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.

Recent views in the ongoing copyright vs. open access debate

Monday, February 4th, 2008

Steal This FilmCopyright used to be a very specialized field of law, but over the last few years, it has become a highly political topic, where discussions routinely tend to include issues such as freedom of information, human rights of access to knowledge, democracy etc.. These lively discussions take place in every thinkable media forms.  Images for the Future follows these discussions closely. Below are some pointers to recent contributions made by those representing the ‘open access’ movement. Please share your favourite blogposts, books etc. as comments.

To start, Cory Doctorow (blogger, journalist and science fiction author) writs in his latest contribution to The Guardian titled ‘Copyright law should distinguish between commercial and cultural uses’ about how IPR regulations are making it practically impossible for end-users to reuse copyrighted material. He writes how ”…individuals should hire lawyers to negotiate their personal use of cultural material, or at least refrain from sharing their cultural activities with others (except it’s not’s really culture if you’re not sharing it, is it?).” With the internet, it became not only easier to share whatever creation in digital form, for enforcers it became easier to track down possible infringers. Doctorow poses how “We need to stop shoe-horning cultural use into the little carve-outs in copyright, such as fair dealing and fair use. Instead we need to establish a new copyright regime that reflects the age-old normative consensus about what’s fair and what isn’t at the small-scale, hand-to-hand end of copying, display, performance and adaptation.”

For Joost Smiers (professor of political science of the arts at the Utrecht School of the Arts) this wouldn’t be a probable strategy. In his article “What if we would not have copyright” he states “…it is unthinkable to bring the current system back to normal proportions because it is not in the interest of the main proponents of the system – the cultural conglomerates- to assist in this transformation”. His paper presents a radically different (but in my view not totally convincing) economic model for creative sector. Smiers believes any artistic creation belongs in the public domain and thus proposes to abolish the whole concept of copyright. Whatever you make of his quite radical, albeit thought provoking vision, Smiers ends his paper with a conclusion that is widely shared “One must be blind not to observe that copyright is in it’s final days. Even massive criminalisation of users of artistic materials does not work any longer”. The artice was published in the MyCreativity Reader and can be obtained for free through the Institute of Network Cultures.

Copyright used to be a very specialized field of law, but over the last few years, it has become a highly political topic, where discussions routinely tend to include issues such as freedom of information, human rights of access to knowledge, democracy etc.. These lively discussions take place in every thinkable media forms.

Steal This FilmThis premise is the starting point of the documentary Steal This Film II, released a few weeks ago. Through interviews with Yochai Benkler, Brewster Kahle, Rick Prelinger, Laurence Liang and many other influential thinkers, Steal This Film brilliantly explores current changes in the way media is produced, distributed and consumed. It traces back the roots of piracy to the invention of the printing press in the 15th century and continues makes the case how file sharing is the fundamental structure of the internet. For copyright holders, this results in serious headaches. As Aaron Swarts, co-founder of the social news website states: “there’s no one you can go to and say: stop the file sharing – it’s just not built that way” If you haven’t downloaded the documentary yet, you can do so online: at Steal This Film II.

The new attitude towards the production of media was at the heart of the Video Vortex conference, that took place on 18-19 December. Speakers like Jay Dedman and Valentin Spirik took the stage to demonstrate how easy it is to produce and distribute online video, giving dozens of examples. Many of these can be found on the Yahoo Videoblogging group webpages.

The Do It Yourself (DIY) model is also applicable in the music industry. In the January edition of Wired Magazine, David Byrne offers different models that are currently shaping the music industry; more precisely the relationship between artists and record companies. Byrne writes: “Where there was one, now there are six: Six possible music distribution models, ranging from one on which the artist is pretty much hands-off to one where the artist does nearly everything.” On one end of the scale is the equity deal, where artists hand over virtually every aspect of their carrier; the artist becomes a brand. Madonna made this kind of deal some months ago with Live Nation. On the far end of the scale sits the self-distribution model, where music is self written, self produced and self distributed. Radiohead adopted this DIY model for the much publicised release of their latest album, ‘In Rainbows’.

In the Netherlands, a parliamentary working group will study the impact the rise internet is having on copyright. This working group, announced mid January, will investigate scenario’s how to compensate rights owners for mass downloading in illegal ways.

As Images for the Future continues to develop innovative services, such as the Plaform Open Licences, these views are helping to define a strategic agenda on this topic. The question how to create sustainable access to archive holdings – and the legal aspects regarding reuse are also going to be discussed during the Economies of the Commons conference (10-12 April 2008) co-hosted by De Balie and the Netherlands Institute for Sound and Vision.