --> 00:17:54,240 Speaker 1: that makes both Kojak and Columbo, the shows named in 337 00:17:54,690 --> 00:17:57,620 Speaker 1: the ads. And this is, in fact... the first time 338 00:17:57,660 --> 00:18:01,899 Speaker 1: that he has heard of Betamax. Now, Sid Sheinberg is 339 00:18:02,140 --> 00:18:05,000 Speaker 1: interested in this idea of, like, selling a device to 340 00:18:05,040 --> 00:18:06,720 Speaker 1: people that lets them watch movies at home. 341 00:18:06,740 --> 00:18:07,820 Speaker 2: Especially the selling part. 342 00:18:08,260 --> 00:18:11,899 Speaker 1: Yes. And he has been working to help develop a 343 00:18:11,960 --> 00:18:17,280 Speaker 1: product called, best 70s product name of all time, DiscoVision. 344 00:18:19,100 --> 00:18:23,139 Speaker 1: What will later be called LaserDiscs. basically a home video 345 00:18:23,180 --> 00:18:26,200 Speaker 1: player that lets you play movies that look amazing on 346 00:18:26,730 --> 00:18:30,290 Speaker 1: your TV at home, and crucially, doesn't let you record anything. 347 00:18:30,650 --> 00:18:32,649 Speaker 1: You just buy the discs and watch them. 348 00:18:32,770 --> 00:18:37,160 Speaker 2: It is a one-way technology. It allows Sid to retain 349 00:18:37,240 --> 00:18:39,750 Speaker 2: control over his... intellectual product. 350 00:18:39,850 --> 00:18:42,609 Speaker 1: And into the 90s, like, surely you're old enough to 351 00:18:42,630 --> 00:18:45,130 Speaker 1: remember this. I remember in the 90s, I had my, like, 352 00:18:45,530 --> 00:18:49,500 Speaker 1: cinephile friend who had a laser disc player because they, 353 00:18:49,660 --> 00:18:52,020 Speaker 1: in fact, were a great technology in terms of looking 354 00:18:52,040 --> 00:18:54,660 Speaker 1: really good. My friend who was into movies... They go 355 00:18:54,859 --> 00:18:56,280 Speaker 1: on and on about it. He was the one who 356 00:18:56,359 --> 00:18:58,600 Speaker 1: showed me that if you start Dark Side of the 357 00:18:58,640 --> 00:19:01,500 Speaker 1: Moon and The Wizard of Oz at the same time, there's, like, 358 00:19:01,540 --> 00:19:06,600 Speaker 1: some perfect synchronicity there. Shout out Dave Ramirez. Anyway, this 359 00:19:06,660 --> 00:19:09,980 Speaker 1: is where Scheinberg's head is at the time. He is 360 00:19:10,440 --> 00:19:12,750 Speaker 1: a lawyer by training. He was a lawyer before he 361 00:19:12,790 --> 00:19:16,770 Speaker 1: became a studio executive. And then he sees this proposed 362 00:19:17,190 --> 00:19:22,040 Speaker 1: ad telling people they can tape Kojak while they watch Columbo. 363 00:19:22,060 --> 00:19:23,100 Speaker 2: Or vice versa. 364 00:19:23,119 --> 00:19:23,900 Speaker 1: Or vice versa. 365 00:19:24,240 --> 00:19:25,060 Speaker 2: And he sees this. 366 00:19:25,040 --> 00:19:27,129 Speaker 1: Ad and he knows that he owns these shows and 367 00:19:27,170 --> 00:19:30,430 Speaker 1: he thinks... No! Like, not only can you not run 368 00:19:30,470 --> 00:19:33,130 Speaker 1: this ad, you can't sell this product. You can't sell 369 00:19:33,190 --> 00:19:36,530 Speaker 1: a product telling people that they can steal this thing, 370 00:19:36,570 --> 00:19:38,810 Speaker 1: record this show that we own and that we haven't 371 00:19:38,850 --> 00:19:40,450 Speaker 1: given them permission to record. 372 00:19:40,470 --> 00:19:43,310 Speaker 2: Which you can kind of see at that moment, if 373 00:19:43,350 --> 00:19:46,909 Speaker 2: you have a cassette with Columbo on it, you control 374 00:19:46,930 --> 00:19:51,330 Speaker 2: the Columbo show. You can show it to your friends. 375 00:19:51,390 --> 00:19:52,990 Speaker 2: You can charge them money if you want. You can 376 00:19:53,010 --> 00:19:55,790 Speaker 2: do anything, and we don't want that. Control must rest 377 00:19:55,850 --> 00:19:56,230 Speaker 2: in Hollywood. 378 00:19:56,250 --> 00:20:00,060 Speaker 1: Yeah, well, or simply, you know, the classic way that 379 00:20:00,890 --> 00:20:03,100 Speaker 1: people who made TV shows made money was reruns. 380 00:20:03,840 --> 00:20:04,080 Speaker 2: Right? 381 00:20:04,140 --> 00:20:07,219 Speaker 1: Reruns. What if people tape a bunch of Columbo and 382 00:20:07,240 --> 00:20:14,390 Speaker 1: they don't watch reruns? Unimaginable! Disaster! And so, Scheinberg is like, no, 383 00:20:14,690 --> 00:20:18,410 Speaker 1: no way. And he sets a meeting with Accio Merida 384 00:20:19,130 --> 00:20:23,320 Speaker 1: at Sony headquarters in New York. Quite soon after that, 385 00:20:23,380 --> 00:20:25,659 Speaker 1: I think, actually. He flies out there, and they have 386 00:20:25,760 --> 00:20:28,919 Speaker 1: dinner on the 43rd floor, along with a couple of 387 00:20:29,000 --> 00:20:35,340 Speaker 1: other executives. And officially, the meeting is to discuss disco-vision. This, 388 00:20:35,760 --> 00:20:40,000 Speaker 1: you know, laser disc player. And Sony is a giant. 389 00:20:40,060 --> 00:20:42,820 Speaker 1: They are, in some ways, the Apple of their day. 390 00:20:42,859 --> 00:20:47,160 Speaker 1: They are a wonderful manufacturer of consumer electronics. And Scheinberg 391 00:20:47,480 --> 00:20:50,679 Speaker 1: wants Sony to make disco vision players. And this is 392 00:20:50,720 --> 00:20:54,440 Speaker 1: what they're talking about. But as Scheinberg is sitting there, 393 00:20:54,700 --> 00:20:58,560 Speaker 1: unbeknownst to Accio Morita, he has in his jacket pocket 394 00:20:59,340 --> 00:21:04,490 Speaker 1: a radio. You wish. A memo written by his lawyers 395 00:21:04,670 --> 00:21:10,889 Speaker 1: explaining why the Betamax is illegal. And after like an 396 00:21:10,970 --> 00:21:14,150 Speaker 1: hour of meeting and talking about the disco vision, he 397 00:21:14,250 --> 00:21:17,710 Speaker 1: pulls out this memo and threatens to sue Sony. 398 00:21:18,010 --> 00:21:18,710 Speaker 2: One more thing. 399 00:21:19,690 --> 00:21:24,230 Speaker 1: Just one more thing. And Marina is shocked. He wrote 400 00:21:24,270 --> 00:21:26,170 Speaker 1: about this later. Tell us what he said later. 401 00:21:27,010 --> 00:21:29,560 Speaker 2: When we shake hands, we will not hit you with 402 00:21:29,600 --> 00:21:30,150 Speaker 2: the other hand. 403 00:21:32,359 --> 00:21:38,439 Speaker 1: And even after the meeting, Marina didn't really think Scheinberg 404 00:21:38,460 --> 00:21:40,420 Speaker 1: was actually going to sue. He thought it was just some, like, 405 00:21:40,600 --> 00:21:41,740 Speaker 1: negotiating tactic. 406 00:21:42,030 --> 00:21:44,490 Speaker 2: Oh, he does not know the United States of America. 407 00:21:44,530 --> 00:21:46,770 Speaker 2: Friends don't sue, is what he said. Oh, dear friends 408 00:21:46,830 --> 00:21:48,950 Speaker 2: sue friends. Friends do sue. 409 00:21:49,090 --> 00:21:52,189 Speaker 1: Universal is going. 410 00:21:51,170 --> 00:21:52,590 Speaker 2: To sue Sony. 100%. 411 00:21:52,590 --> 00:21:56,830 Speaker 1: So to build its case, Universal wants to essentially connect 412 00:21:56,869 --> 00:21:59,429 Speaker 1: the dots, to go from Sony to the stores selling 413 00:21:59,470 --> 00:22:03,899 Speaker 1: the Betamax, to the consumers actually doing the recording. And 414 00:22:03,940 --> 00:22:07,000 Speaker 1: to do this, Universal does a few things. Their lawyers 415 00:22:07,040 --> 00:22:10,189 Speaker 1: do a few things. They hire a private investigator to 416 00:22:10,250 --> 00:22:13,189 Speaker 1: visit stores and pose as a customer so that they 417 00:22:13,210 --> 00:22:17,390 Speaker 1: can actually see salesmen at the stores using the Betamax 418 00:22:17,450 --> 00:22:20,649 Speaker 1: to copy Universal shows onto video sets. 419 00:22:20,710 --> 00:22:23,360 Speaker 2: Will you give your sales pitch into my lapel? 420 00:22:23,520 --> 00:22:25,960 Speaker 1: Speak a little clearly. What are you doing? Universal's lawyers 421 00:22:26,160 --> 00:22:30,740 Speaker 1: also found a Betamax owner who was willing to be sued, 422 00:22:30,800 --> 00:22:33,520 Speaker 1: to be named in the lawsuit. You know, and they 423 00:22:33,540 --> 00:22:37,140 Speaker 1: agreed they wouldn't hold him liable for damages, but they 424 00:22:37,220 --> 00:22:41,869 Speaker 1: needed somebody who was actually doing the recording. And Universal 425 00:22:42,330 --> 00:22:46,690 Speaker 1: also got another Hollywood studio to join them in the lawsuit, 426 00:22:47,609 --> 00:22:50,990 Speaker 1: which was Disney. Disney agreed to join them in the suit, 427 00:22:51,400 --> 00:22:54,200 Speaker 1: which makes sense because this is an intellectual property case. 428 00:22:55,550 --> 00:22:59,130 Speaker 1: I'm gonna say nobody has more riding on intellectual property 429 00:22:59,410 --> 00:23:02,230 Speaker 1: than Disney, right? They have IP to die for, IP 430 00:23:02,369 --> 00:23:04,869 Speaker 1: all day. You know, Pinocchio, Snow White, Sleeping Beauty, just 431 00:23:04,910 --> 00:23:08,669 Speaker 1: these classic, classic movies. All of which I think I 432 00:23:08,950 --> 00:23:11,760 Speaker 1: owned on VHS to show my kids. Coming later, yes. 433 00:23:12,540 --> 00:23:15,159 Speaker 1: And if people could, you know, record TV at home, 434 00:23:15,260 --> 00:23:17,940 Speaker 1: Disney felt like this was a huge threat to their 435 00:23:18,380 --> 00:23:24,770 Speaker 1: intellectual property. And so... In November of 1976, Universal, along 436 00:23:24,790 --> 00:23:30,669 Speaker 1: with Disney, sued Sony. And the guy who told Morita, 437 00:23:30,690 --> 00:23:32,430 Speaker 1: the guy who gave Morita the news, said that when 438 00:23:32,490 --> 00:23:35,810 Speaker 1: Morita found out, he let out a death cry. The 439 00:23:35,830 --> 00:23:37,790 Speaker 1: guy called it a death cry. And then he went 440 00:23:37,830 --> 00:23:42,669 Speaker 1: off to play golf and apparently his golf game was off. So, 441 00:23:44,310 --> 00:23:49,690 Speaker 1: from Universal's point of view, the case is fundamentally simple. 442 00:23:50,810 --> 00:23:54,530 Speaker 1: At one point in court, the lawyer described the case 443 00:23:54,869 --> 00:23:55,290 Speaker 1: like this. 444 00:23:56,810 --> 00:24:00,550 Speaker 2: All that the case really involves is unauthorized and uncompensated 445 00:24:00,630 --> 00:24:04,760 Speaker 2: copying of entire motion pictures. Neither Congress nor any court 446 00:24:04,890 --> 00:24:08,540 Speaker 2: has ever permitted such copying, merely because it takes place 447 00:24:08,580 --> 00:24:10,780 Speaker 2: in the home or because the copy is taken from 448 00:24:10,800 --> 00:24:13,560 Speaker 2: the television airwaves rather than from some other source. 449 00:24:14,280 --> 00:24:17,620 Speaker 1: It's unauthorized and uncompensated copying. 450 00:24:17,880 --> 00:24:20,320 Speaker 2: You can't do that. It's not legal, is what he argues. 451 00:24:21,010 --> 00:24:25,280 Speaker 1: Now, even Universal knows it's not quite that simple because 452 00:24:26,540 --> 00:24:30,440 Speaker 1: Universal had to show not only that recording a show 453 00:24:30,520 --> 00:24:33,310 Speaker 1: or a movie was, in fact, copyright infringement, but they 454 00:24:33,490 --> 00:24:37,010 Speaker 1: also had to show that Sony was liable, right? Sony's 455 00:24:37,050 --> 00:24:39,810 Speaker 1: not doing the recording here. So they also have to 456 00:24:39,850 --> 00:24:44,950 Speaker 1: show that Sony is liable for what is called contributory infringement, right? 457 00:24:45,390 --> 00:24:47,929 Speaker 1: That Sony is liable for selling the machines that are 458 00:24:47,970 --> 00:24:50,130 Speaker 1: contributing to the infringement that people are doing. 459 00:24:50,470 --> 00:24:53,590 Speaker 2: And this is a huge thing in society. Lots of 460 00:24:53,630 --> 00:24:55,810 Speaker 2: people make lots of objects that can be used for 461 00:24:55,869 --> 00:24:57,210 Speaker 2: illegal acts. Yes. 462 00:24:57,710 --> 00:25:00,130 Speaker 1: And so this goes back to the question we asked 463 00:25:00,190 --> 00:25:04,770 Speaker 1: at the beginning. Here is this new technology. What responsibility 464 00:25:04,810 --> 00:25:08,840 Speaker 1: does the company making the technology have for how people 465 00:25:08,940 --> 00:25:11,139 Speaker 1: use it. When are they legally on the hook? Still 466 00:25:11,160 --> 00:25:13,680 Speaker 1: a live question, as we'll talk about later in the show. 467 00:25:14,320 --> 00:25:15,980 Speaker 1: On the first day of the trial, case goes to trial, 468 00:25:16,000 --> 00:25:19,530 Speaker 1: on the first day, the chairman of Walt Disney Productions 469 00:25:19,650 --> 00:25:22,090 Speaker 1: testifies that he had recently had an offer from a 470 00:25:22,130 --> 00:25:25,250 Speaker 1: cable channel that wanted to pay Disney to run Mary 471 00:25:25,310 --> 00:25:28,230 Speaker 1: Poppins and The Jungle Book. One of my favorites. 472 00:25:28,260 --> 00:25:29,980 Speaker 2: I'm not a huge. 473 00:25:29,740 --> 00:25:32,430 Speaker 1: Mary Poppins fan, but I really did like The Jungle Book. 474 00:25:32,690 --> 00:25:33,270 Speaker 2: Oh, come on. 475 00:25:33,280 --> 00:25:34,780 Speaker 1: Were you in Mary Poppins, Robert? 476 00:25:35,440 --> 00:25:37,000 Speaker 2: Chim-chiminy, chim-chiminy. 477 00:25:37,280 --> 00:25:42,060 Speaker 1: And the chairman of Walt Disney Productions had actually turned 478 00:25:42,140 --> 00:25:45,780 Speaker 1: down this cable company's offer to run the movies because 479 00:25:45,820 --> 00:25:48,130 Speaker 1: he was afraid that if he showed them on TV, 480 00:25:48,250 --> 00:25:50,750 Speaker 1: people would record them. And he didn't want that. He 481 00:25:50,770 --> 00:25:53,050 Speaker 1: didn't want people to have copies of these movies at 482 00:25:53,090 --> 00:25:57,390 Speaker 1: home that they had recorded. Another Hollywood executive testified, this 483 00:25:57,410 --> 00:25:59,750 Speaker 1: is sort of rumored, he testified that when Gone with 484 00:25:59,790 --> 00:26:02,350 Speaker 1: the Wind was going to air on TV, there was 485 00:26:02,369 --> 00:26:06,130 Speaker 1: like a run on blank videotapes, presumably so people could 486 00:26:06,190 --> 00:26:08,340 Speaker 1: record the movie. At least that's what was reported in 487 00:26:08,359 --> 00:26:11,699 Speaker 1: the trades, I think, in Variety. Here's a quote from him. 488 00:26:11,800 --> 00:26:14,060 Speaker 1: It's actually Lou Wasserman, a huge Hollywood figure. 489 00:26:14,240 --> 00:26:16,399 Speaker 2: Now, if everyone in the United States ultimately has a 490 00:26:16,460 --> 00:26:18,600 Speaker 2: copy of Gone with the Wind, there would not be 491 00:26:18,660 --> 00:26:21,720 Speaker 2: much value in Gone with the Wind being on television. 492 00:26:22,380 --> 00:26:26,060 Speaker 2: And we should just say here, When big movies like this, 493 00:26:26,100 --> 00:26:27,560 Speaker 2: for me it was The Wizard of Oz, would come 494 00:26:27,619 --> 00:26:31,179 Speaker 2: on television once a year, you'd find out about it 495 00:26:31,280 --> 00:26:34,479 Speaker 2: weeks beforehand and you would make time, you'd sit down 496 00:26:34,520 --> 00:26:36,919 Speaker 2: with the family and you would watch The Wizard of 497 00:26:37,119 --> 00:26:39,379 Speaker 2: Oz once a year and then you couldn't get it. 498 00:26:39,400 --> 00:26:41,679 Speaker 1: You had to, I mean, there's a reason that the 499 00:26:42,990 --> 00:26:45,310 Speaker 1: There's a reason that sports is the last thing that 500 00:26:45,430 --> 00:26:48,110 Speaker 1: everybody wants to put on sort of linear TV, right? 501 00:26:48,130 --> 00:26:50,150 Speaker 1: There's a reason that that's the last one. Because that's 502 00:26:50,190 --> 00:26:52,189 Speaker 1: the only thing that you really have to watch when 503 00:26:52,230 --> 00:26:54,490 Speaker 1: it happens, right? Once it's over, everybody knows what happens. 504 00:26:54,619 --> 00:26:57,580 Speaker 1: And everything was like that then. You could only watch 505 00:26:57,619 --> 00:26:59,960 Speaker 1: The Wizard of Oz when they showed it for those 506 00:27:00,000 --> 00:27:00,460 Speaker 1: two hours. 507 00:27:00,580 --> 00:27:03,700 Speaker 2: Everything was scarce. And if you control a scarce object, 508 00:27:03,840 --> 00:27:05,540 Speaker 2: you can make money off of. 509 00:27:06,980 --> 00:27:11,649 Speaker 1: It. So... this is reasonable. The studios... have this concern. 510 00:27:11,780 --> 00:27:17,959 Speaker 1: It's a reasonable concern, but they can't prove yet that 511 00:27:17,980 --> 00:27:21,440 Speaker 1: they've actually lost money as a result of the Betamax. 512 00:27:21,480 --> 00:27:24,480 Speaker 1: They can't point to some revenue stream that's gone away 513 00:27:24,560 --> 00:27:28,040 Speaker 1: or gotten smaller, or even that, you know, is extremely 514 00:27:28,100 --> 00:27:30,080 Speaker 1: likely to. They have this kind of theory of the case, 515 00:27:30,180 --> 00:27:32,969 Speaker 1: but they can't show it yet. They argue that they 516 00:27:33,010 --> 00:27:35,590 Speaker 1: shouldn't have to. They argue that the burden of proof 517 00:27:35,630 --> 00:27:37,940 Speaker 1: should be on Sony. It's like, don't make us prove 518 00:27:37,960 --> 00:27:39,359 Speaker 1: that we're not going to lose money. We're not the 519 00:27:39,440 --> 00:27:42,860 Speaker 1: ones selling the machine. Sony should have to show that 520 00:27:42,880 --> 00:27:44,379 Speaker 1: their machine is not going to hurt us. 521 00:27:44,820 --> 00:27:46,659 Speaker 2: Impossible to prove the negative. 522 00:27:47,760 --> 00:27:53,810 Speaker 1: This is Universal's case. This is Hollywood's case. Sony's case was... 523 00:27:53,910 --> 00:27:56,469 Speaker 1: They actually had this interesting kind of narrow case, and 524 00:27:56,510 --> 00:27:59,889 Speaker 1: it fits with Morita's dream and the way they're pitching it, 525 00:28:00,270 --> 00:28:04,189 Speaker 1: which is, People aren't using this to build libraries. We're 526 00:28:04,210 --> 00:28:06,780 Speaker 1: not telling people to build libraries with it, right? We're 527 00:28:06,800 --> 00:28:10,730 Speaker 1: pitching time shifting. We're pitching You want to watch this 528 00:28:10,770 --> 00:28:12,730 Speaker 1: show anyway, so record it and just watch it a 529 00:28:12,750 --> 00:28:15,870 Speaker 1: little later. And Sony's theory of the device is people 530 00:28:15,890 --> 00:28:17,929 Speaker 1: are just going to buy a few tapes, watch the 531 00:28:17,950 --> 00:28:19,000 Speaker 1: thing they want to watch, and then. 532 00:28:18,930 --> 00:28:23,140 Speaker 2: Record over it. And watch more product. And watch more product, perhaps. 533 00:28:23,160 --> 00:28:25,220 Speaker 2: So it's going to be good for Hollywood eventually. 534 00:28:25,740 --> 00:28:30,180 Speaker 1: Well, and to that end, Sony actually finds people who 535 00:28:30,740 --> 00:28:35,080 Speaker 1: make shows, who own intellectual property, who say, yes, we're 536 00:28:35,100 --> 00:28:41,790 Speaker 1: great with time shifting. Time shifting is totally fine. including, amazingly, 537 00:28:42,790 --> 00:28:46,090 Speaker 1: Fred Rogers, aka Mr. Rogers to you. 538 00:28:46,310 --> 00:28:48,170 Speaker 2: This is the best cameo since J.P. 539 00:28:48,190 --> 00:28:53,740 Speaker 1: Morgan. Yes, certainly the sweetest cameo ever on the show. Robert, 540 00:28:53,820 --> 00:28:58,320 Speaker 1: give us what Mr. Rogers said in his testimony in 541 00:28:58,340 --> 00:29:00,340 Speaker 1: defense of the VCR. 542 00:29:00,540 --> 00:29:02,380 Speaker 2: I've been waiting my life to do a Mr. Rogers. 543 00:29:03,820 --> 00:29:07,340 Speaker 2: Very frankly, I'm opposed to people being programmed by others. 544 00:29:07,950 --> 00:29:11,190 Speaker 2: My whole approach in broadcasting has always been, you are 545 00:29:11,230 --> 00:29:14,060 Speaker 2: an important person just the way you are. You can 546 00:29:14,080 --> 00:29:17,500 Speaker 2: make healthy decisions. Maybe I'm going on too long, but 547 00:29:17,540 --> 00:29:19,620 Speaker 2: I just feel that anything that allows a person to 548 00:29:19,660 --> 00:29:22,000 Speaker 2: be more active in the control of his or her 549 00:29:22,040 --> 00:29:26,330 Speaker 2: life in a healthy way is important. We can just 550 00:29:26,370 --> 00:29:28,469 Speaker 2: end the episode right there. Mr. Rogers. 551 00:29:29,730 --> 00:29:34,630 Speaker 1: Here is Mr. Rogers giving Betamax users permission to record 552 00:29:34,690 --> 00:29:36,570 Speaker 1: a show, watch it whenever they want. 553 00:29:37,080 --> 00:29:38,990 Speaker 2: Because you're special. Just the way you are. 554 00:29:39,260 --> 00:29:42,020 Speaker 1: And Fred Rogers, you know, he's doing the show so 555 00:29:42,060 --> 00:29:44,480 Speaker 1: that people will see the show. And of course, look, 556 00:29:44,500 --> 00:29:48,550 Speaker 1: he's non-commercial. He's on PBS. But Sony didn't just get Mr. 557 00:29:48,610 --> 00:29:48,990 Speaker 2: Rogers. 558 00:29:49,030 --> 00:29:52,910 Speaker 1: They got religious broadcasters. Pretty close to Fred Rogers, actually, 559 00:29:52,930 --> 00:29:55,800 Speaker 1: in a way. But they also got the NFL, they 560 00:29:55,820 --> 00:29:58,720 Speaker 1: got the NBA, they got Major League Baseball to all say, 561 00:29:59,020 --> 00:30:04,360 Speaker 1: people want to record games? Great. Let them. And Sony 562 00:30:04,380 --> 00:30:10,790 Speaker 1: is driving towards something bigger here. This legal doctrine that 563 00:30:10,870 --> 00:30:14,590 Speaker 1: already existed at the time called the staple article of 564 00:30:14,710 --> 00:30:20,350 Speaker 1: commerce doctrine, which held that if a product had significant 565 00:30:20,830 --> 00:30:25,420 Speaker 1: legit uses, non-infringing uses, you couldn't sue the maker for 566 00:30:25,840 --> 00:30:29,490 Speaker 1: contributory infringement. Weirdly, a lot of the case law to 567 00:30:29,530 --> 00:30:31,590 Speaker 1: this point was for patents. So there was, like, a 568 00:30:31,630 --> 00:30:35,530 Speaker 1: case where a company made a replacement for soft-top convertibles, 569 00:30:35,550 --> 00:30:38,210 Speaker 1: like the fabric on the convertible, and there was this 570 00:30:38,270 --> 00:30:40,410 Speaker 1: question arose. But, like, I think of it like with 571 00:30:40,530 --> 00:30:41,510 Speaker 1: photocopy machines. 572 00:30:41,590 --> 00:30:44,470 Speaker 2: Oh, yeah, yeah. Photocopy machine is mostly used for business purposes, 573 00:30:44,520 --> 00:30:47,600 Speaker 2: but you could photocopy a book, staple it together, and 574 00:30:47,660 --> 00:30:48,680 Speaker 2: read it whenever you want. Yeah. 575 00:30:49,200 --> 00:30:49,940 Speaker 1: But because. 576 00:30:52,020 --> 00:30:55,040 Speaker 1: It's mostly not used for that. There's obvious non-infringing uses. 577 00:30:55,840 --> 00:30:58,920 Speaker 1: It's fine. Xerox is not on the hook for that problem. 578 00:30:59,650 --> 00:31:03,350 Speaker 1: Sony used the same argument, using the Betamax to do 579 00:31:03,390 --> 00:31:06,250 Speaker 1: time shifting when the owner of the show was fine 580 00:31:06,270 --> 00:31:08,510 Speaker 1: with it. That's clearly not a crime. And so there 581 00:31:08,670 --> 00:31:12,900 Speaker 1: is this legit use. And therefore, Sony shouldn't be responsible, 582 00:31:13,100 --> 00:31:17,000 Speaker 1: even if some people did use the machine to violate 583 00:31:17,040 --> 00:31:20,880 Speaker 1: intellectual property law, to infringe. The judge at the trial 584 00:31:20,980 --> 00:31:24,580 Speaker 1: agreed with Sony. He actually thought home recording wasn't copyright 585 00:31:24,620 --> 00:31:26,960 Speaker 1: infringement to begin with. And even if it were, he 586 00:31:26,980 --> 00:31:30,560 Speaker 1: was like, well, that wouldn't be Sony's problem. Universal appealed. 587 00:31:30,620 --> 00:31:32,640 Speaker 1: The appeals court went the other way. They were like, no, 588 00:31:32,680 --> 00:31:36,290 Speaker 1: people can't just record shows without the owner's permission. Obviously, 589 00:31:36,310 --> 00:31:36,930 Speaker 1: you can't do that. 590 00:31:37,110 --> 00:31:40,090 Speaker 2: The whole point of those two buttons, record and play, 591 00:31:40,530 --> 00:31:41,310 Speaker 2: was that you could steal. 592 00:31:41,350 --> 00:31:46,190 Speaker 1: Was to infringe intellectual property. And so Sony appealed. The 593 00:31:46,230 --> 00:31:50,470 Speaker 1: Supreme Court decided to take the case. There were oral arguments. 594 00:31:51,510 --> 00:31:56,810 Speaker 1: And then the justices, the Supreme Court justices, started debating 595 00:31:56,890 --> 00:31:59,790 Speaker 1: the case among themselves, as they sometimes do. And in 596 00:31:59,830 --> 00:32:02,050 Speaker 1: this case, there was like a lot of back and forth. 597 00:32:02,070 --> 00:32:04,470 Speaker 1: There were memos going back and forth. The justices are 598 00:32:04,490 --> 00:32:07,770 Speaker 1: trying to persuade each other. And eventually they wind up 599 00:32:07,910 --> 00:32:13,340 Speaker 1: at this 4-4 split. Four justices think the basic act 600 00:32:13,540 --> 00:32:17,820 Speaker 1: of recording a show is infringement. You can't do that. 601 00:32:18,770 --> 00:32:21,850 Speaker 1: And that Sony is, in fact, liable for contributory infringement. 602 00:32:22,210 --> 00:32:24,890 Speaker 1: Four justices think recording a show to watch later is fine. 603 00:32:24,970 --> 00:32:27,870 Speaker 1: Time shifting is fine. Of course, that makes eight justices. 604 00:32:27,930 --> 00:32:30,530 Speaker 1: There is a ninth. In this case, it was Sandra 605 00:32:30,550 --> 00:32:33,190 Speaker 1: Day O'Connor, Justice Sandra Day O'Connor. She was the swing vote. 606 00:32:33,910 --> 00:32:37,030 Speaker 1: So let's talk for a minute about the bigger ideas here. 607 00:32:37,170 --> 00:32:40,490 Speaker 1: I like Supreme Court cases because they always have big 608 00:32:40,550 --> 00:32:43,450 Speaker 1: ideas in them. And I imagine one of the nice 609 00:32:43,490 --> 00:32:47,790 Speaker 1: things about being a Supreme Court justice, besides the free robe. 610 00:32:48,360 --> 00:32:50,060 Speaker 2: I don't think it's free. I think they pay for it. 611 00:32:50,060 --> 00:32:51,540 Speaker 2: They have to go down to the robe depot. 612 00:32:51,800 --> 00:32:54,620 Speaker 1: I have no idea. It's like it's big and tall 613 00:32:54,700 --> 00:32:59,180 Speaker 1: robe store. OK, set aside the free robes. That wasn't 614 00:32:59,200 --> 00:33:01,520 Speaker 1: the main thing. Anyways, the main reason I imagine it 615 00:33:01,540 --> 00:33:03,719 Speaker 1: would be great to be a Supreme Court justice besides 616 00:33:03,770 --> 00:33:07,870 Speaker 1: shaping history is your job is thinking big thoughts, you know, 617 00:33:08,130 --> 00:33:12,810 Speaker 1: like in this case. Why is intellectual property law enshrined 618 00:33:12,850 --> 00:33:16,110 Speaker 1: in the Constitution? Like, it's literally in the Constitution. Robert, 619 00:33:16,170 --> 00:33:19,130 Speaker 1: give us a hint. Read the U.S. Constitution here. 620 00:33:19,510 --> 00:33:22,950 Speaker 2: The Congress shall have power to promote the progress of 621 00:33:23,100 --> 00:33:27,560 Speaker 2: science and useful arts by securing for limited times to 622 00:33:27,660 --> 00:33:31,700 Speaker 2: authors and inventors the exclusive right to their respective writings 623 00:33:32,100 --> 00:33:32,980 Speaker 2: and discoveries. 624 00:33:33,500 --> 00:33:35,920 Speaker 1: It is really interesting. To promote the progress. 625 00:33:37,010 --> 00:33:38,130 Speaker 2: So this. 626 00:33:37,870 --> 00:33:42,630 Speaker 1: Is the Enlightenment, right? 1789, this real belief in progress. 627 00:33:43,580 --> 00:33:47,660 Speaker 1: And you have intellectual property law written into the Constitution. 628 00:33:48,600 --> 00:33:52,760 Speaker 1: And the idea is we are giving patents and copyrights, 629 00:33:53,300 --> 00:33:56,720 Speaker 1: not so that writers and inventors can get rich, but 630 00:33:56,840 --> 00:33:59,530 Speaker 1: so that there will be an incentive for people to 631 00:33:59,570 --> 00:34:03,209 Speaker 1: come up with things and share them with the public. 632 00:34:03,290 --> 00:34:06,050 Speaker 1: It's for the public good. That is why. 633 00:34:05,810 --> 00:34:09,239 Speaker 2: This is here. So it's essentially saying if we want 634 00:34:09,280 --> 00:34:12,980 Speaker 2: people to create new great television shows, then they need 635 00:34:13,000 --> 00:34:15,180 Speaker 2: to be able to exercise ownership rights over that and 636 00:34:15,219 --> 00:34:16,140 Speaker 2: make money off of it. 637 00:34:16,360 --> 00:34:16,660 Speaker 1: Yes. 638 00:34:16,760 --> 00:34:18,000 Speaker 2: And protect their intellectual property. 639 00:34:18,040 --> 00:34:21,610 Speaker 1: But also the point of those shows is to serve 640 00:34:21,660 --> 00:34:24,690 Speaker 1: the public good, right? It's not just so Sid Sheinberg 641 00:34:24,710 --> 00:34:27,969 Speaker 1: and Universal can get rich on reruns. And this is 642 00:34:28,050 --> 00:34:30,750 Speaker 1: the balance at the heart of intellectual property law. There 643 00:34:30,790 --> 00:34:34,450 Speaker 1: are Constant arguments. How long should the protection be? How 644 00:34:34,550 --> 00:34:37,130 Speaker 1: broad should it be? What should people be able to 645 00:34:37,290 --> 00:34:41,819 Speaker 1: do with works that are still copyright protected, right? Fair use, 646 00:34:42,000 --> 00:34:45,720 Speaker 1: we call this. What is fair use of intellectually protected works? 647 00:34:46,219 --> 00:34:49,760 Speaker 1: This is the hard balance at the heart of intellectual 648 00:34:49,800 --> 00:34:53,120 Speaker 1: property law and at the heart of this case. Is 649 00:34:53,180 --> 00:34:56,790 Speaker 1: recording a show to watch it later fair use? Reasonable people, 650 00:34:56,870 --> 00:35:01,860 Speaker 1: including Supreme Court justices, disagreed. And, you know, one of 651 00:35:02,040 --> 00:35:05,549 Speaker 1: the essential questions when you're looking at fair use and 652 00:35:05,730 --> 00:35:10,770 Speaker 1: is a use of a copyrighted material fair is, are 653 00:35:10,810 --> 00:35:13,090 Speaker 1: you taking money out of the pocket of the owner 654 00:35:13,650 --> 00:35:18,739 Speaker 1: of the intellectual property? Is there some economic harm? And 655 00:35:19,320 --> 00:35:23,740 Speaker 1: in the Sony case, the essential, essential question for Sandra 656 00:35:23,760 --> 00:35:27,400 Speaker 1: Day O'Connor, the swing vote wound up being, on this 657 00:35:27,460 --> 00:35:30,719 Speaker 1: question of economic harm, Who has the burden of proof? 658 00:35:31,880 --> 00:35:36,290 Speaker 1: Is it the owner of the copyright? Does Universal have 659 00:35:36,330 --> 00:35:39,170 Speaker 1: to show that they have suffered or are likely to suffer, 660 00:35:39,210 --> 00:35:44,930 Speaker 1: you know, specific identifiable economic harm from the Betamax? Or 661 00:35:45,030 --> 00:35:47,200 Speaker 1: is it the maker of the device? Does Sony have 662 00:35:47,239 --> 00:35:50,460 Speaker 1: to prove that the studios have not and were not 663 00:35:50,500 --> 00:35:55,420 Speaker 1: likely to suffer economic harm? Sandra Day O'Connor thought the 664 00:35:55,460 --> 00:35:58,819 Speaker 1: burden of proof should fall on the studios. Universal should 665 00:35:58,860 --> 00:36:00,350 Speaker 1: have to prove the harm. 666 00:36:01,390 --> 00:36:03,950 Speaker 2: Which you can sort of understand in the context of 667 00:36:04,130 --> 00:36:09,430 Speaker 2: the Constitution article there, which is, this is a technological innovation. 668 00:36:09,910 --> 00:36:12,300 Speaker 2: And so in order to stop it, you're stopping technology. 669 00:36:12,320 --> 00:36:14,380 Speaker 2: And there better be a good reason you are stopping 670 00:36:14,420 --> 00:36:16,910 Speaker 2: the progress of technology. Yes, yes. 671 00:36:17,350 --> 00:36:20,230 Speaker 1: You better strike a strong balance. You better really show, oh, 672 00:36:20,250 --> 00:36:22,190 Speaker 1: we're not going to let anybody in America do this 673 00:36:22,210 --> 00:36:27,010 Speaker 1: thing because it will be really bad for us. Universal 674 00:36:27,030 --> 00:36:30,160 Speaker 1: and Disney had not proved that. They didn't think they 675 00:36:30,239 --> 00:36:32,319 Speaker 1: had to prove it. They had said, you know, there 676 00:36:32,340 --> 00:36:34,920 Speaker 1: were deals they didn't do. But they hadn't said, look, 677 00:36:35,680 --> 00:36:39,120 Speaker 1: you know, we are not making money because of the Betamax. 678 00:36:39,140 --> 00:36:43,480 Speaker 1: They had not made that specific case. And so, with 679 00:36:43,520 --> 00:36:49,000 Speaker 1: Sandra Day O'Connor's vote... In January of 1984, the Supreme 680 00:36:49,060 --> 00:36:54,069 Speaker 1: Court issues a 5-4 ruling in favor of Sony. The 681 00:36:54,110 --> 00:36:57,629 Speaker 1: Supreme Court says it is legal to sell machines that 682 00:36:57,690 --> 00:37:01,469 Speaker 1: people can use to record copyrighted shows without permission, at 683 00:37:01,510 --> 00:37:04,870 Speaker 1: least if they're doing it for time shifting. Robert Smith, 684 00:37:05,650 --> 00:37:08,070 Speaker 1: rather than go to the Supreme Court opinion here, let's 685 00:37:08,110 --> 00:37:10,900 Speaker 1: go to the Washington Post. There's a lovely article from 686 00:37:10,940 --> 00:37:12,880 Speaker 1: their entertainment critic, Tom Shales. 687 00:37:13,000 --> 00:37:15,469 Speaker 2: Who used to be on NPR all the time. There 688 00:37:15,489 --> 00:37:18,190 Speaker 2: won't be dancing in the streets. They'll be taping in 689 00:37:18,210 --> 00:37:20,230 Speaker 2: the living rooms. But if there were dancing in the 690 00:37:20,270 --> 00:37:22,589 Speaker 2: streets and it was shown on television, you could tape 691 00:37:22,630 --> 00:37:24,310 Speaker 2: it in the living room and not have to worry 692 00:37:24,330 --> 00:37:27,489 Speaker 2: about some trench-coated specter from the FBI breaking down the 693 00:37:27,530 --> 00:37:31,730 Speaker 2: door to your condominium. Condominium is such an 80s word. 694 00:37:31,750 --> 00:37:33,810 Speaker 2: Didn't use the word condo then. 695 00:37:34,280 --> 00:37:37,460 Speaker 1: So Sony wins, Universal loses. And this case ends up 696 00:37:37,560 --> 00:37:42,299 Speaker 1: being a really important precedent. In fact, it establishes what 697 00:37:42,340 --> 00:37:45,850 Speaker 1: comes to be known as the Sony rule, which basically 698 00:37:45,890 --> 00:37:49,230 Speaker 1: holds that if, you know, an electronic device or a 699 00:37:49,469 --> 00:37:53,780 Speaker 1: piece of software, for that matter, has substantial non-infringing uses, 700 00:37:54,620 --> 00:37:56,960 Speaker 1: then the company that makes the device or software is 701 00:37:57,060 --> 00:38:00,969 Speaker 1: not liable for contributory infringement. It sort of expands that 702 00:38:01,110 --> 00:38:05,799 Speaker 1: staple of commerce idea from patent law into intellectual property law. 703 00:38:06,239 --> 00:38:11,680 Speaker 1: And you see this decision in technology, play out in 704 00:38:11,700 --> 00:38:14,040 Speaker 1: technology in the decades after the case. You know, the 705 00:38:14,060 --> 00:38:18,330 Speaker 1: Sony rule protects CD burners. It protects MP3 players. Although 706 00:38:18,350 --> 00:38:22,050 Speaker 1: there is this really interesting wrinkle that comes along a 707 00:38:22,510 --> 00:38:24,330 Speaker 1: few years after the case is decided, comes along in 708 00:38:24,350 --> 00:38:27,799 Speaker 1: the 90s. And by this time, Sony, actually Sony has 709 00:38:27,860 --> 00:38:29,860 Speaker 1: invented digital audio tape. 710 00:38:30,160 --> 00:38:31,040 Speaker 2: I've used that, yes. 711 00:38:31,280 --> 00:38:33,239 Speaker 1: You've used it all. So you can make, you know, 712 00:38:33,340 --> 00:38:36,779 Speaker 1: a perfect fidelity recording of whatever, of a CD, say. 713 00:38:36,800 --> 00:38:39,640 Speaker 1: And this freaks the music industry out for the same 714 00:38:39,700 --> 00:38:42,240 Speaker 1: reason as the TV thing freaked out the TV business. 715 00:38:42,800 --> 00:38:45,890 Speaker 1: And in this instance, Congress actually passes this really interesting 716 00:38:45,950 --> 00:38:51,370 Speaker 1: law that says anytime a company sells a digital recording device, 717 00:38:51,550 --> 00:38:55,410 Speaker 1: like a, you know, a recorder, a blank digital audio tape, 718 00:38:55,770 --> 00:38:58,410 Speaker 1: the company has to charge a little extra, a little royalty, 719 00:38:58,960 --> 00:39:02,170 Speaker 1: and send that money off to a fund for recording 720 00:39:02,210 --> 00:39:05,569 Speaker 1: artists and songwriters who are presumably losing out because people 721 00:39:05,590 --> 00:39:07,250 Speaker 1: aren't buying as many CDs. 722 00:39:07,430 --> 00:39:10,189 Speaker 2: I actually kind of like this solution a little bit, right? 723 00:39:10,230 --> 00:39:13,770 Speaker 2: It says, let's just figure out who's losing out of 724 00:39:13,810 --> 00:39:15,370 Speaker 2: this and compensate them. 725 00:39:15,430 --> 00:39:17,530 Speaker 1: Well, this is the classic thing you want to do 726 00:39:18,130 --> 00:39:20,890 Speaker 1: with productivity games, right? The pie is getting bigger. You 727 00:39:20,910 --> 00:39:24,140 Speaker 1: have new technology that potentially can make everybody better off. 728 00:39:24,440 --> 00:39:27,780 Speaker 1: But there are some losers. the people who are recording 729 00:39:27,820 --> 00:39:29,440 Speaker 1: the songs that people aren't buying as much. And if 730 00:39:29,500 --> 00:39:31,520 Speaker 1: you can figure out how to take the bigger pie, 731 00:39:31,880 --> 00:39:33,279 Speaker 1: take some of the money out of the bigger pie 732 00:39:33,340 --> 00:39:34,880 Speaker 1: and send it to the people who are being harmed, 733 00:39:35,300 --> 00:39:38,700 Speaker 1: this is often optimal, although quite hard and lovely that 734 00:39:38,719 --> 00:39:41,339 Speaker 1: they were able to do it here. I got two 735 00:39:41,380 --> 00:39:43,100 Speaker 1: more times when this case comes up that I want 736 00:39:43,140 --> 00:39:44,900 Speaker 1: to talk about. One, Napster. 737 00:39:45,140 --> 00:39:49,460 Speaker 2: Napster. Napster was, of course, an illegal file-sharing program. 738 00:39:49,480 --> 00:39:51,750 Speaker 1: Wasn't illegal at the beginning. It started as just a 739 00:39:51,770 --> 00:39:52,750 Speaker 1: file-sharing program. 740 00:39:52,910 --> 00:39:55,510 Speaker 2: And it was used, I can just say, to steal 741 00:39:55,910 --> 00:40:00,770 Speaker 2: not just hundreds, but thousands of songs from servers that 742 00:40:01,550 --> 00:40:03,330 Speaker 2: you could then store on your computer and listen to 743 00:40:03,350 --> 00:40:06,040 Speaker 2: whenever you want. By the way, for NPR, I covered 744 00:40:06,239 --> 00:40:09,700 Speaker 2: the very last day that Napster existed. And I talked 745 00:40:09,719 --> 00:40:13,580 Speaker 2: to college students who were downloading tens of thousands of 746 00:40:14,140 --> 00:40:17,940 Speaker 2: what turned out to be illegal file copies onto their computers. Yes. 747 00:40:18,060 --> 00:40:20,609 Speaker 1: And, you know, it was before the iPod came out. 748 00:40:21,310 --> 00:40:23,969 Speaker 1: And it was just the way everybody who was young 749 00:40:23,989 --> 00:40:27,790 Speaker 1: got music. And when the case went to court, Napster 750 00:40:27,890 --> 00:40:31,089 Speaker 1: pointed to the Sony Betamax case, and they were like, 751 00:40:31,469 --> 00:40:35,739 Speaker 1: we're just making software. Independent artists can choose to distribute 752 00:40:35,780 --> 00:40:37,720 Speaker 1: their music on Napster. We're just sharing files. 753 00:40:37,760 --> 00:40:38,860 Speaker 2: We don't know what they're sharing. 754 00:40:39,510 --> 00:40:41,810 Speaker 1: Of course, didn't buy it in part because it was 755 00:40:41,890 --> 00:40:45,430 Speaker 1: extremely clear that people were using Napster to get music 756 00:40:45,450 --> 00:40:48,610 Speaker 1: for free instead of buying it, right? They weren't recording 757 00:40:48,650 --> 00:40:51,070 Speaker 1: something that was free on TV. They were recording a 758 00:40:51,090 --> 00:40:53,610 Speaker 1: thing they would otherwise have had to buy. So the 759 00:40:53,739 --> 00:40:59,500 Speaker 1: economic harm is super clear. Last echo of the Sony case. 760 00:41:00,940 --> 00:41:04,600 Speaker 1: Delightful because it also involves Sony, but this time Sony 761 00:41:04,660 --> 00:41:07,320 Speaker 1: is on the other side. This case was actually decided 762 00:41:07,360 --> 00:41:10,160 Speaker 1: this year. It was a Supreme Court case. And in 763 00:41:10,200 --> 00:41:16,820 Speaker 1: this instance, Sony's music label had sued Cox Communications, internet 764 00:41:16,840 --> 00:41:20,739 Speaker 1: service provider. And Sony's complaint was that Cox was not 765 00:41:20,800 --> 00:41:24,300 Speaker 1: doing enough to crack down on Cox customers who were 766 00:41:24,810 --> 00:41:29,430 Speaker 1: stealing Sony music online. Like Napster Echo 2. 767 00:41:29,430 --> 00:41:31,180 Speaker 2: The Supreme Court... The internet service. 768 00:41:31,489 --> 00:41:32,480 Speaker 1: The internet, right. 769 00:41:32,980 --> 00:41:35,940 Speaker 2: And the internet, we know from the other cases, can 770 00:41:35,960 --> 00:41:37,280 Speaker 2: be used for a lot of other things. 771 00:41:37,300 --> 00:41:40,219 Speaker 1: Yes. And so, in fact, the Supreme Court's opinion came 772 00:41:40,280 --> 00:41:43,140 Speaker 1: out earlier this year, came out in 2026. It was 773 00:41:43,320 --> 00:41:47,830 Speaker 1: a unanimous opinion. It explicitly cited the Sony Betamax case. 774 00:41:48,830 --> 00:41:51,950 Speaker 1: And it said that because the service that Cox is providing, 775 00:41:52,390 --> 00:41:57,850 Speaker 1: the internet... has substantial non-infringing uses. Cox was not liable 776 00:41:58,410 --> 00:42:02,210 Speaker 1: for contributory infringement. Cox won. Sony lost in large part 777 00:42:02,230 --> 00:42:04,730 Speaker 1: because of the Sony Betamax case. 778 00:42:04,790 --> 00:42:06,650 Speaker 2: I love that Sony was on both sides of this. 779 00:42:06,690 --> 00:42:07,230 Speaker 2: So elegant. 780 00:42:08,050 --> 00:42:10,650 Speaker 1: So that's the end of the court story. But we 781 00:42:10,719 --> 00:42:13,560 Speaker 1: still have to tell the story of the format war, 782 00:42:13,780 --> 00:42:14,880 Speaker 1: Betamax versus VHS. 783 00:42:15,480 --> 00:42:20,700 Speaker 2: We'll get to that after the break. And we are 784 00:42:20,760 --> 00:42:21,700 Speaker 2: back from the ads. 785 00:42:22,810 --> 00:42:25,770 Speaker 1: So it's 1975, Sony has just brought out the Betamax. 786 00:42:26,330 --> 00:42:30,779 Speaker 1: It's a great machine. Sony has everything going for it. 787 00:42:30,780 --> 00:42:33,580 Speaker 1: You know, they have essentially just invented the VCR. They 788 00:42:33,620 --> 00:42:37,459 Speaker 1: have it to themselves. They have first mover advantage. They're 789 00:42:37,480 --> 00:42:40,480 Speaker 1: a giant, successful company. They have distribution, they have marketing, 790 00:42:40,500 --> 00:42:43,160 Speaker 1: they have enough money, as we know, to fight Hollywood 791 00:42:43,180 --> 00:42:46,379 Speaker 1: studios all the way to the Supreme Court. And yet, 792 00:42:47,219 --> 00:42:50,549 Speaker 1: Sony is not gonna win. The Betamax is not going 793 00:42:50,570 --> 00:42:52,219 Speaker 1: to win. They're going to get beat by a different 794 00:42:52,260 --> 00:42:54,540 Speaker 1: format made by a different company. They're going to get 795 00:42:54,580 --> 00:42:59,040 Speaker 1: beat by VHS. And so the big, interesting history of 796 00:42:59,080 --> 00:43:02,150 Speaker 1: business question is why? Sony's got everything going for it. 797 00:43:02,300 --> 00:43:06,790 Speaker 1: Why do they lose? You probably have a friend who 798 00:43:06,810 --> 00:43:10,250 Speaker 1: was like, it's because of porn. People love to say 799 00:43:10,310 --> 00:43:12,990 Speaker 1: the Betamax lost because of porn, because the porn industry 800 00:43:13,010 --> 00:43:16,009 Speaker 1: chose VHS and porn was so important to the early 801 00:43:16,050 --> 00:43:18,799 Speaker 1: video industry that that drove everything that followed. Now, it 802 00:43:18,860 --> 00:43:21,819 Speaker 1: is true that porn was central to the early home 803 00:43:21,860 --> 00:43:24,500 Speaker 1: video business. It was most of the rental business in 804 00:43:24,520 --> 00:43:25,380 Speaker 1: the early years. 805 00:43:26,140 --> 00:43:27,259 Speaker 2: I'm sad that we have to do this in a 806 00:43:27,300 --> 00:43:28,790 Speaker 2: show with Mr. Rogers in it. 807 00:43:29,219 --> 00:43:32,779 Speaker 1: Sorry, Mr. Rogers. But in fact, Mr. Rogers, hide your ears, 808 00:43:32,980 --> 00:43:36,820 Speaker 1: plug your ears. You could get your pornographic movies, your pornos, 809 00:43:36,960 --> 00:43:39,779 Speaker 1: as we used to call them, on VHS or Betamax. 810 00:43:40,969 --> 00:43:44,430 Speaker 1: Porn was, if not platform agnostic, at least open. You 811 00:43:45,190 --> 00:43:47,340 Speaker 1: could get them however you wanted them. So it wasn't 812 00:43:47,390 --> 00:43:50,250 Speaker 1: porn that turned the tide. Here is, in fact, what happened. 813 00:43:52,110 --> 00:43:58,070 Speaker 1: The year after Sony brought out the Betamax, JVC, another 814 00:43:58,110 --> 00:44:00,880 Speaker 1: of the Japanese electronics companies that we talked about, JVC 815 00:44:01,360 --> 00:44:05,520 Speaker 1: brought out the VHS, its own format, a different format. 816 00:44:05,600 --> 00:44:09,839 Speaker 2: They had been cooperating with Sony on formats, right? beforehand. 817 00:44:09,880 --> 00:44:12,080 Speaker 1: Beforehand, and Sony had gone to them and asked if 818 00:44:12,100 --> 00:44:14,580 Speaker 1: they wanted to get in on the Betamax. They said no, 819 00:44:14,680 --> 00:44:17,080 Speaker 1: and this is why. They were already working on the VHS, 820 00:44:17,680 --> 00:44:20,820 Speaker 1: and they were worried, as I mentioned earlier, that an hour, 821 00:44:20,900 --> 00:44:24,140 Speaker 1: the first Betamax was one hour max, was too short, 822 00:44:24,300 --> 00:44:27,960 Speaker 1: and the VHS could record two hours or more. But 823 00:44:27,980 --> 00:44:30,440 Speaker 1: Sony quickly caught up in time. Sony quickly brought out 824 00:44:30,480 --> 00:44:35,299 Speaker 1: the two-hour Betamax tapes. It turned out the The key 825 00:44:35,540 --> 00:44:39,920 Speaker 1: difference between JVC and Sony, between VHS and beta, was 826 00:44:40,820 --> 00:44:45,400 Speaker 1: JVC teamed up with Matsushita, so their big company, and 827 00:44:45,460 --> 00:44:50,960 Speaker 1: started cranking out a huge volume of VHS machines. They 828 00:44:51,020 --> 00:44:54,720 Speaker 1: teamed up with other Japanese manufacturers and actually let those 829 00:44:54,780 --> 00:44:58,650 Speaker 1: manufacturers sell the machines under their own logos. They were 830 00:44:58,770 --> 00:44:59,490 Speaker 1: white labeling. 831 00:44:59,770 --> 00:45:00,690 Speaker 2: Very smart. 832 00:45:01,310 --> 00:45:03,569 Speaker 1: And Sony made some deals of its own. They weren't 833 00:45:03,890 --> 00:45:07,410 Speaker 1: on their own. They licensed the Betamax technology, but they 834 00:45:07,450 --> 00:45:11,779 Speaker 1: were reluctant to manufacture machines and let other companies sell them. 835 00:45:11,820 --> 00:45:14,020 Speaker 1: You know, Sony's whole thing, it would be like Apple 836 00:45:14,100 --> 00:45:14,540 Speaker 1: doing that. 837 00:45:14,820 --> 00:45:17,719 Speaker 2: Yeah, and in Sony, you know, a giant corporation had 838 00:45:17,800 --> 00:45:20,080 Speaker 2: counted on a certain profit margin, I'm sure, from their 839 00:45:20,140 --> 00:45:20,840 Speaker 2: new invention. 840 00:45:20,860 --> 00:45:21,030 Speaker 1: And.... 841 00:45:22,980 --> 00:45:25,720 Speaker 2: They were not ready to lose that profit margin. 842 00:45:25,920 --> 00:45:28,580 Speaker 1: So it is this moment when there is this incredible 843 00:45:28,620 --> 00:45:33,219 Speaker 1: machine or these two very similar but not compatible kinds 844 00:45:33,260 --> 00:45:36,989 Speaker 1: of machines coming out into the world. There is huge demand. 845 00:45:37,850 --> 00:45:42,529 Speaker 1: And at this key moment, basically the late 70s, JVC 846 00:45:42,710 --> 00:45:46,810 Speaker 1: and Matsushita are able to get more VHS machines out 847 00:45:46,850 --> 00:45:49,650 Speaker 1: into the world more quickly than Sony was able to 848 00:45:49,730 --> 00:45:54,279 Speaker 1: get Betamax out into the world. And so VHS starts 849 00:45:54,650 --> 00:45:57,850 Speaker 1: pulling ahead, and then you get into the early 80s, 850 00:45:58,250 --> 00:46:02,290 Speaker 1: and video rental starts to be a big business. Shout 851 00:46:02,330 --> 00:46:06,730 Speaker 1: out to our Wayne Izenga show, blockbuster video show. And 852 00:46:06,810 --> 00:46:09,529 Speaker 1: this turns out to be important for the format war 853 00:46:09,710 --> 00:46:14,129 Speaker 1: for a really interesting reason, and that is... So more 854 00:46:14,190 --> 00:46:14,969 Speaker 1: people are starting to. 855 00:46:14,969 --> 00:46:17,670 Speaker 2: Have VHS than Betamax. Yeah, slightly pulling ahead. 856 00:46:18,650 --> 00:46:22,920 Speaker 1: As a result, video rental stores stock more VHS tapes 857 00:46:22,960 --> 00:46:26,410 Speaker 1: than Betamax. They're just serving the customer. So now, you 858 00:46:26,430 --> 00:46:27,690 Speaker 1: see where this is going? Yes. 859 00:46:28,250 --> 00:46:30,489 Speaker 2: So if you're going to go out and get a machine, 860 00:46:30,550 --> 00:46:32,299 Speaker 2: you look at the video store and you're like, oh, 861 00:46:32,320 --> 00:46:35,980 Speaker 2: there's so many more VHS tapes. I should probably get 862 00:46:36,020 --> 00:46:36,820 Speaker 2: a VHS machine. 863 00:46:37,340 --> 00:46:38,500 Speaker 1: That's right. And now. 864 00:46:40,270 --> 00:46:42,410 Speaker 1: VHS is just winning by more. More and more people 865 00:46:42,430 --> 00:46:44,650 Speaker 1: are buying VHS. So the stores have more and more 866 00:46:44,710 --> 00:46:47,219 Speaker 1: incentive to carry more VHS. And we all knew the 867 00:46:47,260 --> 00:46:47,859 Speaker 1: guy who was like. 868 00:46:47,900 --> 00:46:51,460 Speaker 2: But wait a minute, Betamax looks better. It's higher quality. 869 00:46:51,880 --> 00:46:52,740 Speaker 1: It should win. 870 00:46:52,800 --> 00:46:53,960 Speaker 2: It's the better format. 871 00:46:53,980 --> 00:46:57,859 Speaker 1: But I need 70 copies of Top Gun available for 872 00:46:57,900 --> 00:47:01,319 Speaker 1: me right now. This is a network effect, right? This 873 00:47:01,360 --> 00:47:03,200 Speaker 1: is a network effect, which is an idea that's going 874 00:47:03,219 --> 00:47:06,600 Speaker 1: to become hugely important in you know, in the decades 875 00:47:06,640 --> 00:47:09,219 Speaker 1: to follow, in the internet era, right? If you think 876 00:47:09,920 --> 00:47:13,879 Speaker 1: of Uber, of Airbnb, famously of social networks, you know. 877 00:47:14,260 --> 00:47:14,919 Speaker 2: Facebook, yes. 878 00:47:14,980 --> 00:47:19,320 Speaker 1: The more drivers and riders there are, the better a 879 00:47:19,540 --> 00:47:22,100 Speaker 1: car service platform works and the more people are going 880 00:47:22,120 --> 00:47:25,700 Speaker 1: to join it. Same thing with vacation rentals. Same thing 881 00:47:25,719 --> 00:47:28,160 Speaker 1: with social network. If 10 people are on a social network, 882 00:47:29,010 --> 00:47:31,130 Speaker 1: it doesn't work. If a billion people are on it, 883 00:47:31,140 --> 00:47:31,490 Speaker 1: it works. 884 00:47:31,570 --> 00:47:35,170 Speaker 2: Yes, that's why all these companies are using the JVC model, 885 00:47:35,250 --> 00:47:39,109 Speaker 2: which is get big fast. Get big as fast as possible, 886 00:47:39,180 --> 00:47:42,320 Speaker 2: because if it seems like you're winning, then you are winning. 887 00:47:42,580 --> 00:47:46,520 Speaker 1: Yes, VCR formats are winner-take-all. And in fact, by the 888 00:47:46,600 --> 00:47:50,980 Speaker 1: time Sony won in the Supreme Court in the 1980s, 889 00:47:51,180 --> 00:47:54,569 Speaker 1: VHS was outselling data in the U.S. by three to one. 890 00:47:55,310 --> 00:47:58,760 Speaker 1: Sony didn't give up. In fact, they kept making Betamax 891 00:47:58,800 --> 00:48:02,640 Speaker 1: machines until 2002, which is shocking to me. Like, who 892 00:48:02,660 --> 00:48:05,779 Speaker 1: was even making video cassette recorders in 2002? They didn't 893 00:48:05,820 --> 00:48:10,110 Speaker 1: give up. But I will say, the VCR format wars 894 00:48:10,190 --> 00:48:14,529 Speaker 1: really ended much earlier than that. They ended in 1988, 895 00:48:14,530 --> 00:48:20,730 Speaker 1: when Sony itself started making VHS machines. Today's show was 896 00:48:20,910 --> 00:48:23,670 Speaker 1: produced by Gabriel Hunter Chang. Our engineer is Sarah Bruguier. 897 00:48:23,780 --> 00:48:27,600 Speaker 1: Our showrunner and editor is Jake Harper. Special thanks to 898 00:48:27,719 --> 00:48:29,720 Speaker 1: Alex Nizam. I'm Jacob Goldstein. 899 00:48:30,110 --> 00:48:31,710 Speaker 2: I'm Robert Smith. Thanks for listening.