Tough Times Ahead For Napsters?

The US might begin to indict p2p users for criminal charges who share (offer – not download) copyrighted material in excess of $1000, US deputy attorney general John Malcom said today (link in German).

I would recommend to have a look at the transaction cost theory literature before publicly stating stuff like that. But as you might remember from earlier statements: It’s a war out there and in a war, only very few people behave rationally…

intellectual property rights, media

The Secret War. Today: Eldred vs. Ashcroft.

FREE THE MOUSEWhen Paul Krugman stated in his NY Times op-ed column back in February that, in his opinion, in ten years people will regard the Enron induced confidence crisis in American capitalism as a much bigger problem than September 11, 2001 and the ensuing war on terror, the public outrage was immediate. I am not sure Krugman is right with his statement – we’ll have to wait for future generations of historians to rank the events – but he’s making an crucial point. Important things are going on in this world and most people, including those professionally involved with selling opinion, the media, somehow don’t get it.

What I am referring to is the war about who is allowed to benefit from a copyright on Mickey Mouse for how long after its creation. In short, the war about intellectual property rights, the fundamental distributive conflict of the digital age. Another episode in this war is going to take place in the U.S. constitutional court. I am not going to outline the Eldred vs. Ashcroft lawsuit which will be decided soon. Click on the big „e“ and find out for yourself. But mark my words: The decision will affect the future of public life in Western societies deeply and possibly lastingly.

As I have argued before, current copyright holders are about to exploit the existing socially institutionalised notion of property rights in order to perpetuate legal institutions for a future in which they will likely be entirely inadequate. The problem with such institutionalised myths of rationality is that people take them for granted. And with a deeply engrained (important!) institution as property, most people will never ask any questions.

Thus, I am grateful that the list of supporters of the plaintiffs in the lawsuit (those in favour of moderate copyright extensions) includes some sort of who-is-who of famous and inflential economists, quite a few of which have been awarded the Nobel Price in Economics: George A. Akerlof, Kenneth J. Arrow, Timothy F. Bresnahan, James M. Buchanan, Ronald H. Coase, Linda R. Cohen, Milton Friedman, Jerry R. Green, Robert W. Hahn, Thomas W. Hazlett, C. Scott Hemphill, Robert E. Litan, Roger G. Noll, Richard Schmalensee, Steven Shavell, Hal R. Varian, and Richard J. Zeckhauser. One of their lawyers is Harvard’s William Fisher whose thoughts on the challenges of digital reproduction and distribution for copyright law I have already recommended.

Hopefully they will be able to have a calming influence on the panel of judges.

Again: The copyright war is a secret war. But – in my opinion – will have more important consequences for our societies than the one currently fought on the screens. So check the lawsuit’s website and help out Mickey!

compulsory reading, intellectual property rights, music industry

The future of the music industry.

Last week’s ousting of Bertelsmann’s CEO Thomas Middelhoff prompted a lot of newspapers to reconsider the challenges the internet poses for companies with a business model based on the exclusive licensing and diustribution of intellectual property rights. And so I, too, want to repeat my opinion in this matter.

Granted, the fundamental dilemma posed by changed economics of reproduction and distribution has not yet been solved: How to make people pay for formerly excluable intellectual property rights if they can obtain them for free without restrictions on the Internet. But then, consider the financial and especially societal costs of digitally fingerprinting people’s hardrives and controlling their use of the net. Assuming technical feasibility, Orwell’s nightmare would have become reality. OK, differences in degrees are certainly possible. But the trade-off remains: Which price will information societies be willing to pay to reinstore excludability of information goods at least to a certain extent?

One of the biggest problems in this extremely important debate has so far been flatly ignored. It is the social institutionalisation of the current notion of property. Based on this notion, it is relatively easy for the music industry to claim the moral high ground and persuade politicians to restrict the private flow of information. Coupled with the increased perceived need for security after 9/11 this is a powerful political position.

But everyone trying to climb the moral high ground should stop for a moment and reconsider what’s actually going on there. To know the history of copyright laws since Gutenberg would be a good starting point. After familiarising themselves with this fascinating topic people would have to accept that the current industry and cash flow structures are a consequence of a specific technology and its economics. New technology means new economics and in turm, new industry structures.

Right now, those who became powerful in a world of restricted bandwidth are trying to preserve that position and the related cash flows in a world with different economics. Assuming that the industry structure evolved to suit the economics of its business, it becomes self evident that this structure is not going to fit into the new environment.

In this respect, I recommend the excellent analysis of Harvard’s William Fisher, Digital Music: Problems and Possibilities, as a starting point.

The cultural landscape of the future will reflect the changes in economics. The days of financing the likes of Britney Spears through sales of records as well as the need to have music companies of a significant size to keep a risk-diversified portfolio of acts are likely to end as the last bandwidth restrictions fade. That does not mean there won’t be stars in the future, just that they won’t be able to make the amount of money through record sales they could before. But the same development opens a market to so many musicians who have not been able to live from making music before. I think that is a good thing.

But, of course, you have to decide for yourself.