A Copyfighter’s Musings

The Distributed Computing Industry Association (DCIA) is a non-profit trade organization, established in July 2003, focusing on the commercial development of peer-to-peer (P2P) file sharing for legitimate purposes. Our Members, comprising content, software, and technology firms, now number twenty-five companies, and we are actively expanding our balanced and solutions-focused Membership.

We strongly and unanimously oppose this misguided attempt by private sector plaintiffs who, having lost a civil lawsuit, have now pressured the Senate to alter federal law before exhausting court remedies. This sets a terrible precedent for the interaction of legislative and judicial branches of the federal government.

The current draft would not only fail to address copyright infringement, it would also put at risk all software programs, consumer electronics, and Internet-based products and services that aren’t to the entertainment industry’s liking. It would create a flood of litigation, and thus harm vital sectors of the US economy.

This bill underscores the fact that codification of the Betamax doctrine, which has benefited consumers for two decades, is now urgently required to prevent such attempts at banning new technologies simply because they challenge an established business model. Betamax is the Magna Carta of the technology industry, and is largely responsible for our nation’s preeminence in technological innovation and entrepreneurship.

The measure would create an impossible situation where compliance would actually trigger liability based on Napster case law.

We disagree that the situation warrants immediate Congressional action. The radical alteration of US copyright law proposed by S. 2560 would cause irreparable damage to technology innovation, one of the nation’s most signifcant growth areas, and ultimately would not benefit this measure’s chief proponents: major entertainment content rights aggregators.

Contrary to our opponents’ incitements to panic, Music CD sales are up 7% in the first half of 2004 and the movie industry is enjoying record revenues and earnings. P2P file-sharing traffic has had double-digit growth during this period as well. No causal connection has been demonstrated between P2P file sharing and previous business downturns experienced by the music industry during the past few years. Many studies had demonstrated a promotional benefit comparable to radio exposure.

Licensed content transactions in the P2P distribution channel are now the largest among all online sectors ­ ten times those of the centralized download stores backed by the music industry. This area of P2P growth has come almost entirely from small independent labels and artists, who had been closed out of their chosen profession by the old major label system, but who can now earn an income and generate revenue thanks to the Internet and P2P.

The success of P2P in developing this content-based revenue stream is all the more notable given the boycott of this distribution channel by major music labels. Not a single track from any of the big-four record companies has yet been licensed to P2P despite numerous and ongoing requests.

We believe that Congress should not encourage yet more litigation, which will only cause greater divisiveness and further delay the constructive marketplace solutions that will benefit all stakeholders, including consumers.

Instead, we urge the major labels and movie studios to engage with technology providers to fully legitimize the P2P distribution channel. Our research shows that the major labels could enjoy compounded revenue growth of nearly 10% per year and incremental retail revenues of more than $900 million per month by fully embracing the P2P distribution channel.

Specifically, the time has come for market deployment of available technical and business solutions that enable major labels to securely enter their content into P2P, setting terms-and-conditions including pricing and usage rules, for its digital redistribution. Additional capabilities will enable consumers to continue to upload unprotected content using any current or future P2P software program, without fear of infringing copyright, by having such content identified automatically and made to perform just as though the labels had entered it into distribution.

These do not include filters integrated into P2P software applications to block out copyrighted works, which currently do not exist and would prove impractical to develop, deploy, and maintain. They do include separate applications that will work with all file-sharing programs to enable rights holders to concurrently offer free ad-supported promotional versions, opt-in subscriptions, and a la carte sales of their works, facilitating commercial transactions for which artists will be compensated every time a file is exchanged.

The real reasons for the cyclical downturn in music CD sales from 1999 to 2003, which has now thankfully abated, involved the completion of replacing vinyl LPs and audio-cassettes with CDs in existing consumer music collections, a substantial reduction in quality tracks per CD and overall major label output, increased competition for home-entertainment purchases from games and DVDs, and a failure to adjust CD retail pricing to remain competitive. Unauthorized P2P distribution to date has been demonstrated in several research studies to represent a sampling of songs rather than a substitution for purchasing of CDs. 

Our opponents call file-sharing companies pirates. The fact of the matter is that P2P suppliers are very small, modestly funded technology firms, typically not yet at breakeven, whose desire is to be in the much more attractive entertainment content revenue-sharing business than in the online ad-sales business, which notwithstanding their astonishing track record of distributing the works of small independent content suppliers, is principally what they have to rely on now as a result of the boycott by the major labels and studios.

These software companies do not represent an evil plot to circumvent copyright, but rather simply reflect the increasingly decentralized architecture of the Internet and exemplify a rudimentary form of distributed computing, where an infinitely scalable number of geographically dispersed computers can be networked together for discovery and delivery of files. More advanced applications, used increasingly throughout private industry, the government and the military, include cycle-sharing and other computing functions, with many examples already in the fields of mathematics and scientific research.

The user experience in P2P is drastically different from centralized download stores. Since consumers bear the costs for bandwidth, storage, transmission, and even some of the marketing expenses, P2P can profitably support the total inventory of recorded music, currently estimated at over 20 million music tracks, while online stores, although offering more diversity than brick-and-mortar CD retailers, can only afford to maintain several hundred-thousand. P2P provides an infinitely expandable universe of niche offerings beyond any preceding distribution channel, along with the promise of substantially lower costs to consumers of digital media.

Our opponents often repeat a series of tired charges relating to viruses, data security, and pornography. No new industry has been as responsive to such issues as have file-sharing software providers. Leading P2P suppliers have integrated into their offerings powerful anti-virus programs, established default settings to prevent unintended sharing of private and confidential data, and led Internet-based businesses in providing parental controls to help protect children from inadvertent exposure to inappropriate material. These include password-protected family filters that at their maximum settings can block all images and video.

Despite the financially costly attacks by their much larger and more powerful opponents in the entertainment industries, these good actors continue to improve the safety, quality, and value of their users’ experience, for example by working with legal authorities on enforcement, deterrence, and education programs to combat child pornography, and with other agencies to improve and standardize consumer disclosures.

The real threat from P2P is to expose the major labels’ moribund business model. Entrenched and inflated infrastructures, monopolistic business practices, and unfair treatment of intellectual property creators ­ composers, performers, publishers, and songwriters ­ result in artificially high prices for products whose obsolescence is fast approaching. Combined with low-cost high-quality digital production and post-production hardware and software, P2P facilitates the elimination of layers of infrastructure that have distanced artists from their fans, and closed out niche artists from the opportunity to earn a living in their chosen field.

P2P is enabling small progressive independent labels and even individual musicians to find their audiences and monetize their works without having to sign contracts with major labels. That is the unspoken fear behind the rhetoric of animosity expressed by our opponents.

 

It is time to call for an end to the major labels’ and movie studios’ unnecessary and self-destructive refusal-to-deal and insist upon enlightened behavior by rights holders and technology providers, informed by past experience.

The solution is as simple as a single statement: end the boycott of the P2P distribution channel by major entertainment content aggregators.

Briefly, in closing, regarding the related H.R. 4077 (The PIRACY Act) that would criminalize file sharers themselves: it is unconscionable that anyone would prefer sending young people to jail rather than adjust their business model to keep up with technology. It’s disappointing that the House of Representatives would acquiesce to pressure from a rich special interest group rather than promote market-driven solutions.

Congress should question important changes to our legal system sought by narrow special interests, when these demand that time be taken to thoroughly analyze language on which future technology and commerce may rely. Congress should refuse to be seduced by the blandishments of the rich and famous and, with determination, insist on balancing any proposal against the overriding interests of all the people.

We join with many others in our opposition to this poorly conceived legislation, and in our plea that it not be hastily adopted as a “gift” to any person or industry at the expense of good policy and the interests of common consumers.