[Jefito’s Note: While the blog gnomes and I scurry behind the scenes to get things back in semi-working order around here, please allow me to present the following missive, penned by a, shall we say, “legally savvy” member of our audience who wishes to remain nameless. Given the author’s day job, there was some reluctance on his or her part to publish what you see below, but really, it was too interesting not to post. Parts of this are liable to make everyone squirmy:but hey, don’t let me spoil it for you. Read on, judge for yourself, and comment below. —J]

These two links have been making the rounds:

Consumerist – “How I Became a Music Pirate”

30Frames – RIAA = Villain

Just two examples from an endless, free-flowing river of online discussion about “piracy” of music. The same discussion can cover movies, software and text. Anything that can be reformatted into a long string of 1’s and 0’s, transmitted via the Internet, and stored on hard disks, can be “pirated.”

The 30Frames article says what most of the blogosphere considers unspeakable: that stealing music is wrong. Mp3 blogs and p2p are not successful because information should be shared, or because they foster discussion and promote unsigned and unknown acts. They are successful because people dig free stuff.

The Consumerist post is a repurposed “open letter to Rhino Records.” The author complains about Rhino’s DRM scheme, which not only prevented a paying customer from listening to his purchased music on his chosen device, but from ripping the tracks to a standard audio CD at all. As a result, the author, who claims to have dropped more than US $20,000 on music over the course of his purchasing life, has abandoned the music business and decided to become a “pirate.” The author feels that he was forced into doing so by music labels, who have decided to cripple their own legitimate offerings in the face of the threat of file sharing and “piracy.”

So, who is right? Is piracy inevitable? Is it equivalent to theft and therefore immoral?

I sent this essay to Jeff because I think he provides a valuable service. A service that will become more valuable, and more vital to independent and “oldies” artists as time goes on. It seems almost perverse that he, and those like him, who take hours out of their day, for little or no compensation, to promote artists and generate new music fans, should be shut down as music pirates. This essay proposes that we could obviate piracy by rethinking how we pay for media. It’s not a perfect solution, but I hope you will think it is worth discussing.

Choosing Sides, and Erecting Our Straw Men

There a lot of different, nuanced positions that are taken in the debate about the legality of “piracy.” For simplicity’s sake, and because this seems to be how we Americans like to do things, I’m going to artificially (and somewhat glibly) reduce the entire universe of available positions to a bipartisan system: the “Lattimorist” position (named in honor of a friend of mine who espouses the position in question) and the self-explanatory “God Damn Hippie” position. Whichever one of these positions you feel closer to, that’s what side you are on for the purposes of this piece.

The “Lattimorist” position – Downloading anything protected by copyright without paying for it is stealing. Theft. Period. Full stop. There is no justification, rationalization or alternate phraseology that changes this inherent fact. Anything that is sold should not be copied and distributed without the seller being compensated for every single copy. Also, hippies should be shot.

Noted Lattimorists include Mark Cuban, Steve Ballmer, The RIAA, the MPAA, and Lars Ulrich.

The “God Damn Hippie” position – It’s file sharing, not file stealing. My downloading a file doesn’t deprive anyone else of that file. Using loaded terms like “theft” and “piracy” assumes that every person who would download a song file or film for free would automatically pay for it, if a free version was not available. This is ludicrous. The Lattimorists use these words to try and color activity that has not only been tolerated by the content producing industry since its inception, but has been absolutely vital to its continued vitality. To do away with costless transfer of copyrighted information would mean no mix tapes, no shareware and freeware, no MP3 blogging, no SHARING of any kind. Most importantly, the Internet and P2P software has grown on the back of transfer of copyrighted materials. BitTorrent would not exist if not for the need to move large (and largely illegal) files. The advances made in networking, transfer, and storage technology that have been prompted by “piracy” more than balance whatever trifling losses are felt by the content owners. So, like, information should be freeeeeee, man!

Noted GDH’s include Richard Stallman, Larry Lessig, Cory Doctorow, the EFF and, because it serves their interests, about 95% of the net-savvy world.

As may be evident by my characterizations, if a gun was held to my head, I would throw my hat in with the GDH’s. However, I also think that copyright is very important, and in many, but not all cases, piracy of content is wrong.

Does it sound hypocritical? If so, I think it’s only because of the artificial reduction of the debate to 2 black and white options. I think there are shades of gray. Actually, I think there is a specific shade of gray that would make almost everyone with a vested interest in the debate happy. Before I get there I think I need to back up slightly. I need to talk about rival and non-rival goods, and then I need to talk about licenses. I am now going to try and distill what could be hundreds of pages of economics into a few paragraphs. I am out of my area here, and I apologize in advance.

Rising up, to the challenge of your rival:

When someone “purchases” Windows Vista, or the new Arcade Fire CD, is it really a “purchase,” no different than buying a hamburger, a car, or a t-shirt? No. Burgers, cars and T-shirts are “rival goods.” There are limited numbers of them, and there are significant production costs attached to both the creation and duplication of such goods. If you take a burger, or a Mercedes, that is one less burger/Benz for everyone else.

Windows Vista, and the Arcade Fire CD are “non-rival goods.” Although there may be significant production costs involved in the creation of non-rival goods, duplicating non-rival goods costs nothing (or practically nothing). That is, it may cost Microsoft hundreds of millions of dollars to produce Vista, but once it is mastered, the contents can be duplicated and distributed billions of times without Microsoft incurring any additional costs. These goods are non-rival because my possession of a copy does not deprive anyone else of a copy, and does not cause any additional reproduction costs to be incurred by the producer.

Note (and huge pet peeve of the author): This is why everyone who has ever said “stealing music is exactly like stealing a car” or anything similar to that, is fundamentally incorrect. They are trying to inject their morals into what is, at this level, an economic discussion. If you want to have a rational discussion about this topic, you can’t try and draw analogies between non-rival and rival goods. It discounts economic realities, and makes you sound really stupid. There are plenty of good arguments why software/music piracy is bad that don’t require you to divorce yourself from reality. Here’s two right off the top of my head: (1) Sunk costs in creating non-rival goods are amortized over the license fees for those goods by most producers, and piracy hinders that amortization. (2) Piracy robs artists and creative people of the means to make a living. See? Two perfectly good anti-piracy arguments. Neither of which required me to make an idiot of myself. Stick with those, Lattimorists.

Rival goods are typically purchased. When someone BUYS something, ownership is transferred under the law. The seller renounces all rights to the purchased item in exchange for the purchase price. The buyer can do anything they want to the purchased items, including give them away, or resell them. The seller has absolutely no say in the matter.

Although nothing says that individual copies of non-rival goods cannot be purchased, most producers of such goods try to avoid structuring their financial transactions as “sales.” If a copy is SOLD, it can be given away, or resold. This is even true if the goods in question are protected by copyright. If you SELL a copy of something copyrighted, you can’t stop the buyer from reselling it or giving it away. In US Law, this is called the “First Sale Doctrine.”

This is not how a self-respecting Lattimorist would like to run his railroad. Luckily, the seller/offeror of goods gets to set the terms of their offering. Producers of non-rival goods can skate around the First Sale Doctrine, by not selling their goods at all.

Copies of non-rival goods are almost never sold. They are licensed.

What exactly is a license, in this context?

The Consumerist post mentioned above contains a fabulous, too good to be true quote from a Rhino employee, which I’ll reproduce here:

“You don’t understand,” I said, “These files were not copied or pirated, I actually purchased them.”

“Well,” she responded, “You didn’t actually purchase the files, you really purchased a license to listen to the music, and the license is very specific about how they can be played or listened to.”

Now I was baffled. “Records never came with any such restrictions,” I said.

She replied, “Well they were supposed to, but we weren’t able to enforce those licenses back then, and now we can.”

Note: I think this entire passage of the Consumerist post is bull. I find it almost impossible to believe that anyone working customer support has a firm grasp of copyright licensing principles. Even if they did, I doubt very much that they would be so plain spoken about how Rhino has used said principles to actively screw its customers. Just doesn’t seem good for business.

I think the “Rhino employee” passage is a straw man, erected by the author (a clear GDH) to support his argument that it is inevitable that all good hearted citizens (not just hippie college students and “w4r3z d00dz”), after making numerous futile attempts to THRUST their money into the hands of the content owners, will eventually resort to “piracy,” because they cannot bear the slings and arrows of outrageous DRM.

Again, it’s bull. No one actually said this. Still, as straw men go, it’s pretty damn good. It’s a wonderful, concise distillation of the thought process of most Lattimorist content owners, when they think about digital distribution.

A license is not a purchase, it’s a contract. A relationship between user and creator. In a license, access, or certain rights to use and distribute a piece of content are granted to the licensee, pursuant to certain terms and conditions. The licensee “owns” NOTHING. Instead, the licensee has the permission of the licensor to do certain prescribed things, for whatever length of time is set out in the license. If the licensee does anything that they are not authorized to do, the license can be revoked, and the licensee may lose access to the content in question, or lose the right to obtain new content while keeping what they already have. The consideration in a license relationship is usually described as a “fee” rather than a “purchase price.”

You see the difference? In a purchase, the buyer has complete power. In exchange for consideration, the buyer gains complete dominion over his hamburger. In a license, the licensor has complete power. You may have paid Microsoft 400 bucks for a copy of Vista, but that’s not YOUR copy. If you don’t believe me, try and put it on more than one computer.

There is tension between Lattimorists and GDH’s, because Lattimorist sellers are trying to license their stuff, while allowing their GDH customers to continue believing that they are “buying” something.

The Modest Proposal

If you’re still reading, you may be thinking: “Yes, I get all of that. So?”

This is my proposal. Let’s stop acting like anyone is ever BUYING anything non-rival. Let’s all decide, as a society, that when we spend money on software, video games, CDs, movies and etc. we are not purchasing anything. We are securing licenses from the producers of such goods, to access them.

Lattimorists are with me. GDH’s are starting to turn.

“I thought he was with us, man! He sounds like an RIAA shill!”

Stay with me, Wavy Gravy.

Inherent in casting aside the illusion of purchase, is casting aside the PRICING and VALUATION of individual copies that accompany that illusion.

(Somewhere in the crowd, a lone Lattimorist chokes on his Cohiba.)

Lost in the debate over the ethics of piracy, is the ethics of setting prices on copies of non-rival goods. Remember, there are no duplication costs for electronic copies of non-rival goods at all. (Technically there are: the cost of electricity, the cost of computers, the cost of Internet service, but this averages out to microscopic amounts per copy, and these costs are absorbed as part of costs associated with having a computer and an Internet connection, so go with me.)

So, who determines that a CD with Neon Bible on it costs $17.99? While the same album on iTMS costs $9.99? Why are there something like 18 different versions of Windows Vista at different price points?

The valuation of individual copies of non-rival goods is COMPLETELY ARBITRARY. Prices are set by producers at whatever rate the market will bear that will provide them with the highest profits. Period. If huge corporations and upstanding Lattimorist individuals stopped paying Microsoft 400 bucks per copy of Windows, MSFT would lower their prices. MSFT is fully aware that many GDH’s, and a large percentage of the non-English speaking world, pirate their software. That goes into their pricing calculations. Piracy is, and always has been, a factor in determining the fees that legitimate customers pay for licenses.

A quick note about Napster, and its after-effects.

The record industry used to operate in the exact same way as the software industry. They would do their best to combat “physical pirates,” individuals who burned copies of albums and sold them at flea markets and what have you, but there wasn’t much to be done about them. Basically, they wrote off that degree of piracy, and priced their product at what the market would bear.

Note: Back then, if you asked 99% of record executives what they were doing, they would use the word SELL. Used CD stores were a nuisance to the record industry, but they didn’t see anything that could be legally done about them. First Sale Doctrine, don’t you know.

Then the Internet came along. The software industry kept on chugging along. They would occasionally beat their chest and wail in the press about “hundreds of billions of dollars” of lost profits due to piracy, to keep up appearances. But they would continue to sell their products to those willing to pay, at the arbitrary prices they set, doing, in most cases, about as well as they have ever done, or better.

The record industry, on the other hand, completely lost its fucking mind.

In its defense, the record industry’s introduction to the Internet and digital distribution was catastrophic, about as bad as could be imagined. Napster was developed by a hippie college student, spread virally via the web, and became so omnipresently huge so quickly that, to the RIAA, it must have looked like a metastatic tumor with rabies. The stuff of their worst nightmares.

It’s a shame, really. If they had vision, they could have thought something like this:

Wow, 60 million people in less than a year? Downloading how much? That’s amazing. If we do this right we can eliminate all of our production and distribution costs and become a pure profit business. How can we profit from this?

Instead, they thought something like this:

EEEK! Hippies are stealing my money! Assemble the lawyers!

We all know what happened next. Litigation, the demonization of my favorite metal band. The “destruction” of Napster and subsequent evolution of decentralized P2P. Napster’s rebirth as a “subscription service” (which we will discuss below).

The worst part of the success of the Napster litigation, is that it legitimized a new revenue stream — a revenue stream that, pre-Napster, no one would DARE utter aloud.

Suing your customers.

I don’t think enough ink has been spilled on this one point. They are SUING their own CUSTOMERS! On as massive a scale as they can afford! They are PROFITING from those lawsuits! If you asked them, I think they would say something like: “these hippies need to learn to respect copyrights. If we don’t sue them, the whole industry will implode.” Piracy rates have remained constant in the face of the lawsuits. What is being taught exactly? A handful of unlucky, ignorant kids, and their families, are being squeezed out of a few thousand dollars, whatever they can afford, in an attempt to scare the rest of society into altering their behavior. It amazes me every time I think about it, but it is tangential to my point.

My point: Appropriate valuation of media should be fundamentally rethought

Why are CDs still $17.99? Why are albums $9.99 at iTMS? Those numbers are set by the record industry in order to keep itself in business and make a profit. The successful albums need to pay for themselves, as well as the metric tons of crap that the labels pay for that doesn’t sell well.

(Attention GDH’s: Yes, labels serve a legitimate purpose. They scout talent, cultivate it and pay to produce records, which is getting cheaper, but is nowhere near cheap. A LOT of money is laid out by record labels on spec. Without labels, either you, the fan, have to pay, or the quality of records goes down EVEN MORE than it has already. You don’t want labels to go away completely. Try to remember that, no matter how difficult that becomes in the face of their ridiculous, anti-customer behavior.)

This is my thought: The Internet + P2P + Napster has completely blown up everyone’s concept of how much music someone can possess. Pre-Napster, very few people had 1000 CDs worth of music, or even 300 CDs worth. Very few people had the money and storage space to amass such a collection, or the wherewithal to seek it out. 300CDs used to be A LOT of music.

Now? Who do you know that doesn’t have a few thousand songs in their collection? The existence of the iPod, and any similar hard-drive equipped music device, is predicated on people possessing thousands upon thousands of songs. Millions of such devices have been sold.

My question for the industry: If our concept of how much music someone can legitimately, usefully POSSESS has been fundamentally restructured, isn’t it time to fundamentally restructure how much that music costs?

As a thought experiment, let’s stop thinking about albums and singles as our units of measure. Instead let’s figure out how much money the average consumer spent on music, per year, pre-Napster.

What do we think? 100 bucks? Let’s go crazy and arbitrarily say 240 dollars. I am fairly confident that this is very high. It’s much more than I spent on records back then, but let’s go with it.

Now that the technology is available, what if the labels started to offer unlimited DRM-free downloads of their catalog for an up-front annual license fee of $240, or if they were brave, a $20 dollar a month fee with a cap on per-month downloading (let’s say 3000 songs per month)?

(Mass hysteria in the crowd.)

Let’s talk about this from the GDH perspective before taking some questions from the Lattimorists.

Basically, the GDH’s are getting what they want: unlimited downloads, DRM-free music, the ability to use (and start) mp3 blogs and their ilk, and near-complete amnesty from lawsuits. You think kids these days wouldn’t pay 300 bucks for that? Although they’re out 240 bucks or more a year, they are no longer “pirates.” They are paying customers, who are supporting the industry, and all of the artists they listen to, at least as well as said artists were being supported pre-Napster. If they aren’t, it isn’t because they haven’t given the labels enough money.

We are talking about totally rethinking the price of media, so that kids can permanently license (rather than “buy”) all the music that they want to hear.

Would there still be “pirates” among the GDH’s? Of course there would be. It’s a Hobbes/Locke question. There are bad people out there, and bad people will do bad things. I would like to think there are a lot of GOOD kids out there. Kids who would love to pay the record industry for their music, provided the industry wakes up and realizes that the world has changed, and the old model doesn’t allow customers to get what they want for a reasonable price.

GDH’s with me? They were they easy sell. Let’s take some Lattimorist comments from the crowd.

“That’s lunacy! We fought like hell to get .99 cents per download at iTMS!”

Yes, you did, but is any individual really paying you $10,000 a year in iTMS fees? All those kids with 50,000 songs are clearly not paying you for them. If you offered this option, a significant number of kids who are currently paying you nothing will start paying you 300-400 dollars a year. Your revenues will rise. Also, you don’t have to pay the lawyers anymore.

(Tangent: Apple has recently convinced EMI to remove DRM from its tracks, for a price premium. This is good news, but counterproductive if the goal is to blow up per-song pricing completely. Accordingly, I’m conflicted about it.)

“Okay, smart guy, they pay us 300 bucks, download 40,000 songs and never pay us again. We used to have these hippies on the hook for 300 bucks a YEAR, remember?”

Well:that implies you won’t develop any new acts that the kids will want to get their hands on. It also implies that there won’t always be another generation of eager customers ready to hand you their 300 bucks for their first year’s downloading (think of it as a teenage rite of passage). You lack vision, grasshopper.

“Isn’t what you are describing what we have attempted to provide via our “subscription services” such as the new Napster, Rhapsody and Listen.com, which everyone seems to despise?”

This is an excellent point.

In some sense, what I have proposed is very similar to the existing subscription services. Your subscription fees for those services are license fees that provide access to the whole catalog of available music, some 3 million songs in Napster 2.0’s case. The problem is, the terms of existing subscription licenses ( e.g. http://www.napster.com/terms.html) are inequitable. They are not fair to the subscriber.

The DRM employed by the providers of the Napster service prevent legitimate subscribers from playing their songs on more than 3 devices, and place some restrictions on burning playlists to CD, though each track can be burned as many times as a consumer likes. Contrast this with Apple’s FairPlay system, which allows playback on five computers, unlimited iPods, and unlimited burning to CD. (FairPlay isn’t perfect. For one, it locks people into Apple hardware, but it’s much fairer to the consumer than its competitors). In a 3-device DRM scheme, home computer + portable player leaves you only one other device. Napster can also raise its rates at any time for any reason, and can remove tracks from your collection after you pay for them, if they lose rights to them.

The biggest problem with existing subscription services: If you stop paying them, you lose access to everything you have paid for. If you stop paying Napster, even for a month, you lose all of your music. You can re-download all of it if you sign back up, and doesn’t THAT sound like fun?

It’s a license, they can set any terms they want to set, but most consumers are not going to look at the access restrictions attendant to a Napster license and think “Yes, this is a thoughtful way to spend my hard-earned entertainment dollar.”

That’s why my hypothetical above contemplated unlimited DOWNLOADING of DRM-FREE files. It’s still a license. I am not suggesting that customers should be able to sample/resell/create derivative works from the music they download, but under my proposal, subscribers would be able to play their music on all the devices they will ever own, make backups as needed and will never have to worry about “re-buying” a file. Removal of customer hostile DRM schemes, as well as the threat of losing all the music you gather if you miss a payment, will make the subscription relationship look enough like ownership to the average consumer that they will sign up, in droves.

“All of that is fine, but you are forgetting one thing. With the laws as they are currently written, we can charge the kids per song, or offer our unfair subscription services, and sue them if they don’t pay. Why SHOULD we do anything different?”

That’s the fundamental question at issue here.

Do the labels (and film studios and software producers and etc.) want to foster a friendly, mutually beneficial relationship with their customers, with pricing and valuation of licenses for their products that reflect current technological realities and new cultural norms?

or,

Do they want to desperately cling to outmoded prices and valuations in the hopes of fictional trillion dollar profits?

Do they want to clog the courts with ridiculous, frivolous lawsuits?

Do they want to continue making an entire generation of kids think that “RIAA” and “Copyright” are curse words?

My numbers are pure conjecture. I don’t have all the answers. The biggest problem with my proposed model is it leaves independent producers out of the money. People would have to be creative to get paid. They would either promote themselves, and make money self-distributing (way harder under my model, I realize), or become popular enough giving music away that the labels will sign them up and cut them in on the annual license fees.

Note also, as briefly touched on above, that there are restrictions on what can be done with licensed music. The license I describe would permit individuals (not groups or entities) to possess copies, make backups and listen to the copies on whatever hardware they choose. They could also distribute copies to anyone who had a similar all access license, but shouldn’t be able to make copies available on indiscriminate P2P (again, the good kids wouldn’t, the bad kids will. I am not proposing a complete eradication of piracy, just a way for the industry to make money and deal with the problem.)

This will be unpopular, but if my hypothetical licensee wanted to create “mashups,” sample a work, use a song in a film, sell mixes, or make any other derivative product, the license wouldn’t cover them. They would need to negotiate a separate license for those rights with a separate fee (or rely on Fair Use, if they could). This is very important. Lattimorists and GDH’s need to understand they are licensing rights, not “buying and selling stuff.” Licenses can be incomplete, and varied in their terms. Basically, for my scheme to work, I am expecting everyone in the world to become very copyright-savvy, and not in a “I read a bunch of Slashdot comments, Fair Use RULZ!” sort of way.

There are lots of other problems. How would annual fees be split among labels, producers, songwriters and artists? How should annual fees for music be structured, when most people will also want to pay annual fees for unlimited TV, Film, Software and Books?

There would be a lot to figure out if we went down this road. Still, I believe that there are FEWER problems going this route than the path we are currently on.

I think the alternative pricing model I have proposed here would work. I think a world where kids start paying their annual license fees for music, media and software, and receive unlimited access in exchange, is the best way forward.

About the Author

Jeff Giles

Jeff Giles is the founder and editor-in-chief of Popdose and Dadnabbit, as well as an entertainment writer whose work can be seen at Rotten Tomatoes and a number of other sites. Hey, why not follow him at Twitter while you're at it?

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