The Copyright Industry's So-Called "Value Gap" Is Actually an Innovation Gap

The is a crucial year for the Internet in Europe, because 2017 will see key decisions made about the shape of copyright law in the EU. That matters, because copyright is in many ways the antithesis of the Net, based as it is on enforcing a monopoly on digital content, whereas the Net derives its power from sharing as widely as possible. The stronger copyright becomes, the more the Internet is constrained and thus impoverished.

There are three key areas in the proposed revision to the EU's Copyright Directive where the Internet and its users are under threat from attempts to strengthen copyright. First, there is the panorama exception, which allows people to take pictures in the street without needing to worry about whether buildings or public objects are subject to copyright. Despite this being little more than common sense – imagine having to check the legal status of everything in view before taking a photo – copyright maximalists are fighting to stop a panorama exception being added to EU law.

The second point of contention concerns the link tax, also known as the snippets or Google tax. The last of these explains the motivation: publishers want Google to pay for linking to their articles using snippets of text. Despite the obvious folly of charging for the ability to send traffic to your site, the copyright world's sense of entitlement is such that two countries have already introduced a link tax, with uniformly disastrous results.

When Spain brought in a law that required search engines to pay publishers for the use of snippets, Google decided to close down its Google News service in the country, which led to online publishers losing 10% to 15% of their traffic.

Similarly, in Germany, which also introduced a link tax, publishers ending up giving Google a free licence to their material, so great was the law's negative impact on their business when Google stopped linking to their publications.

The snippet tax is so manifestly stupid that it is unlikely to appear in the final version of the revised Copyright Directive. But the third area of concern stands a much better chance because of the clever way that the publishing world is dressing it up as being about a so-called "value gap." It's a very vague concept – see this new video that explores what it is - but it boils down to publishers being resentful because digital newcomers came up with innovative business models based around legal access to online music, and they didn't.

An interesting speech on the topic by the International Federation of the Phonographic Industry's CEO in 2016 laments the fact that the "value" of the global music industry has recently declined 36% over 15 years. That's not really surprising: during this period the recording industry did everything in its power to throttle or stall new ways of providing access to music on the Internet.

What the so-called "value gap" is really about here is the long-standing innovation gap among recording companies, and their refusal to adapt to a changing world. Imagine if they had embraced the P2P music sharing service Napster in 2000 instead of suing it into the ground. Imagine if they had set up sharing and streaming servers themselves a decade and a half ago; imagine how much money they would have made from subscriptions and advertising, and how much their value would have grown, not fallen.

If this evident innovation gap only harmed the copyright companies themselves, it would not be a problem, so much as just deserts. But they are now lobbying to get the laws around the world changed in important ways purely in order to prop up their old business models in an attempt to compensate for this failure to embrace the Internet. In the EU, they are using the fallacious "value gap" concept to call for mandatory upload filters for all major sharing sites – effectively large-scale surveillance and censorship.

Given that one of the most important consequences of the Copyright Directive could be the curtailing of basic human rights in the EU, it is disappointing that a seminar run by the Alliance of Liberals and Democrats for Europe (ALDE) group in the European Parliament – supposedly made up of liberals in favour of such democratic freedoms – skews the debate so completely in favour of the copyright industry. Judging by the programme, there is not a single representative of the public speaking at the event – which is pointedly entitled "Copyright reform: Sharing of the value in the digital environment" - pretty much guaranteeing a biased and unhelpful discussion.

That failure by ALDE even to acknowledge that EU citizens have anything useful to contribute, or any right to speak here, does not bode well for the ultimate outcome of the Copyright Directive negotiations later this year. ALDE needs to start caring about and listening to the millions of citizens who voted for its MEPs. At the moment it seems to have uncritically swallowed the backward-looking copyright industry's framing of the problem as a non-existent "value gap", when the deeper problem is its continuing innovation gap. As a result, this year could see key aspects of the Internet's operation, to say nothing of privacy and freedom of speech, gravely damaged because of yet another expansion of copyright's reach and power.

Why The Supreme Court's 'Grokster' Decision Led To More, Not Less, P2P Filesharing

In the 2005 "Grokster" decision, the Supreme Court ruled unanimously that file sharing networks could be held liable for copyright infringement if they take "affirmative steps" to encourage infringement. Grokster closed down as a result, and the recording industry pretty much assumed it had won that battle


But as a fascinating analysis by Rebecca Giblin of what happened afterwards points out, against the industry's expectations, P2P filesharing flourished: 

Techdirt.

Pig-headedness, not Piracy, Killed Recorded Music

An extremely feeble article in the Guardian parrots the recording industry's line that piracy is killing music:

Global recorded music sales fell by almost $1.5bn (£930m) last year as digital piracy continued to take its toll on the industry, with the UK losing its mantle as the third-largest music market after "physical" sales of CDs collapsed by almost a fifth.

Sorry, I think I missed the proof that this fall was *caused* by piracy: any evidence? No, I thought not. Whereas there is growing research that unauthorised sharing actually increases sales (see the list of examples and links in this post.)

Perhaps the problem is rather that the sales being driven by this unauthorised sharing just aren't being generated fast enough to compensate for the overall decline in the recorded music industry. After all, there's nothing that says it must always grow. Maybe people are just fed up with its antics now that there are plenty of other kinds of music available (under cc licences, for example.)

In fact, there's a rather telling graph that the IFPI has kindly provided. It shows, of course, the decline in total sales of recorded music, breaking it down by "physical", "digital" and "recorded rights". The last of these is pretty much constant, while digital is growing at a modest pace.

But as is so often the case, this graph tells us something quite different from those "obvious" figures - and something rather interesting: that digital sales didn't really exist before 2004.

Thank about it: it took five years after Napster was created before the recording industry finally began to acknowledge the existence of a revolution whose inevitability was obvious to anyone who had spent a few hours online. Is it any wonder that people got fed up with the exorbitant pricing and inconvenient packaging of CDs, and despaired of ever being treated fairly with reasonably-price downloads?

In effect, it was the industry's pig-headed refusal for half a decade to sell people what they wanted that has driven users away. If some - even many - of them turned to unauthorised downloads, is it really any wonder? So before we blame the pirates, how about a word or two for the owners of those heads?

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The End of Copyright's Social Contract

Copyright is based on a social contract. In return for a government-enforced, time-limited monopoly, artists create - the idea being that without that monopoly, it would not be worth their while to produce works because copies could be made that would undermine their value and hence the artists' livelihood.

Of course, this flies in the face of the fact that Shakespeare, Rembrandt, Bach and all the rest enjoyed no copyright in their works, and yet, demonstrably, produced rather a lot of rather good stuff.

Ah, yes, but, the content industry will retort: things are different now, etc. etc. The trouble is, we have no way of testing whether things really are different now - in other words, whether, in the absence of copyright, people would carry on creating.

Well, actually we do, because the almost universal sharing of music and other content is effectively creating a copyright-free world for digital artefacts. For recorded music, which is now overwhelmingly digital, that means what is more or less a copyright-free world. And so, following the logic of the industry, music creativity should be falling through the floor as musicians everywhere throw up their hands in despair, crying: "oh, where is my old quid pro quo?"

Given this interesting situation, it would of course be fascinating to know whether that is the case or not. That's a non-trivial piece of research for a number of reasons, but Joel Waldfogel at The Carlson School and Department of Economics, University of Minnesota has made a valiant effort to deal with the problems, and published his results [.pdf]:

In the decade since Napster, most observers have concluded that file-sharing undermines the protection that copyright affords recorded music. What matters for consumers, however, is not sellers’ revenue but whether the diminished appropriability will reduce the availability of new recorded works. The legal monopoly created by copyright is justified by its encouragement of the creation of new works, but there is little evidence on this relationship. The file-sharing era can be viewed as a large-scale experiment allowing us to check whether diminished appropriability stems the supply of new works. Using a novel dataset on the supply of new recorded music derived from retrospective critical assessments of music such best-of-the-decade lists, we compare post-Napster album supply to 1) its pre-Napster level, 2) pre-Napster trends, and 3) a possible control, new song supply following the iTunes Music Store’s revitalization of the single. We find no evidence that recent changes in appropriability have affected the quantity of new, acclaimed recorded music or new artists coming to market. We reconcile a stable flow of new works in the face of decreased demand with evidence on reduced costs of bringing works to market and a growing role of independent labels.

Looks like the social contract can now be torn up: even without that copyright monopoly - and remember, monopolies are bad things - artists are still creating.

Now, one study is hardly definitive proof, but it's suggestive to say the least. In particular, taken together with all the other evidence that sharing really doesn't hurt the music industry overall, it provides another shiny nail for the copryight maximalists' coffin. (Via Michael Geist.)

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Sharing the Credit for Sharing

Time magazine has one of those tiresome list thingies: "10 Ideas That Will Change the World" (pretentious, moi?). To its credit, it does correctly identify one of the key ideas that is already re-shaping our world:

it's the young who are leading the way toward a different form of consumption, a collaborative consumption: renting, lending and even sharing goods instead of buying them. You can see it in the rise of big businesses like Netflix, whose more than 20 million subscribers pay a fee to essentially share DVDs, or Zipcar, which gives more than 500,000 members the chance to share cars part-time.

So, where do they think this all started?

Even as Bush was announcing its birth though, the ownership society was rotting from the inside out. Its demise began with Napster. The digitalization of music and the ability to share it made owning CDs superfluous. Then Napsterization spread to nearly all other media, and by 2008 the financial architecture that had been built to support all that ownership — the subprime mortgages and the credit-default swaps — had collapsed on top of us.

Well, Napster was an important moment when the idea of sharing spread to content, but it was definitely following in the footsteps of the Internet and free software, particularly the latter. When Napster arrived, RMS had been articulating the moral imperative to share for a decade and a half, and his followers had been doing it for nearly as long.

So although it's good to see the idea of sharing singled out in this way, it's sad to see poor old Richard Stallman and the free software crowd once more written out of history.

Follow me @glynmoody on Twitter or identi.ca.

The (I)Meem They've Been Waiting for

The music industry has finally found an online music model it can live with:

Imeem, a social networking site that was in the recording industry's crosshairs earlier this year for allowing file-sharing on its network, has pulled off an impressive feat. This summer it settled its lawsuit with Warner Music by promising to give Warner a cut of advertising revenues from the site. Now the Wall Street Journal is reporting that it's signed similar deals with all four major labels, meaning that Imeem is now the first website whose users have the music industry's blessing to share music for free.

But wait, even though it's a streaming site, it's not actually much different from all the download sites the music industry professes to hate:

it's quite easy to download music files from Imeem using third-party tools. And because Imeem's site doesn't use DRM, Imeem downloading tools are probably legal under the DMCA. So what we have here is the de facto legalization of Napster-like sites, as long as the record labels get a cut of the advertising revenue. It's an exciting development, albeit one that should have happened seven years ago.

Don't Mess With Our Thing

This litany of music industry woes is an object lesson in what happens if you fight the (Net) Family:

The major labels are struggling to reinvent their business models, even as some wonder whether it's too late. "The record business is over," says music attorney Peter Paterno, who represents Metallica and Dr. Dre. "The labels have wonderful assets -- they just can't make any money off them." One senior music-industry source who requested anonymity went further: "Here we have a business that's dying. There won't be any major labels pretty soon."

Amazingly, it could have all been so different:

Seven years ago, the music industry's top executives gathered for secret talks with Napster CEO Hank Barry. At a July 15th, 2000, meeting, the execs -- including the CEO of Universal's parent company, Edgar Bronfman Jr.; Sony Corp. head Nobuyuki Idei; and Bertelsmann chief Thomas Middelhof -- sat in a hotel in Sun Valley, Idaho, with Barry and told him that they wanted to strike licensing deals with Napster. "Mr. Idei started the meeting," recalls Barry, now a director in the law firm Howard Rice. "He was talking about how Napster was something the customers wanted."

So near and yet so far. (Via IP Democracy.)

Why YouTube is Napster 2.0

Being of the older generation, I've never really gone wild over YouTube. But I recognise and salute its cultural importance, because it represents yet another instance of people's innate desire to share. But as this post by fellow old fogey John Battelle points out, YouTube has a big problem: the majority of its content is basically illegal according to current copyright laws.

So here we have a young people's phenomenon that is spreading like wildfire, and that is doomed once the Content Commissariat realise what's going on and decide to get their legal clubs out. In other words, it's Napster 2.0.