P2P: Don't Beat Them, Join Them

[David Farber <dave () farber net>]

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 () maximgrp com>
Date: June 25, 2004 9:54:11 AM EDT
To: dave () farber net
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
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Big Picture: Macro perspectives on the Capital Markets, Economy, 
and Geopolitics
http://bigpicture.typepad.com/comments



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