Considerable effort is expended by media corporations to sell the story that “copyright violation is theft”, thus justifying the persecution of file sharers. However, although copyright violation is illegal, it is clearly not theft, and although there are grounds to question the morality of file sharing this issue is not as clear-cut as either side would like to present. But in order to explore the subject of file sharing, I want to begin by telling a story about something completely different.
From April 1860 until October 1861, the only way that messages could be delivered across the United States was by the Pony Express – a network of horseback riders who operated a relay system through the rugged terrain of the Western states, allowing letters to travel from the Atlantic to the Pacific coast in just ten days. It was the first time that a transcontinental messenger system had been operated since the time of the Mongols or the Roman Empire, and the tremendous risks that the riders assumed helped them achieve a legendary status in American mythology. But on 24th October 1861, the Transcontinental Telegraph – a network of wires carrying messages in Morse code – reached Salt Lake City, Utah. Two days later, the Pony Express announced it was closing down. There was a romance to the Pony Express which charmed many a person, and still does to this day, but when new technology came along, the business model upon which it was built became redundant.
Clayton Christensen coined the term disruptive technology to describe situations where a new technology permits a different business model to transform the nature of competition in a given market. There are many examples, such as the effect of the onset of steam power on the Dutch economy which had blossomed on the back of its abundant windmills, the transformation of the battlefield with the arrival of gunpowder in the West, or more recently the change to print publishing that was brought about by the arrival of desktop publishing. Disruptive technologies are threatening to the market leaders in a particular field because they have built an empire on a particular premise, and are unprepared to face new competition which comes from an unexpected direction.
File sharing – the process of the mass duplication of audio, video and other digital media via point-to-point clients such as those using the popular BitTorrent protocol – is a disruptive technology in the media sector. It represents a vast black library of media (since no money is exchanged for files that are shared, it is not a black market). This library is not exhaustive – it is only easy to acquire that which the internet geeks who operate as renegade librarians are interested in themselves – but for current film, TV and audio media it is certainly faster and arguably more convenient than the alternatives. Yet copying a file from the black library is not theft, since our notion of theft requires that the original owner be permanently denied what was taken. That doesn't happen in file sharing, no matter how many copies are made. It is still illegal – copyright laws are violated – but it is not illegal because it is theft, since it is not strictly theft.
The economic impact of file sharing is a disputed topic: sales of CDs have declined since the arrival of Napster in 1999, but a 2007 paper by Olberholzer-Gee and Strumpf tracked actual downloads on file-sharing networks and concluded its impact on CD sales was “statistically indistinguishable from zero”, adding “while downloads occur on a vast scale, most users are likely individuals who would not have bought the album even in the absence of file sharing.” Yet CD sales have undoubtedly declined. If it's not necessarily internet file sharing that's the culprit, then what is?
It is important to appreciate that while file sharing is a disruptive technology, it is not necessarily the disruptive technology responsible for putting the cat among the pigeons in the media marketplace. It is perhaps not the capacity to share these files freely and easily on the black library that is the cause of the disruption, but rather the advent of digital media and access to vast volumes of storage space. Because in a world where digital files can be reproduced infinitely without loss of quality, and stored by individuals with relative impunity, digital media is no longer in the space of tradable commodities at all.
In order for a particular form of goods to be sold as a commodity, it must be in finite supply. Our very idea of the exchange of goods in the free market depends on the notion of supply and demand – but we've never before had to consider what happens when there is an infinite supply (at negligible cost of distribution) of something that remains in demand. That is precisely the situation we face with digital media – although costs are assumed in the creation of the media, once it has been created it is in infinite supply, and you cannot adequately commoditize something in infinite supply. That doesn't mean you can't monetize it, but any such revenue need to come from approaching the situation from the perspective of providing a service, and not as sale of goods.
circumvent this problem, media corporations are trying to enforce DRM
– digital rights management (although it's opponents prefer digital
– in order to artificially maintain the ability to commoditize
digital media. Many people (myself included) refuse to tolerate this,
and some (myself excluded) have no moral qualms participating in
piracy in order to covertly oppose DRM. I cannot sanction this myself
(although I sympathise) since this issue isn't going to get resolved
without collective action on the part of consumers, and as consumers
we should be able to say to the media corporations flatly: we won't
accept DRM, especially on conventional audio-visual media which can always be copied no matter how you protect it (because of what is termed the analogue hole).
The telegraph invalidated the business model of the Pony Express, and thus it died. The business model of most of the media corporations is similarly invalidated by the infinite reproducibility of digital media. They must change, or perish. Allowing the media companies to use DRM to cling to the commoditization of digital media would be akin to allowing the Pony Express to have somehow imposed limits on the number of telegrams that could be sent each day to artificially retain its relevance. When the technological conditions change, the marketplace changes – companies that cannot adapt to these changes should not be allowed to manipulate the market, at least in a free market economy: they must either adapt, or die.
But if infinite reproducibility destroys the commoditization of digital media, how will the money to create the digital media be secured? The answer is different according to the kind of media involved.
In the case of music, it is important to remember that the artists that make music were never making much money from record or CD sales – only the corporations (with their large portfolio of artists) were able to do this, although mega-artists like Michael Jackson or Madonna were exceptions. The vast majority of musicians make their money from live performance, and those that strike it big with a particularly popular song make money not from sales of recordings of the track so much as the licensing of that song to advertisers, or TV and film soundtracks. Money is also made from a flat-rate license scheme used in radio broadcasts (where royalties accrue per-play).
The futurist Gerd Leonhard has suggested that a flat-rate license for downloading music would be an effective way forward, stating: “The flat-rate-licensed usage of music on digital networks, be it for streaming or downloading, would quickly generate billions of dollars of revenue that could efficiently be distributed to the creators. These creators are now ill-served by the way their representatives refuse such licenses and deny the use of music more often than allowing it.” He suggests that many media corporations are going to lose interest in music because large companies look for big margins at low costs. That was possible when the sale of CDs (a commodity) was the primary means of distributing music, but digital media disrupts that business model.
Even without a flat-rate license for downloaded music, the black library is only an economic threat to artists who have enjoyed astronomical commercial success – and these will continue to make millions in endorsements and live performances. More obscure artists, who are already dependent upon live performance for their revenue, would be wise to give their albums away for free since anything that can grow their awareness (their brand, in the terms of the modern marketplace) should be seen as positive – many already do so. The cost of lost album sales is negligible when no-one knows who you are, and the potential benefits of growing your brand outstrip the small loss of revenue.
For artists that have already built up a strong brand, it may even be possible to continue to commoditize their music in the form of a boxed consumer product (even though the digital media might be available for free) – the story that “a true fan buys the box” can be a viable marketing tool here, preserving commoditization by selling a collectible item that includes the music but is also a desirable object in its own right. Not to mention the vast sums of money for other merchandise and endorsement deals that such artists will continue to profit from.
In the case of films, these are already being sold to consumers in cinemas as an experience, and hence on a service rather than a commodity business model. As long as consumers enjoy the experience of going out to watch a movie, this marketplace will remain viable. Loss of secondary income may impact the funding available, but since movie budgets have become insane in recent years, and are largely spent to prop up the extravagant lifestyles of the star names who draw people out to the cinema, the quality of films is unlikely to suffer. Meanwhile, independent films would do well to distribute freely in order to grow awareness, especially if a flat-rate license for file sharing becomes accepted. The black library has barely affected box office revenues, which continue to demonstrate record breaking revenues on nearly an annual basis.
In the case of TV, this is already distributed for free on the back of advertising revenue. File sharing doesn't circumvent advertising as a revenue stream, since those that use the black library do so via sites such as the Pirate Bay where they go to acquire the codes required to download digital media – and the Pirate Bay (and all equivalent gateways) generate revenue from advertising. It's not that advertising revenue has been destroyed by file sharing, it has simply moved. By not adapting to the market conditions created by the new technology, media companies are losing revenue by failing to compete.
Dr. David Price, who works in anti-piracy on behalf of content-providers, has stated categorically that most media companies have the wrong attitude to piracy. They should see it not as shrinkage (shop-lifting), but as competition. He sees the success of file sharing not simply as a consequence of the content being free (TV stations already give their content away for free) but because the black library provides material conveniently and rapidly (especially in countries like Australia at the butt-end of media distribution). He claims people flock to piracy because it offers better service, and cautions media corporations that “the best way of stopping piracy is to be the best provider of your content.”
Furthermore, some companies are recognising the value of what is currently considered piracy. Weeds is one of several shows to have intentionally leaked episodes onto the black library in order to gain promotional benefits, and when asked if BitTorrent had helped Heroes build a wider audience, Jesse Alexander (co-producer and writer on the show) responded with a categorical “yes”. Heroes enjoys TV audiences of around 14 million; compare this to the approximately 2.4 million people acquiring the show from the black library: not only a relatively small proportion of total viewers (one in seven), but to a significant degree the renegade librarians are contributing to the promotion of the shows they enjoy on the internet via blogs and so forth.
(I will brush over videogames for brevity, but since there is no analogue hole in this case it follows that as long as they are engineered for specialist equipment they can be sold as commodities, and whenever this is not plausible a service model – via subscription or advertising – is always viable).
Dilbert creator, Scott Adams, responding to this issue, has tried to voice the concerns of the content creator – acknowledging that file sharing is not theft, while suggesting that it is still unpleasant. He uses an analogy of someone borrowing your underpants, then washing and returning them, to suggest that something negative can occur without it being theft. He further suggests people are attempting to defend file sharing in order to lessen their cognitive dissonance. I don't disagree. But those who will lose out as a result of the disruptive technologies at issue here are equally trying to lessen their cognitive dissonance by defending invalidated market practices in the face of an entirely new media paradigm they have strong reasons to despise, but ultimately may have to accept – just as the Pony Express could not prevent the Transcontinental Telegraph from replacing it.
The fact of the matter is, the internet has opened up every kind of media – including print media – to a strange new world. It has invalidated distribution as a market paradigm for media by creating a space of infinite supply and finite demand. The problem, under these new conditions, isn't going to be how to distribute to your customers – this is now the easy part – the problem is how to earn and keep their loyalty (how to grow your brand) and how to get and hold their attention. And as Gerd Leonhard has suggested: “Attention is indeed the new distribution. And real money will be paid for real attention.”