compulsory reading, intellectual property rights, music industry

Thomas Stein, President of BMG Europe:
Downloading copyrighted mp3 files for private purposes is legal in Germany

For all those not familiar with German copyright law, the codified German equivalent of the US principle of “fair use” of copyrighted material is §53 UrhG. In general the clause states that copies (in this case of songs) for personal use are legal. Standing jurisdiction upholds the right of everyone to give away 7 copies of, say, a CD (no idea how they arrived at that number – maybe that was a statistic average number people involved in close knit interaction at the time the law was challenged in court decades ago).

That is absolutely legal in Germany, as long as you don’t take money from your friends. The soon to be implemented European directive on digital age copyright makes things a lot more complicated, but at least tries to keep that fundamental right in the legislation – personal non profit copies will generally remain legal (then Europewide).

No one has ever disputed that offering ripped mp3 files through a file sharing service is an infringement of copyrights. The person offering has no license to do so and the anonymity and amount of downloads of p2p services basically does not favour arguments based on the “copy to friends”-provision.

But downloading is a bit trickier. Lawyers were arguing back and forth to come a conclusion wether it would matter for a download to be covered by the protection of §53 UrhG if the copy obtained by the person downloading has been legally licensed for distribution or if the person downloading would have acted in bad faith on the presumption that was not. The record industry’s position was always that a legally licensed original was necessary for the private copy privilege. That is – until last thursday, I suppose. I was so shocked by the statement that I almost forgot to mention it:

The President of BMG Europe, Thomas M. Stein, was a guest at Johannes B. Kerner’s daily talkshow because he’s a member of the Jury of the currently broadcast German version of “American Idol”. And after admitting that he could have never become a “German Idol” due to his bad voice he simply let it slip out like the most natural thing in the world. Downloading mp3s is legal in Germany, according to Thomas Stein, CEO of BMG Europe.

Now I don’t know if that is a consequence of a court ruling or of a revised industry policy in light of the soon to be implemented EU directive or legally correct (to make that necessary disclaimer). But it certainly is a bold statement for a record company executive.


the video file in question is no longer available

This is a video file of Mr Stein’s appearance on the show. You will find the statement I am talking at about 12′ 08” – the host asks – “downloading mp3 files is illegal?” to which Mr. Stein replies “not if you do it only for private purposes…”. Those of you speaking German, please check, as I still don’t believe what I heard.

intellectual property rights, music industry

The secret war. Frontline news.

This week, the Economist has published a little article about a new technology allowing the electronic recognition and identification of music. It’s well worth reading, although the article does not hint at the enormous importance of this technology (which is still being developed, to be clear about this).

You will probably remember that the music industry is currently involved in a severe battle concerning the perpetuation of non-digital age copyright structures into the digital age. I have already explained at lenghth in this “diary” why their success would be economically inefficient and socially problematic, to say the least.

What you haven’t heard a lot about in the last years is that the copyright battle is only one front of the war that is changing this world’s cultural landscape. And while you might think that the music recognition technology alluded to in article linked to above is only about a giving you a hand in remembering tunes you heard on the radio once or twice, its implications are much bigger. Think about it – most of the songs you hear on the radio today have been selected or produced by the oligopolic major labels for one reason or another. Given the enormous amount of music out there, we need some sort of screening as we do not have the time to listen to all of the material on the market – of which, in addition, we would not like a lot.

While screening the market is a necessary element in the “music value chain”, the gatekeeper function of the major record labels is somewhat problematic in a cultural sense. There’s a lot of music out there which you might like, but will never be able to hear because it lacks the commifying support of the record industry, aka marketing and distribution. Digital distribution has already reduced the importance of the latter element in that equation, but the first one is still the most important service provided by record labels. In fact, their basic role in the industry is that of a specialised venture capital provider – and given the traditional (non-digital) cost structure of marketing a new act and their average success/failure rates, the comparison does indeed make sense. As a consequence, our record stores are mirroring a “winner take all”-market, in which very few earn very much and most earn very little.

The internet, especially sites like, most prominently,, now owned by the French media conglomerate Vivendi, have alredy reduced the salience of physical distribution for new acts. But even with advanced systems of collaborative filtering, comparing your personal taste to that of other users on the same system, a statistically significant amount of initial consumption is needed. So marketing is still an issue, although digital distribution has increased the options for a lot of musicians previously unable to earn a living by making music. However, for broad consumption, these days, they still need a bank.

But with advent of machine listening, as described above, things will probably change considerably. It is advancing a reduction in the expected value of a specific piece of music (now that value increases with the amount of marketing put behind an act) and thus creating a musical landscape less characterised by “winners who take all”. It is doing this by really cutting the middle man, the oligopolic gatekeeper’s and fund provider’s current commidification services, out of the connection between the artist and the consumer. Think of a big market place which artists can put their music on, and consumers can look for music they like, regardless of the support they have previously received from a label. The computer has a list of criteria to listen to, possibly including production quality, lyric content, and the like – I doubt, the support by record labels will be an important element of the song’s meta data.

No wonder the middle man is scared, don’t you think?

intellectual property rights

In a nutshell: The differences between property and intellectual property.

From Brad DeLong’s Semi Daily Journal

David Weinberger said something very reasonable about intellectual property:

All contending parties agree, I believe, that (1) the goal is to build a marketplace that encourages innovation and (2) that the way to do that is to let the market reward innovation. Unfortunately, to spread the value of innovation, two things have to happen that are contradictory from the market point of view: First, someone has to have a great idea for which she is rewarded. Second, you want that idea to spread and be built upon as rapidly as possible and requiring that the creator be rewarded slows down the spread. Much butting of heads ensues…

To which David Winer replied as if Weinberger had said something really stupid:

For crying out loud David, it’s super simple. If I build a house I can live in it as long as I want. If I want to rent out rooms I can do that too, as long as I want.

The peculiar thing about this David Winer position–this “Mine! I thought of it! Mine! It’s my intellectual property forever! All Mine!” position–is that Winer could not hold it had he looked up and around at the intellectual property house he happens to live in. If he did so, he would notice that he has–without getting their permission or approval–used a huge amount of intellectual property thought up by other people, and has neither compensated them nor acquired from them a license to do so.

To pick just one thing at random, there is the case of Ez-Eki-Baal and his cousin Ish-Baal, residents of Tyre in 1160 B.C. They first thought up the idea of using a stylized picture of an ox to represent the phoneme “A” (and the idea of using a bunch of other stylized pictures of other things to represent other phonemes). This invention of the “alpha-bet,” as I have been told it is called, is in the estimation of some a very important piece of intellectual property. Some commentators have even claimed that most of us use it during most of our waking hours.

But have Ish-Baal, Ez-Eki-Baal, or their heirs received one red cent in the past century in return for other people’s appropriation and use of their intellectual property? No. Does David Winer have a valid license authorizing him to use the alphabet–to move into the intellectual property house built by Ish-Baal and Ez-Eki-Baal and trash the place? No. Has David Winer made any effort at all to identify and compensate those to whom–on his own theories about the moral obligations imposed on those who make use of intellectual property–he owes a fortune? No.

So does he believe his own theories? It’s hard to know at what level he does. It’s genuinely hard to know what to do with people who argue that all the intellectual property they make is “Mine! All Mine! All Mine Forever!” and yet classify all the intellectual property they use as the common and free inheritance of all humanity. It’s a “heads I win, tails you lose” kind of argument…

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.