Stop Music Theft

Introduction

The Electronic Frontier Foundation is a not-for-profit organization that advocates…

"[w]hen our freedoms in the networked world come under attack."¹

The "EFF" proposed solution to the illegal file sharing problem is "voluntary collective licensing." They describe it thus:

…the music industry forms several "collecting societies," which then offer file-sharing music fans the opportunity to "get legit" in exchange for a reasonable regular payment, say a total of $5-10 per month (after all, services like Rhapsody sell all-you-can-eat music for around $10 per month, so we know the rate should be below that). So long as they pay, the fans are free to keep doing what they are going to do anyway—share the music they love using whatever software they like on whatever computer platform they prefer—without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music. In exchange, file-sharing music fans will be free to download and share whatever they like, using whatever software works best for them. The more people share, the more money goes to rights-holders. The more competition in applications, the more rapid the innovation and improvement. The more freedom to fans to publish what they care about, the deeper the catalog².

Analysis

The first question one must ask is what is "voluntary"? Here's how EFF defines it:

Songwriters originally viewed radio exactly the way the music industry today views KaZaA users—as pirates. After trying to sue radio out of existence, the songwriters ultimately got together to form ASCAP (and later BMI and SESAC). Radio stations interested in broadcasting music stepped up, paid a fee, and in return got to play whatever music they liked, using whatever equipment worked best. Today, the performing-rights societies ASCAP and BMI collect money and pay out millions annually to their artists. Copyright lawyers call this voluntary collective licensing. It's voluntary for artists—the government doesn't force them to join a collecting society, and even after they join a collecting society, they remain free to license their songs directly (that's why it's not a compulsory license). It's also voluntary for the broadcasters—the government doesn't force radio stations to take licenses from any PRO (that's why its not a tax)³.

My oh my, those greedy, unreasonable songwriters! Perhaps a bit of context might clarify things. Before radio, if you wanted to hear a song, you bought the record or the sheet music and the songwriters got paid. When radio came along and the songwriters asked to be paid, radio told them to pound sand. Accordingly, songwriters (ASCAP) sued until they induced radio to pay⁴⁵.

(Just a side note to the EFF: ASCAP was formed in 1914. Commercial radio in the US began in 1920.)

Incidentally, while the EFF uses the word "artists" as in:

Today, the performing-rights societies ASCAP and BMI collect money and pay out millions annually to their artists.

ASCAP, BMI and their ilk do not pay artists for performance rights (in the US), they pay songwriters only. (While in Europe generally artists are paid radio performance royalties, they receive nothing in the US except exposure. That is why there is a bill stalled in the US Congress right now which the radio industry refers to as the "performance tax," though it is more properly referred to as a performance or performers' royalty.)

What Is "Voluntary"?

But, back to the notion of "voluntary." There is nothing voluntary about radio stations paying the "PROs" (performance royalty organizations). Here's how ASCAP describes it:

How are radio fees determined?: ASCAP's license fees for radio are the product of negotiations between ASCAP and prominent radio broadcasters, principally members of an industry-wide committee, the Radio Music License Committee (RMLC). All of the RMLC members are broadcasters, and represent the entire spectrum of the radio industry. While a court is available to determine fees if necessary, over the years ASCAP and the committee have always been able to agree on license fees and terms.

EFF says "the government doesn't force radio stations to take licenses from any PRO" which is true, but if the radio stations want to play the PROs' songs they MUST. Is EFF playing semantics with the word "voluntary"?

So, to reiterate, there is nothing voluntary for the broadcasters. If they don't pay the PROs, they will get sued and they will lose. It's bright line law.

What's Wrong With the "Reasonable" Offer to "Fans"?

EFF seems to be trying to make the case that "fans" as they call them (we call them illegal file sharers) should have the same "voluntary" opportunity as EFF thinks broadcasters currently have. That's a crock and a fatal flaw in all of this. What is the music industry to do if "fans" give them the bird when the music industry offers them "the opportunity to "get legit" in exchange for a reasonable regular payment, say a total of $5-10 per month" which the vast majority of them undoubtedly will??

After all, it's the EFF that says the Recording Industry Association of America's ("RIAA") legal campaign against illegal file sharers is already a bust⁶. If that's true, then where's the "stick" to force or produce compliance?

Paid "Voluntary" Consumption of Music Already Happening

Think about this: One could argue that the "voluntary" part of collective licensing already exists when it comes to consumers of music. When someone "voluntarily" purchases a CD or legally downloads a song from iTunes, or Amazon, or Rhapsody, aren't these the people "volunteering" to engage in a lawful purchase of intellectual property? If that seems logical, then is it logical to assume that some larger subset of the whole of music consumers is going to suddenly become lawful in their music consumption because we offer them a new approach. We would argue that the "honest" (or non-online/non-technical) people are already making the "honest" choice and precious few additional folks will sign up for "VCL."

Rent Versus Own

Steve Jobs observed years ago that people want to "own" music. They do not want to "rent" it⁷. The EFF's VCL (sounds like Adrian Cronauer/Robin Williams in "Good Morning Vietnam"!!) is renting. Assuming you believe in VCL, you argue that it's not renting because it gives you the right to download and even if you stop paying, you still do "own" the tracks you downloaded.⁸ And what are we to make of that? Is that "fair"? Sign up for one month, download the world, stop paying, but enjoy your nice new collection of the world's music for free for the rest of your life. Come on guys. VCL is ridiculous.

How Much Do We Charge?

EFF says…

Since 2003, EFF has championed an alternative approach that gets artists paid while making file sharing legal: voluntary collective licensing.The concept is simple: the music industry forms several "collecting societies," which then offer file-sharing music fans the opportunity to "get legit" in exchange for a reasonable regular payment, say a total of $5-10 per month (after all, services like Rhapsody sell all-you-can-eat music for around $10 per month, so we know the rate should be below that). So long as they pay, the fans are free to keep doing what they are going to do anyway—share the music they love using whatever software they like on whatever computer platform they prefer—without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music⁹.

Well, we actually ran some numbers on what this all means. First of all, what's a reasonable level of income to compensate intellectual property owners? We calculate that number for the US to be in the range of $13 billion in 2009. How did we get that? We assumed that the recording industry grew over the last decade at the rate of growth of the movie business (3.75% per year). We applied that growth rate to CD sales and then subtracted actual 2009 CD sales (including digital downloads). The $13 billion reflects the $17 billion that CD plus digital sales sales should be versus the some $4 billion they actually were. In other words, that $13 billion is a reasonable estimate of what is being ripped off online. (Note, the figure is not arrived at or "built" based upon trying to value all illegal downloads. It simply looks at what the music industry could have been or should have been assuming that it stayed a healthy moderately growing (at 3.75% per year) industry. It is interesting to note how that figure is of similar magnitude to the one over here on this site, where we noted that BigChampagne estimates a billion tracks per month in the US are being ripped off online. That's 12 billion per year and assuming the iTunes average price of around a dollar a track, that means $12 billion in value of the purloined tracks and that pretty much comports with our approach to estimating the number.

So, we have the numerator: putative CD sales of $13 billion. What's the denominator? It's the number of internet customers in the US. We calculate that number to be 69 million¹⁰.

Do the division and you get $13.50 per month to fairly compensate the recording industry under VCL.

Assuming 50% "voluntary" compliance, the figure jumps to $27 per month. At 25% compliance, $54/month, etc.

Once again, we say it. VCL is a pipe dream.

How Do We Even Find These "Fans"?

Let's kick a dead dog:

• What about this "offer [to] file-sharing music fans"?
• How are we to know who these people are and how are we to reach them?
• The universe of radio stations numbers in the thousands and they are all licensed by the FCC and they are pretty easy to find and monitor.
• The universe of "fans" in the US are 60 million (again according to EFF¹¹).¹²
• So, first the music industry has to spend millions reaching them. If nobody signs up, then what??
• The music industry has to hunt them all down?
• And how do we do that?
• How do we identify these 60 million illegal file sharers?
• I guess we hire somebody like MediaDefender for more millions of dollars to do all the forensic computer and network analysis to find every last one and we send them a nice personal invitation to pay us money.
• And when they tell us to stick it where the sun don't shine, then what do we do?
• Spend more millions (fecklessly, according to EFF) suing them?

Other Problems With "Voluntary Collective Licensing" ("VCL")

Boy is Steve Jobs Going To Be Pissed

We really have tried to give the EFF the benefit of the doubt on VCL. But, the more we think about it, the crazier it gets. Let's assume it worked, and everybody signed up. That pretty much puts Apple out of the iTunes business. Ya know, Apple's sold over 10 billion tracks. That's about $10 billion in revenue. We estimate iTunes is selling at about a 3 billion track pace (based upon an analysis of Apple's iTune tracker¹³.) So, this "simple" solution EFF proposes would cost Apple $3 billion in revenue per year.

Walmart, Amazon, Rhapsody, and what's left of the dedicated "record" stores: what are we suppose they are going to think of VCL? They are just going to let themselves be run out of the business??

Who's On First?

So, assuming VCL's a big hit and the evil recording industry collects billions. Who do they pay it to? Currently…

Soundscan is the official method of tracking sales of music and music video products throughout the United States and Canada. Data is collected weekly and made available every Wednesday to subscribers, which include executives from all facets of record companies, publishing firms, music retailers, independent promoters, film and TV, and artist management¹⁴.

Since the EFF's whole thesis is that we MUST have VCL because there's just no way to track who's downloading what in order to interdict it, (or measure it to determine the relative popularity of songs), how we gonna figure out which artists to pay what to??

We know the devil is in the details, but this is a pretty durn big detail. ASCAP and BMI have objective radio playlists to do their weighting. What shall VCL use? Can't really use radio singles to measure album sales. Remember "O Brother Where Art Thou?" The soundtrack was a great commercial success, going 8-times platinum (sales 8 million)¹⁵, despite hardly any radio play¹⁶.

And what about non-US, non-English language songs? ASCAP and BMI collect based upon US radio playlists only. What are we to do about the rest of the world's music? What "charts" are we going to use? Is our US-based "Voluntary Collective Licensing" entity going to pay foreign-based artists and foreign "VCL" entities are going to pay us?

More Devilish Details

What about the software manufacturers? What about the movie makers? The TV producers? The book publishers and authors? Are we going to have a voluntary collective license for all of them too? If so, how much is that going to cost? EFF suggests $5 to $10 per month for music. (But, as we see above, $13.50 is more like a "fair" monthly fee). So, what do we charge per month for movies? Software? TV? Books? Are we going to charge $5 to $10 per month for each of them? Boy, that monthly bill is gonna get pretty damn big!!

And are we going to charge one big monthly VCL for all media and then split it up among them? How do we do that? How much does Dan Brown get for "The Da Vinci Code" versus U2 for "Joshua Tree"?

And what if "voluntary" compliance doesn't work.

Conclusion

The EFF's proposed " Voluntary Collective Licensing" "solution" to illegal file sharing is, unfortunately, rose-tinted and unrealistic. The EFF is an organization we admire, which has done much good, but needs to think through this problem more deeply, more deliberately, and with more input from experts in the fields of music business, copyright law, and file sharing. Their current proposed solution is a shrug of the shoulder to their own useful organization. We admire Occam's Razor too, but the simple and the seemingly obvious solution must also be probed and tested and "voluntary collective licensing" fails on numerous levels. Furthermore, it is a slap in the face to the creative professionals whose livelihoods are being destroyed by illegal file sharing—aka theft.dev