RE: The Register : Free legal downloads for $6 a month. DRM free
Terry Fisher's forthcoming book, "Promises to Keep. Technology, Law, and the
Future of Entertainment" will be published by Stanford University Press
later this year.
Drafts of his Introduction and the chapter on Alternative Compensation
Systems (as .pdfs) are available for peer review at
http://www.tfisher.org/PTK.htm
Terry is the Hale and Dorr Professor of Intellectual Property Law at Harvard
University and the Director of the Berkman Center for Internet and Society.
He's one of the most thoughtful people I've met in this space. His ideas on
ACS are well worth our full consideration, study and discussion.
Here's the entire Register piece.
JP
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http://www.theregister.co.uk/content/6/35260.html
Free legal downloads for $6 a month. DRM free. The artists get paid. We
explain how...
By Andrew Orlowski in San Francisco
Posted: 01/02/2004 at 12:05 GMT
Stay up to date wherever you are, with The Register Mobile
Imagine a world where music and movies could be freely exchanged online,
where artists are recompensed and the labels don't lose a cent, and where
12-year old girls need not fear harboring an MP3 of their favorite TV show
theme tune on their PC.
All that could be yours for less than the price of a subscription to
Napster: for less than $6 a month. Harvard University Professor Terry Fisher
has completed the first comprehensive examination of various alternative
models and the one we outline here offers such tantalizing social benefits,
that even the most jaded sceptic ought to pay attention. Professor Fisher
belongs to the school of forensic sceptics rather than the school of
wide-eyed techno-utopians, and he's spent three years trying to make the
sums add up. We think it's worth a look, and we think you ought to take a
look too. (To make his task even more difficult, Fisher's license model also
takes on the additional onerous task of compensating Hollywood, too).
How does it work? Let's look at the sums: what level of compensation do the
labels, studios and artists need to make it worthwhile?
Fisher actually lays his philosophical armory down for us to inspect at a
very early stage, and it's thus. Economies have had a lot of trouble with
public goods that are 'nonrivalrous' - if you use it you're not depriving
someone from access - and 'nonexcludable' - it's actually hard to make them
exclusive. Examples of the latter include roads, defense, and culture. It's
a real danger that if no one pays, then nothing gets done: the roads
crumble, the country becomes vulnerable, and aspiring pop stars give up
their dreams of one day snorting cocaine from an expensive prostitutes
thighs.
But our flippant illustration of the final example is not entirely
accidental. Many artists forsake fame for fame's sake - but the beauty of
alternative reward models is that there's no disincentive for them to become
popular, either. To cite an example, when we've discussed flat fees before,
someone usually writes in with some anguish to complain how this would only
reward Michael Jackson for being popular. But what's wrong with that? There
was a time when he was very popular, and deservedly so.
So let's start at an accountant's year zero.
Calculating lost revenue
In the year 2000, the record labels earned $7 billion on retail sales of $13
billion. For the sake of argument, let's assume that in the first year 20
per cent of retail sales were lost to unlimited copying. That's $1.4
billion, although they'd save $210 in manufacturing costs, and approximately
$145 million in mechanical royalties. That brings the compensation to $1.045
billion for the recordings royalties and $138 million for songwriters, plus
an amount for lost radio-related royalties.
For the movie industry, calculating the potential loss is extremely
difficult. Firstly it's hard to estimate how much the industry earns now
from DVD and VCR sales and rentals, and cable and satellite deals. And it's
even harder to gauge the loss from file swapping. Even with the advent of
Bitorrent, downloads are slow, and few have the patience or resources to
find value in them compared to the availability on offer at plentiful late
night retail outlets. Fisher reckons five per cent, rather than twenty per
cent for the music business, of a $10 billion industry, or $479 million.
So combined, that's $1.677 billion to keep the RIAA and the MPAA happy.
But of course that's not all it would cost: the model requires an
organization to calculate and distribute the royalties, performing the
duties of ASCAP or BMI today. ASCAP reported that its 1998 administrative
overhead was 16 per cent, so Fisher generously estimates 20 per cent. (It's
pretty generous, as we'll see, because the digital overhea ds may actually
be much lower). This takes - and bear with us, because it also generously
throws in a 10 per cent charge for inflation between 2000 and 2004 - the net
result to $2.306 billion.
So who pays?
Raising the money
If it was implemented as a regressive poll tax, with 87 million household
filing IRS returns, each household would pay a mere $27 extra a year: a
little over $2 a month, or $51 cents a week. That's half the price of a
single iTunes Music Store song.
That's the most efficient way, with the lowest overheads.
However, any kind of income tax increase is obviously a hard sell,
especially in God and Gubbment-fearing America. And there are many sound
objections. Why should the poor subsidize the rich? Why, notes Fisher (who
clearly must remember the culture wars of the early 1990s), should a
proportion of the population which finds the entertainment products
blasphemous be asked to subsidize their creators? And why should Net-free
households want to subsidize the broadband users who are actually taking
advantage of the system?
Fisher then exhaustively discusses four other options: taxing the playback
devices and/or burners, levies on the physical media, levies on the delivery
service, such as KaZaa, or on the Internet access point (your ISP). The
latter is by far the largest: spending on broadband in the US in 2004 is
estimated to be $16.4 billion. By contrast, blank media sales generate $2
billion in revenue. In total, these four categories gross $20.248 billion.
And so to get our $2.3 billion to compensate artists, studios and labels
would require an 11 per cent hike.
But what if it fell entirely on broadband users? Some might find the figure
surprising: excluding all of the other penny taxes we've just mentioned, the
cost will be $6 per broadband user per month. Um, is that all? Well,
actually, yes it is.
So what do consumers gain from suddenly being able to exchange music? It's
perhaps the most delicious question that's ever been asked - and there are
so many advantages to the free exchange of culture that we may have
forgotten what they are.
Fisher puts it thus -
"Consumers would pay less for more entertainment.
Artists would be fairly compensated. The set of artists who made their
creations available to the world at large ? and consequently the range of
entertainment products available to consumers ? would increase.
Musicians would be less dependent on record companies, and filmmakers would
be less dependent on studios, for the distribution of their creations.
Both consumers and artists would enjoy greater freedom to modify and
redistribute audio and video recordings. Although the prices of consumer
electronic equipment and broadband access would increase somewhat, demand
for them would rise, thus benefiting the suppliers of those goods and
services. Finally, society at large would benefit from a sharp reduction in
litigation and other transaction costs."
Is that enough? Well, there are two other benefits Professor Fisher doesn?t
list. The high street music chainstore would find itself in competition with
informal music distribution points - such as concert venues, clubs or coffee
shops. Given the availability of cheap wireless playback hardware (phones or
Bluepods) every café or laundrette could become a 'record store'. The stores
that survive would of necessity focus on their expertise and social
relationships. It's hard to see what would draw customers into a Virgin
chainstore, but it's easy to see an Aquarius Records (a feted specialist
store in San Francisco's Mission district continuing to draw a loyal
following). Social spaces could be transformed. Nor does Fisher attempt to
calculate the demand for Internet infrastructure which might result, with
potentially huge macroeconomic benefits.
Divvying up the pot
So what's the fairest way to divide the revenues? Professor Fisher points
out that only a representative sample is required: the model need not
involve Big Brother surveillance and aggregation of every song played. TV
advertising buyers trust a system already: Neilsen's ratings are calculated
from only a few thousand households. And in any case, it's doubtful any
agency could afford the IT infrastructure required to aggregate such a vast
data warehouse. However Fisher has a technical proposal which could simplify
auditing enormously. He suggests that digital media carries embedded
watermarks which would not restrict the playback of the song but would help
auditors.
Fisher says that the "ballot stuffing" is the biggest technical hurdle.
"You can never eliminate but you can minimize the ballot stuffing problem,"
he tells us. "This most promising solution is an automated sampling system
that counts the frequency members of the sample play a song all the way
through. It's possible for artists to inflate the figure somewhat, to
persuade family members to leave computers on 24x7, but that static is
tolerable."
The most significant disincentive to ballot stuffing is the model itself:
most people would simply want the model to work. Unlike the current
situation, where there's a monetary advantage to be gained by breaking the
system.
As for cross-border 'leakage' - Fisher says it is troubling from a fairness
standpoint and this could limit its political appeal. "But it could work
internationally especially when compared to a regime that leaks like crazy -
the regime currently using illicit P2P."
The simple idea is very powerful. Fisher identifies four constituencies
necessary to accept the model: consumers, artists, device manufacturers and
finally the intermediaries: the studios and labels. The model has huge
advantages for three of the four. And what incentives, we asked, would the
labels and studios have?
After hearing his presentations, Fisher says industry is intrigued but
hardly feels impelled to jump. The biggest 'carrot' is that it would see its
revenues guaranteed at 2000 levels. If it believes its own rhetoric, that
could be a very powerful incentive indeed.
Aside from a fringe of partisans, consumers are likely to embrace it
enthuasiastically. Several months into the infancy of DRM-locked music
sales, the online stores are dwarfed by the quantity of peer to peer file
swapping, which is again on the rise. Consumers will likely face two
futures.
In one, the music industry succeeds in locking music sales through DRM
restrictions on MP3s, and equally restricted CDs. It's then at liberty to
'reinvent' itself, introducing such multi-sales opportunities we outlined
here, and that Ross Anderson suggested in his TCPA FAQ: one-time plays,
songs that only play on your birthday, graduated pricing models that charge
a 'premium' for higher bit rates. Our favorite has already been suggested by
the RIAA's Cary Sherman: a locked iPod full of all the music you'll ever
need, which you can pay and unlock at your leisure. (It's deliciously
illustrative of the lobby group, which has made the cynical, and not
entirely false calculation that most of the people in the world have the
same record collection. Or one that varies only by such sufficient degrees
that it can apply the logic of the battery farm.)
The other comes at a price, but a predictable and low price, and promises to
see high street and the economy rejuvenated. That isn't a hard choice for
consumers to make, but it will be need to be fought against entrenched
lobbyists. Our thanks to Professor Fisher for his exhaustive research in
making our choices clear. ®
Related Link
Professor William W. Fisher
-----Original Message-----
From: overlord-pho@xxxxxxxxxxxxxxxxxxx
[ Behalf Of Jim Coffman
Sent: Monday, February 02, 2004 7:25 AM
To: pho@xxxxxxxxxxxx
Subject: pho: The Register : Free legal downloads for $6 a month. DRM free
I'm sure there's got to be a variety of views on this from you phosters. My
gut says that nobody's gonna listen to a Harvard guy at this point.
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