Michael Lynton, Chairman and CEO of Sony Pictures Entertainment who was the subject of our last HissyFitWatch, has decided damage control was the order of the day after being caught making remarks suggesting the Internet had never come to any good and was filled with pirates and freeloaders.  A recap:

“I’m a guy who doesn’t see anything good having come from the Internet, period.”

The Internet has “created this notion that anyone can have whatever they want at any given time. It’s as if the stores on Madison Avenue were open 24 hours a day. They feel entitled. They say, ‘Give it to me now,’ and if you don’t give it to them for free, they’ll steal it.”

Just brought to our attention, Lynton decided he’d better clarify those remarks, because the blog world had already spent a week burning him in effigy for making them.  So off to The Huffington Post he went to pen his long-form explanation on May 26th.

In March, an unfinished copy of 20th Century Fox’s film X-Men Origins: Wolverine was stolen from a film lab and uploaded to the Internet, more than a month before its theatrical release. The studio investigated the crime, and efforts were made to limit its availability online. Still, it was illegally downloaded more than four million times.

That kind of wide scale theft was very much on my mind when I was on a panel the other day which opened with a question about the impact of the Internet on the entertainment business, and I responded, “I’m a guy who sees nothing good having come from the Internet. Period.”

But, I actually welcome the Sturm und Drang I’ve stirred, because it gives me an opportunity to make a larger point (one which I also made during that panel discussion, though it was not nearly as viral as the sentence above). And my point is this: the major content businesses of the world and the most talented creators of that content — music, newspapers, movies and books — have all been seriously harmed by the Internet.

Some of that damage has been caused by changing business models (the FTC just announced an inquiry into the impact of new media on the newspaper industry). But the primary culprit is piracy. The Internet has brought people with no regard for the intellectual property of others together with a technology that allows them to easily steal that property and sell or give it away to everyone, with little fear of being caught or prosecuted.

He could have said this at the Whine & Cheese breakfast in Syracuse and it would have provoked the same reaction his original comments had.  Not much to see here beyond another big corporate Hollywood studio executive pleading poverty and ruin because one of the industry’s own employees made off with a film print to score big bucks and eventually the copy drifted into Pirate Bay.  Nobody need call CSI to determine the cause of injury in this case.  Even the most casual observer can see most of these wounds are self-inflicted.

As Stop the Cap! readers already understand, there is a pervasive need for corporations to “control” things that involve or impact their industry’s business models.  Just as broadband providers seek to control the distribution of video content through strictly controlled gateways like Time Warner Cable’s TV Everywhere experiment, the entertainment industry has attempted to leverage control over every aspect of the distribution of their content, even when it alienates legitimate customers.

Nobody has advocated that theft of property be ignored. Companies that produce music, newspapers, movies and books have been dealt far worse blows internally than externally.  Let’s review:

The music industry has been notorious for its “control freak” mentality, particularly among major corporate owned labels.  Consumers face overpriced media in the stores.  Artists cope with accounting tricks and traps designed to allow the company to keep most of the proceeds of their hard work.  Today, many artists have taken back control over their own music, and sell and share their works through their own websites, bypassing corporate record companies altogether.  Many artists find they earn more from direct sales than their contracts with corporate music labels ever provided.

It took years for many record labels to even consider marketing their product in a way most consumers wanted – online pay per track or album at reasonable and fair pricing.  When it was made available, if often came with onerous copy protection controls which have never hampered piracy but have annoyed legitimate buyers.  Sony itself was caught engaged in anti-consumer behavior, sneaking a security-hole-opening software “rootkit” onto CD’s that installed automatically when a customer played the disc on a computer.  That small piece of software  created vulnerabilities for other malware to exploit.  Sony had to recall all of the affected CD’s and was sued. The overreaching RIAA lawsuits against consumers added another black eye.

The Internet abhors a vacuum.  Abuse your customers with denial of access, overpriced content, or alienate your artists and they’ll find a way around your bad management.

The newspaper industry responded to online news first by ignoring it, while their corporate bean counters sought to leverage every penny of profit out of the industry they could find.  Mergers and acquisitions left enormous debt, which resulted in cutbacks in the news gathering staff and a wholesale reduction in the size and scope of many local newspapers.  Replacing experienced reporters with wire service copy and intern-produced content didn’t exactly inspire subscribers to keep the local paper coming to their doorstep every morning.  One news site, Pasadena Now, literally outsourced local reporting to India, installing webcams for India-based reporters to monitor events at City Hall and e-mail 1000 word news stories, earning $7.50 for each.  The Hartford Advocate couldn’t believe anyone could get away with it, so they tried an experiment doing the same thing for one week, with controversial results.

The movie and theater group industry flings garbage at moviegoers for $10 a ticket, and provides easy credit financing for purchasing refreshments at “turn out that wallet” pricing.  You are then subjected to a cacophony of rattling cellophane wrappers, cell phones and text message alerts, endless ads on the screen before the movie starts, chatter from three rows back, and technical problems that usually start a waiting game over who in the audience is finally going to get up and hunt down theater management to fix them.  The projectionist that used to keep a watchful eye for these problems was replaced with a computerized automated system long ago in many theaters.

Books are hurt by the Internet?  Amazon.com seems to move quite a few.  Local independent bookstore owners may have been hurt by the Internet as customers make their purchases online or in larger book chains like Borders or Barnes & Noble, but “hurt” by the net?  Book piracy does exist, but more people are likely exposed to “book swapping” at their local library branches.  Thankfully, that kind of sharing remains legal, for now.  Existing copyright laws already cover this kind of piracy.  Lynton may feel there is insufficient enforcement, but that shouldn’t mean turning over the responsibility to the industry or its “enforcers.”

I’m not talking here about censorship, taxation or burdensome government restrictions. I’m talking about reasonable boundaries, “rules of the road,” that can help promote the many positive attributes of Internet technology while curtailing its hugely damaging effects.

Unfortunately, the “rules of the road” advocated by this industry are hardly reasonable boundaries.  We’ve seen the suggested boundaries.  They turn over an enormous amount of control to the entertainment industry.  Like the RIAA lawsuits, innocent consumers  could be caught in the snare of an accusation they were pirating content, even when it turns out not to be true.  Some industry proposals demand that a provider permanently terminate accounts of suspects, even without conviction or judicial review.  Other industry enforcement ideas include “packet inspection” to look for content flagged as copywritten and suspected to be illegally transferred.  The industry has a long history of ignoring or dismissing “fair use” principles, so someone using a Slingbox to stream video from their home cable TV service to their computer at work or while traveling could be deemed an “illegal transfer.”  Who gets to decide?  The entertainment industry?  And how long will that packet inspection take, and does it slow down Internet connections in the process?

Lynton also equates the “rules of the road” with the Eisenhower Administration’s construction of the public interstate highway system.  Since there are road rules and speed signs, why can’t there be copyright and piracy rules online?

Of course, such rules already exist.  Once again, this industry has been unable to stem the tide of pirated content from its source — employees stealing advance copies of films and programming, factories in Asia churning out millions of counterfeit DVD’s and CD’s, and websites that offer the content.  Instead, it seeks to hammer consumers as an enforcement measure, just like the RIAA did with music sharing applications.  Just as ordinary citizens aren’t empowered to appoint themselves as traffic cops on your local interstate, Lynton and the rest of the entertainment industry should not be permitted to “enforce” the laws as they see fit.

When Lynton starts with the premise that he doesn’t see anything good having come from the Internet, and imply that everyone on it is out to demand everything for free, or else they’ll steal it, it should come as no surprise nobody wants Mr. Lynton and his friends having anything to do with net policy, much less be given the authority to police it.