Peggy Entwistle climbed to the top of the iconic "Hollywoodland" sign in 1932 with a head full of hurt. "I am afraid I am a coward," began her suicide note. The aspiring actress plunged to her death.

Hollywood appears to be following in Entwistle's footsteps, even if yesterday's legal victory against RealNetworks (NASDAQ:RNWK) appears to be a win for Tinseltown.

A district judge ruled against RealNetworks, in preventing the media-software giant from selling its RealDVD program or licensing it to set-top box manufacturers.

RealDVD was introduced last September, and it broke from the pack of notorious DVD-ripping software by retaining a disc's copy-protection features. Users can make a digital copy of a commercial DVD, stored on their computers or laptops, but the copy cannot be burned onto a blank DVD.

"Totally legit," reads the RealDVD product page. "RealDVD is 100% legal, so you can save movies with confidence."

I guess we'll see what the appellate judge has to say, now that RealNetworks woke up on the wrong side of the preliminary injunction.

You have to feel sorry for RealNetworks. It went out of its way to play nice with the studios, assuming that it was well within its right to offer DVD buyers the right to archival copies.

Studios didn't see it that way. DVD sales have been faltering lately, even though first-run flicks are as popular as ever at the local multiplex. RealDVD was as convenient a scapegoat as any to explain the industry's optical disc shortcomings:

  • The popularity of Netflix (NASDAQ:NFLX) and Blockbuster (NASDAQ:BBI) make renting a snap, and a borrowed disc can be just as easily ripped as a purchased one.
  • Someone can rip a new DVD and pass it along to a friend, shaving a pair of potential sales in half.

Unfortunately, the studios have bigger problems than a $30 product that RealNetworks has temporarily stopped selling.

Couch potatoes have too many choices these days. TiVo (NASDAQ:TIVO) boxes and Comcast's (NASDAQ:CMCSA) TV Everywhere initiative regurgitate programming on demand. Google's (NASDAQ:GOOG) YouTube offers up a seemingly infinite supply of video clips. Studios have a lot of competition outside the multiplex.

This doesn't mean consumers want to see fewer full-length films. Netflix wouldn't be growing if that were the case. The one thing that has changed is the perceived value of the optical disc. Netflix is thriving because it offers unlimited DVDs as well as unlimited online streaming.

The studio may have seen RealDVD as the enemy, but it was actually a value enhancer in disguise. The software made the physical DVD that much more valuable to the consumer, by making it flexible. Instead of an outright disc sale or a rental's revenue share, the studio will probably miss out entirely. Celluloid buffs will just see what's on their TiVo or hit up YouTube.

This can't be what the studios wanted.

Some items with immediate availability on your Netflix reading queue:

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Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He also owns shares in TiVo and is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.