Does file-sharing demand a new economic model? (long)

With rulings against the RIAA and a victory for Kazaa, once again file-sharing is in the news (for a synopsis, go here. )). I’ve been following the debates for a couple of years. There is never a consensus that can be reached on either side that comes close to a satisfactory solution for everyone. And yet, there is another possible solution that I have never seen anyone mention. Could it be that what is needed is a new economic model that makes sense for the digital age?

I can see the side of the artist that creates the works and to some extent, that of the record industry, serving as a middleman to sell those works to the public. The artist makes no money (but does get some increased exposure) when song files are copied. The record company loses some money as a result of lost CD sales, although there is much debate as to how much loss can be attributed to other factors including bad marketing or musical decisions, or that the pricing of a CD has always been many times over the cost to produce it and may finally be too much for the market to bear. On the other hand, there are also some sales that can be attributed to people sampling cuts first and deciding to buy a CD they might not have otherwise. And at the same time, the Internet holds the promise for the artist to sell directly to the public, eliminating their need for a record company at all.

Then again, I understand the point of the consumer. The genie that allows the copying of songs online cannot be put back into the bottle. That is because the thing that computers do, in order to function, is to copy information. It copies information in the way of instructions that tells the computer what to do, and copies text, sound files, graphics, etc. for people to use. After the initial cost of the necessary hardware and software, the goods copied are nearly free and it’s cheap to store lots of copies. To try and limit that is to limit a computer from functioning. This can only result in a failure similar to the red flag laws in the 1800’s where, a person driving an automobile, needed to have a person with a red flag always walking in front of the car which was not allowed to drive faster than 4 mph for “safety reasons”.

At this time, sound recordings, text and graphics are all easily replicated. Before long, movies will face the same dilemma to the degree that songs currently do online. Should robotics continue to advance over the decades, physical objects that fall into the realm of intellectual property may also become relatively cheap and easy to copy. An example might be a machine that can replicate designer clothing to a person’s exact specifications for a fraction of the price. Much of the technology exists today to build such a machine; there may be one coming to a mall near you before too long. Replication of all these things can only increase exponentially; the technology continues to get faster and cheaper.

Continued replication of a work or an idea needs to be looked at as the successful acceptance of it. Copyright laws need to work in favor of this. Rather then trying to limit copies, creating copies should generate some income to the creator(s) of a work and any necessary intermediaries. Part of this may require technological adaptations making it possible so that each time a copy is generated, it is tracked and the holder of the work receives a couple pennies or some sort of credit in their bank account(s). Or, tracking may require making it advantageous the copier to say, “here, I made another copy!” if such an altruistic encouragement can be thought of. A financial infrastructure, some sort of clearinghouse, also may need to be set up for distributing the compensation given to a works owner(s) such as royalties are by ASCAP and BMI.

I realize this is a complex proposal to make, and that there will certainly be problems with it (that’s why I post it here). However, there seems to be nothing close to a satisfactory solution that covers everyone: creator, middleman, and consumer. Other than an economic system that accounts for everyone involved, what other real choice is there?

Oops. The first link didn’t work.

Can you come up with such a model, though?

I think that, in theory, it would be easy to come up with a good feasible system for creators and consumers. But quite hard to come up with one taking care of the middle layer as well (record co.) This is because the primary functions of record co. viz. packaging and mass distribution is easily made obsolete by perfect digital transmission on the internet.

As long as the **AAs have the money and the political clout, and aren’t too enthusiastic of the view six feet under, any solution will have to take care of the “vestigial” layer.

The middlemen might turn out to be ISPs. Or those that would distribute funding to authors, unless they are nonprofit as are ASCAP and BMI.

Anyway, I suppose middlemen will wiggle their way in somehow. Accounting for them would provide a more reasonable structure for a model to be adopted. If they become useless, they’ll disappear on their own.

Why should ISPs be involved?

Unless they can legislate and prevent any fundamental change leading to their demise.

As far as music is concerned, I think the model of the future will eventually be the classical model of musicians and performers before the age of mass entertainment distribution. Artists will create music, and distribute it on the internet. The intenet will become a tool for getting their music heard by the widest possible audience. Once they have an audience, they will make their living from live performance, licensing their songs for TV or radio, merchandising sales, etc.

This is already the model for smaller bands. Bands that sell 50,000-250,000 albums make little to no money from the albums themselves - at least, not from the record companies. The way they make their money is that with 250,000 albums in the market there is an audience large enough to fill 2,000-3,000 seat venues, where the performers get the gate receipts. Plus, they sell T-Shirts and CD’s at the concert.

We may see the end of the mega-acts that get 20 million dollar recording contracts. But the small acts trying to build an audience will get a big help from widespread music sharing. In other words, it’s the democratization of the music industry.

Hardly. Copyrights exist to protect consumers, not producers. They’re like patents.

David Levine has actually modeled the question and concludes that downstream sales & P2P file sharing do not prevent producers from earning profits. They may not garner economic rent, but then nobody should–that’s one of the big functions of the invisible hand. You can read about it here.

Economists have been studying this sort of thing for a long time under the name Public Goods.

Why should ISPs be involved? Just a guess, they’re already a conduit, their role might expand under a different system. For instance, an ISP would be the most likely agent for involving some sort of tracking software. I mentioned them as an example of an alternate middleman as opposed to a record company.

This brings up another thought - what about tracking copies made offline? To be really be fair to the creator of a work, all digitally made copies could possibly be logged and then uploaded to the clearinghouse at a later time. But this sounds more like an infringement of privacy to the consumer. I think that a need to encourage the end user to willingly allow this becomes a more crucial point to making the system work smoothly. I’m not sure what convince most of us to do so, but I’d guess a carrot would be much more effective than a stick.

Sure. Now, they might not be able to prevent their demise, regardless of what they do.

But again, this sort of model would come most easily into place if the middlemen find that they aren’t being cut out by the way things work. If they perform a useful function, then more or less, it’s business as usual for them.

Nice post. The model you are talking about, however, would require a virtually totalitarian society to implement. You’d essentially have to tag the whereabouts of every physical object so that the artist can get his “pennies.”

I think Sam Stone is on the right track here.

I thought they also existed to protect the artist for enough time to make it worth their while to create their art.

Yes copyrights have limitations as to what good they can do for an artist. They are doing less well these days preventing the monopolization of the work. Yet to some extent, we may have the technology to make them more effective in both areas than they were in the past. More sources of revenue for the artist, while wide-spread copying is encouraged and the consumer is not harassed for it. If the work is not so good, copies of it will drop off quickly. After a reasonable amount of time the work should move into the public domain anyway.

Again, I suggest that file-sharing music is only the tip of the iceberg. Things could get more complicated as larger and more profitable works become replicable.

I agree with Sam’s vision of the future regarding musical performers, in the short run for certain.

Good point about the tagging. Perhaps a sort of encryption might be used to verify legitimate copies made and yet hide directly where they came from? Would it really be necessary unless you’re hiding out from someone? I would think the tagging logs would be an automatic process built somewhere into the software or the work that gets sent to a single device that you own, then it uploads from that source, a PC, a Blackberry, a phone, when you’re ready to do so. As we become more interconnected this will probably be easy to do.

And overall, this is still another reason why the copier needs a benefit from doing this in order to make it work.

They don’t need copyrights for that–or no restrictions on downstream sales, at least.

js_africanus: Hardly. Copyrights exist to protect consumers, not producers.

How does that work?

I agree that some new paradigm of compensation is badly needed for the digital age. Unfortunately, entrenched interests never yield gracefully and the bigger and more powerful they’ve been, the less they want to change. The GREED BASTARDS (record industry) are about as likely to embrace a new system as the Catholic Church was to accept Luther’s reforms. They would much rather continue to try to fit the square peg of digital technology into the round hole or current copywrite law.

To that end we’ll see more attempts at copywrite protection, which as the OP said are simply trying to limit what the computer can do. All they can do is make it inconvenient for non-technically knowledgable people to make copies; as long as the ones and zeros that make the music are there, they can be copied.

As long as music exists, it’ll be copied.

There was a time when most CD-ROM drives couldn’t rip digital audio from a CD, so the only way to make an MP3 was to play the CD and record the analog signal, but that didn’t stop people from trading MP3s. If music exists, it can be recorded, and therefore it can be copied.

The industry’s only options are to change their product or price structure so most people won’t want to trade songs (because they get more than just songs for their money, or the inconvenience of trading outweighs the cost of buying, or they know buying a CD will actually help the artist), or to change their business model so it doesn’t depend on people buying copies of songs.

I think Sam Stone has it right. Charging for copies of a song is an unnatural practice that has only gone on for this long because it used to be inconvenient for most people to get copies for free. Now, it’s much more convenient, and people realize there are better ways to support their favorite artists.


I just quickly read that linked paper, but it doesn’t give any further explanation or elaboration of mechanism of how copyrights protect consumers. Can you fill in?

js_africanus, I’m not quite sure if the people on the post you cite completely understand the concept of copyright. Here is a history of law that shows it was originally meant to prevent a monopoly by those that might publish the work, and give the authors the right to have several years of time where they had complete control of how the work was used before passing into the public domain. This allowed creators of a work to make a living off of it for a few years. Now copyrights extend beyond their lifetime. There have been modifications to the law, many to prevent copyright holders from abusing it.

There have been arguments that the copyright period is too long, and that works take a long time before being able to be used freely. I once heard that Disney, which has argued for the extension of time a copyright is enforced, if they had been held to the same standards when they were just starting, would not have been able to make many of their early movies which were based on stories by the brothers Grimm. Those stories would have still have many years of copyright protection, and Disney may have never gotten off the ground well as they did.

Here is another variation of on copyrights that I came across, Creative Commons.

I’m not quite sure what I think about it, but their concept is one inspired by the information age of some rights reserved. Watch the movie on their site to get a quick idea of the licensing that they offer.

Actually, that sounds spot on. Monopolies are bad for the consumer (and society). Copyrights restrict monopoly power. (You could argue, truthfully IIRC, that the Supreme Court has inperpreted anti-trust laws as protecting competing producers–but since Levine, et al. are arguing for downstream sales, I think we’re into a lot of common ground here.)

Probably not well. And I think Snag’s citations will probably do a better job. The way I’ve understood it is that if an artist produces a work and then can’t gain compensation from it, then she has no incentive to produce. Therefore, she won’t. Copyrights allow her a period of time to reap benefits from her work, thus giving the consumer more art to consume. I’ve always thought that the reasoning mirrors that behind patents, in that the patent holder has a period of monopoly power to provide incentive to invent and innovate.

Given my re-reading of Levine’s piece and what Snag has quoted, it looks like I was mistaken. Whether I am mistaken on both lines of reasoning, I cannot say.

(But please don’t let that distract you from my point: No new economic models are needed. Music, especially in this age, is a public good since it can be consumed at (essentially) zero marginal cost, without depriving somebody else of it, and without producers effectively stopping it. Mayby a different extant model needs to be applied, but not a new one.)

I think your interpretation is incorrect. According to that page, at first there was a monopoly granted to the printers. That monopoly was codified in the Licensing Act of 1662, which expired in 1695, and a more modern copyright was codified in the Statute of Anne in 1710. Copyright didn’t prevent a monopoly by publishers, it replaced the publishers’ monopoly (which had ceased to exist 15 years earlier) with an authors’ monopoly.

As that quote illustrates, a bookseller’s monopoly wasn’t prevented by copyright itself, but by the fact that copyright terms were limited, and works would fall into the public domain.

With every copyright term extension, fewer works fall into the public domain, and we get closer to the old monopoly.

That seems dead wrong to me. Copyright is a monopoly, restricted only by the length of the copyright term (and a few token exceptions for “fair use”).