Bad Moon Rising
p2pnet.net Opinion:- Compulsory licensing: good or bad?
Dr Michael A. Einhorn is an economic expert active in the media, entertainment, and intellectual property. He’s an advisor to CONSOR Intellectual Asset Management, a consultant to Digonex Technologies, and the author of Media, Technology, and Copyright: Integrating Law and Economics (Edward Elgar Publishers, 2004).
Now read on >>>>>>>>>>>
Compulsory Licensing: Bad Moon Rising
[Regulatory, Trade Associations]
By Dr Michael Einhorn
A trendy academic proposal that would allow music and movie fans to make unlimited takings of copyrighted content is compulsory licensing. Under a number of proposals, users may freely download music, movies, etc. through P2P networks of various natures. Rights owners would presumably be compensated for their licensing losses through levies instituted by Congress and administered by the Copyright Office. Revenues would be collected on internet subscriptions, computers, storage media, and other services and hardware that have the potential to be used with infringing activity. Levy revenues so collected in the US would be distributed to copyright owners per values assigned by an arbitration panel or royalty tribunal convened by the Copyright Office.
Compulsory licensing presents four practical problems that seriously detract from its workability.
First, the levies would be assessed upon individual equipment purchasers and Internet subscribers regardless of their actual use of P2P technology and level of copyright infringement. For the primary benefit of media companies and their artists and writers, the majority of users would be harmed by a system of taxation that may stifle their purchases and upgrade of equipment. This reduces the network buildout and its ongoing expansion and improvement. .
Second, the arbitration panel or royalty tribunal empowered to establish prices would face the daunting task of parsing out a fixed pot of revenues to contending uses and determining the relative worth of each. HOW TO DO?? As new forms of content come to market, the panel would need to consider the relative worth of a one hundred page novel, a two hour movie, a three minute song, a 4 x 7 photograph, and a five frame comic strip. In addition to comparing unrelated products, the panel would also need to decide the value of different lengths of the same product; ie, how much more a symphony than a song, how much more a full length movie vs a television show or short documentary.
Easy. Right? Of course! Please post your ideas here.
Problems yet compound even more with multimedia works that combine synchronous content from different media, such as photography, prose, and music. If a fabricated cartoon with a Mickey Mouse character unfolds with a background theme song from Eminem, how much goes to MM and how much to M&M?
Third, while immediate transaction costs may diminish under CL, the long-run administration costs for setting and revising the license terms will be considerable. Just imagine the scene. As consumers download increasing amounts of content, copyright administrators and legislators reconvene hearings annually just to adjust the tax instrument in order to keep up with demand. In public utility regulation, the resulting outcome was known as “pancaking”, which was devastating. It was administratively burdensome, redundant, and harmful to the electric utilities whose investments depended upon adequate revenue recovery.
Furthermore, in the foreseeable event that content downloading outgrows anticipated levy dollars, compensation per individual work would necessary diminish. Now we have a big problem – ie, content owners are fighting for a revenue pot that bears no direct relation to sales of underlying content. The uncertain nexus between individual effort and anticipated reward – plus the eventuality that tax revenues may be deficient – evidently harms the incentive of a content provider to invest the resources needed to break a new act, produce a new movie, or publish a new novel.
Fourth, what do we do about foreign takings of US product. Congress evidently can’t levy a fee on their computers or ISP subscriptions. Of course, the Copyright Office has no ratemaking authority over them. How about this? We show up at foreign governments and demand they too institute a levy, to be passed back to US rights owners? We’ll review the rates to determine that they are consistent with our valuations of revenues displaced from P2P. Done deal!
But the worst damage of all would occur to the legitimate music services that are now trying to survive in the market. Let me characterize the present market for these competitive music services:
1. Competition is vigorous. At least Apple, Sony, Napster, RealNetworks, Walmart, Microsoft, and MusicMatch have attracted brand name recognition as music providers since the inception of iTunes in April, 2003.
2. Competition is dynamic – The present state of the market is a far cry from December, 2001 when MusicNet and Pressplay initially offered kludgy services that didn’t permit permanent burning. The labels controlled both
3. Competitors are independent – None of the major retailers in the market is owned or controlled by any label.
4. Competition enables ALL labels – iTunes now has a catalog of over 1 million songs FROM 300 LABELS, including those from each of the Big 4/5 recording companies. The major labels now provide catalog to each of the major services.
5. Prices are at competitive levels — No online provider is making a profit selling downloads. The market price of 99 cents is roughly equal to the cost of underlying content and related bandwidth.
6. Market ideas are interesting; Apple and Sony operate their cutrate service in order to sell iPods and Walkmans. Circuit City recently bought up the digital music platform MusicNow (fka FullAudio), Target has a distribution deal with Napster, and Best Buy distributes music services from Rhapsody and Napster. Music Rebellion and Rhapsody offered introductory product at prices well below.
Let’s see what happens from Yahoo and MusicMatch.
7. New forms of distribution have gone well beyond downloading in a manner to encourage sampling, word of mouth, and buildout of independent music through superdistribution.
Rhapsody offers an all you can eat streaming service for $10 per month. TALK ABOUT SAMPLING!! Musicmatch now permits customers to allow friends to listen to recommended tunes up to three times for free before buying. TALK ABOUT WORD OF MOUTH! Weed actually pays a commission to customers who distribute new songs to other users; Independent music now is the exclusive beneficiary of this model of SUPERDISTRIBUTION. Music Rebellion aims to offer product at prices that may vary by track and/or in time. GREAT FOR NEW BANDS OUT TO BREAK NEW ACTS.
We have here competition at its healthiest – new players, processes, and ideas vying for a market share in a newly developing sector. This enables what economist Joseph Schumpeter called “creative destruction”. Market innovation is a hallmark of dynamic capitalism, a system that this economist – and most economists – have no compunction in endorsing.
What stands in the way of market takeoff of music services? The illegal use of p2p. File “sharers” now take for free many of the very same music files that a competitive music service would offer to the same customers. This bypasses the competitive and innovative structure for digital distribution that is now evolving.
Indeed, consider the facts. Market leader iTunes has sold over 100 million songs since its inception in April, 2003. By contrast, a document from Wharton Business School reports that p2p may have enabled up to 5 billion downloads per day at the end of 2003. [http://news.com.com/Online+musics+winners+and+losers/2030-1027_3-5133561.htm]
Obvious question – Where might iTunes be without p2p? By how much more would the market be developed? How many players? How much use? Based on the facts before me, my guess is the weight of P2P on the new market. is considerable.
Music fans should be more than concerned. We may take now from old catalog, but what is to ensure the development of new catalog and new forms of distribution. That is, what will make the digital bird fly? Not only are legitimate rights owners harmed by illegal file-sharing. A great number of legitimate providers will lose the ability to survive and offer a range of interesting ideas – sampling, playlist sharing, superdistribution, dynamic pricing, and aggressive promotion – if the p2p download persists as the dominant mode of digital music distribution.
With a competing P2P technology effectively subsidized by government revenues, the incentive to initiate and develop new services will be reduced. The outcome will lock in the P2P model without regard to the eventual efficiency of other providers.
September 24th, 2004 at 3:50 pm
“5. Prices are at competitive levels — No online provider is making a profit selling downloads. The market price of 99 cents is roughly equal to the cost of underlying content and related bandwidth.”
Hmmmm, I don’t believe this for a second. If the copyright holders weren’t greedy bastards taking an unfair portion of the royalties, jacking up the price, it would be a whole lot cheaper!
September 24th, 2004 at 9:10 pm
Here’s a shot at the problems of collecting a tax of levy
to balance the downloading of copyrighted content.
Not guaranteed to make sense or work.
First,
Do not put levies on material.
Add a surtax to the registration of ip address or some such.
This makes sense because the money will not be used
to placate intellectual property owners,
but rather to promote developpement of new material.
The music industry is threatening a decline in material produced
to justify their bottom line.
The intermediaries are not required or even needed to create what they call “content”.
Disregard their faulty and self-interested statements.
Second,
Do not try to equate downloads (or uploads) with levies to be distributed to all “worthy”.
Such a goal is extremely difficult, fruitless and well insane.
Instead, create an agency to promote development of new art
by, for example, offering prizes according to a scheme of popularity
weighted by a review of worth by peers.
Thus, you reward artists for their contributions and encourage them
to create more art, which is what this should do.
Prior art “rights” accumulation into monopolies are ignored, dejected and rejected since they are not relevant to the issue of CREATING quality art.
Third,
A proportionnal constant value for the tax is provided based on the bandwidth available and/or used.
You use real actual values used to back the internet backbone
and to determine how much to charge for ip address, bandwidth, etc.
So, for an extremely unthough of example to show possible mechanism,
but not to show an actual implementation:
Say you have access to a T1 connection.
You pay a low flat rate for your bandwidth potential (including redistribution), potentially based on the cost of ip address registration.
Then you pay a low flat rate proportionnal to the average bandwidth you use.
The idea is to reward creation of art, not to make a system of accounting to simulate a large amount of non-existent sales.
You do not want to strenghten monopolies,
you wish to encourage artists.
Fourth
Since you are not placating the middle man,
but rather promoting local artists,
you do not need to control the source and type of material swapped.
Let other countries do as they will with their citizens since
your laws do not apply there.
The plastic music sites selling all the same product obviously
do not live in reality with their flat overcharged prices.
And what you get is a crippled, limited “product” wich you specifically
cannot use for what you want without asking permission to the monopolistic music industry.
Try to sell hammers by forcing people to use your proprietary nails
that you overcharge and that are limited in availability.
With the availability of source material freely distributed,
new markets open to provide a _better experience_ not only to provide
the art but also to integrate it better together and to provide support, merchandise…
And guess what?
The labels do not get to choose who has the right to provide services.
Wich can only help competition and free enterprise.
The point is, if the legislations does not represent the people’s belief
of what is just and right, they will not change the people.
The people will change the legislations.
And to those who wish to manifacture belief
by bullying the schools into brainwashing students,
you should note that resistance increases with insistance.
Also remember that the children eventually grow up.
And if they are upset, it might be because someone tried to control them.
In closing, there are always solutions.
You just need to find one that works for you.
If you do not find a solution, you need to search further, not give up.
September 25th, 2004 at 4:30 am
Man this is a hell of a post!!!!!!