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The Revolution Will Be Downloaded

Does peer-to-peer file sharing spell feast or famine for the recording industry?
 
 
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In the 1980's, Jack Valenti, Hollywood's top lobbyist in D.C., declared that "the VCR is to the American film producer and the American public as the Boston Strangler is to the woman home alone." At the time, there was a panic in the film and TV industry that VCRs and their record buttons would allow consumers to avoid advertising and copy programming without paying for it. The studios would go bankrupt overnight! Hollywood assembled legions of attorneys and took its battle all the way to the Supreme Court, which ruled that there was nothing inherent in VCRs that encouraged copyright infringement. Consumers were allowed to have their record buttons after all. Good thing for Hollywood too.

Twenty years later, revenues from videotapes and DVDs amount to double what the film industry gets at the box office -- over $25 billion. Mark Cooper, director of research for the Consumer Federation of America, writes that Hollywood's initial fears in the face of a new distribution technology is hardly different from the piracy panic surrounding the invention of the telegraph in the 1870s. News organizations at the time feared that other outlets would use telegraphs to steal information from each other. This too, was eventually resolved in the courts, and the newspapers did very well by the telegraph.

Cooper sees the same trend of piracy panic underway in the recording industry's battle against online file-sharing programs: a fearful attempt to control the rise of a new means of content distribution.

The recording industry won its first battle in 2001 against the file-sharing site Napster, in a case that went to the 9th Circuit Court of Appeals. The Court ruled that the Napster's means of file sharing encouraged illegal copyright infringement -- Napster connected consumers to one another, allowing them to share content -- and eventually the site was shut down. The post-Napster generation of file-sharing programs have gotten around this by setting up a system that allows for the exchange of files without storing them on a central network. Users who sign up on the same peer-to-peer system can access and download the files of any other user. The film and music industry filed a case against Grokster, one of the more popular peer-to-peer sharing sites, in the 9th Circuit last year. The 9th Circuit ruled in favor of Grokster using the same logic the courts had made for VCRs back in the '80s. The recording industry appealed the ruling.

The Supreme Court has already heard arguments in the Grokster case and a ruling is expected in June. AlterNet spoke on the phone with Mark Cooper from his Washington D.C. offices about the Grokster case in the wider context of the future of peer-to-peer file sharing, and whether it will enrich the recording industry or cause its demise.

You say that the court battles over file-sharing technologies represent a debate about progress, not piracy. But isn't the legal basis of these court cases like Grokster about piracy?

The recording and film industry has tried to frame this as a debate about piracy and copyright infringement. They've got into a major piracy panic. But the Supreme Court justices made clear in their questioning that [the] technological progress question is at least as important -- if not more important than the piracy question.

The recording industry killed off the first generation of peer-to-peer communication with [the] likes of Napster, but they haven't been able to kill off the second generation. The irony is that last year they started to make lots of money using virtually the same technology they've taken to court. The record companies took about six years to figure out that they could sell singles online. And they sold more singles last year than they've sold in over 20 years, so in a certain sense, the cat is out of the bag. It's clear that it's very low cost. And that's what this is about. The recording companies lost control of the technology to distribute content.

There's a lot of arguments being made about the advantages of not clamping down on peer-to-peer networks; that doing so will hamper technological innovation, hurt consumers, or punish innocent parties. But what's the argument that's going to win in the Supreme Court?

The justices clearly are thinking about two things in their questioning. They clearly don't want to undermine technology and the incentive to invent new technologies for distribution. The other thing they're saying is that you can clearly invent business models that infringe copyright that allow for the download of songs that aren't warranted. What may happen here is that the recording industry is so upset about the technology that they rushed to the Supreme Court without having a case on whether or not Grokster was infringing on their copyright; you know, was it an inducement to infringe, and so what the Supreme Court may say is that technology is not guilty, but that businesses designed to infringe copyrights are, and then tell the 9th Circuit to look at the rest of the case.

The recording industry raced this to the Supreme Court. They wanted to get the grand slam, so to speak. They wanted to knock the technology out of the box -- shut peer-to-peer down altogether -- rather than to have to get law to clarify which peer-to-peer business models are good and which are bad.

You write that whatever happens with the Grokster case, it's going to be one of many fights. Do you think it's going to be the eventual string of losses or victories for file-sharing technology that will decide the final result? Or will it be because peer-to-peer becomes too immersed in society?

I think it will be the ubiquity of peer-to-peer. The point is that the industry is going to find it impossible to get peer-to-peer out of the marketplace. You knock Napster down, and 50 more spring up in its place, adapting to the law. Meanwhile, it took the record companies took about six years to figure out that they could go online too, and sell music. It's going to be harder and harder for them to sell whole albums on CDs. I see it going this way: most music will be sold one-by-one; digital singles. Artists will increasingly find that they don't need labels [to] promote their music, and they'll move to build direct relationships with their audience.

That's how it's going to work in the digital age. It's a win-win for consumers and creative artists. Look, a creative artist who sells two digital singles for two dollars with peer-to-peer makes more money than they would selling a $16 CD through a recording label. Imagine leaving $14 dollars in the consumer's pocket, some of which will be bought buying a third and fourth song from that same artist. That's where the win-win is. This is a real dramatic efficiency in improvement.

But I didn't hear from you that file-sharing is going to help out the recording industries. It's a win-win for consumers and creative artists, but what about the companies?

Clearly [for] the label owners and the recording companies, their distribution model is based on a brick-and-mortar distribution model that they can control. That's over. That's going to disappear, no doubt about it. They will clearly try to use their labels and promotion to maintain a significant role in the middle of the industry, but that will diminish over time. There's no doubt that the creative industries are going to look very different in the near future. They've held on to the means of distribution for decades.

We're on the verge of a dramatic revolution in the production of cultural goods. It's important to remember just how expensive it is to market and distribute content the way the recording and film industries do now -- the production of CDs, the ad campaigns, the delivery of CDs to market, etc. Compare it with peer-to-peer, which is a direct transmission of content from producer to consumer. The recording companies as we know them will disappear.

Do you think recording labels see Grokster as a fight for their lives?

That's exactly how they've treated it. They see what the stakes are. They need to find a way to kill this technology. But they're screwed. All the new profits are coming off the selling of singles digitally while the traditional model of selling records through marketing campaigns directing consumers to music stores is drying up. So now they sue everybody all the time immediately. They understand very well that the economic basis of their dominance of the industry is threatened by these new technologies.

To read more on this issue, read Mark Cooper's new report, Time for the Recording Industry to Face the Music.

 
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