Studios, Inc. et al. v. Sony Corporation of America Inc. et al.,
commonly known as the Betamax case, was the first concerted legal
response of the American film industry to the home video revolution.
After nearly a decade of announcements and false starts by one American
company or another, Sony, the Japanese electronics manufacturing
giant, introduced its Betamax video tape recorder to the U.S. consumer
market in early 1976 at an affordable price. In its marketing strategy
Sony promoted the machine's ability to "time shift" programming--that
is, to record a television program off the air even while watching
another show on a different channel.
Universal and Walt Disney Productions on behalf of the Hollywood
majors, charged that the ability of the Betamax to copy programming
off air was an infringement of copyright and sought to halt the
sale of the machines. The studios were ostensibly trying to protect
film and television producers from the economic consequences of
unauthorized mass duplication and distribution. However, Universal
might have also wanted to prevent Betamax from capturing a significant
segment of the fledgling home video market before its parent company,
MCA, could introduce its DiscoVision laserdisc system, which was
to scheduled for test marketing in the fall of 1977.
case was filed in the U.S. Federal District Court of Los Angeles
in November 1976 and went to trial on 30 January 1979. In its defense,
Sony asserted that a consumer had the absolute right to record programs
at home for private use. It drew an analogy to the audio cassette
recorder, which was introduced in the 1960s and had made music tapers
out of millions of American teenagers. Although the practice had
not been tested in the courts, Sony believed a tradition had been
its decision in October 1979, the U.S. District Court ruled in favor
of Sony, stating that taping off air for entertainment or time shifting
constituted fair use; that copying an entire program also qualified
as fair use; that set manufacturers could profit from the sale of
VCRs; and that the plaintiffs did not prove that any of the above
practices constituted economic harm to the motion picture industry.
pertained to the court's interpretation of the fair use doctrine
as it pertained to consumers. Addressing the matter of retailing
of videocassettes, the court let stand the First Sale Doctrine of
the 1976 Copyright Act, which stated that the first purchaser of
a copyrighted work (e.g. a motion picture on videocassette) could
use it in any way the purchaser saw fit as long as copyright was
not violated by illegal duplication, etc. This right extended to
the rental of videocassettes purchased from Hollywood studios. Until
the arrival of the VCR, film companies had received a portion of
the box-office or a fee each time one of their films was shown.
As holders of copyright on their pictures, the studios by law were
entitled to these forms of remuneration. Since the court's interpretation
of the First Sale Doctrine threatened to undermine Hollywood's control
over the use of its product, Universal appealed the decision.
the U.S. Court of Appeals reversed the lower court's decision in
October 1981, the decision, if it were to stand, would have been
impossible to enforce. The home video market had been expanded enormously
since the start of the case; VCR sales had increased from 30,000
sets a year in 1976 to 1,400,000 a year in 1981. Meanwhile, Sony
lost the lead to its Japanese rival Matsushita, which introduced
a competing format--VHS (for "video home system")--recorder in 1977.
Normally, Sony and Matsushita cross-licensed recording and playback
equipment, but for the home video market, the two Japanese companies
went their separate ways by marketing systems that were incompatible.(The
VHS cassette was larger than the Beta and had a longer recording
capability.) VHS overtook Beta as the preferred format for home
video and by 1981 more than six Japanese manufacturers had entered
the business both in their own names and as suppliers of VHS machines
to American firms. Starting out at around $1,300, the price of the
machine had been dropping steadily, enabling it to become a standard
appliance for most middle-class Americans.
Betamax case went all the way to the Supreme Court, which reversed
the appeals court decision on 17 January 1984. By 1986, VCRs had
been installed in fifty percent of American homes and annual videocassettes
sales surpassed the theatrical box-office. At first, the major studios
believed that the only logical way to market videocassettes was
direct sales, reasoning that consumers wanted to buy cassettes and
create "libraries" in much the same way as they acquired record
albums. But people preferred renting to buying and as the situation
stood, retailers and not film producers initially wrung most of
the profits from the market. After purchasing a cassette for around
$40 wholesale, a retailer could rent it over and over at a nominal
charge. In contrast, the film company's profit would be small, less
than a few dollars after materials, duplication, and distribution
costs had been covered.
their struggle with retailers to capture a dominant share of the
home video market, the major Hollywood companies formulated a two-tiered
pricing policy. For the first six months after a new movie went
on sale, it would be priced relatively high on the assumption that
the overwhelming majority of transactions would consist of sales
to video stores for rental purposes. Then as demand began to ebb,
the same movie would be reissued at a much lower price to stimulate
home sales. The majors used similar strategies overseas and soon
became the principal beneficiaries of the new distribution technology.
Paul. "Supreme Court O.K.'s Home Taping: Approve 'Time Shifting'
for Personal Use." Variety (Los Angeles), 18 June 1984.
James. "Annals of Law; The Betamax Case: Part 1."The New Yorker
(New York), 6 April 1987. _______________. "Annals of Law; The Betamax
Case: Part 2." The New Yorker (New York), 13 April 1987.