Introduction: Some Key Questions
By David RobinsonWelcome to the symposium! This is the second such event hosted by the Center for Information Technology Policy—our first one, in October, was on The Future of Scholarly Communication. We’ve put together a distinguished group of panelists; the list, with brief biographical notes, is on the symposium’s home page.
Our interest in this topic began with a blog post last week on Freedom to Tinker, Music Industry Under Fire for Exploring EFF Suggestion. Just to get you oriented, here’s an extended quote from the post (if you’ve already read the post, feel free to skip ahead.
Jim Griffin, a music industry consultant who is in the unusual position of being recognized as smart and reasonable by participants across a broad swath of positions in the copyright debate, revealed last week that he’s working to start a new music industry organization that will urge ISPs to bundle a music licensing fee into their monthly service costs, in exchange for which the major labels will agree not to sue (and, presumably, not to threaten suit against) the ISP’s customers for copyright infringement of the music whose rights they own. The goal, Griffin says, is to “monetize the anarchy of the Internet.”
This idea has a long history and has at various times been propounded by some on the “copyleft.” The Electronic Frontier Foundation, for example, issued in April 2004 a report entitled “A Better Way Forward: Voluntary Collective Licensing of Music File Sharing“. This report even suggested the $5 per user per month ($60 per user per year) that Griffin apparently has in mind.
According to the OECD, there were roughly 60 million broadband subscriptions in the United States as of the end of 2006. If each of these were to pay $60 a year, the total would be $3.6 billion a year. I know that broadband uptake is increasing, but I remain unsure how Griffin figures that the proposed system “could create a pool as large as $20 billion a year.” Perhaps this imagines global, rather than national, uptake of the plan? If so, it seems to embody some optimistic assumptions about how widely any such agreement could plausibly be extended.
Some prominent blogs have reacted with ire—Michael Arrington at TechCrunch, for example, characterizes the move as an “extortion scheme.” Arrington argues that a licensing system will hinder innovation because the revenues from it will be constant irrespective of the amount or quality of music published by the labels, and will flow to an infrastructure that, once it begins to be subsidized, will have little structural incentive to innovate. He also argues in a later post that since the core of the system is a covenant not to sue, it represents a “protection racket.”
I think this kind of skepticism is poorly justified at this point. If the labels can turn their statutory right to sue for damages after copyright infringement into a voluntary system where they get paid and nobody gets sued, it strikes me as a case of the system working. And the numbers matter: The idea of a $20 billion payoff that would triple the industry’s current $10 billion in annual revenue does not seem reasonable, but unless I am missing something it also does not seem probable.
After the blog post, we decided to make this idea the topic for our weekly policy lunch. The major take away from lunch was that there are a huge range of interesting questions. Here, to get the conversation started, is a partial list:
- How can we decide the “right” price to charge?
- What would this project do to existing services like iTunes, Amazon mp3 downloads, and Rhapsody?
- Won’t most users copy both covered and non-covered songs? Do users have to discern which songs and filesharing “peers” are also under the umbrella?
- How will downloads be measured? Will indie artists in the “long tail” of infrequent downloads be too small to register at all on the relevant metrics?
These are just a few of the possible angles of entry into the issue. I look forward to the discussion!
April 8th, 2008 at 12:29 am
It might be nice to separate those questions into distinct threads, so I’ll just address the first point. I think it’s safe to assume that a broadly available all-you-can-download license wouldn’t do what the major record companies say it would do — wipe out other music sales. There would continue to be people buying CDs simply because they like the format better — higher sound quality, more convenience, existing players, etc. There would also be a considerable amount of music not available through file-sharing networks, particularly older material, tracks from non-hitmakers and music from international artists. And bands could probably continue to sell new tracks through fan clubs to people who’d pay for the privilege of being the first to hear something.
On the other hand, I think it’s important to compensate the industry for more than just lost profits. Record companies will continue to have significant costs to produce and promote their artists’ work. In figuring out a price, I’d start by multiplying the labels’ annual revenues from physical and digital sales by the percentage of the population that has broadband. I’d reduce that number by 20 to 25 percent, reflecting the demand for music that’s not likely to be available on file-sharing networks. Then I’d reduce that number by a third or more, to factor in the portion of the broadband-using public that would continue to buy CDs (based on the current ratio of about 2 digital units sold for every physical one). That would tell you how much revenue to shoot for. How much that translates to per month depends on whether you take Jim Griffin’s approach of applying the charge to all of an ISP’s customers, or Fred’s approach of leaving it up to individual users to decide. If it’s the latter, the charge would have to be about 50% higher to account for free riders and folks who simply aren’t interested in music.
April 8th, 2008 at 6:16 am
[…] David Robinson’s post asked four good questions, and it would be nice to address them separately. I thought I’d take on the first one, which was: “How can we decide the `right’ price to charge?” I’d like to come at this from the perspective of the rights holders, whose support would be critical. That means predicating the price on how much money you’d want to raise through such a licensing regime. I think it’s safe to assume that a broadly available all-you-can-download license wouldn’t do what the major record companies say it would do, namely, wipe out other music sales. There would continue to be people buying CDs simply because they like the format better — higher sound quality, more convenience, existing players, etc. There would also be a considerable amount of music not available through file-sharing networks, particularly older material, tracks from non-hitmakers and music from international artists. And bands could probably continue to sell new tracks through fan clubs to people who’d pay for the privilege of being the first to hear something. […]