The socio-economic impact of file sharing [popular science edition]

Monday, February 2nd, 2009

I just finished reading ‘Ups and Downs – the economic and cultural impact of file sharing for music, film and games’ (see my earlier post for context). All in all the full version does not contain a lot of surprises when compared to the executive summary (which my first post was based on): It is a well written report that, although it makes a lot of sense to someone familiar with the subject, does not really come up with much new insights either. The strength of the report is that it places file-sharing within the wider social and economic context (as opposed to placing it solely within the economic logic of the entertainment industry). While they sometimes appear naive (it does not seem to occur to them that buying CDs or renting DVDs from the video-rental-shop is rapidly becoming obsolete from a technicals point of view) the researchers do seem to have a fairly good understanding of what is going on.

The core of their argument (to be found in sections 5 & 6) is that there is no direct causal relationship between file-sharing and the decline in revenues in the music industry. On top of this the researchers argue that even tough it is likely that there is a substantial decline in revenues for the recording industry as a result of file sharing, this is offset by an even more substantial increase in welfare for the general public (or at least that proportion of the general public that downloads musical works). This finding is based on an economic model that is summarized in figure 6.1:

figure 6.1 from ‘Ups and downs’ – blue boxes and grey arrows and labels mine (personally i am a bit surprised by the relative amounts of lazy and smart peple implied by this figure. life experience tells me to expect the opposite distribution).

  1. The orange block represents the revenue generated by selling recoded music in the absence of file sharing, which equals the maximum possible revenue for the recording industry. In this situation the rich people(a.k.a stupid people) profit (save money) because they would have been willing to pay more than the market price. All the people to the right of the orange colored block simply could not afford to buy recorded music.
  2. With the possibility of file sharing available to consumers we see a shift: a certain amount of people who used to buy recorded music now download it for free (’cheap people‘). In addition the smart people (a.k.a poor people) now have the same access to recorded music as all the others and finally there also is a group of lazy people who simply cannot be bothered to download because they perceive the process as too burdensome.

When comparing the changes between (1.) and (2.) in economic terms the researchers conclude that while there is a negative impact on the recording industry (caused by the cheap people) the fact that the smart people now also have access to recorded music represents a much bigger increase in economic welfare (and does not hurt the recording industry as it is ‘demand without purchasing power’ that is being met)1. As mentioned in my earlier post the researchers value the damage to the recording industry at a maximum €100 million p.a while they value the socio-economic gain caused by the increased access to recorded music at at least €200 million p.a.

Personally i am not sure if this will be of any consolation to the recording industry, but as far as i can see it is a fairly adequate description of the current transformation process: A business model anchored in an outdated means of distribution is (partially) being replaced by a social practices that are (a) more in line with the technological state of the art and (b) provide greater socio-economic benefits to society at large.

For the rest the report does not contain much news: Chapter 3 (’the legal framework’) gives a solid and up to date (it even includes last years legislative battle around the EU’s telecom review) overview of the legal implications of file sharing (in the Netherlands) and Chapter 5 gives an overview of recent studies on the economic impact of file sharing2. Apart from the economic model described above chapter 6 also lists a number of ‘dynamic and indirect’ effects of file sharing that are fairly obvious but nevertheless worthwhile to repeat: The researchers argue (p.123) that while it is likely that file sharing hurts big successful artists (as cheap people will buy less CDs from them) it has a positive impact on smaller artists (as it allows more people to sample their works, which will turn some of these people into buyers of their CDs or make them attend concerts). More interestingly the researchers also argue (p.125) that acceptance by consumers of the substantial increases in ticket prices for live-concerts has to be seen in the context of file-sharing: The increased willingness to pay high prices for concert tickets may be due to the fact that consumers are aware that they are spending less on recorded music (or the other way around: as they have to pay more for concert-tickets consumers are less willing top pay for recorded music and resort to file sharing).

When it comes to their conclusions the researchers note that file-sharing is here to stay and that we (the recording industry) are beyond the point of no return: It is impossible to build a successful business that is solely based on trading recorded music. According to the researchers is is also highly unlikely that there will be a point in the future where all music will be obtained from authorized sources (p.136). Given this they argue (inter alia, their official recommendation comes down to a pathetic paragraph where they make a plea against criminalization of end users and for more awareness building among file sharers) for a model where internet service provides offer internet subscriptions that include a fee for the access to copyright protected content (a.k.a the content flatrate).

  1. note how the rich people profit in both scenarios: they always pay less then they could (or should). this is probably why the distribution model the Nine Inch Nails used for Ghosts I-V worked so well.
  2. Chapter 4 ‘Downloading in the Netherlands’ is a bit of a disappointment. If presents the results of a representative survey that was conduced (by an external research-firm) among Dutch internet users. While the researchers repeatedly mention that the survey shows that file sharers have no clear understanding of what they are doing the data presented by them also underlines that the researchers (or the company contracted to carry out the survey) lack a clear understanding of their research object: see table 4-9 (usenet and newsgroups are two synonyms for the same source of files) or table 4-13 (most sites listed as sources for paid-for downloads do not offer downloads to users based in the Netherlands). Given this Chapter 4 casts a shadow on the otherwise high methodological standards claimed by the research team.

International Study on the Impact of Copyright Law on Digital Preservation

Friday, August 15th, 2008

The Netherlands: pioneer in digital preservation cultural heritage

The Library of Congress has recently issued a joint report on digital preservation and copyright. This authoritative report was compiled by the National Digital Information and Infrastructure Preservation Program, and in cooperation with partners in Australia, the Netherlands and the United Kingdom. SURFfoundation is responsible for the Dutch contribution.

The report, International Study on the Impact of Copyright Law on Digital Preservation, notes that digital works are ephemeral, and unless preservation efforts are begun soon after they are created, they will be lost to future generations. The report found that although copyright and related laws are not the only obstacle to digital preservation, there is no question that those laws present significant challenges.

Recommendations are provided for legislative reform and other solutions to ensure that libraries, archives and other preservation institutions can manage copyrighted digital information in a manner consistent with national and international laws.  Specific recommendations include structuring national copyright laws to provide exceptions for preservation institutions to proactively preserve at risk copyrighted material in digital form, subject to measures appropriate to protect the legitimate interests of right holders.

The Dutch contribution to the report takes inventory of current digital preservation efforts in the Netherlands. It also looks at the way in which the Netherlands regulates the preservation of and access to digital materials: through agreements between cultural institutions and entitled parties, which ensure that 20th-century works will remain publicly available. Higher education institutions in the Netherlands, collaborating within SURF, have indicated that they want clarity about preserving and providing access to cultural resources.

The recommendations for reforming Dutch legislation also focus on works from collections in museums, archives and libraries. These works need to be digitized for preservation. A secure network would have to ensure access to these digitized works.

For the Netherlands, the report is particularly important in view of the leading international position which the National Library of the Netherlands has achieved with its e-depository. The Library is often quoted as ‘an example of good practice’.

The importance of the report is underlined by Dr. Wim van Drimmelen, Director of the National Library. In an article in the Dutch newspaper ‘NRC Handelsblad’ of 17 April 2008, the National Library argued for removing the legal obstacles to digitizing 20th-century library collections. In addition, Van Drimmelen argues that clear regulation and legislation in this area is also of paramount importance for new, digitally born documents since their accessibility is under greater threat than that of traditional information carriers.

According to the report, copyright laws should permit preservation institutions to preserve copyrighted works in accordance with international best practices for digital preservation, including making copies for administrative and technical purposes; migrating works into different formats in response to technological developments and changing standards; and maintaining redundant copies among preservation institutions and legally authorized third party preservation repositories to protect against catastrophic loss.

The report further recommends that copyright exceptions for digital preservation should not be conditioned on the category (such as literature or music) or format (such as compact disc or website) of the work.

The Images for the Future project is mentioned at page 48.

Download the report ‘International Study on the Impact of Copyright law on Digital Preservation’



Dutch create more online content than the European average

Tuesday, November 27th, 2007

Tipped by a post on the weblog I discovered that research conducted by the European Interactive Advertising Association (EIAA) this November showed that the Dutch not only spend more time online and less on watching television, but also that we watch more online video and behave more like prosumers on the internet than the average European.

Some conclusions on media use in the Netherlands
EIAA conducted research in Europe and interviewed 500 people in the Netherlands. A few interesting conclusions:

  • internet penetration in Holland is the biggest in Europe; 81% uses internet weekley, 80% via broadband
  • the Dutch surf 5,6 days average a week
  • a quarter we can find on fora
  • 40% of the Dutch using internet visit social networking sites
  • 26% of the 16-24 year olds spend more time on surfing the internet that watching television
  • since 2006 the amount of 55 plus people and women using the internet rose by 11%
  • the Dutch blog: the amount of people blogging rose by 30% since 2006

Interestingly but not very new, the research shows that there is a clear shift from the traditional media consumption of watching television to watching online in the Netherlands. The amount of Dutch internet users that watch at least once a month online television programmes, films or videoclips rose between 2006 with 133%. 42% watches less TV, 20% listens less radio and 23% reads less often a paper. The shift is a fact.

Building personal archives
Not only do the Dutch ‘passively’ watch video on the internet, the research also concludes that the Dutch are the most active prosumers of Europe. 40% of the Dutch creates online content, whereas the European average is 18%. However this research doesn’t show whether this development is growing fast, you can guess that this will be big in the near future. Camera’s are getting cheaper every day, it becomes regular to have a mobile phone with a camera in it and easy to put it somewhere on the web.

So, everybody can create content when, where and where ever he or she likes. And we do! A collegue of mine just had a baby. In one month you could find more audiovisual content on the web about his life than about mine, and I already exist for 26 years. Research conducted by Ruigrok Netpanel for the Next Web about Web 2.0 in the Netherlands showed that now already 50% of the Dutch people share their photo’s online; and 16% does this with video content.

Personal versus institutional archives?
It seems like there is a tension between the core bussiness of Images for the Future, actually digitizing our audiovisual heritage of the past, and the broad social movement we see in the growth of User Generated Content and thus personal archives. How does this interfere? Or, how can this succesfully come together? How can we unite the world of the archives and the world of the private collections? In Holland there is a project which is trying to open up personal archives; audiovisual material right out of your parents dusty ceiling, this project is called Images of our Past. Why not combine theses personal stories with the official stories which are nationally archived?

Some institutions are already experimenting with this idea. A few Dutch broadcasters already announced plans on working with user generated content platforms. SBS will create it’s own platform like the German ProSieben Sat1 does with Myvideo; NPO will work together with popular social networking site Hyves. These are interesting cases which will show what can be possible and what will be desirible.