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Shootout At The P2P Corral

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What do you get when you put representatives from the RIAA, MPAA, KaZaa, Morpheus, and eDonkey into a room and tell them to discuss P2P and copyright issues? Sparks, and lots of ’em. Unfortunately, you also get the feeling that we’re not much closer to an accord between the groups than we were two or three years ago.

With a roster that included Matthew Oppenheim (formerly of the RIAA), Michael Weiss (Morpheus), Sam Yagan (eDonkey), economists Stan Liebowitz and Koleman Strumpf, and MPAA head Jack Valenti, the Cato Institute’s eighth annual Technology and Society Conference focus was on “The Law and Economics of File Sharing and P2P Networks.” I was able to attend the conference, held yesterday morning at Cato’s HQ in Washington, D.C., and thought I’d share some of my notes and thoughts from the conference with the other BlogCritics and our readers.

The first speaker of the morning was Rep. Rick Boucher (D-VA). He shared some thoughts on P2P and copyright in general and also addressed legislation that is pending in Congress. Among his points:
* When considering P2P and copyright we must keep P2P in the proper context: it has many good uses by moving us beyond the old client-server framework. Some in Congress blame the technology, but this isn’t the right approach.
* He doesn’t buy the argument that the loss of CD sales is entirely the fault of P2P. The price of CDs and the industry’s stubborn refusal to offer other ways to buy music besides via CD are also to blame. He also believes that there is a diminished product being put forth by the industry.
* One study whose results were released two months ago shows that file sharers are good customers of the recording industry. By enabling more sampling, P2P networks may actually be helping to sell CDs.
* The recording industry can compete with P2P. A survey shows that price is not as important to consumers as other consideratins, including quality of download and availability of a large number of titles. I-Tunes has proven this point.
* Things that must be addressed by the industry: downloads need to be permanent and portable–no tethered music. There needs to be a large inventory and high quality downloads, and it needs to be easy to use, for a reasonable price.
* He warned about legislation currently before Congress that would make the Department of Justice an educational agency in charge of “educating” consumers about copyright violations through P2P. It also contains criminal provisions that might serve only as a “trap for the innocent.”
* He provided a brief overview of legislation he has introduced that would ensure Fair Use rights to digital media, by allowing individuals to bypass technical protections for legitimate purposes.

The first panel discussion of the morning dealt with the “Economics of P2P.” It featured Liebowitz, Strumpf, Yagan, and Eric Garland from BigChampagne Media Measurement. Liebowitz discussed his time-series studies (more on those here) that show a relation between the rise of P2P and the decline in CD sales (post hoc fallacy, anyone?). He also critiqued the other studies in the field, including the study conducted by Strumpf, who spoke next. Strumpf has looked at data related to music sales, downloads, and popularity which suggest that there may even be a positive sales effect of using P2P technology. (His study can be found here.) Strumpf responded to Liebowitz’s criticism by offering some of his own, saying that time-series studies are less accurate than the individual data that Strumpf uses in his own research. Time-series studies fail to take into account factors like increased DVD sales that might have contributed to the decline in DC sales. According to Strumpf, Liebowitz also fails to explain why, over the past nine months, file-sharing usage has remained constant, while CD sales have increased by about 10%.

Garland then addressed the necessity of copyright and P2P coexisting. File sharing is not going to be shut down. The problem is digital technology itself and the Internet, because all of the tools of the digital age are de facto tools of infringement. The opportunity cost for the industry of failing to build business models around the tremendous amount of online activity is enormous. “Why are we still talking about a war on piracy while ignoring this huge market?” Finally, Yagan spoke about the business from the P2P perspective. Most of the moeny made by eDonkey comes from advertising, because only 1% of eDonkey users buy the professional-level software. eDonkey is working to build its legitimate content by licensing indy films and bands and working with graduate film schools to license their material. The tactics of the recording industry have a chilling effect on business partnerships by making the P2P companies leery of implementing software changes suggested by the adversarial recording industry.

At this point the floor was opened for questions, which provided the opportunity for the exchange between Strumpf and Liebowitz to become a bit more heated. Both took turns rebutting the other’s criticisms and offering fresh criticism of the other, and at one point Strumpf, exasperated, offered sarcastically to get his research approved by Liebowitz prior to any other speaking engagements.

This was only a warmup for the action in the second panel discussion, however. This discussion featured Oppenheim, Weiss, Marty Lafferty from DCIA, and Michael Einhorn, author of Media, Technology, and Copyright: Integrating Law and Economics. This panel consisted mainly of Oppenheim (who developed the RIAA’s litigation strategy) and Weiss lobbying verbal grenades at each other, while Lafferty and Einhorn tried to focus on what is needed to develop a business model incorporating copyright and P2P.

Oppenheim started the “discussion” by tossing out such neutral statements as:
* “Networks are built and exist for the trading of copyrighted works.”
* “[The P2P] business model is to make money off the illegal activities of others.”
* “There are far better delivery mechanisms available than P2P.”

Weiss replied by listing a series of “myths” perpetuated by the recording industry against P2P, such as the use of the term “pirates” to refer to P2P industry leaders. He also went through the recording industry’s long history of taking legal action against new technologies, starting with the phonograph, up through cassette tapes, radio, FM radio, cable, and now P2P. The battle, he said, is over who will control the technology, and given the recording industry’s history of opposing technological advances, it would not be wise to give them control.

The day concluded with an address by Jack Valenti, chairman and CEO of the MPAA. The difference between Valenti and the previous speakers was striking. It started with his Hollywood appearance: pink dress shirt with a white collar, black tie, wide pinstriped suit, and a shock of bright white hair, combed back, that matched his bright white teeth. Valenti’s presence also filled the stage more than any of the four-person panels. As this transplanted Texan spoke, his voice reminded me of what George W. Bush might sound like at 70 years of age. Valenti spoke of the impending crisis facing the motion picture industry with the advent of high quality, high capacity, high speed downloads. This could lead to a “dismal problem” for the industry within 18 months to two years. Thus, the MPAA is launching a multi-million dollar ad campaign to, among other things, educate parents that allowing their children to use P2P software can “put your computer and personal information at risk” from viruses, identity thieves, and the like. Also, children may be exposed to the “most squalid pornography.” This fall, the MPAA will have worked with thousands of colleges across the US to implement codes of conduct for students to alert them to the copyright law and potential for violation in using P2P technology. They are also working with Junior Achievement to educate middle-schoolers regarding the basics of copyright law. Valenti concluded with his belief that this “country is built on private property, and if you can’t protect what you own, then you don’t own anything.” In response to questions from the audience, Valenti said that the MPAA’s current strategy does not include litigation against P2P users, but that it may in the future.

The strongest feeling I had as I left the conference is that the recording industry, even after five years, still has problems understanding the nature of the problems they’re facing. For instance, in reply to one question regarding the effectiveness of suing file uploaders, Liebowitz replied that he doesn’t think the public or the media really differentiate between uploading and downloading, so that such litigation is effective as a threat against both. It may be that the “public” and the “media” have such a perception, but you know who doesn’t? College students, who are perhaps the critical demographic when it comes to downloading. College students tend to know that they need to turn off access to their shared folders so that they can’t be sued for uploading the files. They focus on downloading instead, and since 55% of files are downloaded from users outside the United States (a figure provided during the conference), one has to wonder how effective this litigation strategy can really be. Instead of catching those downloading (or even uploading) the bulk of the files, the RIAA has wound up with PR nightmares such as suing grandmothers. One really has to wonder when the recording industry is going to get a clue and begin to operate proactively rather than reactively. In this sense, at least, it seems that the MPAA may be a step ahead.

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  • Eric Olsen

    exceptional Bobby, thanks! really great to have a firsthand report and get a lot more of the subtlety and nuance than some generic press story