An Old Discussion Gets New Data?

Death of high street CD is overplayed, research claims [pdf]

FEARS that internet piracy is harming the music industry are overplayed, according to new research which claims that illegally downloaded songs will take years to eclipse the market for CDs.

The survey by Entertainment Media Research (EMR), a market analyst, reveals that internet music pirates buy more CDs from the high street than most other internet-savvy consumers.

The study found that the most prolific online pirates bought 21 per cent more CDs than the average among such consumers. Some 86 per cent of music pirates say they still prefer their songs bundled as albums. The most avid users of legal internet music stores, such as MyCokeMusic and Apple’s iTunes, bought 26 per cent more CDs than the average.

Patrick Johnston, a director of EMR, said that music pirates were also often “the music lovers”.

“Piracy is illegal and it’s clearly something that people shouldn’t do but in most cases it’s something that will help to put a track out into the marketplace,” he said.

[…] However, Peter Rupert, president of EMR, said: “Early signs suggest that legal downloading represents a major incremental business opportunity for the record labels.”

Two From TechDirt

And Ernest was really on a roll today.

Digital Music News on Digital Distribution

Alternative Distribution Methods Gain Ground

Despite the influx of paid music stores in the past few years, most artists are still not receiving substantial online revenues. In 2003, digital services accounted for 1% of a $12 billion music industry in the US, according to figures from Jupiter Research. Although 2004 has been an incredible growth year on the digital end, most artists view the space as a revenue enhancer over more traditional income sources like CD sales and concert ticket receipts.

Against that backdrop, more artists are willing to experiment with alternative distribution methods. A new model that has gained attention recently is Shared Media Licensing`s Weed technology, which recently scored a success with classic rock duo Heart. The Weed system allows users to sample a track three times prior to purchase, and encourages listeners to pass songs around by sharing a percentage of the final purchase. The system uses Microsoft DRM technology.

For Heart, the experiment had interesting results, with total sales from Weed topping revenues from iTunes. Now, Sananda Maitreya, the artist formerly known as Terence Trent D`Arby, is taking the same route to distribute his latest release.

Florida State Goes With iTunes

So now Apple is getting into the university sales business: FSU cracks down on illegal file sharing and offers free music-swapping software [pdf] (via Digital Music News

University officials quickly realized they had a two-fold problem on their hand: Not only was the downloading traffic causing a jam for other data, such as research files, trying to get through, but FSU could become potentially liable for letting illegal activity filter through its bandwidth.

Now, two years later, FSU officials are breathing easier. New software allows them to pinpoint illegal activity in file packets going through the bandwidth – much like an X-ray machine at the airport. And the university is in final negotiations with Apple to bring free downloading software called iTunes to students. The software is free; each legally downloaded song will cost a student 99 cents.

[…] FSU’s Online Music Committee, led by Baker, considered Napster, as well as Cflix Music Service. The university decided to go with iTunes because the site license for FSU is free, he said. The iTunes will offer software for Macs and Windows.

Macworld: Florida State offers students iTunes

Related: Duke Enrollment Package: New iPod

Posner on Uncertainty in Policymaking

Closing Thoughts

What particularly strikes me in reading over the comments (not that I’ve been able to read carefully all of them) is the challenge of managing uncertainty. It is uncertainty that pervades the topics that I’ve touched on in my postings and that have provoked many of the comments. I started with IP, where the underlying uncertainty is that we just don’t know the social value of creating enforceable legal rights in intellectual property. In the case of physical property, we know or think we know that something like the present definition of rights, including such limited exceptions to private property rights as eminent domain, adverse possession, trespass by necessity (e.g., driving onto someone’s lawn in order to avoid a collision with another vehicle), forfeiture for nonpayment of taxes, rights of business invitees, etc., is economically optimal. We don’t have any grounds for similar confidence with respect to IP rights. To abolish them altogether would almost certainly be inefficient; likewise to expand them much beyond their present scope; but that leaves a vast middle area. I think there are some reforms that can be advocated without worrying too much about fundamental questions, like allowing unauthorized copying of old copyrighted works that have little or no commercial value, as evidenced by failure to register them; and maybe that’s where we should concentrate our efforts.

The uncertainty concerning the proper scope of IP rights is magnified by the onrush of technology. As I said, repeating a Lessig point, law is relative to technology; technology can disrupt a balance carefully struck by law. But if we have no clear sense of where the balance should be struck, this makes it difficult to know what stance to take with relation to encryption technologies that enable IP owners to obtain greater protection from copiers than IP law would give them.

I am distrustful of people who think they have confident answers to such questions.

Another Letter At The NY Times

Web Searches

To the Editor:

Matthew Hindman and Kenneth Neil Cukier (Op-Ed, Aug. 23) are right to worry that 95 percent of Web searches are conducted by two companies, now both publicly traded.But they are silent about what to do when the search for profit threatens the quality of information.

One possibility to consider is a nonprofit search engine, financed and maintained by federal, state or local governments. Public policies to guarantee that citizens receive the information they need are as old as the Republic.

A government-run search engine would be nothing more than an electronic version of the local public library, where public employees have long had the task of deciding what information is available to Americans.

Timothy E. Cook

Baton Rouge, La., Aug. 23, 2004

Spinning MS’ Pending Entry Into The Online Music Biz

The Microsoft spin-meisters clearly got to the Globe with this article, Battle brewing on the digital music front [pdf], which positions Apple as the purveyor of the “proprietary” system, while Microsoft’s WMA is “platform agnostic.”

Details of Microsoft’s music offering are being kept under wraps until the official launch, expected this week. But even before it comes to market, the Microsoft music store promises to set up a head-to-head battle with Apple that recalls their jousting in the personal computer business. Much of the competition will be about rival formats and which format emerges as the dominant standard.

[…] Apple uses a proprietary digital rights management system, called Fairplay, to stop people from copying songs illegally. It licenses Fairplay only to manufacturers, like Hewlett-Packard Inc., that build digital jukeboxes compatible with the iPod. The copy-protection system has been used to prevent other companies from selling music that plays on the iPod or other devices from playing iTunes music.

Most of the other music players support Windows Media Player software, which Microsoft licenses to all comers. Microsoft, which doesn’t make its own hardware, is platform-agnostic.

“There’s a genuine format war shaping up, a standards war,” Bernoff said. “Apple basically says, ‘If you want to use our system, you have to create a player very similar to ours and we will control what you can and can’t do.’ For Microsoft, it’s far more important that their format be well established than that their music store becomes a success.”

The article is right, of course, that this is a battle of formats — but it fails to point out that the Windows Media format is at least as restrictive as the Apple format, and potentially far more so. Microsoft will certainly have learned from Sony not to make their player a solely Windows Media device, but it will be interesting to see just how restrictive their DRM system is — and how it is sold.

The NYTimes’ coverage is a little more deft, Can Microsoft Stomp iTunes With a Store of Its Own?, but it’s clear that there was an effort to put the “right” color on the pending store:

“Microsoft is going to have to do something to get people’s attention,” Mr. Bernoff said.

One way Microsoft will do that is by promoting the fact that song files from its service can be played on a wide range of portable music players, in contrast to iTunes, which works only with the iPod.

In a broad marketing campaign in conjunction with the debut of the new version of Windows Media and the music service, Microsoft is using the slogan “Plays for Sure,” a not-so-veiled dig at Apple’s more proprietary approach. That follows RealNetworks’ announcement last month that it had developed technology that allows users of its online music services to download songs to iPods, a move that riled Apple and led it to threaten legal action.

Digital Music News estimates Thursday will be the opening date (update)

Later: CNet News – MSN Music: It’s really about Windows

But for all the recent attention paid to digital music services like Apple’s iTunes, analysts say Microsoft’s entry is as much about Windows as it is about selling music.

“This is strategic to Microsoft, as one piece of the overall Windows story,” Jupiter Research analyst Michael Gartenberg said. “Microsoft needs to make sure that it can showcase all of its technology appropriately, reinforcing that vehicle as an up-to-date and extraordinarily competitive offering.”

Indeed, Microsoft faces barriers in its music business that no rival shares. From antitrust worries to the need to keep its software customers happy, its business will be a continual balancing act. The decision to go ahead with the store anyway underscores just how important digital media has become to the company’s future.

Later: The Slashdot discussion continues in this vein: Microsoft to Launch Online Music Store

Boston Globe v. NYTimes on Grokster

Today’s Boston Globe places their editorial board clearly on the side of those believing in the essential evil of file sharing in their commentary on the Grokster decision, laying the groundwork, I fear, to support Hatch’s execrable IICA: Copyright breach [pdf]

“The Supreme Court has admonished us to leave such matters to Congress,” the judges of the Ninth Circuit declared in affirming a lower court’s decision. They referred to the 1984 Betamax case, in which the high court ruled that use of videotape recorders to time-shift TV shows did not violate copyright law in the absence of a congressional prohibition.

Time-shifting, in which a TV program is taped for personal viewing later, is a far cry from the rampant copying of music files done through Grokster and other file-sharing services. The appellate judges did not dispute the plaintiffs’ contention that at least 90 percent of the material passing through Grokster software is illegally copied.

The judges contend that the remaining 10 percent constitutes substantial legal use as defined in the Betamax decision. That is a stretch. VCRs are most commonly used either to time-shift TV programs or to play movies that are legally copied and provide billions of dollars in revenues to the movie industry. Grokster and other file-sharing services pay royalties to no one.

[…] Grokster is carefully tailored, like Napster, to enable users to find the songs and performers they want, and there are no mechanisms in the software to inhibit copyright violation. Grokster generates advertising income based on its ability to attract users who routinely share copyrighted material without permission. The court should have considered the obvious intention of the software as well as its architecture.

Over at the Globe’s parent corporation, The New York Times, we get this instead: Grokster and the Information Exchange

The legal battles over file-sharing are usually construed as a fight over intellectual property rights, plain and simple. On one side are copyright owners, including songwriters and artists as well as the major recording companies and movie studios. On the other side, a handful of advocacy groups and a legion of file-sharers bent on nothing more than outright theft of copyrighted music and movies. The short title of a recent appeals decision says it all: Metro-Goldwyn-Mayer v. Grokster.

But the broader issue is the distribution of information. Software like Grokster creates a network of independent Internet users who can access one another’s computer files without going through a central server. (Napster maintained a central server, which made it legally liable in very different ways.) Grokster can certainly be used to swap music illegally. But it can also be used to exchange electronic copies of books already in the public domain, transcripts of Congressional hearings or any number of other legitimate types of information. Much like a VCR that does not distinguish between a pirated tape and one legally acquired, the technology does not care what is shared. It is impossible to strike down software like Grokster for its use in illegal file-sharing without also destroying its capacity for legal and socially beneficial activities.

This distinction lies at the heart of a recent Ninth Circuit appeals court decision, which upheld a ruling in favor of Grokster and against an army of corporate copyright owners. This decision does not make illegal file-sharing legal. But it implicitly raises a question central to most copyright battles. Is society better served by restricting or even prohibiting new technologies to protect the rights of copyright owners or is there a greater good in the widest possible exchange of information? The resolution lies somewhere in the middle. Finding it, as the court acknowledges, is properly left to Congress.

These are thorny issues indeed. Freedom of information is at the root of American democracy, and yet every day we see that freedom being compromised, controlled and limited. The Grokster decision is a ruling in favor of keeping our bets open about which technologies will turn out to serve our freedoms best.

While this demonstrates the benefits of having multiple outlets, allowing a company to take opposing sides in a debate, I feel a little anxious reading both of these. Note that, in either case, the Congress is cited as the ultimate arbiter of this issue — are both these editorial boards aware of something about Senator Hatch’s plans for the fall that the rest of us do not yet know?

On the other hand, the editorial page also includes this letter to the editor: Paying for a Song, Online.

Note that Ernest takes the NYTimes’ recent editorial efforts at face value — I just hope he’s right (and I’m mighty impressed that he was posting at 2:00AM today!!): New York Times Editorial Board == Copyfighters; see also Scrivener’s Error