Jacob Goldstein
Jacob Goldstein spent more than a decade as co-host of the Planet Money podcast. He's also the author of the book Money: The True Story of a Made-Up Thing, which the New…
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Decades ago, if you wanted to watch Columbo, you watched it when it aired. Then Sony invented the Betamax, a machine that let you record TV and watch it whenever you wanted. Sony’s chief called it “time shifting.” American TV studios called it theft.
Universal and Disney sued Sony, and the fight went all the way to the Supreme Court, with a surprise cameo from Mr. Rogers along the way. Today, we’re still arguing over who is responsible for what people do with a new technology.
Jacob and Robert tell the story of how the Sony Betamax beat Universal Studios, and then ultimately lost to a rival format – the VHS.
Research for this episode comes from:
Fast Forward: Hollywood, the Japanese, and the VCR Wars, by James Lardner
“The Story of Sony v. Universal Studios: Mary Poppins Meets the Boston Strangler,” by Jessica Litman
Made in Japan: Akio Morita and Sony, by Akio Morita, Edwin M. Reingold, and Mitsuko Shimomura
Connect with us:
Robert Smith, my children don't believe me when I tell them this, but it's true. There was a time when if you wanted to watch something on TV, you had to watch it when it was on TV.
00:11
Speaker 2
There was, in fact, a guide, a published magazine that would tell you in excruciating detail the time that everything you wanted to watch was on, and which channel.
00:22
Speaker 3
If you wanted to watch Columbo at 8.30 on Channel 6, 8.30 Eastern, 7.30 Mountain, you had to watch it at 830 Eastern, 730 Mountain, on Channel 6, or you didn't get to see it.
00:35
Speaker 1
And then the Sony Corporation invented the Betamax, a magic machine that let you record Columbo or anything on TV on videotape so you could watch it whenever you wanted. Akio Morita, the head of Sony, called it time-shifting, like a magic trick. Companies that made Columbo and other shows Didn't like this. They thought it'd be bad for business. They owned these shows. And in their mind, Sony had just invented a machine that was designed to steal their intellectual property.
01:11
Speaker 2
Criminals.
01:13
Speaker 1
So a couple companies that made TV shows sued Sony. And the case went all the way to.
01:18
Speaker 2
The Supreme Court.
01:20
Speaker 1
And the question at the center of the case is one that is still urgent, that we still talk about today. And that is, When a company invents a new technology, who is responsible for what people do with that technology? I'm Jacob Goldstein.
01:37
Speaker 2
I'm Robert Smith, and this is Business History. I'll do it again for those of you recording. Three, two, one. This is Business History, a show about the history of business.
01:46
Speaker 1
Tell a friend about the show or follow us on social media. We're at businesshistorypod on Instagram and TikTok. Today on the show, we are doing the Sony Corporation of America versus Universal City Studios Inc. Oh, and just one more thing.
02:05
Speaker 2
Just one more thing. Great Colombo impression. How did Sony invent the VCR but still lose out to a rival format?
02:13
Speaker 1
VHS! Those of you over 40 will know what I'm talking about. My daughter, who is a teenager, doesn't even know what a VCR is.
02:20
Speaker 2
Just roll your eyes.
02:21
Speaker 1
We'll talk about that at the end of the show. So, Robert, this is a story about technology and about intellectual property. We're going to start with the technology side. We're going to start with Sony, which is arguably, you kind of forget it now, but Sony was arguably the most important consumer electronics company of the 20th century.
02:47
Speaker 2
If you go to Sony Hall here in New York, you can walk by a display. Sony Hall? It's called Sony Hall.
02:52
Speaker 1
I don't know what Sony Hall is.
02:53
Speaker 2
It's called Sony Hall. There's performances there, but there's a display wall of all their technologies over the years, and it is amazing technology. what they have made, of course, the Walkman and cameras and everything.
03:03
Speaker 1
The transistor radio they were huge in, and the PlayStation 2 more recently. I think still the best-selling video game console of all time. Also, interestingly, they were hugely influential to Steve Jobs. Steve Jobs looked to Sony as a model for Apple. And in fact, you know his mock turtleneck? He actually, he went to Japan, saw that all of the factory workers there had this uniform and came back and was like, hey, Apple, we all gotta have a uniform in the studio. Of course, it's Silicon Valley. They're like, no way. But Jobs wound up going back to the guy who designed the Sony uniforms and got that guy to design him his mock turtleneck that became his uniform.
03:42
Speaker 2
That is Sony guts. So the key figure at Sony is Akio Morita.
03:50
Speaker 1
He's born into this sake brewing family. He's supposed to run the business, you know, as his father and grandfather said before him. But he falls in love with physics and electronics. And in 1946, he co-founds the company that will become Sony. It's not called Sony at first, but they're gonna name it Sony partly after sonus, the Latin word for sound. Oh, interesting. Yeah, because it is initially an audio company. And just around the time the company is being founded in Tokyo. Back in New Jersey, at Bell Labs, people are inventing the transistor. William Shockley. I think we talked about this in the Silicon Valley show.
04:33
Speaker 2
Takes the place of big glass vacuum tubes, which, it's hard to be portable. They use a lot of energy, they get very hot, they break.
04:40
Speaker 1
Yeah, they're big. And so, the transistor is clearly this profound breakthrough. It's going to transform the 20th century. It's going to make computers as we know them possible. And a few years after the transistor was invented, Morita's co-founder at Sony traveled to America and learned that AT & T was going to license the transistor. And so Sony paid for the license and started trying to develop a radio that use transistors instead of vacuum tubes.
05:11
Speaker 2
And this is a huge breakthrough because at the time, a radio is a piece of furniture. It is a giant wooden box that you gather around. I wish it was still that way. But it's a giant piece of furniture, and so it is a big leap to say that thing could fit in your pocket. You could carry it anywhere.
05:28
Speaker 1
Robert, do you not have a vacuum tube radio in your living room that you gather around with your children?
05:33
Speaker 2
I do not, but lots of radio people I know have the old-fashioned ones just for display.
05:38
Speaker 1
So, yeah, as you say, Morita and his partner and the people at Sony see early, really more broadly, this idea of miniaturization. They're not inventing the idea, but it becomes central to, of course, the computer revolution, to a lot in the 20th century. And they get to work on miniaturizing the radio. And they, in fact, develop a radio made with a transistor, a transistor radio, if you will. And it's about the size of like a book. It's not tiny like they'll become, but it's profoundly smaller than the big vacuum tube radios. And they don't sound great. It's a little bit of kind of disruptive innovation here on at least that axis. They're worse than the vacuum tube radios. And Marina goes to the U.S. to try and sell these new small radios. And there's not that much demand. The salespeople are like, we're Americans. We have big houses. We have plenty of room for a big radio.
06:34
Speaker 2
Lots of room for vacuum tubes everywhere. We can put vacuum tubes in the living room. They don't yet know you can sit on a street corner and listen to a ball game on a folding chair.
06:40
Speaker 1
Well, so what Marina tells them, and this is like an example of him being a genius salesman, is, yes, in your big American house, you have many rooms. And with our transistor radio, you can have a radio in every room. And this, you know, this is sort of pointing toward the Walkman. This idea of personal electronics is kind of emerging here at this moment.
07:05
Speaker 2
This is the start of not seeing your kids all day long because they're in their room listening to their transistor radios, slash TVs, slash phones. Yes.
07:13
Speaker 1
It's also an example of Morita doing this thing that he calls educating the market, which is also a very Steve Jobs, Apple kind of idea, which is... People don't actually know what they want. You know, there is this idea in business, oh, what does the customer want? Let's go ask them. And if you're Accio Morita or Steve Jobs, you think, no, no, people aren't clever enough to know. Or even, you know, the famous Henry Ford line, if I had to ask people what they wanted in 1910, they would have said a faster horse. It's that. And so this is this idea that if you're a real innovator, you figure out the next thing and you go tell everybody why they should want it.
07:51
Speaker 2
Yeah, and you could create a new market.
07:53
Speaker 1
And Morita does. Morita and Sony have this hit transistor radio. People are buying it, and they want to keep making it smaller. Miniaturization is their thing. And Morita has this dream for a transistor radio that'll fit in your pocket. Remember, the first one's like the size of a book. Small, but not like you could put it in a shirt pocket. So he's got the engineers at Sony working, working, trying to make it smaller. And they come up with a radio that is smaller, but it is just slightly too big to fit in a shirt pocket. And so, Morita, in one of my favorite sales moves of all time, designed special shirts for his salespeople with shirt pockets that are slightly bigger than usual. So.
08:39
Speaker 2
That fit the transistor radio.
08:40
Speaker 1
That fit the transistor radio. And so they can go out and sell the world on a pocket-sized radio, asterisk if your pocket is a little bit bigger than usual.
08:49
Speaker 2
No lie. They did eventually make them smaller. I have a tiny one that fits in your hand that I still listen to to this day in the shower.
08:56
Speaker 1
Yeah, you told me you bought it off of Amazon and the picture for it was two people who are a hundred years old ballroom dancing or something.
09:02
Speaker 2
Ballroom dancing to a little transistor radio.
09:04
Speaker 1
I hope.
09:05
Speaker 2
I wish.
09:06
Speaker 1
So the transistor is what put Sony on the map. But it's recording technology that is gonna make them great. And in fact, they were working on tape recorders alongside the transistor, you know, reel-to-reel tape.
09:21
Speaker 2
This is like Robert Smith's This Is Your Life.
09:23
Speaker 1
It really is.
09:24
Speaker 2
I have all these things.
09:26
Speaker 1
And Marina here is actually echoing Thomas Edison, which, you know, one of the first shows we did on Business History was Thomas Edison inventing the phonograph. First time people could record and playback sound.
09:40
Speaker 2
If you haven't heard the episodes, it's time-shifted. You can go back.
09:43
Speaker 1
You can listen to it anytime you want. When he was marketing this device, it was not primarily for Edison a way to, you know, listen to a Bach partita in your own home and feel this sublime human accomplishment. For Edison, mainly the phonograph was a way for a businessman to dictate a letter to somebody telling them that their payment was late. It was a business device.
10:06
Speaker 2
Which is super smart. Who has money for a new technology?
10:08
Speaker 1
Right, business people. If you can convince a business person that this technology is going to make them more money, they will buy your thing. And Marina sells the tape recorder the same way. He goes out to institutions, to music schools, to police departments, to courts, to aid stenographers, and it works. And they're out there selling this, and of course, Sony being Sony, they're figuring out a way to make tape recorders that are smaller and cheaper so that they can sell them to consumers en masse. So they've mastered audio, and now it is time for Sony to pivot to video.
10:45
Speaker 2
Classic.
10:46
Speaker 1
Everybody's favorite pivot. By this time, Robert Smith, this is your life. A company called Ampex. Ampex! Remember Ampex?
10:55
Speaker 2
Maker of reel-to-reel tapes.
10:57
Speaker 1
Reel-to-reel tape. Also, early employer of Nolan Bushnell. Shout out our Atari show, founder of Atari. By this time, Ampex, so we're in like mid-50s now, has invented video recording. And of course, you know, we think of like everything that is moving pictures now as video. But that wasn't true up until this point. Before this, it had been film. And film, as those of us old enough to remember, remember, was a thing where you would capture the image and then you'd have to send it off for processing. You couldn't just play it back and watch it.
11:27
Speaker 2
We've come to that point. We have to describe film.
11:29
Speaker 1
Yes, it's true. And the beauty of video is you could record it and then immediately play it back or watch it.
11:34
Speaker 2
Which is useful for news and all sorts of businesses.
11:37
Speaker 1
Yeah. And initially, again, video recording was this machine system that took up a whole room. So, you know, a TV station might use it. Sony gets involved, starts doing the miniaturization thing. But this time, they make what's really an interesting business move and a move that's going to be central to the VHS versus Betamax part of the story coming later. And they, uh, go to other big Japanese electronics companies and they say, let's work together on this video project. Let's come up with a standard format so that everybody's videotapes can be used in everybody else's machines. And Sony's going to take the lead on the project. But together, they can all work together on this standard and everybody can make money. And other companies, in fact, sign on.
12:28
Speaker 2
And it's interesting, right?
12:30
Speaker 1
You want.
12:31
Speaker 2
the same format, especially if it's your format that you're developing. Because otherwise, everyone will fight each other and they'll be on different formats. And then a format might win, but that might not be the best company. It might just be the format that people prefer.
12:43
Speaker 1
Yeah. And it's this really interesting case because almost always we feel like competition is good, right? Competition is the fundamental engine that makes market economies work, that makes things get better and cheaper.
12:56
Speaker 2
And then we got charging cords and we're like, Why can't they collude?
13:00
Speaker 1
Why can't we just have one cord for everything? Yeah. And in fact, in the instance of USB-C, I think it was that Europe basically was like, OK, enough. Everything has got to be USB-C. And there is this interesting tradeoff here. In this instance, Sony's pitch to these other Japanese companies works. And crucially, this company, JVC, which is part owned at this point by Matsushita, a giant... company, now Panasonic, JVC agrees. JVC agrees to participate with Sony in this video kind of standard, collective. And so, with the support of JVC and other companies, Sony develops this video system called the U-matic. And this is like, it's not a room, but now it's like a big machine on a cart. You can picture, like, the AV guy at your high school.
13:49
Speaker 2
Perhaps it was you, Robert Smith. It was me, coming with the U-matic.
13:52
Speaker 1
Coming with the U-matic. Out of my way, U-matic coming through. And it works. It works. This is a product in the world now. Sony keeps doing its thing. Miniaturization, cheaper. We know where they're going.
14:04
Speaker 2
Into the home.
14:05
Speaker 1
Into the home. In 1974, Sony goes back to JVC and Matsushita and their other partners, and they are like, behold, we have, you know, Eureka. We have developed this machine that is small enough and convenient enough and cheap enough that ordinary people can buy it, and in the comfort of their own home, they can record live television in beautiful, high-fidelity video. Sony calls it Betamax. Works with video cassettes. Just insert and push play or play record. Remember, play record?
14:42
Speaker 2
Two fingers.
14:44
Speaker 1
And you could put an hour of TV on a single tape. Incredible. And yet, JVC and the others are like, Well, we'll let you know. We'll get back to you on this. They do not immediately say yes. And it's not, at first, clear to Sony what's going on. But behind the scenes, a few things were going on. One, Sony made more money and got more credit for the U-matic, that big machine, than JVC and the others, because Sony was the lead on it and they were a little... Sort of bitter about that, JVC was. And two, JVC was worried that an hour was not long enough, right? These Betamax tapes were an hour, seemed a little short. You know, you can't record a movie. You can't record a football game, a baseball game. And Sony didn't know it at the time, but JVC was already working on a different format, which come to be called VHS.
15:40
Speaker 2
Love that they were covering their bases.
15:41
Speaker 1
Different machine, different tapes, didn't work together. And, of course, we know what's coming now, this famous format war between VHS and Betamax. And we will talk about that later in the show. It's a classic business story. But first, Sony, after getting ghosted by JVC, decides they're just going to bring the Betamax out on their own. They're not going to try and get everybody together on the same format. They're just going to go forward. They start selling this incredible machine that lets people record TV shows and watch them whenever they want. And the people who make those TV shows are not gonna like that one bit.
16:19
Speaker 2
After the break.
16:23
Speaker 1
The year is 1976. We cut to the office of Sid Sheinberg.
16:30
Speaker 2
Sid Sheinberg's office, may I help you?
16:31
Speaker 1
The place is Hollywood.
16:32
Speaker 2
Of course.
16:34
Speaker 1
Actually, it's the San Fernando Valley, but whatever. It's the movie business. Sid Sheinberg runs Universal Pictures. maker of such 70s classics as Jaws and The Sting, and also maker of popular TV shows like Kojak and Columbo.
16:52
Speaker 2
Kojak was the bald one, he was the hard-bitten New York cop, and Columbo was the one with the rumply jacket who would come in and be disorganized.
17:01
Speaker 1
One day, Scheinberg gets a memo, and this memo informs him that the Sony Corporation is planning to run an ad for their new Betamax machine. And this ad will say, Robert Smith, what's the ad going to say?
17:20
Speaker 2
Now you don't have to miss Kojak because you're watching Columbo or vice versa. Look at that. Choice.
17:27
Speaker 1
People love choice. So this is the pitch for Accio Morita's magic trick, time shifting. This is Morita educating the market on this new thing they could do. There was another ad at the time for the Betamax that said, watch whatever, whenever. Which is a great copy, right? Especially for the 70s. So this memo has wound up in front of Sheinberg, of course, because he runs the company that makes both Kojak and Columbo, the shows named in the ads. And this is, in fact... the first time that he has heard of Betamax. Now, Sid Sheinberg is interested in this idea of, like, selling a device to people that lets them watch movies at home.
18:06
Speaker 2
Especially the selling part.
18:08
Speaker 1
Yes. And he has been working to help develop a product called, best 70s product name of all time, DiscoVision. What will later be called LaserDiscs. basically a home video player that lets you play movies that look amazing on your TV at home, and crucially, doesn't let you record anything. You just buy the discs and watch them.
18:32
Speaker 2
It is a one-way technology. It allows Sid to retain control over his... intellectual product.
18:39
Speaker 1
And into the 90s, like, surely you're old enough to remember this. I remember in the 90s, I had my, like, cinephile friend who had a laser disc player because they, in fact, were a great technology in terms of looking really good. My friend who was into movies... They go on and on about it. He was the one who showed me that if you start Dark Side of the Moon and The Wizard of Oz at the same time, there's, like, some perfect synchronicity there. Shout out Dave Ramirez. Anyway, this is where Scheinberg's head is at the time. He is a lawyer by training. He was a lawyer before he became a studio executive. And then he sees this proposed ad telling people they can tape Kojak while they watch Columbo.
19:22
Speaker 2
Or vice versa.
19:23
Speaker 1
Or vice versa.
19:24
Speaker 2
And he sees this.
19:25
Speaker 1
Ad and he knows that he owns these shows and he thinks... No! Like, not only can you not run this ad, you can't sell this product. You can't sell a product telling people that they can steal this thing, record this show that we own and that we haven't given them permission to record.
19:40
Speaker 2
Which you can kind of see at that moment, if you have a cassette with Columbo on it, you control the Columbo show. You can show it to your friends. You can charge them money if you want. You can do anything, and we don't want that. Control must rest in Hollywood.
19:56
Speaker 1
Yeah, well, or simply, you know, the classic way that people who made TV shows made money was reruns.
20:03
Speaker 2
Right?
20:04
Speaker 1
Reruns. What if people tape a bunch of Columbo and they don't watch reruns? Unimaginable! Disaster! And so, Scheinberg is like, no, no way. And he sets a meeting with Accio Merida at Sony headquarters in New York. Quite soon after that, I think, actually. He flies out there, and they have dinner on the 43rd floor, along with a couple of other executives. And officially, the meeting is to discuss disco-vision. This, you know, laser disc player. And Sony is a giant. They are, in some ways, the Apple of their day. They are a wonderful manufacturer of consumer electronics. And Scheinberg wants Sony to make disco vision players. And this is what they're talking about. But as Scheinberg is sitting there, unbeknownst to Accio Morita, he has in his jacket pocket a radio. You wish. A memo written by his lawyers explaining why the Betamax is illegal. And after like an hour of meeting and talking about the disco vision, he pulls out this memo and threatens to sue Sony.
21:18
Speaker 2
One more thing.
21:19
Speaker 1
Just one more thing. And Marina is shocked. He wrote about this later. Tell us what he said later.
21:27
Speaker 2
When we shake hands, we will not hit you with the other hand.
21:32
Speaker 1
And even after the meeting, Marina didn't really think Scheinberg was actually going to sue. He thought it was just some, like, negotiating tactic.
21:42
Speaker 2
Oh, he does not know the United States of America. Friends don't sue, is what he said. Oh, dear friends sue friends. Friends do sue.
21:49
Speaker 1
Universal is going.
21:51
Speaker 2
To sue Sony. 100%.
21:52
Speaker 1
So to build its case, Universal wants to essentially connect the dots, to go from Sony to the stores selling the Betamax, to the consumers actually doing the recording. And to do this, Universal does a few things. Their lawyers do a few things. They hire a private investigator to visit stores and pose as a customer so that they can actually see salesmen at the stores using the Betamax to copy Universal shows onto video sets.
22:20
Speaker 2
Will you give your sales pitch into my lapel?
22:23
Speaker 1
Speak a little clearly. What are you doing? Universal's lawyers also found a Betamax owner who was willing to be sued, to be named in the lawsuit. You know, and they agreed they wouldn't hold him liable for damages, but they needed somebody who was actually doing the recording. And Universal also got another Hollywood studio to join them in the lawsuit, which was Disney. Disney agreed to join them in the suit, which makes sense because this is an intellectual property case. I'm gonna say nobody has more riding on intellectual property than Disney, right? They have IP to die for, IP all day. You know, Pinocchio, Snow White, Sleeping Beauty, just these classic, classic movies. All of which I think I owned on VHS to show my kids. Coming later, yes. And if people could, you know, record TV at home, Disney felt like this was a huge threat to their intellectual property. And so... In November of 1976, Universal, along with Disney, sued Sony. And the guy who told Morita, the guy who gave Morita the news, said that when Morita found out, he let out a death cry. The guy called it a death cry. And then he went off to play golf and apparently his golf game was off. So, from Universal's point of view, the case is fundamentally simple. At one point in court, the lawyer described the case like this.
23:56
Speaker 2
All that the case really involves is unauthorized and uncompensated copying of entire motion pictures. Neither Congress nor any court has ever permitted such copying, merely because it takes place in the home or because the copy is taken from the television airwaves rather than from some other source.
24:14
Speaker 1
It's unauthorized and uncompensated copying.
24:17
Speaker 2
You can't do that. It's not legal, is what he argues.
24:21
Speaker 1
Now, even Universal knows it's not quite that simple because Universal had to show not only that recording a show or a movie was, in fact, copyright infringement, but they also had to show that Sony was liable, right? Sony's not doing the recording here. So they also have to show that Sony is liable for what is called contributory infringement, right? That Sony is liable for selling the machines that are contributing to the infringement that people are doing.
24:50
Speaker 2
And this is a huge thing in society. Lots of people make lots of objects that can be used for illegal acts. Yes.
24:57
Speaker 1
And so this goes back to the question we asked at the beginning. Here is this new technology. What responsibility does the company making the technology have for how people use it. When are they legally on the hook? Still a live question, as we'll talk about later in the show. On the first day of the trial, case goes to trial, on the first day, the chairman of Walt Disney Productions testifies that he had recently had an offer from a cable channel that wanted to pay Disney to run Mary Poppins and The Jungle Book. One of my favorites.
25:28
Speaker 2
I'm not a huge.
25:29
Speaker 1
Mary Poppins fan, but I really did like The Jungle Book.
25:32
Speaker 2
Oh, come on.
25:33
Speaker 1
Were you in Mary Poppins, Robert?
25:35
Speaker 2
Chim-chiminy, chim-chiminy.
25:37
Speaker 1
And the chairman of Walt Disney Productions had actually turned down this cable company's offer to run the movies because he was afraid that if he showed them on TV, people would record them. And he didn't want that. He didn't want people to have copies of these movies at home that they had recorded. Another Hollywood executive testified, this is sort of rumored, he testified that when Gone with the Wind was going to air on TV, there was like a run on blank videotapes, presumably so people could record the movie. At least that's what was reported in the trades, I think, in Variety. Here's a quote from him. It's actually Lou Wasserman, a huge Hollywood figure.
26:14
Speaker 2
Now, if everyone in the United States ultimately has a copy of Gone with the Wind, there would not be much value in Gone with the Wind being on television. And we should just say here, When big movies like this, for me it was The Wizard of Oz, would come on television once a year, you'd find out about it weeks beforehand and you would make time, you'd sit down with the family and you would watch The Wizard of Oz once a year and then you couldn't get it.
26:39
Speaker 1
You had to, I mean, there's a reason that the There's a reason that sports is the last thing that everybody wants to put on sort of linear TV, right? There's a reason that that's the last one. Because that's the only thing that you really have to watch when it happens, right? Once it's over, everybody knows what happens. And everything was like that then. You could only watch The Wizard of Oz when they showed it for those two hours.
27:00
Speaker 2
Everything was scarce. And if you control a scarce object, you can make money off of.
27:06
Speaker 1
It. So... this is reasonable. The studios... have this concern. It's a reasonable concern, but they can't prove yet that they've actually lost money as a result of the Betamax. They can't point to some revenue stream that's gone away or gotten smaller, or even that, you know, is extremely likely to. They have this kind of theory of the case, but they can't show it yet. They argue that they shouldn't have to. They argue that the burden of proof should be on Sony. It's like, don't make us prove that we're not going to lose money. We're not the ones selling the machine. Sony should have to show that their machine is not going to hurt us.
27:44
Speaker 2
Impossible to prove the negative.
27:47
Speaker 1
This is Universal's case. This is Hollywood's case. Sony's case was... They actually had this interesting kind of narrow case, and it fits with Morita's dream and the way they're pitching it, which is, People aren't using this to build libraries. We're not telling people to build libraries with it, right? We're pitching time shifting. We're pitching You want to watch this show anyway, so record it and just watch it a little later. And Sony's theory of the device is people are just going to buy a few tapes, watch the thing they want to watch, and then.
28:18
Speaker 2
Record over it. And watch more product. And watch more product, perhaps. So it's going to be good for Hollywood eventually.
28:25
Speaker 1
Well, and to that end, Sony actually finds people who make shows, who own intellectual property, who say, yes, we're great with time shifting. Time shifting is totally fine. including, amazingly, Fred Rogers, aka Mr. Rogers to you.
28:46
Speaker 2
This is the best cameo since J.P.
28:48
Speaker 1
Morgan. Yes, certainly the sweetest cameo ever on the show. Robert, give us what Mr. Rogers said in his testimony in defense of the VCR.
29:00
Speaker 2
I've been waiting my life to do a Mr. Rogers. Very frankly, I'm opposed to people being programmed by others. My whole approach in broadcasting has always been, you are an important person just the way you are. You can make healthy decisions. Maybe I'm going on too long, but I just feel that anything that allows a person to be more active in the control of his or her life in a healthy way is important. We can just end the episode right there. Mr. Rogers.
29:29
Speaker 1
Here is Mr. Rogers giving Betamax users permission to record a show, watch it whenever they want.
29:37
Speaker 2
Because you're special. Just the way you are.
29:39
Speaker 1
And Fred Rogers, you know, he's doing the show so that people will see the show. And of course, look, he's non-commercial. He's on PBS. But Sony didn't just get Mr.
29:48
Speaker 2
Rogers.
29:49
Speaker 1
They got religious broadcasters. Pretty close to Fred Rogers, actually, in a way. But they also got the NFL, they got the NBA, they got Major League Baseball to all say, people want to record games? Great. Let them. And Sony is driving towards something bigger here. This legal doctrine that already existed at the time called the staple article of commerce doctrine, which held that if a product had significant legit uses, non-infringing uses, you couldn't sue the maker for contributory infringement. Weirdly, a lot of the case law to this point was for patents. So there was, like, a case where a company made a replacement for soft-top convertibles, like the fabric on the convertible, and there was this question arose. But, like, I think of it like with photocopy machines.
30:41
Speaker 2
Oh, yeah, yeah. Photocopy machine is mostly used for business purposes, but you could photocopy a book, staple it together, and read it whenever you want. Yeah.
30:49
Speaker 1
But because.
30:52
Speaker 1
It's mostly not used for that. There's obvious non-infringing uses. It's fine. Xerox is not on the hook for that problem. Sony used the same argument, using the Betamax to do time shifting when the owner of the show was fine with it. That's clearly not a crime. And so there is this legit use. And therefore, Sony shouldn't be responsible, even if some people did use the machine to violate intellectual property law, to infringe. The judge at the trial agreed with Sony. He actually thought home recording wasn't copyright infringement to begin with. And even if it were, he was like, well, that wouldn't be Sony's problem. Universal appealed. The appeals court went the other way. They were like, no, people can't just record shows without the owner's permission. Obviously, you can't do that.
31:37
Speaker 2
The whole point of those two buttons, record and play, was that you could steal.
31:41
Speaker 1
Was to infringe intellectual property. And so Sony appealed. The Supreme Court decided to take the case. There were oral arguments. And then the justices, the Supreme Court justices, started debating the case among themselves, as they sometimes do. And in this case, there was like a lot of back and forth. There were memos going back and forth. The justices are trying to persuade each other. And eventually they wind up at this 4-4 split. Four justices think the basic act of recording a show is infringement. You can't do that. And that Sony is, in fact, liable for contributory infringement. Four justices think recording a show to watch later is fine. Time shifting is fine. Of course, that makes eight justices. There is a ninth. In this case, it was Sandra Day O'Connor, Justice Sandra Day O'Connor. She was the swing vote. So let's talk for a minute about the bigger ideas here. I like Supreme Court cases because they always have big ideas in them. And I imagine one of the nice things about being a Supreme Court justice, besides the free robe.
32:48
Speaker 2
I don't think it's free. I think they pay for it. They have to go down to the robe depot.
32:51
Speaker 1
I have no idea. It's like it's big and tall robe store. OK, set aside the free robes. That wasn't the main thing. Anyways, the main reason I imagine it would be great to be a Supreme Court justice besides shaping history is your job is thinking big thoughts, you know, like in this case. Why is intellectual property law enshrined in the Constitution? Like, it's literally in the Constitution. Robert, give us a hint. Read the U.S. Constitution here.
33:19
Speaker 2
The Congress shall have power to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.
33:33
Speaker 1
It is really interesting. To promote the progress.
33:37
Speaker 2
So this.
33:37
Speaker 1
Is the Enlightenment, right? 1789, this real belief in progress. And you have intellectual property law written into the Constitution. And the idea is we are giving patents and copyrights, not so that writers and inventors can get rich, but so that there will be an incentive for people to come up with things and share them with the public. It's for the public good. That is why.
34:05
Speaker 2
This is here. So it's essentially saying if we want people to create new great television shows, then they need to be able to exercise ownership rights over that and make money off of it.
34:16
Speaker 1
Yes.
34:16
Speaker 2
And protect their intellectual property.
34:18
Speaker 1
But also the point of those shows is to serve the public good, right? It's not just so Sid Sheinberg and Universal can get rich on reruns. And this is the balance at the heart of intellectual property law. There are Constant arguments. How long should the protection be? How broad should it be? What should people be able to do with works that are still copyright protected, right? Fair use, we call this. What is fair use of intellectually protected works? This is the hard balance at the heart of intellectual property law and at the heart of this case. Is recording a show to watch it later fair use? Reasonable people, including Supreme Court justices, disagreed. And, you know, one of the essential questions when you're looking at fair use and is a use of a copyrighted material fair is, are you taking money out of the pocket of the owner of the intellectual property? Is there some economic harm? And in the Sony case, the essential, essential question for Sandra Day O'Connor, the swing vote wound up being, on this question of economic harm, Who has the burden of proof? Is it the owner of the copyright? Does Universal have to show that they have suffered or are likely to suffer, you know, specific identifiable economic harm from the Betamax? Or is it the maker of the device? Does Sony have to prove that the studios have not and were not likely to suffer economic harm? Sandra Day O'Connor thought the burden of proof should fall on the studios. Universal should have to prove the harm.
36:01
Speaker 2
Which you can sort of understand in the context of the Constitution article there, which is, this is a technological innovation. And so in order to stop it, you're stopping technology. And there better be a good reason you are stopping the progress of technology. Yes, yes.
36:17
Speaker 1
You better strike a strong balance. You better really show, oh, we're not going to let anybody in America do this thing because it will be really bad for us. Universal and Disney had not proved that. They didn't think they had to prove it. They had said, you know, there were deals they didn't do. But they hadn't said, look, you know, we are not making money because of the Betamax. They had not made that specific case. And so, with Sandra Day O'Connor's vote... In January of 1984, the Supreme Court issues a 5-4 ruling in favor of Sony. The Supreme Court says it is legal to sell machines that people can use to record copyrighted shows without permission, at least if they're doing it for time shifting. Robert Smith, rather than go to the Supreme Court opinion here, let's go to the Washington Post. There's a lovely article from their entertainment critic, Tom Shales.
37:13
Speaker 2
Who used to be on NPR all the time. There won't be dancing in the streets. They'll be taping in the living rooms. But if there were dancing in the streets and it was shown on television, you could tape it in the living room and not have to worry about some trench-coated specter from the FBI breaking down the door to your condominium. Condominium is such an 80s word. Didn't use the word condo then.
37:34
Speaker 1
So Sony wins, Universal loses. And this case ends up being a really important precedent. In fact, it establishes what comes to be known as the Sony rule, which basically holds that if, you know, an electronic device or a piece of software, for that matter, has substantial non-infringing uses, then the company that makes the device or software is not liable for contributory infringement. It sort of expands that staple of commerce idea from patent law into intellectual property law. And you see this decision in technology, play out in technology in the decades after the case. You know, the Sony rule protects CD burners. It protects MP3 players. Although there is this really interesting wrinkle that comes along a few years after the case is decided, comes along in the 90s. And by this time, Sony, actually Sony has invented digital audio tape.
38:30
Speaker 2
I've used that, yes.
38:31
Speaker 1
You've used it all. So you can make, you know, a perfect fidelity recording of whatever, of a CD, say. And this freaks the music industry out for the same reason as the TV thing freaked out the TV business. And in this instance, Congress actually passes this really interesting law that says anytime a company sells a digital recording device, like a, you know, a recorder, a blank digital audio tape, the company has to charge a little extra, a little royalty, and send that money off to a fund for recording artists and songwriters who are presumably losing out because people aren't buying as many CDs.
39:07
Speaker 2
I actually kind of like this solution a little bit, right? It says, let's just figure out who's losing out of this and compensate them.
39:15
Speaker 1
Well, this is the classic thing you want to do with productivity games, right? The pie is getting bigger. You have new technology that potentially can make everybody better off. But there are some losers. the people who are recording the songs that people aren't buying as much. And if you can figure out how to take the bigger pie, take some of the money out of the bigger pie and send it to the people who are being harmed, this is often optimal, although quite hard and lovely that they were able to do it here. I got two more times when this case comes up that I want to talk about. One, Napster.
39:45
Speaker 2
Napster. Napster was, of course, an illegal file-sharing program.
39:49
Speaker 1
Wasn't illegal at the beginning. It started as just a file-sharing program.
39:52
Speaker 2
And it was used, I can just say, to steal not just hundreds, but thousands of songs from servers that you could then store on your computer and listen to whenever you want. By the way, for NPR, I covered the very last day that Napster existed. And I talked to college students who were downloading tens of thousands of what turned out to be illegal file copies onto their computers. Yes.
40:18
Speaker 1
And, you know, it was before the iPod came out. And it was just the way everybody who was young got music. And when the case went to court, Napster pointed to the Sony Betamax case, and they were like, we're just making software. Independent artists can choose to distribute their music on Napster. We're just sharing files.
40:37
Speaker 2
We don't know what they're sharing.
40:39
Speaker 1
Of course, didn't buy it in part because it was extremely clear that people were using Napster to get music for free instead of buying it, right? They weren't recording something that was free on TV. They were recording a thing they would otherwise have had to buy. So the economic harm is super clear. Last echo of the Sony case. Delightful because it also involves Sony, but this time Sony is on the other side. This case was actually decided this year. It was a Supreme Court case. And in this instance, Sony's music label had sued Cox Communications, internet service provider. And Sony's complaint was that Cox was not doing enough to crack down on Cox customers who were stealing Sony music online. Like Napster Echo 2.
41:29
Speaker 2
The Supreme Court... The internet service.
41:31
Speaker 1
The internet, right.
41:32
Speaker 2
And the internet, we know from the other cases, can be used for a lot of other things.
41:37
Speaker 1
Yes. And so, in fact, the Supreme Court's opinion came out earlier this year, came out in 2026. It was a unanimous opinion. It explicitly cited the Sony Betamax case. And it said that because the service that Cox is providing, the internet... has substantial non-infringing uses. Cox was not liable for contributory infringement. Cox won. Sony lost in large part because of the Sony Betamax case.
42:04
Speaker 2
I love that Sony was on both sides of this. So elegant.
42:08
Speaker 1
So that's the end of the court story. But we still have to tell the story of the format war, Betamax versus VHS.
42:15
Speaker 2
We'll get to that after the break. And we are back from the ads.
42:22
Speaker 1
So it's 1975, Sony has just brought out the Betamax. It's a great machine. Sony has everything going for it. You know, they have essentially just invented the VCR. They have it to themselves. They have first mover advantage. They're a giant, successful company. They have distribution, they have marketing, they have enough money, as we know, to fight Hollywood studios all the way to the Supreme Court. And yet, Sony is not gonna win. The Betamax is not going to win. They're going to get beat by a different format made by a different company. They're going to get beat by VHS. And so the big, interesting history of business question is why? Sony's got everything going for it. Why do they lose? You probably have a friend who was like, it's because of porn. People love to say the Betamax lost because of porn, because the porn industry chose VHS and porn was so important to the early video industry that that drove everything that followed. Now, it is true that porn was central to the early home video business. It was most of the rental business in the early years.
43:26
Speaker 2
I'm sad that we have to do this in a show with Mr. Rogers in it.
43:29
Speaker 1
Sorry, Mr. Rogers. But in fact, Mr. Rogers, hide your ears, plug your ears. You could get your pornographic movies, your pornos, as we used to call them, on VHS or Betamax. Porn was, if not platform agnostic, at least open. You could get them however you wanted them. So it wasn't porn that turned the tide. Here is, in fact, what happened. The year after Sony brought out the Betamax, JVC, another of the Japanese electronics companies that we talked about, JVC brought out the VHS, its own format, a different format.
44:05
Speaker 2
They had been cooperating with Sony on formats, right? beforehand.
44:09
Speaker 1
Beforehand, and Sony had gone to them and asked if they wanted to get in on the Betamax. They said no, and this is why. They were already working on the VHS, and they were worried, as I mentioned earlier, that an hour, the first Betamax was one hour max, was too short, and the VHS could record two hours or more. But Sony quickly caught up in time. Sony quickly brought out the two-hour Betamax tapes. It turned out the The key difference between JVC and Sony, between VHS and beta, was JVC teamed up with Matsushita, so their big company, and started cranking out a huge volume of VHS machines. They teamed up with other Japanese manufacturers and actually let those manufacturers sell the machines under their own logos. They were white labeling.
44:59
Speaker 2
Very smart.
45:01
Speaker 1
And Sony made some deals of its own. They weren't on their own. They licensed the Betamax technology, but they were reluctant to manufacture machines and let other companies sell them. You know, Sony's whole thing, it would be like Apple doing that.
45:14
Speaker 2
Yeah, and in Sony, you know, a giant corporation had counted on a certain profit margin, I'm sure, from their new invention.
45:20
Speaker 1
And....
45:22
Speaker 2
They were not ready to lose that profit margin.
45:25
Speaker 1
So it is this moment when there is this incredible machine or these two very similar but not compatible kinds of machines coming out into the world. There is huge demand. And at this key moment, basically the late 70s, JVC and Matsushita are able to get more VHS machines out into the world more quickly than Sony was able to get Betamax out into the world. And so VHS starts pulling ahead, and then you get into the early 80s, and video rental starts to be a big business. Shout out to our Wayne Izenga show, blockbuster video show. And this turns out to be important for the format war for a really interesting reason, and that is... So more people are starting to.
46:14
Speaker 2
Have VHS than Betamax. Yeah, slightly pulling ahead.
46:18
Speaker 1
As a result, video rental stores stock more VHS tapes than Betamax. They're just serving the customer. So now, you see where this is going? Yes.
46:28
Speaker 2
So if you're going to go out and get a machine, you look at the video store and you're like, oh, there's so many more VHS tapes. I should probably get a VHS machine.
46:37
Speaker 1
That's right. And now.
46:40
Speaker 1
VHS is just winning by more. More and more people are buying VHS. So the stores have more and more incentive to carry more VHS. And we all knew the guy who was like.
46:47
Speaker 2
But wait a minute, Betamax looks better. It's higher quality.
46:51
Speaker 1
It should win.
46:52
Speaker 2
It's the better format.
46:53
Speaker 1
But I need 70 copies of Top Gun available for me right now. This is a network effect, right? This is a network effect, which is an idea that's going to become hugely important in you know, in the decades to follow, in the internet era, right? If you think of Uber, of Airbnb, famously of social networks, you know.
47:14
Speaker 2
Facebook, yes.
47:14
Speaker 1
The more drivers and riders there are, the better a car service platform works and the more people are going to join it. Same thing with vacation rentals. Same thing with social network. If 10 people are on a social network, it doesn't work. If a billion people are on it, it works.
47:31
Speaker 2
Yes, that's why all these companies are using the JVC model, which is get big fast. Get big as fast as possible, because if it seems like you're winning, then you are winning.
47:42
Speaker 1
Yes, VCR formats are winner-take-all. And in fact, by the time Sony won in the Supreme Court in the 1980s, VHS was outselling data in the U.S. by three to one. Sony didn't give up. In fact, they kept making Betamax machines until 2002, which is shocking to me. Like, who was even making video cassette recorders in 2002? They didn't give up. But I will say, the VCR format wars really ended much earlier than that. They ended in 1988, when Sony itself started making VHS machines. Today's show was produced by Gabriel Hunter Chang. Our engineer is Sarah Bruguier. Our showrunner and editor is Jake Harper. Special thanks to Alex Nizam. I'm Jacob Goldstein.
48:30
Speaker 2
I'm Robert Smith. Thanks for listening.
The Hosts
Robert Smith
Robert Smith, co-host of the Business History podcast, is a Professor of Journalism at Columbia University and contributing host of NPR's Planet Money where he tells stories about how the…
