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Is it really time to rethink copyright law? - May 27, 2008

Media Wonk normally tries not to get in the middle of pissing matches between other bloggers. But having disgorged at length on the economics of online music in my last post I'm going to risk sticking my nose ever so gingerly into the lengthy exchange on the same topic today between Hank Williams of Why Does Everything Suck (by way of Silicon Alley Insider) and Michael Arrington of TechCrunch.

Both of their posts are well worth reading, as are many of the extensive comments each has attracted. But there are flaws in each of their arguments.

First, Arrington should know better than to argue music with a guy named Hank Williams. Just seems like you're tempting the music gods. That said, Williams is wrong on one significant point. He says:

In all p2p cases and in the YouTube case, the entity being criminalized or sued is not the viewer but the "facilitator". This means the person who posted or makes available the content, or the service itself. I do not believe there has ever been a case of someone being charged with anything for receiving, watching or listening to pirated content.

Actually, the MPAA and the RIAA between them have sued thousands of individuals for receiving, watching and listening to allegedly pirated content. The RIAA maintains that it is targeting major uploaders of music, whom I suppose could qualify as "facilitators," but as a practical (and evidentiary) matter, they're suing people for downloading. Based on the judge's latest ruling in the Howell case, in fact, the RIAA's whole "making available" argument (i.e. "facilitating") against individual file-sharers may not hold up.

Williams also argues that if the recorded music business were to collapse utterly, so too would the concert business (Arrington's preferred revenue source for artists) because record label marketing dollars would no longer be around to drive concert business.

True, but concert promoters and artist managers would still have an incentive to market live performances--perhaps more than ever without a label plugging radio play.

Arrington, on the other hand, starts from a series of faulty premises yet manages to stumble onto a part of the answer in the end.

In January he wrote:

You can disagree as to whether it’s “fair” that the price of recorded music will be zero or near zero, but you can’t disagree that it’s going to happen...[E]ven offering the new RadioHead album for free didn’t stop massive file sharing on BitTorrent. More recently, NIN’s Trent Reznor was disheartened to see that, when offered a choice between downloading a new album for free and paying $5 (and, thereby “feel good about supporting the artist directly”), only 18.3%, or less than 1 in 5, chose to pay the $5.

The price of music on the Internet is not free. It's just not billed directly. Apple, for instance, has found a highly effective means of extracting value from (i.e. pricing) music online: using it to sell iPods. The problem for the record companies is not that music (or other copyrighted content) has no value online; it's that merely publishing content on the Internet (i.e. making it available) is not an effective mechanism for realizing its value because it's effectively impossible to maintain exclusivity. But those who can figure out how to give people access to what they want, and the tools to customize its use, are doing an excellent job of extracting value.

Ironically, Arrington himself unwittingly acknowledges as much in criticizing the notion of attaching licensing fees (a "tax" he calls it) to consumers' ISP bills. From January:

Personally, I think a new era of free recorded music and paid live performances is a very good thing. Recorded music will become a marketing tool to get people to pay for concerts and merchandise. Overall the music industry will be smaller in terms of revenue. But the artists who are driven to create their art will continue to do so, and many will make a very good living from it.

But before that happens, the music industry is going to make one last stand to preserve their “bloated bureaucracies.” And that is going to be a call for a music tax to create guaranteed revenues.
[snip]

So far they’re just testing the water. The big push will come when the labels put lobbying dollars behind the effort, sometime in the next few years.
[snip]

Soon labels will complain that revenues aren’t high enough to sustain their businesses, and demand a higher tax. It will go up, but it will never go down.

A tax imposed by the government may not be the best approach. But there's no question that value is being exchanged at the point of access. To get music online, you need an ISP. People are willing to pay for it. The problem for the record companies is that they're not part of that exchange, so they don't realize any of the value.

As I argued in my previous post, the conflict between users and rights owners is not fundamentally a legal issue, it's an economic one. Therefore, "rethinking" copyright law per se, as Arrington suggests in today's post, is not really the answer.

For the record companies as well as artists, the answer is going to lie in figuring out how to use the exclusive rights granted them by copyright law to construct a business model that lets them share in value other people create from their music.

My suggestion: stop thinking so much about your "exclusive" rights and think more about maximizing value.
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