If one is willing to believe the happy talk from music business executives, the tide has finally turned against file sharing, thanks to the get-tough tactics employed by the Recording Industry Association of America.
Last fall, the RIAA began filing lawsuits against individual users of peer-to-peer trading sites, and the strategy, the RIAA says now, has paid off. The group is careful not to declare a final victory over file trading, but things are finally beginning to look up for a business long in decline, say industry representatives. After years of scoffing at copyright laws, Americans are finally beginning to understand the gravity of file trading's offense against copyright.
"What the lawsuits have done is facilitate a national discussion," says Mitch Glazier, an RIAA lobbyist. "They have raised awareness and especially made parents talk to their kids about what they're doing online. Parents had no idea what Kazaa was, they had no idea whether their kids could or couldn't access it." The legal strategy, Glazier says, has "forced people to discuss what's appropriate."
Since September, the RIAA has sued 382 Americans for trading music online. The lawsuits -- which carry theoretical maximum fines of millions of dollars each -- brought the industry some ugly publicity, but by the perverse logic of the recording industry, suing customers has also been good for the bottom line. In 2003, overall CD sales were down 2 percent from the previous year. But in the fourth quarter -- after the suits were filed -- sales shot up almost 6 percent over the same period in 2002. Meanwhile, legitimate online digital music services enjoyed phenomenal success in 2003. Apple, which introduced its iTunes Music Store in March, has already sold 30 million songs from the 99-cents-a-track service, and dozens of other companies -- including the now-aboveboard Napster, RealNetworks, and even Wal-Mart -- have joined the fray.
Has the recording industry, so often criticized for its antiquated ways, actually won the digital music fight? Is the era of Napster -- the file-trading free-for-fall that we were once told would never go away -- truly over, destined to be replaced by the more sober ethos of iTunes?
It turns out that there are as many different answers to these questions as there are vested interests in the fight over the future of music. While the industry cites several third-party studies that suggest a plunge in trading activity as a result of its lawsuits, its opponents dispute those studies and point to other numbers that indicate an increase in song swapping since the lawsuits began. And while the industry points to iTunes sales statistics as a sign that music fans are willing to pay for songs online, critics of the record labels pooh-pooh the iTunes numbers, noting that they represent but a fraction of the total music business. Every party in the battle seems to have a different idea about who's winning and who's losing.
But if it's true that the recording industry has really won the war over digital music, the future, its critics say, looks very bleak. A victory for the RIAA will lead us to a world that looks very much like the status quo: The music firms want to sell CDs, file lawsuits against traders, and preserve today's copyright laws. Every legitimate music service looks like iTunes -- and while they are convenient and fun enough to use, they aren't nearly as radical as the old Napster was, and they promise far less freedom for music fans.
That's not the best outcome, say critics of the music industry. Despite the apparent success of iTunes, "The bottom line is, when Napster was around, people were all talking about music," says Fred von Lohmann, an attorney at the Electronic Frontier Foundation. "People were more focused on music in that 12-month window than they've ever been since then." ITunes makes getting songs convenient, but it doesn't change the music industry, and it doesn't change music.
For longtime critics of the music industry like von Lohmann, the freewheeling Napster culture represents the zenith of the Internet age, and he's anxious to see that culture legitimized. "Why can't the American music fan get the same deal that radio stations have had for decades -- pay a reasonable blanket fee in exchange for playing what they want on whatever equipment works best for them?" von Lohmann asked in an e-mail. "Let a thousand file sharing applications bloom and let the fans post all their favorite songs. The more people share, the more money goes to copyright owners. 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 catalog."
When file-sharing advocates say that the recording industry can make more money by loosening its restrictions, their calculation might seem easy to dismiss as wishful thinking. But a close examination of the economics of file sharing indicates that, if the restrictions are loosened cleverly, this may very well be the case.
For the recording industry, the future of music is iTunes. For its opponents, though, the future of music is a return to the glory days of Napster. And the only way to make iTunes as good as Napster, they say, is to make it just like Napster.
Last November and December, surveyors at the Pew Internet and American Life Project called 1,358 Internet users across the nation and asked them a simple question: "Do you download music?" In March, when the Pew project had previously asked people about their music habits online, 29 percent -- representing about 35 million Americans -- admitted downloading songs from the Internet. But this time, after the splash of the recording industry lawsuits, only 14 percent said they downloaded songs, and many of those who still used the trading services said they were being more careful. The Pew study was combined with a report from comScore Media Metrix, a market research firm that measures online activity by monitoring the computers of a representative group of Internet users (it works much like the Nielsen TV ratings system). According to comScore, many people have recently quit using some of the most popular peer-to-peer file traders -- between November 2002 and November 2003, for instance, comScore showed Kazaa's user base falling by 15 percent.
The news that almost 18 million file traders had scurried away from peer-to-peer services certainly appeared to vindicate the recording industry's legal effort, and the Pew study made headlines at the start of the new year. The RIAA, which has cited a few other surveys that indicate similar declines in file-trading activity, hailed the report. "Our goal is to create a legitimate marketplace," Glazier says. "This is another encouraging indication that we're on the right track."
But the Pew numbers were immediately criticized by other groups. Because the results were based on a telephone survey, critics of the recording industry suggested that many respondents had simply lied to the surveyors. In a self-reported survey, "It is notoriously difficult to get accurate information about illicit or illegal behavior or behavior that's perceived as having a stigma," says Eric Garland, the CEO of BigChampagne, a firm that measures trading activity on peer-to-peer services. Isn't it reasonable to guess that some -- or possibly many -- of the people in the survey denied trading songs online because they feared getting in trouble? File sharing, after all, thrives on a perception of anonymity; if you were a savvy Internet user, would you tell a stranger that you enjoyed using Kazaa?
While he made clear he stood by the results, Lee Rainie, the director of the Pew survey, acknowledged possible flaws in his method. "Do people lie to pollsters?" he asked. "Absolutely. Do they say they're going to vote for one guy and then vote for the other guy? Yes. I'm not a thousand percent confident that we have the exact numbers here, but I know we've got the trend right -- this is more than a trivial moment in the life of the online world. There are fewer people doing something online in significant numbers." The trend is confirmed by numbers from Nielsen//NetRatings, an online traffic monitoring firm, which indicate that traffic on file-sharing networks has fallen by about 60 percent since last spring.
But Eric Garland even disputed the idea that there was a downward trend in peer-to-peer traffic. "If you look at file sharing as a global phenomenon, from the earliest days it looks like a gradual snowball," he says. "It is generally true to say that it is always more popular today than it was yesterday" -- and that's still true. BigChampagne measures peer-to-peer usage by logging into the trading networks and counting the number of simultaneous users; the recording industry considers its numbers so reliable that many labels have contracted with the firm to determine which songs are popular online. According to BigChampagne, on the FastTrack trading network (the largest peer-to-peer system, it includes Kazaa) the peak number of simultaneous users in December 2003 was 4,819,203; on the second-place eDonkey network, the peak was 1,801,023 users. Those numbers are substantially higher than usage in December 2002: then, the peak usage for FastTrack reached 3,746,961, and 668,000 for eDonkey. Garland said that in December of 2003, just under 60 percent of file traders were in the United States, and that number has not been falling in recent months.
The recording industry, for its part, says that peer-to-peer traffic is just one of the many statistics it's looking at as a barometer of its legal strategy. The industry does want to reduce file sharing, but it also wants to increase the use of legitimate services, and it wants to raise its revenues. And when industry players look at all three of those measurements, they are encouraged.
"We can tell by the growth of the legitimate marketplace," says Mitch Glazier. "I think iTunes just announced they have their 30 millionth download, Napster has announced a deal with McDonald's, there are new deals being announced all the time. Wal-Mart just launched, Microsoft has announced -- it goes on and on and on. If you look at the legitimate marketplace now, it's astounding the growth that we're at."
Glazier is certain that the lawsuits are at least part of the reason for consumers' apparent willingness to purchase music from services like iTunes. "What is the motivating factor? For many it was just the convenience of the new alternatives. For some it was, 'I don't want to pay anything' -- and then deterrence is the only way. You must actually pay for it."
But to hear critics of the RIAA tell it, even the success of iTunes isn't really that astounding. "If you believe the Pew folks, 18 million people stopped downloading in the last few months," says von Lohmann. "Where did they go? They're sure not using iTunes." Eric Garland echoes that thought. "There are 20 million people in a given month who are using file-sharing services," he notes. "There are in total billions of files acquired on file-sharing services every month. Compare that with iTunes' stated ambition of getting 100 million songs in a year. It's so slight it's a fraction of a percent. It's like saying Apple is going to save the music business because they'll allow people to get 999 files and pay for one." Garland says that if iTunes sold "10 billion songs this year it might be neck and neck with file sharing. And for the Apple iTunes store to marginalize file sharing the way file sharing has marginalized CDs, Apple has to sell trillions of songs. File sharing is a powerful force."
It also seems likely that in 2004, the RIAA's effectiveness against the file-trading masses may diminish. On Dec. 19, the U.S. Court of Appeals for the D.C. Circuit handed the recording industry a stinging defeat by ruling that ISPs can refuse to identify customers suspected of trading songs online. Instead of applying for an automatic subpoena to identify suspected thieves -- as the RIAA did for the hundreds of lawsuits it filed so far -- the industry must now present its case to a judge anytime it intends to sue a file trader.
The RIAA maintains that the new requirement won't be a significant hurdle; more lawsuits, it promises, are on the way. But each suit it files will now be at least a bit more complicated, and it's not unreasonable to expect that the RIAA will file fewer of them -- and that it will therefore deter fewer file traders. The lawsuits will probably also do little to confound the hundreds of engineers around the world who are currently working on more sophisticated peer-to-peer services or, perhaps, some whole new technology that disrupts the music business' status quo.
"This Pew study reminds me of an anecdote," says Eric Garland. "It was 2001, just after the decision came down that finally shuttered Napster, and I was at South by Southwest," the music conference that takes place in Austin, Texas, every year. "There are all these record industry people there, and I'm an outside technologist -- I'm known as the Napster guy. And they're all toasting me and raising their glasses, expressing ironic but sincere sympathy because my business has gone away. I said, 'Guys I know we all need a reason to drink -- but have you heard of this thing called Morpheus?'
"The consensus was the tide has turned and we're all well on the way to winning the war. What was called Morpheus was not even a shadow of a threat, was a completely hollow threat. We needed something to celebrate, we needed to know that the seething was over and done with. It's a very difficult reality to internalize that file sharing has become fully ingrained in the culture."
Not everyone in the recording industry has yet fully internalized that reality. While there are probably many in the business who believe that they'll never beat peer-to-peer trading, a few harbor a lingering assumption, observers say, that eventually the combination of legal, legislative and technical brute force will deal a mortal blow to sharing. "They believe in the deus ex machina that comes in during the third act of the opera and saves the heroine from the flames," says Jim Griffin, the CEO of Cherry Lane Digital, a firm that consults in the delivery of digital art. "They think, 'If only we code better and add legislation and add a touch contract ...' The main hurdle for them is accepting that the status quo is disappearing. We cannot legislate or guilt or code or contract friction back into an increasingly friction-free world."
So what should we do instead? Ever since the threat of file sharing appeared on the horizon, experts have been pointing to the concept of a blanket license as a way to save the world a lot of economic and legal pain. The various proposals for such licenses differ greatly in their details, but they essentially work like this: Through a tax or a fee added to any number of goods or services (such as blank CDs, or CD burners, or portable music players, or Internet service) consumers would pay a flat fee for the right to download as many copyrighted tracks as they care to, with impunity. The users would have full rights to the songs -- people could burn them, share them, modify them and keep them forever, even after they've stopped paying the fee. The recording industry would divide the money based on accepted measurements of downloading. (Perhaps the most sophisticated proposal for a blanket license was recently put forward by Neil Netanel, a law professor at the University of Texas at Austin; the paper is to be published in the forthcoming issue of the Harvard Journal of Law & Technology.)
For proponents, blanket licenses would be digital music's nirvana. "ITunes is great, but iTunes is a pale shadow of what Napster was, and Napster was only a few months old," says Fred von Lohmann. "The catalog was better, deeper -- songs that had been out of print for decades that even the record labels didn't have were on there. I remember once there was an old Beth Orton record that was on there, and I don't think even she could get ahold of the master for that. And think of all the live concert footage -- and that's just what emerged in 12 months or so. Imagine if you'd poured $200 million in venture capital for it and you were funding the technology rather than paying all those lawyers." Imagine, in other words, if Napster were legal -- how much would you pay for that?
The music business is no stranger to collective licensing. Television and radio stations enjoy collective licenses for music they play on-air; the stations pay the artists' performing rights societies (such as ASCAP and BMI) some negotiated amount of money, and the societies dole out the money to their members. Stations that pay enjoy broad rights to play whatever they want to.
The EFF advocates some version of this license for everyone else. As von Lohmann envisions the plan, ISPs would negotiate the price of such a license with the recording industry -- something like $5 or $10 per user per month. Then ISPs would offer this license to their customers. "So you'd opt for the SBC all-you-can-eat music broadband account," von Lohmann explains. Von Lohmann believes that most customers would pay the money to be free from RIAA prosecution -- and even though there may be a few free riders, the problem won't be anything like the one the industry currently faces, he says.
If the EFF's vision seems a bit far-fetched -- why would an industry so bent on prosecution of copyright infringement ever grant so many broad rights to users? -- von Lohmann concedes that it is, right now. But he maintains that soon, the industry will have no choice but to offer such a plan. By the end of the year, "after more slumping revenues (not offset by iTunes sales) and more disaffected fans, I think the record labels will have to admit that they need a Plan B," he says. "After all, if things continue as they have, senior executives will be sacked, and new executives will have a mandate for change. When they start looking for more sensible alternatives, we'll have one ready."
This is not the story you'll hear if you ask the recording industry about blanket licenses. "A blanket license is a government license," Mitch Glazier says. "You would never do it unless there's complete marketplace failure. And we now have an existing marketplace, and my god it's exploding. [The EFF's position] I think is the opposite, is what is called for in this new marketplace."
There are other criticisms of blanket licenses. Stan Liebowitz, an economist at the University of Texas at Dallas, has questioned the plan's economic soundness. He says that it will be extremely difficult to set an optimal price for such a license. Under a blanket system, how will you know how big the music industry should be? If each download is free, then there'll be an enormous number of downloads -- many more than the number of songs purchased right now. Should the music industry be that big? "I think they are still naive in their belief that it will be possible to have a good grasp over what size it should be," he says. "Right now we know what the sales have been recently -- we know that zero is too low and 40 billion's too high. But 30 years from now how would we know where it should be?"
But observers of the music industry are convinced that the blanket license will come to seem, to all involved, like a pretty natural thing to do. "We accept that we can't control automobiles," says Jim Griffin. "They kill and maim people every year, there's a death rate and an injury rate associated with them. So what do we do? We say our safety system is 5 feet and a white line, so before you get on the road you should pay money into a fund. That's how we monetize the anarchy of the road." Making money from file sharing, Griffin says, is not that much different. You ask people to put money into a fund, "and that way you monetize the anarchy of human behavior."
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