Money for Nothing Becomes Nothing for Money

Regular readers may have noticed that whilst I am very conservative about many things, I am somewhat progressive on the issue of digital intellectual property rights. And I practice what I preach.

For example, there are television programmes that have been scattered electromagnetically into the atmosphere for everyone with a television to enjoy for free. While the technology is there for those waves of son et lumière to go anywhere in the world, they have been limited to certain geographical regions, so they can be sold and resold and resold in different markets to make already obscenely rich people even more obscenely rich. I only use the word “obscenely” twice in the same sentence because my megre vocabulary is insufficient to appropriately modify the word rich.

The Internet has created a giant ocean of ones and zeros drifting in and out of the millions of connections within it. It has eliminated the borders and the broadcast restrictions, even if there are companies out there trying as hard as they can to claim part of these high seas as their own. Or you might say they are trying to dam the ones and zeros within their territorial waters. You might say they are trying to limit fishing in their territorial waters by trying to keep hold of the fish. But that’s the problem: you can keep boats out, but you can’t keep fish in.

The fact of the Internet Ocean is that 90% of the music fish are swimming freely. In other words, even given all of the “legal” download sites and services, 90% of music is downloaded without the express written consent of the music industry.

The British Phonographic Industry (BPI) is the face of the record industry cartel in the UK, the British equivalent of the RIAA.  They claim that file sharing has cost the industry £1.1 billion a year. What they mean is that they have identified £1.1 billion that they could have accrued and didn’t. It didn’t actually cost them anything. It didn’t cost anyone another yacht in the Med or a twelfth sprawling estate in another exotic and exclusive location. It didn’t take any money out of a tax-protected off-shore account.

The BPI have bullied the British Government and the major ISPs in this country into forcing the ISPs into sending letters to customers based on the BPIs spying. If the BPI thinks a particular IP address is uploading an illegal file, they contact the ISP, which is then obliged to send a letter to the account belonging to the IP address giving details of the alleged file-sharing incident. I got such a letter the other day.

Was it about television programmes or films or even various albums (most of which don’t even get copied to CD and end up in the recycle bin)? No, it was about a single Britney Spears track that no one in our household has ever uploaded, downloaded, or otherwise loaded. You would think with all of the billions of pounds the BPI’s member labels have made, they could afford to get the information even somewhere near correct.

Legal threats aside, in reality what has happened is that the revenue stream is concentrating more and more on live music. That is the one thing that is not copyable. But this means that musicians have to work harder and maybe make less money. Perhaps some of you will pity them for this. I don’t.

It used to be that musical acts had to invest huge sums of money in studios and technology to produce records. Now top selling CDs have been produce in bedrooms with digital recording equipment. Making records has become easier and cheaper, thus increasing the profit margins. Now these recordings are going to have to be adverts for concerts where real music will have to be played in real time for real people.

I have been saying for a long time that the developments in technology mean concepts about intellectual property law will have to be dramatically reformulated. Those who are profiting the most, those piggybacking on the actual creators of ideas, are trying to formulate new revenue streams so they can continue to make money for nothing (sound anything like the bankers who have precipitated the world economic collapse?) but music cartels will eventualy have to realise that music is only worth what people are willing to pay for it and increasingly (if you can keep increasing from 90%) they aren’t.

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Sharing Another Difference Between the US and UK

Another contrast between the US and UK has become apparent today when the FCC ruled against Comcast hampering file sharing. In the UK, people have been getting warning letters from their ISPs if they have been suspected of file sharing.

The British Government want to cut file sharing by 80% by 2011. British Phonographic Industry – the trade cartel for the UK record industry – has cut a deal with six of the UK’s biggest ISPs. The ISPs have agreed a three-strikes policy against customers who are suspected by the BPI of file sharing.

And just because the ISPs are agreeing to boot offenders, this doesn’t mean the cartel won’t take people to court for damages. They have and they will again. That’s not to say the equivalent US cartel, the Record Industry Association of America won’t sue people. They also have and will again.

The difference is the approach by Government. The BPI have Whitehall in their pocket. You’re thinking those must be very big pockets to fit Whitehall in them, but trust me, the BPI and its members have big pockets. Much bigger pockets than the private individuals they like to pick off and litigate into financial oblivion.

I’m not suggesting the record industry isn’t hurting from the downturn in CD sales. But they’re not losing money. Let’s be straight about this. You can’t lose someting you don’t have. Unless you have either pocketed someone’s money and it gets taken out of your pocket or you have invested money and end up with less than you’ve invested, you haven’t lost money. But they are hurting because it must be emotionally painful to be used to wallowing in billions and billions of pounds and to now have fewer billions in which to wallow. Think of what it must be like to be filthy rich and after a huge slump in sales to be, well, filthy rich.

Let me say this again: when you are making huge profits and then you are making less huge profits, you are not losing money.

In the US, the RIAA has had to face accusations of the obvious – they are an antitrust violating monopoly. It appears from my brief look at existing litigation that the RIAA are in retreat. Most recently it seems they have tried to drop cases in such a way as to punish the defendants by forcing them to pay their own legal fees, which, when fighting giant corporations and their lawyers, can be enormous. They have now been losing at that tactic.

In the UK, the courts have not been so enlightened. it is strange to think that in a very capitalist country like the US, the courts and even Congress can see through attempts at creating illegal monopolies and bullying the consumer, while in the socialist UK, big business wins.

So once again in the UK we have to deal with a heavy-handed totalitarian-aspiring Government and their collusion with industry cartels that are determined to maintain their profit levels. I haven’t even touched on the Government supporting the energy utilities putting up their prices by 35% in a single hike to maintain or even increase their profit levels in the face of rising energy costs.

No Tears for Media Giants

The Government here is under a lot of pressure from media companies to put a lot of pressure on ISPs to stop file sharing downloads. At the same time, the High Court ruled against a pub landlady who used a foreign service to show Premier League football, rather than BSkyB, which has the exclusive right to show the matches in the UK.

I think there is a difference between using a camcorder in a cinema to get the scoop on the release of a film and downloading a telelvision programme that has already been shown. It’s a bit like the pub landlady, only with no cost implications for the viewer. The programme has already gone to air. It doesn’t cost the end user anything wherever they watch it. If companies want to maximise profits from advertisers, they need to broadcast simultaeously worldwide, rather than go from country to country in a piecemeal fashion.

When it comes to music downloads, I think there is a question as to whether it is mass larceny or mass revolt against the fleecing of the record companies. The record companies are complaining that they face ever-declining profits.

However, back in January 2006, “Sony BMG reported net income of $178 million on sales of $1.49 billion for the three months ended December 31 [2005].” Then this month Bloomberg reported on the BMG half of that partnership:

Bertelsmann AG, Europe’s largest media company, plans to boost revenue by about 50 percent over the next eight years as it expands the Arvato services unit and in countries including China and India.

Sales will exceed 30 billion euros ($44 billion) by 2015, Chief Executive Officer Designate Hartmut Ostrowski said in Berlin today. That’s similar to the revenue Time Warner Inc., the world’s largest media company, posted last year. Bertelsmann will have as much as 7 billion euros to invest in the next four to five years, he said.

Doesn’t your heart just weep for them when somebody shares music? Read the rest of this entry »