[IP] P2P: Don't Beat Them, Join Them
I personally have a strong -- very strong adverse reaction to the idea
that I , as an internet user, should pay a fee to the record industry
to have the right to listen to something I have NO interest in
listening to. That is the only way I see to manage the fee in a simple
way.
Dave
Begin forwarded message:
From: Barry Ritholtz <britholtz@xxxxxxxxxxxx>
Date: June 25, 2004 9:54:11 AM EDT
To: dave@xxxxxxxxxx
Subject: P2P: Don't Beat Them, Join Them
Hey Dave,
For IP, if you like.
We've been discussing DRM and P2P a lot lately. That makes an Op-Ed in
today's NYT all the more timely. William Fisher, a professor at Harvard
Law School, puts file sharing into a historical perspective, and
reaches some rather interesting conclusions:
Don't Beat Them, Join Them
http://www.nytimes.com/2004/06/25/opinion/25FISH.html
By WILLIAM FISHER
NYT June 25, 2004
With 40 million to 60 million Americans having swapped music files over
the Internet, taking a few hundred of them to court as the Recording
Industry Association of American did this week is, as the legal scholar
Randal C. Picker has remarked, "a teaspoon solution to an ocean
problem." For a few months after the lawsuits began last year, file
sharing diminished, but it has now rebounded. If lawsuits aren't the
answer to this problem, what is?
History may give us some guidance. After all, file sharing isn't the
first new technology to have destabilized the entertainment industry.
The way in which the industry responded to the introduction of three
earlier inventions - radio, the VCR and Webcasting - offers important
clues for music executives today.
In the 1920's, the advent of radio transformed the way most consumers
gained access to musical
"performances." Ascap, then a fledgling organization for composers and
music publishers, initially allowed the infant radio stations to use
its members' compositions without charge. When radio prospered, Ascap
demanded compensation, but kept its fees low. The result was that radio
continued to flourish, and the copyright owners enjoyed increasing
incomes. By 1940, the broadcast industry earned gross revenues of $200
million, of which $4 million (2 percent) went to Ascap members. By
2000, Ascap and its sibling organizations were collecting approximately
$300 million per year from American radio stations, roughly 3 percent
of the stations' total revenues.
The film industry had its own challenge in the 1970's, when the
development of VCR's allowed consumers to record television broadcasts.
The major film studios feared that the new machines, by letting viewers
skip advertisements, would end up hurting television networks and thus
their licensing revenue. But the Supreme Court rejected the studios'
claim that the manufacture and distribution of the devices constituted
"contributory copyright infringement." Did the film industry collapse?
On the contrary, it created a VCR- (and DVD-) dependent market of video
sales and rentals, which today earns the studios approximately $10
billion a year.
Finally, in the mid-1990's, when Webcasters began "streaming" music
over the Internet, they were compelled to pay fees to the owners of the
copyrights of musical compositions, but not to the owners of the
copyrights of sound recordings (that is, the record companies). Fearing
that the new technology would erode CD sales, the record companies then
persuaded Congress to give them a right to compensation from
Webcasters.
But, in contrast to the modest compensation that Ascap got from radio
more than a half-century earlier, the record companies got through
arbitration rates that were so high that, within a year, the number of
Webcasters had shrunk by about a third. The result has been to slow
significantly the development of this industry - cutting into the fees
that record companies could have collected.
It is noteworthy that the story with the happiest ending - both for the
public and for the copyright owners - was the one in which the owners
were denied any share in the revenues earned by the developers of the
new technology but instead had to develop a new business model to take
advantage of it (VCR's). The next best outcome occurred when the
copyright owners first allowed the new technology to take root and then
worked out an arrangement in which they obtained modest license fees
(radio). The least satisfactory outcome occurred when copyright owners
demanded fees that were so high they hurt the growth of the new
technology (Webcasting).
If the pattern holds, then the record industry's response to file
sharing - trying to block the technology altogether - would generate
the worst of all possible results. To its credit, the industry has
started to participate in paid music download services like iTunes, but
a better solution would be to institute a monthly licensing fee paid by
Internet users. History suggests that the record industry, and society
at large, would be better off in the long run if it approached this new
challenge with more open minds.
(William Fisher, a professor at Harvard Law School, is the author of
the forthcoming "Promises to Keep: Technology, Law and the Future of
Entertainment.)
Regards,
Barry L. Ritholtz
Chief Market Strategist
Maxim Group
405 Lexington Avenue,
New York, NY 10174
(212) 895-3614
(800) 724-0761
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