Major opportunities in the movie world

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My inner nerd is jazzed about the summer movie season. Meanwhile, the economist in me is both excited and concerned about how the digital economy will affect Hollywood.

On the nerd front, the summer schedule is crowded with superheroes on the big screen, with “Thor” released on May 6, followed by “Green Lantern” (June 17), “X-Men: First Class” (June 3), and “Captain America: The First Avenger” (July 22).

For fantasy lovers, throw in the fourth installment with Captain Jack Sparrow in “Pirates of the Caribbean: On Stranger Tides” (May 20) and the final Harry Potter-Voldemort showdown in “Harry Potter and the Deathly Hallows: Part II” (July 15).

What about sci-fi? “Transformers: Dark of the Moon” launches on July 1, and “Cowboys and Aliens” (July 29) hopefully will satisfy those longing for another sci-fi/western ever since the cult-classic “Serenity.”

Pass the popcorn.

When it comes to digital technology, the benefits are manifest in terms of on-screen clarity and special effects, and increasingly so regarding avenues for viewing films and television. HD discs, downloads via services like iTunes, and video streaming from Hulu.com to Netflix have expanded consumers’ viewing choices dramatically.

In March 14 testimony before the U.S. House of Representatives Subcommittee on Intellectual Property, Competition and the Internet, Frederick Huntsberry, chief operating officer for Paramount Pictures, said, “At Paramount Pictures, we believe in coming years consumers will increasingly choose to view our motion pictures via authorized online and mobile distribution. Paramount currently licenses more than 200 online digital distribution platforms across more than 70 countries covering more than 750 films in more than 25 languages.”

It’s increasingly a digital world, and entertainment companies realize that embracing digital means embracing opportunity.

But significant risks exist as well — namely, digital theft. That theft happens via various tools. Advancement in digital camcorders now produces high-quality versions of films recorded in movie theaters to be distributed online or via bootlegs. Peer-to-peer networks have been a major source of pirated content for more than a decade now.

The fastest growing arena for digital theft is streaming video. The Motion Picture Association of America (MPAA) describes the issue this way: “Currently, the most pernicious forms of digital theft occur through the use of so-called ‘rogue’ websites. The sites, whose content is hosted and whose operators are located throughout the world typically engage in streaming, downloading, hosting or linking to an unauthorized copy of a copyrighted video. They have become increasingly sophisticated in appearance and take on many attributes of legitimate content delivery sites, creating additional enforcement challenges and making unknowing consumers more vulnerable to exposing personal and financial information to criminals.”

Does such theft really matter, though? After all, plenty of people say that big music companies and movie studios can afford to lose some business. That, of course, is nothing more than an attempt to rationalize stealing.

But if one needs more convincing, the International Intellectual Property Alliance found that total U.S. copyright industries grew twice as fast as the overall U.S. economy from 2004 to 2007; accounted for 43% of U.S. growth in 2007; and employed 11.7 million people in 2007. For good measure, the average salary in core copyright industries was 30% higher than the U.S. average.

And it turns out that Hollywood is overwhelmingly about small business. The MPAA reports: “More than 95,000 small businesses — 93 percent of whom employ fewer than 10 people — are involved in the production and distribution of movies and television.”

What to do then about digital theft? Government clearly has a critical role to play, and interestingly, this seems to be a rare area where bipartisan agreement exists.

On April 4, a press conference in support of fighting online theft featured U.S. Senate Judiciary Chairman Patrick Leahy (VT), House Judiciary Committee Ranking Member John Conyers (MI), and Howard Berman (CA), ranking member on the House IP subcommittee, each a Democrat, along with House Judiciary Committee Chairman Lamar Smith (TX) and Intellectual Property, Competition and the Internet Subcommittee Chairman Bob Goodlatte (VA), both Republicans.

Not only is this effort bringing together Republicans and Democrats, but other strange bedfellows as well. The Los Angeles Times recently reported: “Although the crackdown is being driven by the Hollywood entertainment industry, it has the strong support of authors, photographers, book publishers, the sports industry, labor unions and the U.S. Chamber of Commerce. Crackdown supporters cited estimates that online piracy costs the U.S. economy more than $100 billion a year.”

In a statement for an April 6 congressional hearing, Lamar Smith warned: “This digital theft is now so pervasive, profitable and pernicious that it discourages creative companies from investing in the production of new licensed content. IP theft not only adversely affects creators but also undermines investments in new technology by innovative companies.”

Legislation including a measure allowing the Justice Department, with a court order, to quickly shut down rogue websites offering pirated content is considered crucial.

Movie superheroes will fight evil this summer. In the real world, the creators and suppliers of these heroes, and other content, need elected officials to fulfill their fundamental duty of protecting private property. Not sure how Chairmen Leahy and Smith look in spandex and capes, but a heck of a lot is possible with digital technology.

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council, can be reached at rkeating@sbecouncil.org. His new book is titled Warrior Monk: A Pastor Stephen Grant Novel.