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MASTER THESIS Ivan G. Angelov Tilburg University Faculty of Law Law & Technology LAW & TECNOLOGY 2011 - 2013 Master Thesis Topic: How to guide creative industries towards adopting new business models? Ivan G. Angelov ANR: 569597 Thesis Supervisor: Dr. mr. ir. M.H.M. Schellekens Faculty of Law, Law & Technology Tilburg University 1 | P a g e Table of Contents • INTRODUCTION ….………………………………………………………………………………….4 • METHODOLOGY ……………………………………………………………………………………..9 1. CHAPTER I: Copyright Enforcement Failure.………………………………………10 1.1 Internet Changed Everything ……………………………………………………10 1.2 Napster – The Beginning of the Copyright Wars ……………………….11 1.3 Grokster’s Lawsuit ……………………………………………………………………12 1.4 Gnutella, Kazaa and Megaupload …………………………………………….13 1.5 RIAA’s Litigation Campaign ………………………………………………………14 1.6 The Legal Campaign in Europe …………………………………………………16 1.6.1 Pirate Bay ……………………………………………………………………….16 1.6.2 Individual Users ……………………………………………………………..16 1.7 Copyright Enforcement ……………………………………………………………17 1.7.1 Aftermath ……………………………………………………………………….17 1.7.2 The Problems Behind the Enforcement …………………………..18 2. CHAPTER II: New Business Models: New Opportunities for Copyright Holders …………………………………………………………………………………………………20 2.1 The Alternative ………………………………………………………………………..20 2.2 New Business Models Work …………………………………………………….22 2.2.1 iTunes …………………………………………………………………………22 2.2.2 Subscription Based Models …………………………………………24 2.2.2.1 Music ……………………………………………………………..24 2.2.2.2 Movies ……………………………………………………………24 2.2.3 Ad Based Models …………………………………………………………25 2.2.4 Target Advertisement …………………………………………………25 2.2.5 Music Video Models ……………………………………………………26 2.3 Provide Users With What They Want ……………………………………….26 2.3.1 Experience ………………………………………………………………….26 2.3.2 Reasonable Prices ……………………………………………………….27 2 | P a g e 2.4 Provide Copyright Holders With What They Want: Better Exercise of Their Rights ……………………………………………………………………………….28 2.4.1 Greater Control …………………………………………………………..28 2.4.2 New License Strategies and Effective Competition Models………………………………………………………………………………….30 2.5 Smaller Labels Benefits …………………………………………………………….32 2.6 Artists Benefits …………………………………………………………………………33 3. CHAPTER III: CREATING AN ENVIRONMENT FOR THE NEW BUSINESS MODELS ……………………………………………………………………………………………….34 3.1 Guidance Required …………………………………………………………………..35 3.2 The Four Modalities …………………………………………………………………36 3.3 Law: Smarter Enforcement ………………………………………………………37 3.3.1 Changing the Vision on Enforcement-Reasons …………….37 3.3.2 Government’s Actions-Materializing the New Vision on Copyright Enforcement ………………………………………………………..37 3.3.2.1 Directions of Reconsidering ……………………………37 3.3.2.2 Providing Legal Offerings Online …………………….40 3.3.2.3 HADOPI ………………………………………………………….43 3.3.2.4 Incentives for Copyright Owners …………………….46 3.4 The Market: More Effective Licensing System ………………………….47 3.5 Social Norms: Educating Consumers ………………………………………..53 3.6 Architecture: Better Designed Platforms ………………………………….54 • CONCLUSION ………………………………………………………………………………………..56 • BIBLIOGRAPHY ……………………………………………………………………………………..59 3 | P a g e Introduction The fast development of the Internet and its unlimited capabilities to distribute information basically to every corner of the earth, brought one of the most complex issues modern law must solve - online copyright infringement. The levels of online copyright infringement are skyrocketing, because of the perpetual technological development of the Internet and this worries music companies, movie companies and other copyright owners. 1 The copyright holders fear, and not without a good reason, that they cannot prevent this process and furthermore they are concerned that in the near future it will become even more burdensome. For now the main direction copyright holders adhere to, is copyright enforcement, which gives them the opportunity for tracking and suing individual Internet users that infringe their rights. However, until now these efforts seem to yield the necessary results as the copyright piracy continues to form a serious problem. Copyright holders are struggling in this battle feeling unable to protect their own property. All the legal measures adopted in combating this infringement turn out to be just temporary or lack effect at all. Organizations such as Recording Music Associations of America (RIAA) and Motion Picture Association of America (MPAA) are specifically created to protect copyright owners’ rights. Protecting copyrights is the essential mission of both organizations. 2 RIAA has greatly contributed in shutting down the pioneer in peer-to-peer (P2P) networking Napster in 2001. Subsequently with joint efforts, RIAA and MPAA closed Grokster. However, the fight against decentralized servers continued and legal battles against KaZaa, Gnutella and MegaUpload followed. Creative industries succeeded to shut them down, but the piracy rates continued to increase dramatically. New and more sophisticated P2P networks emerged, as “Bit Torrent” giant is one of the most notorious. During the litigation campaign initiated by RIAA thousands of individual users were monitored and sued in United States’ courts. At the beginning, the lawsuits resulted in positive direct effects, like the decrease of the individuals who illegally download, as well as in indirect effects, like the raise of “ the public consciousness about the illegality of downloading ”. 3 It was thought that lawsuits will manage to cut off file impetus of the file swappers. However, it was not the case as this strategy did little to deter this illegal activity. 4 Thus, RIAA’s litigation 1 Steven Seidenberg, ‘Copyright in the age of You Tube’ ABA JOURNAL (posted on Feb 1, 2009), available at: http://www.abajournal.com/magazine/article/copyright_in_the_age_of_youtube/ (accessed 08.01.2012) 2 RIAA.com, About us, available at: http://www.riaa.com/aboutus.php?content_selector=about-who-we-are-riaa ; MPAA.org, Content Protection, available at: http://www.mpaa.org/contentprotection (accessed 08.01.2012) 3 Kristina Groennings, ‘An Analysis of the Recording Industry’s Litigation Strategy Against Direct Infringers’, Vanderbilt Journal of Entertainment Law & Practice’ (2005), p. 391, available at: http://www.jetlaw.org/?page_id=8558 (accessed 10.01.2012) 4 Ibid, p. 390 4 | P a g e campaign lasted 5 years and was abandoned in 2008 due to lack of results. 5 Copyright holders realized that fighting online piracy by filing lawsuits was not the solution. A litigation costs a large amount of funds, could last years and it does not guarantee that the court will find the defendant liable. The court decision in Lenz v. Universal Music Corporation showed that copyright owners in their efforts to limit the online copyright infringement file unconsidered lawsuits against the Internet users, which as a consequence leads to not just wasting money and time, but also to users’ dissatisfaction. 6 Thus, rather realizing the problems caused by piracy rates, consumers saw creative industries as their enemy. Such a frustration is further justified due to lawsuits such as Capitol Records vs. Thomas . This trial, supported by RIAA, did not bring any notable success in diminishing the online copyright infringements, as well as the other previous trials. It seems that the enormous damages claimed by the plaintiff are rather aimed at terrifying the illegal downloaders, as a deterring method, then an actual expected resolution of the case. 7 This thesis explores enforcement in terms of legal proceedings only. Other enforcement mechanisms such as site blocking and cutting funds to allegedly infringing websites were not taken into account. The reason is that such mechanisms could be unambiguous. For instance, site blocking could be applied in an oppressive manner and could affect negatively the freedom of Internet provides. 8 Its application could result into imposing censorship. 9 Site blocking is further part of the mechanisms proposed in the Stop Online Piracy (hereinafter SOPA). 10 Cutting funds to infringing websites is another tool SOPA envisages. 11 Considering the wide public debates against this bill as well as the mass protests, including the unprecedented Wikipedia blackout, analyzing such enforcement measures could shift the focus of the current thesis. As there are many debates and fears against imposing censorship on free speech in Internet, 12 the current thesis sticks to less controversial and debated enforcement mechanisms, avoiding any analyses far from its research idea. 5 Marcia Keyser, ‘Napster, Grokster and the RIAA lawsuits’, ConneXions (last edited on Dec 14, 2011), available at: http://cnx.org/content/m41469/latest/ (accessed 01.07.2012) 6 Seidenberg, note 1 7 William Henslee, ‘Money for Nothing and Music for Free? Why the RIAA Should Continue to Sue Illegal File – Sharers.’ John Marshal Review of Intellectual Property Law (2009 – 2010), p. 22, available at: http://www.jmripl.com.php5-10.dfw1-2.websitetestlink.com/issues/article/21 (accessed 10.15.2012) 8 Kate O’Flaherty, ‘Web site blocking is oppressive and won’t work’, The Inquirer (published on Dec 2, 2011), available at: http://www.theinquirer.net/inquirer/opinion/2129699/web-site-blocking-oppressive-wont (accessed 05.07.2012) 9 Ibid. 10 Jared Newman, ‘SOPA and PIPA: Just the Facts’, PC World (Jan 17, 2012), available at: http://www.pcworld.com/article/248298/sopa_and_pipa_just_the_facts.html (accessed 20.01.2012) 11 Ibid. 12 Matt Peckham, ‘SOPA Won’t stop online piracy, would censor everyone else’, Time Techland (published on Nov 17, 2011), available
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