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#1 Awaiting a Compromise on YouTube

Published: March 17, 2007

Viacom is so ticked off at YouTube,” my son Nick informed me not long ago. “It’s just so obvious.”

Scott Barbour/Getty Images

Eric Schmidt, Google’s chief, says his company “respects copyright.”

Nick, who is a senior in high school, knew this not because he reads the business pages; like most 17-year olds, he doesn’t. He knew it because he is a YouTube fanatic, and has a keen understanding of the rhythms of the online video site. For months, he had been able to watch clips of “The Daily Show With Jon Stewart” or “The Colbert Report” on YouTube — shows that were produced by Viacom’s Comedy Central channel.

Suddenly, though, he couldn’t get access to them. They had disappeared from YouTube, as had most of Viacom’s other copyrighted fare, like “SpongeBob SquarePants” and “South Park.” Clearly, something was up. Viacom was, indeed, upset with YouTube.

So upset that this week Viacom filed a $1 billion copyright infringement suit against YouTube and its parent, the mighty Google, which last year bought the tiny start-up for a jaw-dropping $1.65 billion. At that point, YouTube was a fledgling company with no profits and negligible revenue. But it had already become the site for posting — and watching — short user-generated digital videos. Most of the videos on YouTube really are generated by users — there are lots of spoofs and home videos and the like on the site. But there are also plenty of users who are “generating” content by slapping up shows, or portions or shows, that are owned by the big media companies like Viacom. Shows like, well, “The Daily Show With Jon Stewart” and “The Colbert Report.”

At first glance, the Viacom lawsuit may seem like a carbon copy of the music industry’s fight against Napster in the late 1990s. Old-line industry sees new threat from the Internet and tries to sue it into oblivion. But it’s not. In that earlier case, the music industry won the battle only to lose the war. Although the courts decisively ruled that Napster was infringing copyrights owned by the big music companies, that decision didn’t exactly eliminate the practice of stealing copyrighted music from the Internet. All it meant, in practical terms, was that youths had to find other, more shadowy sites to use to download music. Pandora’s box having been opened, it couldn’t be shut again.

The Viacom suit is about something a good deal more complicated. Just as getting music from the Internet is here to stay, so is downloading videos. All the big media companies understand that. They all realize that the Internet has created potential new methods for distributing their shows — and that creates both great possibilities and great pitfalls. They all fully understand that they are not going to be able to litigate YouTube off the face of the earth.

The fact that Google owns YouTube gives the small company leverage Napster never had.

So the big media companies are all grappling with how to deal with YouTube. Ultimately, they all want money for their content, no matter how it is distributed or by whom.

Some companies, like CBS, have decided that honey catches more flies than vinegar. Its approach has been to play nice with YouTube, and do small deals in the hopes that it can eventually work out something big. (It is putting March Madness on YouTube, for instance, in a deal sponsored by Pontiac.) Others, like Time Warner, while deeply annoyed with YouTube, are continuing to negotiate. The company’s patience is wearing thin, however.

But Viacom has decided that the only way to deal with Google and YouTube is to sue. In talking about its suit, Viacom officials use phrases like the sanctity of copyright, and they speak harshly about what they see as Google’s and YouTube’s willful misuse of their property. But really, their goal isn’t all that different from CBS and Time Warner. Viacom wants money for its content. The only real question is whether this suit will get it for them.

“Google respects copyright,” insisted Eric Schmidt, the chief executive of Google. In fact, he told me a few days after the suit was filed, “we need copyright to be effective because we don’t make our own content.” In Mr. Schmidt’s opinion, even though YouTube doesn’t prevent users from posting copyrighted material on the site, that doesn’t mean the company is ignoring the law. On the contrary. “We are governed by a law called the D.M.C.A., and we are in compliance with that,” he said.

One of Mr. Schmidt’s great qualities is that he always sounds like the voice of sweet reason. You come away from an interview with him wondering how anyone could possible think that “Do No Evil” Google could be less than fully engaged in protecting the copyrights of others. As Mr. Schmidt points out, the Viacom suit came “in the context of a business negotiation” in which the two companies were trying to work out a deal. From Google’s point of view, the lawsuit is little more than effort to gain some increased leverage in the negotiations. And it most certainly is that.


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#2 California's New Three-Strikes Law: Benefits, Costs, and Alternatives

Public outrage over crime has found political expression in the proposal and enactment of various laws mandating lengthy sentences for repeat felons. Put forward under the slogan "three strikes and you're out," these laws generally prescribe that felons found guilty of a third serious crime be locked up for 25 years to life. The California law, which went into effect in March 1994, may be the most sweeping of these. Although the first two "strikes" accrue for serious felonies, the crime that triggers the life sentence can be any felony. Furthermore, the law doubles sentences for a second strike, requires that these extended sentences be served in prison (rather than in jail or on probation), and limits "good time" earned during prison to 20 percent of the sentence given (rather than 50 percent, as under the previous law).

In November, Californians will vote on Proposition 184, an initiative essentially identical to the new three-strikes law.[1] Should Californians approve the initiative and so ratify the legislature's action? Or should they reject it, sending the message that legislators should reconsider the new law, perhaps in favor of an alternative mandatory-sentencing measure? What about other states? Should they follow California's lead?

In reaching a decision, Californians will naturally be affected by a variety of subjective factors, for example, fear of crime, sympathy for victims and their families, and anger at violent criminals. But voters should also have access to hard evidence regarding the implications of the law: How much crime reduction can they expect from the three-strikes law? And how much will it cost? What about the alternatives? And where will the money come from?

RAND undertook to answer these questions. An interdisciplinary team of researchers constructed and ran analytic models taking advantage of data on arrest rates, time served, prison populations, and length of criminal careers. The models predicted how populations of offenders on the street and in prison would change under the differing sentencing provisions of the new law and under various alternatives, relative to the previous law. Using data on these populations, the researchers determined crime rates and costs. The latter were analyzed in conjunction with an ongoing RAND assessment of California's budgetary future. The findings, in a nutshell, were as follows:

What Will Be the Benefits and Costs of the New Law?

If fully implemented as written, the new law will reduce serious felonies committed by adults[2 ]in California between 22 and 34 percent. About a third of the felonies eliminated will be violent crimes such as murder, rape, and assaults causing great bodily injury. The other two-thirds will be felonies that are less violent or nonviolent but still serious, including less injurious assaults, most robberies, and burglaries of residences.

This reduction in crime will be bought at a cost of an extra $4.5 billion to $6.5 billion per year in current dollars. The intent of the three-strikes law is, of course, to lock up repeat offenders longer, and that requires the construction and operation of more prisons. Some police and court costs may be saved in not having to deal so often with such offenders once they are locked up, but greater prison costs overwhelm such savings.

What About the Alternatives?

The new three-strikes law has been criticized by some for casting too wide a net. It is argued that the public is not really as concerned about minor felonies or even residential burglaries as it is about truly violent crimes and that it will not want to pay to keep less violent felons locked up. Indeed, the RAND analysis showed that, more often than not, the third strike will accrue for a minor felony such as motor vehicle theft, as opposed to one of the serious crimes mentioned above.

In view of the width of the "net" and the power of the less-publicized provisions of the new law, could an alternative be constructed in which some benefit would be sacrificed to achieve great savings? What if there were no third-strike provision? Or, what if the extended sentences applied only if a violent felony were committed? What about one of the alternatives considered by the legislature, the "Rainey bill," which would have been harsher on violent felons and more lenient on others? Finally, what would happen if the state got rid of "strikes" and instead guaranteed that those convicted of a serious crime serve their full sentence? In other words, what about adopting a law that sends all those convicted of a serious felony to prison, eliminates "good time" for such felons so that they must serve their full term, and shifts some minor felons from prison to probation?

Figures 1 and 2 compare the benefits and costs of the new law and these alternatives, relative to the old law. As you might expect, for the most part, the more focused alternatives would be both less costly than the new law and less effective at reducing crime.[3 ] But some of them would not be much less effective. For example, the second-strike-only alternative would be 85 percent as effective as the new law. This has an interesting implication: Only 15 percent of the new law's crime reduction effect will come from its most publicized provision--the third strike.

Figure 1--Percentage reduction in serious crime from new law and alternatives

Figure 2--Percentage increase in cost from new law and alternatives

But for all the alternatives to the new law, the cost would drop more than the effectiveness. For example, applying the new law's penalties only to violent felons would save half its extra cost but retain two-thirds of its effectiveness.

Cost-effectiveness, though, is not necessarily the most important criterion. To some people, a reduction in serious crime on the order of 30 percent would be attractive no matter what the cost. However, it seems unlikely that anyone would want to pay more for that than they had to. In this context, the guaranteed-full-term alternative could be of interest, for it would be just as effective as the new law at substantially lower cost. The advantages of this alternative point up the shortcomings of the new law: The full-term alternative would increase sentences for all serious offenders--even first-timers who are near the beginning of their criminal careers--and pay for it by not imprisoning many minor felons. The new law, in contrast, does not crack down on first-time serious offenders. Instead, it expends large amounts of money keeping older criminals--including many convicted of minor offenses--locked up. Data on criminal careers suggest that the term of imprisonment for many of these older offenders will last beyond the point at which they would resume a life of crime if released, meaning that costs will be incurred for no crime-reduction benefit.

Where Will the Money Come From?

The money to finance three strikes will have to come from somewhere. The choices, however, are limited. Figure 3 shows the current allocation of expenditures from the state's general fund. Proposition 98 locked into the state constitution a minimum level of spending on K-12 education that is expected to increase dramatically in the coming years--from 36 percent of the general fund now to 47 percent in 2002. Health and welfare costs have been going up for a long time and show no signs of leveling off. The new three-strikes law will double the fraction of the general fund consumed by the Department of Corrections. Clearly, these increases will put enormous pressure on everything else the state spends money on (see Figure 4). That includes, most prominently, college education, but also a variety of other services ranging from controlling environmental pollution through managing parks and fighting brush fires to regulating insurance and other industries.

Figure 3--Distribution of California General-Fund Appropriations, FY94

Figure 4--Budgetary Squeeze on Higher Education and Other Services, FY02

It seems unlikely that Californians will put up with drastic reductions in these services, but increased taxes are decidedly unpopular. Clearly, something's got to give. It may be the three-strikes law itself. Criminal justice officials may simply not have the money to fully implement it. If that turns out to be the case, the new law will have less effect on serious crime than that estimated here. How much less is impossible to predict.

[1]Passage of the law in initiative form will prevent repeal or amendment (other than to further the law's purpose) by the legislature.

[2]Juvenile offenders will not be affected by this law. They now account for about one-sixth of all arrests for violent crimes.

[3]For these figures, we take the estimated benefit and cost of the new law from the middle of the ranges given above--28 percent and $5.5 billion.

RAND research briefs summarize research that has been more fully documented elsewhere. This research brief describes work done using RAND's own funds and is documented in Peter W. Greenwood et al., Three Strikes and You're Out: Estimated Costs and Benefits of California's New Mandatory-Sentencing Law, MR-509-RC , 1994, 87 pp., $13.00, which is available from RAND Distribution Services, Telephone: 310-451-7002; FAX: 310-451-6915; or Internet: The budgetary analysis is based on research by Stephen J. Carroll. RAND is a nonprofit institution that seeks to improve public policy through research and analysis. RAND's publications do not necessarily reflect the opinions or policies of its research sponsors.