File Sharing & Music Piracy: How the Internet is Changing the Tune A thesis submitted to the Miami University Honors Program in partial fulfillment of the requirements for University Honors By Andrew Ryan Mott May, 2004 Oxford, Ohio ABSTRACT File Sharing & Music Piracy: How the Internet is Changing the Tune By Andrew Ryan Mott This thesis conducts an in depth examination of file sharing via the Internet. According to Stanford University, file sharing is, in definition, “The capability of sharing files among computers on a network.” More specifically, this thesis focuses on the sharing of copyrighted works of music between multiple parties, and the effects that the sharing of music files has had upon the music industry as a whole. Since the late 1990’s, file sharing has become a hotly debated topic among music industry experts and consumers alike, in part due to the decreases in revenue and profits realized by the five major record labels: A & M Universal, Warner Brothers Records, Sony Music, EMI, and Bertelsmann. These record labels contend that their losses in revenue are directly correlated to the widespread dissemination of copyrighted intellectual property via illegal networks created for the purpose of allowing users unlimited access to music at no charge. However, others contend that file sharing is the wave of the future and that the music industry has been slow to catch up with the digital revolution. The ultimate aim of this work is to examine ways in which the music industry can reshape its current business model in order to reverse the trend of downward sloping sales figures. There are five sections to this work, each of which is closely tied to the file sharing debate. The sections are: The Background and History of the Internet, Copyright Law in the United States, File Sharing Networks: The Implications of Napster and MP3.com, Changing the Business Model: The Challenges Facing the Music Industry, and Alternative Viewpoints and Research about File Sharing. Through these sections, one may gain an understanding of the history of file sharing networks, how they have influenced the music industry, and how the industry can adapt in order to create a viable business model for the digital age. File Sharing & Music Piracy: How the Internet is Changing the Tune By Andrew Ryan Mott Approved by: Dr. Gillian Oakenfull__, Advisor Dr. Glenn Platt________, Reader Mr. Todd Bailey_______, Reader Accepted By: Dr. Carolyn Haynes___, Director, University Honors Program Acknowledgements There are many people who have aided me in creating this thesis. I would like to acknowledge my advisor, Dr. Gillian Oakenfull, and both of my readers, Dr. Glenn Platt and Mr. Todd Bailey. Each of them has provided critical insight and knowledge, and without them I would not have been able to successfully complete my thesis work. I would also like to thank Ms. Rachel Vacek for helping me get my thesis started on the right foot, and Mr. Brian Jay Miller of WOXY 97X, who provided me with a wealth of both resources and knowledge. Last but not least, I would like to thank my Mom and Dad, who patiently listened to me talk about file sharing and how I never thought I would be able to get this thesis completed. Without them, I would never have had anyone to vent my anger to about spending countless hours in front of my computer, researching and writing for this work. Table of Contents Introduction . 10 The Background and History of the Internet . 11 The Beginning: How the Internet Came to Be . 11 Intelligence at the Ends: Laying the seed for File Sharing . 14 Non-Commercial Uses. 18 The Concept of the Commons . 18 Copyright Law in the United States of America . 22 A Brief History of Copyright . 124 Contributory Infringement, Vicarious Liability and the Doctrine of Fair Use . 25 The Digital Millennium Copyright Act . 27 Updating Copyright Law for the Digital Age . 28 File Sharing Networks: The Implications of Napster and MP3.com . 31 The MP3 is Unleashed to the Public . 31 Napster and My.MP3.com: Radical Innovators or Copyright Criminals? 32 The Law Gets Involved: Napster’s Dealings in Court . 37 The Law Gets Involved: My.MP3.com’s Dealings in Court . 40 The RIAA Pushes On: Taking the Law to Individual Users . 42 Changing the Business Model: The Challenges Facing the Music Industry 45 Issues to be Considered in the New Business Model . 46 The Digital Music Store: iTunes and Napster 2.0 . 49 The Bundling Approach: Making CD’s More Attractive . 52 An Ongoing Battle . 56 Alternative Research and Viewpoints About File Sharing . 58 A Quantitative Approach to Why the Music Industry is Wrong . 58 Alienated Consumers and Outspoken Artists . 60 Conclusion: File Sharing is the Future . 62 References . 63 Introduction Throughout time, developments in technology have allowed the fabric of the global community to become increasingly tighter knit. Phones advocated an increase in personal communication, flight allowed international travel, and most recently the Internet has afforded the global community with instant access to virtually any type of information. However, the benefits of new technology inherently possess costs, and the Internet is of no exception. Music piracy is an issue that has plagued the recording industry for years, and the development of Internet file sharing programs has magnified this issue across the globe. In recent years, file sharing has moved to the forefront of the debate over the continually slumping sales of the music industry. File sharing is viewed as an extremely serious violation of the law by multiple parties, including both the Recording Industry Association of America, major record labels such as BMG, Universal and Time Warner, and even the United States Government. Through an examination of how the Internet was created, United States copyright law, the trials and tribulations of the early file sharing programs, how the music industry can adapt its business model to enter the digital age, and alternative viewpoints on file sharing technology, one can gain a critical understanding of the impact that file sharing has on today’s society. Essentially, the aim of this thesis is to discuss the history of file sharing, such that one may achieve an understanding of where the future of the music industry is headed, and how they can utilize file sharing technology to create a new business model that will thrive in the digital age. The Background and History of the Internet “There is one thing that is stronger than all the armies in the world, and that is an idea whose time has come.” -Victor Hugo, 19th Century playwright and poet The Beginning: How the Internet Came to Be Before any type of scholarly discussion of the nature and implications of file sharing can take place, it is of utmost importance that one fully understands the origins and intentions of the Internet as it stands today, and the foundations and ideas upon which the Internet was created. Without the fundamental structure that makes up the Internet, file sharing technology would never have been created. There are three very important concepts that allow the Internet to function as it does. These three concepts are also crucial in that they provide the means by which file sharing can take place. They are: packet switching, end-to-end architecture, and Internet protocols. As we will soon see, it would be impossible for the file sharing phenomenon to have ever begun without these three foundations. The Internet is, essentially, “a world-wide broadcasting capability, a mechanism for information dissemination, and a medium for collaboration and interaction between individuals and their computers without regard for geographic location.”1 The Internet began in 1969 as a military communications system known as ARPANET.2 ARPANET had a twofold purpose. The first aim was create a system that would aid the government 1 http://www.isoc.org/internet/history/brief.shtml 2 http://www.isoc.org/internet/history/brief.shtml in the sharing of documents and resources in order to facilitate a “secure means by which secret information could be circulated, a kind of internal electronic postal system.”3 The second reason was that there was a general fear within the governmental community that the current communications system that was in use would not be able to withstand any type of nuclear attack, and that if an attack occurred, all communications systems would collapse.4 In addition, governmental concerns were not the only forces that drove the shaping of the Internet. Universities, such as UCLA, felt the need to be able to share their resources with other universities and research facilities in order to make possible a bicoastal exchange of academic information.5 It was from these three goals and concerns that the Internet as we know it today was born. The very first recorded descriptions of the social interactions that could be facilitated by the networking of various “nodes,” or computers, were communicated in August of 1962, in a series of memos by J.C.R Licklider of the Massachusetts Institute of Technology (MIT).6 Licklider envisioned a system in which a globally connected set of computers would allow any end user quick and easy access to any type of information.7 In October of 1962, Licklider became the first person to head the computer research program at the governmental agency known as the United States Advanced Research Projects Agency (DARPA). At DARPA, Licklider worked alongside a group of men who shared a common goal of developing what would eventually become the Internet. 3 Grahm, 1999, pp. 22 4 http://www.isoc.org/internet/history/brief.shtml 5 http://www.isoc.org/internet/history/brief.shtml 6 http://www.isoc.org/internet/history/brief.shtml 7 http://www.isoc.org/internet/history/brief.shtml Licklider had a vision, but his vision was constrained by the limitations of the telecommunications system as it existed in America in the late 1950’s and early 60’s.