Quick Study

This page is for those who are in a position to actually change the future of music—those who work for a label, a trade association or government. First of all: a few key points:

  • There absolutely are right now, technical means to defeat virtually all illegal file sharing. (One simple means, internet service providers ("ISPs") blocking certain download sites' internet or ("IP) addresses, would cut out billions of illegal downloads.) Nonetheless, there are many in the "opposition" that will attempt to marginalize every and any technical means as deficient for this or that reason. Ignore them. The spam interdiction model is the model we are talking about here. It's not perfect, but spam reaching our collective mailboxes has been dramatically reduced over the years and illegal downloading can suffer the same fate by largely the same technical means. DO NOT LET THE PERFECT BE THE ENEMY OF THE GOOD!!
  • The current "new" approach for stopping online piracy is "three strikes" or "graduated response." Don't fall for it. It's a half measure and won't get the job done.
  • Another approach being sold by music industry "futurists," some "opponents" and even misguided music industry players is "collective licensing" (the radio "model"). This approach would have ISPs charge a flat monthly fee to internet subscribers for which they would get the right to download as much as they want. This is snake oil too. Don't swallow it.
  • It will take you about an hour to read this page (and it's various sub-pages that will expand upon key points here). In this world of "short-attention span theater," we promise you it will be an hour that rocks your world. Online piracy can be stopped and the music industry can get its mojo back. Read on!!

Introduction

We have titled this page "Anti-Snake Oil" because policy makers have been sold snake oil for years when it comes to prescriptions for combating or eradicating online intellectual property ("IP") piracy. By "policy makers," we refer to both executives in IP industries as well as politicians in a position to do something about online piracy. In this page and related/linked pages, we are going to do the following:

We know it's a pain to walk through history and "philosophy," but please bear with us. We can't know where we should go if we don't know where we have been (that hasn't worked) and we can't know why we have had years of failure if we don't understand the reality of the world in which we currently live.

How the Internet Changed the World for IP Creators & Owners

Free Everything

From the inception of the internet, it has been all about free. The cost of the internet to users in the early days was essentially zero as they communicated through university- and government-owned networks. As the net developed, we started paying monthly fees to ISPs, but we still got so much new stuff for free. We could and still can in effect send letters (email) for no additional cost (additional to our monthly ISP fee). The US postal service is suffering as a result of that—the quid pro quo of "free"—one party gets a break, the other gets it in the ear.

As the net matured, we started to be able to get all kinds of content for free, newspaper and magazine articles, how-tos on virtually anything written by folks selling their acumen for the revenue internet ads would bring them. We started to be able to buy online too, and avoid paying the taxes we would pay on any other purchase practically anywhere. (Incidentally, enjoy it while it lasts. Anybody who thinks internet taxes won't start soon and get progressively worse, also believes in the tooth fairy.) These days, there are all kinds of free widgets and free code for your own websites, and free websites to make free websites, free sites to host your websites. There are free apps like Google's suite that many people (like us) are gravitating too and away from Microsoft Office.

Millions of people started saving millions of dollars of gasoline because they no longer have to get in the car and go to the library to research. It can all be done on the net. Hours at the copy machine and $0.10 per copy for all those pages for that college paper are mostly a thing of the past.

Then Sean Fanning came along and invented Napster and all of a sudden we had free music. All major news media provides us with free versions of their paid content. Free TV interviews, newspapers, book and restaurant reviews, and on and on.

And much of this free content is "paid for" by online ads. But, as we watch newspapers and magazines die a slow death, it's clear that the ads aren't replacing the ad and subscription revenue being lost in hard copy editions.

Still, it's no wonder that some of the "music futurists"1 sell this new "free" world or "free" model as the panacea to what ails the music industry. DON'T BUY THAT SNAKE OIL!! Please read on to understand what is really happening, what is going to happen and what NEEDS to happen.

The Cost of Free

We all should know that there really is no such thing as free. What's free to one person or class of people costs another. We are in an orgy of free right now. When the orgy is over, everybody will be spent and have a hangover. In terms of the "internet age," we are in our teenage years having a ball, partying like a rock star. But, like the teenager that has to grow up, we will too.

News Corp chairman, Rupert Murdoch recently announced that he will be moving all of his media online assets to a pay model (as he has already done with his "Wall Street Journal"). Meanwhile, numerous newspapers will not survive until the age of the "pay model" fully arrives2 (and make no mistake, it will arrive. More on that in the next sub-section of this page).

We all know the cost of free in the music business. Year-over-year declining revenues for over a decade. While the movie business is less affected than the music business3, DVD sales are declining at double digit rates and the movie industry is laying employees off in reaction4.

The Future of Free

Free will inexorably disappear on the internet. It has already begun. What we are going through right now is a huge competitive food fight where entrepreneurs are giving away content to get eyeballs (market share). That will eventually fade out and valuable services and content over the net will be paid for.

Another way of putting this or thinking about this is as follows: We are going through the "creative" and "destructive" phases of capitalism right now. Just as the advent of the automobile killed the buggy and buggy whip industries as well as hundreds of other little niche industries and millions of businesses, the advent of the internet is creating millions of new businesses and destroying the business models of whole industries like music, newspapers, magazines, and soon to come, book publishing.

People used to share music files with impunity on the internet. Now, thanks to Napster's being sued out of existence, we have pay service, iTunes5. The RIAA and MPAA are constantly harangued and criticized for going after illegal file sharers, but their efforts are pushing people to various pay services to anonymize their (file sharers) online theft—not the end result the music industry wants as it puts dollars into the hands of the pirates running these websites. But, the point is that there is action and reaction and the reaction is entrepreneurs charging money over the internet for services.6 Now what is needed is a model where the pirates are put out of business. We have a prescription for that. Read on.

What The Internet Looks Like in a Decade

What we see a decade down the road is an internet that looks like this:

  • Websites will largely stop giving away content.
  • Newspapers and magazines will all cost you. You can read a single article for a fee or pay a monthly subscription to read everything a particular publication produces every day or week or whatever their distribution cycle is.
  • The Drudge Report and other sites that have a "linking model" will disappear as they will no longer get to freeload off the content of others7.
  • Online piracy will come to a screeching halt as ISPs take responsibility for online intellectual property theft. They will do this because they will become major content owners as well as internet portals. They will use a suite of interdiction techniques to stop online piracy similar to the techniques used to block spam (see more on spam blocking here). They will also do this because control over the content that flows over their pipes will be essential to managing their networks. (Guess what, they are already doing it—"traffic shaping"—now8.)
  • We will pay sales taxes on most goods and many services we pay for on the web.
  • Incidentally, since we are commenting on what will be on the internet, it seems appropriate to comment on what won't be on the internet. One of the types of music "service" we feel pretty sure will be gone are streaming music sites like Spotify. See our reasons why here.

(Mostly) Failed IP Piracy Interdiction Efforts

The IP industries have tried a host of things: law suits, hardware and software keys and locks (digital rights management or "DRM"), take-down letters, warning letters to universities and colleges. All of these efforts have mostly failed. While each has had some effect, in the big picture, piracy just seems to increase every year while, especially in the case of the music industry, revenues decline. (See a more detailed analysis of the different interdiction approaches here. There is also more background that you might find of interest here.)

The Music Business Model

So what does all this mean to the music business and what has it done to the music business? Well, first—take a detour over to our "Music Industry Model" page. Click here to do that. After you have absorbed that page. Come back here.

So, now you know how the music industry is being deconstructed by one thing: online music piracy. (If you don't believe the music industry is being destroyed, click here. If you don't believe online piracy is the culprit, click here and here and here.)

So, where does this leave us? What will the new music business model be? We know what has been destroyed by the destructive powers of capitalism. We know what has been erected in its place (the pirate "state"). Now, how does the music industry get its mojo back? Well first, we need to look at one more analysis: the old music business distribution model and what's next. Click here and then come back here.

So, now you know what your new North Star is. ISPs are in the catbird seat as the IP content delivery system. Either they can sell it (content) or they can get paid for delivering it. When you really think all the way through this, its plain to see.

The Absurdity of "Collective Licensing"

Are we the only ones who see it (that ISPs are the new music delivery system)? Hardly. One of the approaches to "solving the problem" of online piracy that has been embraced by parties as diverse as the Electronic Frontier Foundation9, "futurists" like Gerd Leonhard10, and performance royalty collection group, BMI11 /12. This "solution" is known as "blanket licensing" or in EFF's flavor, "voluntary collective licensing" or "VCL." And VCL imposes on internet service providers (the ISPs) the duty to collect all of the money as they are the distributors of the content!! In other words, VCL proponents too recognize that ISPs are the new music industry delivery system.

In a nutshell, the ISPs would charge a flat fee to each internet subscriber. In some versions of "VCL," all subscribers would be automatically charged each month as part of their internet bill. In other flavors (like the EFF's), the customer can opt into the plan if they so choose. We have taken a long hard look at VCL and in short, we view it as a Utopian pipedream. (See our analysis here.) In addition to the problems we point out in our full-blown analysis: consider the following:

  • What do we do about bad content? In the old distribution system, there was quality control. The record company made all the records and passed control to distributors and ultimately on to record stores. Reputations were at stake and if you bought a Beatles album, you could expect to get that Beatles album with the exact packaging, number of tracks, the exact tracks the band recorded, etc.

In the Wild Wild West of internet downloading, you might get that Beatles album, you might get a sonically screwed up version of it, you might get half the tracks and some other tracks or hell, you might get smut embedded in the file by some vicious 16-year old. Or imagine this: you get a virus that screws up your computer or the Russian Mafia embeds a Trojan Horse in the file which takes control of your computer. You say that can't happen? click here.

The idea that the music is going to be distributed through millions of unknown, unidentifiable people is absurd.

Let us put it another way. How do you feel about your nine-year old downloading the "Pink Panther" from Joe Schmoe somewhere on the internet only to find out when she starts watching it that "The Pink Panther" is a triple-X rated porn movie about a sex-crazed forty-something cougar?

The way songwriters collect money via performance rights organizations like ASCAP and BMI from radio is often cited as analogous to Voluntary Collective Licensing via ISPs. The difference is that quality control is maintained in the radio model because the tracks go straight from the record companies to the radio stations (these days, mostly electronically via PlayMPE). So, you have distribution from a few hundred record labels at most to a few thousand radio stations. What these "VCL" advocates are proposing is a distribution model consisting of millions upon millions of uploaders serving files (that they may have messed with, infected with viruses or trojan horses, substituted for other works, misnamed, mislabeled, manhandled and MANGLED!!) to even more millions of downloaders. That's not a "business model," that's anarchy.

There are two other major problems with VCL which we cover over on our page, but they bear repeating here:

  • Are we going to charge a separate flat monthly fee for…
    • Music
    • Movies
    • Software
    • Games
    • (And eventually books, as soon as they have been stolen to the extent music has been. What are the book publishers thinking about supporting the Kindle and iPad?)
  • Assuming people choose from a smorgasbord and only pick stuff they might download, what do we do when they illegally upload or download? Or, what if they opt out altogether, but illegally upload/download anyway?

It should be clear that both of these are major issues. Even at $5 per month, which we maintain is less than half of what the monthly music charge should be (again, see our VCL page), these charges will add up to an amount few will want to add on to their monthly internet bill.

The second issue is also a bear. Under this system, there is no way that the ISPs are going to avoid having to "police" their networks for people that download but don't pay. That is a huge burden, will involve major costs, and really it flies in the face of what the "net neutrality" and privacy rights advocates want. Truthfully what the "opponents" want (as represented by the EFF) is collective licensing without any compliance which amounts to nothing (i.e., little change at all from what we have now which is whole-scale intellectual property theft).

So, What's The Answer

Put The Lock Back On The Door

The first part of this is simple. We have to put the lock back on the record store door. People have been walking in for too many years and stealing our content. As long as they can get it for free, they won't buy it (or clearly the vast majority won't if record industry revenues are any indicator).

How do we do this? We adopt the spam model. Who does it? ISPs have to do it. They are the only ones in the "pipeline" other than the uploader and downloader. How do they get paid for doing this? We will leave that to the ISPs, government policy makers and the intellectual property industries, but here's a few ideas:

  • Increase the monthly internet usage charge to customers.
  • ISPs absorb it. While this may seem "unfair," recognize that by stopping illegal downloading, a huge benefit is going to accrue to ISPs in reduced usage of their bandwidth. Moreover, a clear, unambiguous legal right to engage in the practices required to interdict illegal file sharing (like deep packet inspection) is going to pave the way for ISPs to offer much more customized user packages as well as many other benefits.
  • ISPs absorb it or the IP industries absorb it as part of the overall negotiation between the two of them (see the next sub-section).

The New Revenue Model

Once we stop the stealing, then the question is, how do IP creators and owners get paid? There are several different approaches to this.

  • Record companies sell their product from their own online channels/websites.
  • Third party sites like the current iTunes or Amazon continue to sell their products.
  • The ISPs create their own collective, license music and other IP from the IP owners and act as the "seller" to their own customers. We call this approach "ispTunes."
  • Again, we leave this to the various parties to work out, but the key to it is that illegal downloading must be stamped out. Despite the strenuous arguments of the "opposition" to doing anything real to stop online piracy, it can be stamped out. (See our recent filing with United States Intellectual Property Enforcement Coordinator for more detail. Click here.) There are scores of arguments the "opponents" make, but one of the most frequent we title as "the perfect is the enemy of the good." The same argument could have defeated spam interdiction before it even started, but as we have seen, spam blocking while not perfect is substantially perfect. It gets the job done. (There are a number of gnarly technical details that must be faced to effectively interdict illegal file sharing. We have collected a page of articles on them here should you desire to dive into some of these topics.)

We leave it to policy makers in government and business to thrash out the details of this new revenue model, but it needs to get done and get done soon before the music industry comes grinding to a halt.

Conclusions

Intellectual property protections in many many countries are well codified in law. In the United States, it was considered so important, it was enshrined in The Constitution. (See the actual language here as well as other thoughts on the importance of copyright). What has been happening around the world for over a decade now is the rampant disregard of that rule of law. It is time for all of us to get together and find a way to restore it. Pernicious and continued lawlessness undermines the very foundation of a civil society and must be stopped.