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Paul Sweeting

Paul Sweeting is the editor of ContentAgenda.com and a columnist for Video Business. He has covered the home entertainment industries since 1985 for Billboard, Variety, Publishers Weekly and other leading business publications. He is based in Washington, DC.


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Paul Sweeting

Paul Sweeting, Editor
ContentAgenda

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Economist: Copyright is dead - March 20, 2008

No wonder they call Economics the Dismal Science. At the Internet Video Policy Symposium in Washington yesterday (co-sponsored by Content Agenda), a chorus line of academic economists postulated that content owners face a far more difficult challenge than they know in monetizing their content on the Internet, and that the odds that we can build our way out of the current debate over how to manage scarce online capacity are virtually nil.

The most enthusiastically glum was Gerry Faulhaber, a professor at the Wharton School of Business at the University of Pennsylvania and the former chief economist for the FCC. According to Faulhaber, copyright is a dead letter.

"Copyright is a very big issue in the legal world today, but in the business world, when you talk to consumers about protecting copyrights, it's a dead issue," he said. "It's gone. If you have a business model based on copyright, forget it."

According to Faulhaber, the "world of open piracy," created by digital technology will always thwart content owners seeking to leverage the monopoly granted to them by copyright law.

"The music industry is yet to figure this out," he said. "The current iTunes model is probably the best they can do. In both movies and music this is likely to result in substantially lower revenue for content owners." The movie studios will have an even tougher time than the music companies, according to Faulhaber, because some of the monetization models that can work for music--such as advertising--probably won't work for full-length movies.

The likely result? "Content providers will have to hook up with the conduit guys," Faulhaber said. "They're the only ones in a position to monetize content online because they can control its distribution."

Faulhaber was also gloomy about resolving the current stand-off over the allocation of bandwidth.

"Video takes lots and lots of bandwidth, and bandwidth is not cheap," he said. "If bandwidth were cheap, the business would be attracting new entrants, which clearly it isn't."

As a result, some degree of "traffic shaping," or "network management" is both essential and inevitable, as it has been for telephone networks for decades. Regulating or prohibiting traffic shaping, Faulhaber claimed, would only make the problem worse.

"Regulating traffic shaping will reduce available capacity," he said. "If demand exceeds supply, total throughput on a network declines, sometimes to zero. The best illustration of this is highway traffic. When the volume of traffic exceeds that capacity of the highway, everyone has to slow down."

According to Scott Wallsten, senior fellow at the Georgetown University Center for Business and Public Policy, simply building more capacity won't solve the problem.

"Japan has 100 MBs networks and they still have congestion, and ISPs still have to shape traffic," Wallsten said. "If you price something at zero, people will use too much of it. Creating more capacity alone is not the answer to congestion."

What is? Recognizing the value of network management, according to Wallsten. "The data say that a small number of users are creating an externality," he said, using the economists' term for an action that imposes a cost on parties not directly involved in a transaction. "You need to make those heavy users internalize those costs," through something like congestion pricing," he said.

The focus of policy makers, therefore, according to Wallsten, should be on making sure that the unavoidable tools of traffic shaping are not used anti-competitively.

"There's a huge role for anti-trust here, but those laws are already on the books," he said. "We don't need new regulation to prohibit anti-competitive behavior."
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Dave Burstein
March 21, 2008
Response to:
Economist: Copyright is dead

Paul "Japan has 100 MBs networks and they still have congestion, and ISPs still have to shape traffic," Wallsten said is a misunderstanding of the data. The 100 megabit part of the network (the local loop) is not congested. Most major Japanese ISPs do not shape traffic. The ones that do are fighting a cartel on the backhaul/backbone. I'm writing Faulhaber for his data source, but it's unlikely to be reliable. Bandwidth isn't free, but it is cheap. Dave Burstein Editor DSL Prime




Chad
March 22, 2008
Response to:
Economist: Copyright is dead

This article gets one thing (mostly) right and one thing (mostly) wrong. Copyright is dead in the context of a business model. However, it isn't dead if reformed towards innovation as intended by "limited time" in a real sense, such as 14 years, and return to the days of requiring registration, a la Lawrence Lessig's suggestions in "Free Culture". However, it is fundamentally wrong when it comes to traffic shaping. Clogged highways mean people take, and pay for, alternate routes. If internet bandwidth gets swamped then downloading movies and music becomes a hassle and people will turn to alternate routes such as rentals and theaters. Fundamentally, all these predictions of doom and gloom set up a false dichotomy of all or nothing. The reality is that nature always finds an equilibrium whenever any new environmental factor enters the picture. This is as much true of technology, culture, and economics as it is of ecological systems.




Craig Turner
March 22, 2008
Response to:
Economist: Copyright is dead

I'm in the process of building an online network for music in the post-copyright world. Youtube for mp3s. Check out songseed.com. Not much content there just yet.




ldi
March 22, 2008
Response to:
Economist: Copyright is dead

Bad explanation: "Regulating traffic shaping will reduce available capacity," he said. "If demand exceeds supply, total throughput on a network declines, sometimes to zero. The best illustration of this is highway traffic. When the volume of traffic exceeds that capacity of the highway, everyone has to slow down." It's bad because it applies only to socialized highways, where the right to drive is guaranteed for everyone. The transportation equivalent of network neutrality.




John
March 22, 2008
Response to:
Economist: Copyright is dead

My uncapped fibre-to-the-house connection never has any congestion problems as I watch videos online here in Tokyo, thanks.




Joe
March 22, 2008
Response to:
Economist: Copyright is dead

Solutions: 1) Bruce Schneier's Street Performer Protocol. You pay in advance for an artist to produce his next work. Once his threshold is met, he releases it and it's distributed for free, functioning as an advertisement for next time. Old-school economists do a little game theory and conclude it will never work. Behavioral economists recognize there really is such a thing as altruism. Anyone can look at cases where it's been tried and see that it really does work. For new artists, it won't work, so they have to go ahead and release stuff for free, relying on the P2P distribution for free advertising, making money from gigs, merchandise etc until they are big enough for Street Performer. This is not so different from the current system, where they have to do the same thing until they get signed by a record label (after which 99 percent of them get screwed anyway). 2) I know from experience I'll get flamed for this one, but it should be obvious to any economist: Bandwidth is not free, so charge for bandwidth. Charge by the byte. Now everybody jumps on me because they don't want to pay through the nose for their torrents. But would you rather have them drastically slowed by traffic shaping? Would you rather get kicked off your ISP for violating a hidden limit? Would you rather ISPs make up for their losses by charging websites for preferential access? If we quit pretending bandwidth is free, and simply charge for it, then instead of altering the structure of the network and losing network neutrality, we could just have the ISPs compete on the cost of the bytes. With real competition on the simple commodity of byte delivery, the costs would go down. Without that transparency, there's no great incentive to reduce costs.




the_Daniel
March 22, 2008
Response to:
Economist: Copyright is dead

iTunes is not a 'conduit' in any sense of the word: it's a business opportunity the major music and film producers were too stupid to take, despite their market literally begging for it. The habit of downloading 'all you can eat' media for free might never have become entrenched if those producers had responded to demand with a reasonably affordable 'all you can eat' plan.




Bryan
March 22, 2008
Response to:
Economist: Copyright is dead

Joe is right (re bandwidth) - just charge by the (mega)byte. But there should also be some modifier for megabyte <i>delivery speed</i>. IE, a fast megabyte is worth more than a slow one. This will create incentive for ISPs to deliver content quickly - and could also be a way to encourage cost-conscious netizens to spread their traffic to less-congested networks or times.