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Economic View: Does a Free Download Equal a Lost Sale? [pdf]

From the outset, however, economists have been skeptical that every free download represented a lost sale. And several years after the explosion, and subsequent implosion, of the original Napster, academics have begun to plug data about free downloading into complex equations and theoretical frameworks.

Stan Liebowitz, an economist of the University of Texas at Dallas who has synthesized much of the research, sees economists as generally coming to an agreement. “I think the consensus is going to be that file sharing and downloading is going to be harmful to sales of music,” he said. The question is, how much?

[…] Contrary to most predictions, sales of recorded music rose earlier this year. In the first half of 2004, shipments of CD’s rose 10.2 percent from the period the previous year, according to the recording industry group. “In that context, there’s a tourniquet around the problem,” said Mr. Bainwol. He said the industry’s crackdown on file sharing was bearing some fruit.

But Professor Oberholzer-Gee draws a different lesson. “Sales can go up even when the usage of peer-to-peer technology is rising,” he said. So it appears that the digitization of music will continue to be a boon both to music-loving consumers and to data-loving economists.

Another Music Biz Model Experiment

Music Industry Is Trying Out Digital-Only Releases [via Derek; also CNet] For those of you in my classes, you will recall how the risk structure of the industry has led to a certain way of producing and developing music products. This approach, which formally addresses the costs of uncertainty in the marketplace, represents an important way of thinking about how to leverage a label’s internet presence.

[M]usic industry executives say they can also use the Internet to measure fan interest or start a buzz for a new act before releasing an album. Universal’s new label represents another leap – the belief that by signing enough acts with small, established audiences, the company can earn a profit on digital sales alone. The new unit, Universal Music Enterprises Digital, could become a model for labels that are seeking a low-risk way to market an act without producing a physical album or underwriting a band’s tour or music videos.

“It’s just so expensive these days to record an artist and make a video and put them out on the road to properly develop them,” said the executive responsible for the digital label, Jay Gilbert, a senior director at Universal’s Music Enterprises unit. “This is an alternative to that that’s not very expensive but can be highly effective.”

[…] The artists retain ownership of their master recordings but license them to Universal for a limited time; if online sales of an artist’s music reach a certain point – around 5,000 copies of a particular song – the company has an option to pick up distribution of the CD to record stores.

Universal is paying the musicians an estimated 25 percent royalty on the retail price of the downloads, without taking the industry’s standard deductions for CD packaging and promotional giveaways, according to people with knowledge of its contracts.

In exchange for the music, Universal is throwing its considerable muscle behind promoting the artists, including them in its own advertising and seeking to license their music to films and television shows. The company will also handle online marketing.

The trick will be to “reach the next frontier of consumer, the consumer searching in the digital world,” said Mr. Resnikoff of Universal Music Enterprises.

Is The EU Database Copyright Working?

Boyle takes a look (relying on data from this Science article – Europe’s Database Experiment [pdf]): A natural experiment [via Donna]

The basic economic model here is “If you give me a larger right, I will have a larger incentive to innovate. Thus the bigger the rights, the more innovation we will get. Right?” Well, not exactly. Even without data, the models are obviously flawed – copyrighting the alphabet will not produce more books, patenting E=MC2 will not yield more scientific innovation. Intellectual property creates barriers to, as well as incentives towards, innovation. Clearly the “more is better” argument has limits. Extensions of rights can help or hurt, but without economic evidence beforehand and review afterwards, we will never know. In the absence of evidence on either side, the presumption should obviously still be against creating a new legalised monopoly, but still the empirical emptiness of the debates is frustrating.

This makes the occasion where there actually is some evidence a time for celebration. What we really need is a test case where one country adopts the proposed new intellectual property right and another does not, and we can assess how they are both doing after a number of years.

There is such a case. It is the “database right.” Europe adopted a Database Directive in 1996 which both gave a high level of copyright protection to databases, and conferred a new “sui generis” database right even on unoriginal compilations of facts. […]

If the database right were working, we would expect positive answers to three crucial questions. First, has the European database industry’s rate of growth increased since 1996, while the US database industry has languished? […]

Second, are the principal beneficiaries of the database right in Europe producing databases they would not have produced otherwise? […]

Third, and this one is harder to judge, is the right promoting innovation and competition rather than stifling it? […]

Those are the three questions that any review of the Database Directive must answer. But we have preliminary answers to those three questions and they are either strongly negative or extremely doubtful.

Aren’t Color Laser Printers Amazing?

Related to the discussions about the limitations engineered into graphic editing software: Government Uses Color Laser Printer Technology to Track Documents [pdf] (see also related Extrinsic Signatures Embedding Using Exposure Modulation for Information Hiding and Secure Printing in Electrophotography, via PCWorld)

According to experts, several printer companies quietly encode the serial number and the manufacturing code of their color laser printers and color copiers on every document those machines produce. Governments, including the United States, already use the hidden markings to track counterfeiters.

Slashdot: Color Laser Printers Tracking Everything You Print

The New Yorker On Remix Culture

Found in a surprising place — an article ostensibly about plagiarism: Annals of Culture: Something Borrowed [pdf]

My friend had hundreds of these examples. We could have sat in his living room playing at musical genealogy for hours. Did the examples upset him? Of course not, because he knew enough about music to know that these patterns of influence—cribbing, tweaking, transforming—were at the very heart of the creative process. True, copying could go too far. There were times when one artist was simply replicating the work of another, and to let that pass inhibited true creativity. But it was equally dangerous to be overly vigilant in policing creative expression, because if Led Zeppelin hadn’t been free to mine the blues for inspiration we wouldn’t have got “Whole Lotta Love,” and if Kurt Cobain couldn’t listen to “More Than a Feeling” and pick out and transform the part he really liked we wouldn’t have “Smells Like Teen Spirit”–and, in the evolution of rock, “Smells Like Teen Spirit” was a real step forward from “More Than a Feeling.” A successful music executive has to understand the distinction between borrowing that is transformative and borrowing that is merely derivative, and that distinction, I realized, was what was missing from the discussion of Bryony Lavery’s borrowings. Yes, she had copied my work. But no one was asking why she had copied it, or what she had copied, or whether her copying served some larger purpose.

See also U.S. Court Upholds Beastie Boys’ Musical Sampling

Technology Moves On

It will be interesting to see what happens if the DVR’s DRM restrictions are found to be too stringent. Who will hang onto “old” tech if it’s more flexible? Death of video recorder in sight

Dixons will phase out VCRs due to the boom in DVD players, sales of which have grown seven-fold in five years.

It ends a 26-year love affair with a gadget which changed viewing habits by allowing people to leave home without missing their favourite programmes.

Dixons expects to sell its remaining stock of VCRs by Christmas.

[…] The final nail in the coffin for VCRs is the low price of DVD players, which can now be bought for as little as £25.

The cost of DVD recorders are also falling to a level within reach of many consumers.

Marybeth Didn’t Know What She Was Talking About

(See this) Nor did Declan, apparently — and the worst parts were dropped: U.S. Senate Passes Scaled-Back Copyright Measure (about S.3021 S.2192)

People who secretly videotape movies when they are shown in theaters could go to prison for up to three years under the measure, which passed the Senate on Saturday.

Hackers and industry insiders who distribute music, movies or other copyrighted works before their official release date also face stiffened penalties under the bill.

[…] The U.S. Senate has voted to outlaw several favorite techniques of people who illegally copy and distribute movies, but has dropped other measures that could have led to jail time for Internet song-swappers.

[…] Left out were several more controversial measures that would criminalize the actions of millions of U.S. Internet users who copy music and movies for free over “peer to peer” networks like Kazaa.

[…] That material was dropped from the bill, but the Justice Department said on its own last month it plans to take a more aggressive approach to policing intellectual-property crimes.

The bill also shields “family friendly” services like ClearPlay that strip violent or sexually explicit scenes from movies. Hollywood groups say such services violate their copyrighted works by altering them without permission.

A section that would have made it illegal to edit out commercials was removed.

[…] Another measure that would have made it easier to sue peer-to-peer networks died in committee last month, though insiders expect Congress to take it up again next year.

Wired News: A Kinder, Gentler Copyright Bill?

Copyfight: Jumping Off the Omnibus

Old News – Great Quote

RIAA sues filesharing US students

Cary Sherman, RIAA president, said there had been positive developments in partnerships between colleges and legitimate file sharing services. He said: “During the fall, we have seen a flurry of additional agreements between schools and legal online music providers. That’s exciting news for the university, students, and all those involved in the creative chain of making and distributing music.

“The lawsuits are an essential educational tool. They remind music fans about the law and provide incentives to university administrators to offer legal alternatives.”

Note that some universities are taking that particular initiative — D.C. College Students Targeted in Piracy Suit [pdf]:

University officials determined that two of the suspected music sharers were students. They are still trying to determine the identity of the third defendant, who could be anyone with access to the university’s computer network, said American University spokesman David Taylor.

Taylor declined to name the students, but said that the school would give their names to RIAA lawyers. He said the students face several possible punishments, including being forced to attend an educational workshop on file sharing, losing their Internet service or being expelled.

And, there are plenty of other strategies:

The RIAA has not targeted colleges themselves. Rather, it collaborates with them on programs to teach students about the consequences of illegally copying music, movies and software.

Like many Washington, D.C.-area colleges in the area, American has stepped up its efforts to limit file sharing. School officials warn incoming freshmen against illegal downloading during summer orientation before the fall semester. The school also uses technology to curb the amount of illegal traffic on the network by limiting the bandwidth students have available for file transfers.

James Madison uses similar technology, but peer-to-peer networks like Kazaa try to find ways to allow their customers to evade the restrictions.

Georgetown University, George Washington University and the University of Virginia have Web pages that advise students of the law and their responsibilities online. Georgetown, George Mason University and the University of Maryland also send out letters to students warning against file sharing. Johns Hopkins University forces students to sign a form agreeing not to download pirated material.

Maryland takes students offline until they purge their computers of pirated material within 24 hours of being notified. The University of Virginia bounces second offenders off its network and forces them to pay $100 before they can get back online.

George Washington also offers students free subscriptions to Napster’s 700,000-song online library.

A Look At Weed

File Sharing Growing Like a Weed

While the music industry attempts to shutter peer-to-peer services in court and in Congress, one company is using P2P networks to promote and pay artists.

Shared Media Licensing, based in Seattle, offers Weed, a software program that allows interested music fans to download a song and play it three times for free. They are prompted to pay for the “Weed file” the fourth time. Songs cost about a dollar and can be burned to an unlimited number of CDs, passed around on file-sharing networks and posted to web pages.

Declan Raises An Interesting Question

Outgunned on copyright?

When the Induce Act materialized, however, the tech industry won by calling in the heavy artillery in the form of broader-than-usual alliances. By venturing beyond the usual cluster of Silicon Valley companies, the allies managed to prevent the kind of consensus from forming that has characterized recent copyright laws.

Among the new allies: the Association of American Universities, the American Conservative Union, the American Library Association, BellSouth, MCI, RadioShack, SBC Communications and Verizon Communications. Even The New York Times and The Wall Street Journal slammed the Induce Act in their editorial pages. (CNET Networks, publisher of News.com, also is on record as opposing the bill.)

Sarah Deutsch, a vice president at Verizon, said the Induce Act was temporarily defeated because the entertainment industry overreached, not because their lobbyists are losing influence. “It’s very hard for me to believe that either the RIAA or MPAA could be outgunned on intellectual-property issues,” Deutsch said. “If they’re not succeeding, it’s because they’ve drafted an overly broad piece of legislation that’s garnered lots of opposition.”