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IFPI and Economists on File-Sharing and the Music Industry a Literature Review

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IFPI and Economists on File-Sharing and the Music Industry A Literature Review Volker Grassmuck Draft, 14. May 2010 (Please do not circulate) for Acesso a bens educacionais e culturais no Brasil Projeto de Pesquisa de Grupo de Pesquisa em Política Pública para o Acesso à Informação Escola de Artes, Ciências e Humanidades Universidade de São Paulo Table of Contents Introduction..........................................................................................................................................2 The IFPI Claims...................................................................................................................................6 The studies..........................................................................................................................................10 Data and methodology...................................................................................................................13 A brief evolution of P2P research..................................................................................................17 Overview of the studies.................................................................................................................26 Summary........................................................................................................................................30 Alternative explanations for the decline in CD sales.....................................................................31 Preliminary findings on trends in the music industry....................................................................34 From industry to audiences.......................................................................................................34 From mono-culture to diversity................................................................................................35 From recorded to live music.....................................................................................................37 The copyright regime................................................................................................................40 Conclusions........................................................................................................................................43 Literature............................................................................................................................................45 1/51 Introduction "If 'piracy' means using the creative property of others without their permission – if 'if value, then right' is true – then the history of the content industry is a history of piracy. Every important sector of 'big media' today – film, records, radio, and cable TV – was born of a kind of piracy so defined. The consistent story is how last generation’s pirates join this generation’s country club – until now." (Lawrence Lessig, 2004: 53) Media history is characterized by technological innovations that have disruptive effects, primarily on the incumbent culture industry actors that have based their business models on previous generation technology. Radio, audio recorders, photocopying machines, video recorders, audio and video cassette recorders, cable television, the Internet, the MP3 compression format – in every case the introduction of the new technology has met with resistance and calls for prohibition by incumbents. In every case industries eventually realized that rather than a threat these innovations were a source of new revenue streams. This requires adapting business models and often legislative support by either introducing compulsory licences, e.g. in the case of cable television, or legal licences, e.g. in the form of a private copying exception. For a large number of uses by a large number of individuals of a large diversity of works the conventional response of copyright law is collective management. This is true in the droit d'auteur countries, but even the USA chose a private copying exception subject to a levy in its Audio Home Recording Act of 1992.1 The launch of Napster in June 1999 introduced yet another media technological innovation. Peer-to- peer (P2P) file-sharing2 is based on a distributed network architecture in which each node is a server and a client at the same time and shares local processing, storage and bandwidth resources with other nodes across the Internet. For technologists, P2P protocols like BitTorrent are simply efficient means for distributing large volumes of data to large numbers of requesters. Free software projects regularly provide their programmes via torrents.3 Hollywood studios and broadcasters use them for distributing popular content from their websites.4 IPTV providers like Zattoo5 rely on P2P. Independent documentary filmmakers use it to deliver their commercial offerings,6 so do game companies.7 The EU is funding a consortium to develop the next generation P2P content delivery platform.8 Thus it is evident that P2P networks have a wide range of non-infringing commercial, scientific and free culture uses. At the same time, because current architectures are different from the centralised one of the original Napster, the use of the technology is entirely in the hands of its users, copyright infringements do occur, although the percentage of copyright infringements on P2P versus legitimate uses is unknown.9 1 http://www.copyright.gov/title17/92chap10.html 2 Timeline of file sharing: http://en.wikipedia.org/wiki/Timeline_of_file_sharing 3 E.g. the popular GNU/Linux distribution Ubuntu: http://www.ubuntu.com/getubuntu/downloadmirrors#bt 4 See BitTorrent, Inc. press release "BitTorrent Strikes Digital Download Deals with 20th Century Fox, G4, Kadokawa, Lionsgate, MTV Networks, Palm Pictures, Paramount and Starz Media," 29 November 2006, http://www.bittorrent.com/pressreleases/2006/11/28/bittorrent-strikes-digital-download-deals-with-20th-century- fox-g4-kadokawa 5 http://zattoo.com/ 6 Online Film AG: http://www.onlinefilm.org/ 7 Like Blizzard Entertainment that distributes World of Warcraft over BitTorrent. 8 http://www.p2p-next.org/ 9 E.g. the Deep Packet Inspection provider Ipoque simply claims that "the overwhelming proportion of exchanged content violates copyrights," but also remindes the reader that "Not only copyright infringers use P2P but also scientists share their research data this way." (Ipoque 2009: 3) 2/51 P2P expectedly triggered the same strong reactions by culture industries as the earlier innovations. Like in the case of home taping, it was claimed that every download is a lost sale. The basis of commercial activity would be undermined. The incentive of exploiters to invest in new talents and products would be destroyed. As a consequence the incentive of authors and performing artists to create new works would be destroyed, causing great harm to cultural diversity. Companies would fail and hundreds of thousands of jobs would be lost, leading to a decrease of gross national product and tax revenues. And to top it off with the kill-all argument in post-9-11 times: since organized crime and terrorist groups are allegedly involved in counterfeiting and copyright infringement, consumers who purchase such goods are funding the attacks against themselves.10 Finally, first the music industry and eventually all culture industries that are based on unit sales of recorded copyright works would be annihilated.11 The response by industry so far was civil and criminal law suits, first against the providers of P2P file-sharing services and software and then against individual file-sharers, application of technical protection measures, so called consumer education campaigns á la "Pirates are Criminals,"12 efforts to strengthen the international framework for enforcement in multilateral13 and bilateral14 agreements and calls for stronger legislation. The latter is currently centred on the so called graduated response, popularly known as "three strikes and you're out": after two warnings ISPs are legally required to ban file-sharers from using the Internet for up to one year. This strategy of recruiting the ISPs who are allegedly profiting from file-sharing15 was first suggested in 2005 by the association of the four global major music recording corporations, the International Federation of Phonographic Industries (IFPI, see IFPI 2010: 7). It was transposed into law first in France,16 then in South Korea and Taiwan and established in a settlement by industry agreement in Ireland. Its introduction is currently being discussed in New Zealand and the UK, and as part of the highly controversial multi-lateral Anti-Counterfeiting Trade Agreement (ACTA).17 These measures have failed to reduce file-sharing, nor have they brought revenues to authors and performing artists, but they did lead to alienating many constituents from consumers via artists to public prosecutors. They are justified in the public debate by factual claims about the disruptions the given media innovation causes. If these claims are supported at all, then typically by references 10 See e.g. RAND Corporation 2009 which according to GAO 2010 presents "anecdotal evidence" for the claimed link and is likely motivated not by reality but by funding opportunities: "Because criminal networks are involved, government law enforcement priorities may be affected since more resources are devoted to combating these networks." (GAO 2010: 12 f.) IFPI in its publication on music piracy and organised crime simply declares: "The evidence of organised crime involvement is incontrovertible." (IFPI w.y.: 3)
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