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The Piracy Crusade - SF Music Tech Summit, 5-20-14

How the Music Industry’s War on Sharing Destroys Markets and Erodes Civil Liberties http://piracycrusade.com
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Aram Sinnreich

on 20 May 2014

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Transcript of The Piracy Crusade - SF Music Tech Summit, 5-20-14

“Put baldly, patents are killing people. But that’s not all. Intellectual property protection has become a tool to make permanent the growing inequality of the global economy: the rich get richer and the poor get poorer.”

- Madeleine Bunting
The
Piracy
Crusade
How the Music Industry’s War on Sharing
Destroys
Markets and
Erodes
Civil Liberties
Part I: Lock and Key
Music as a Scarce Resource
Introduction:
Piracy Crusades Old & New
Part II: Who Really
Killed the Music Industry?
Part III: Collateral Damage
Hidden Costs of the Piracy Crusade
Mediterranean = Internet
Genoa = Hollywood
France = US Gov't
Mahdia = All of us
Mediterranean = Internet
Genoa = Hollywood
France = US Gov't
Mahdia = All of us
Chapter 1: The Monopolization of Music
Chapter 2: Why the Industry Loves/Hates Technology
Chapter 3: The Music Industry's 5 Stages of Grief
Music = Consciousness...
... And Community...
... And a Profession...
... And a Commodity...
...And Property...
...And An Industry...
...And A Medium
...And An "Entertainment" Product...
...And A Cartel...
... And the Target of
"Piracy"
Cicero defined pirates as "the enemy of all."
So if we're all the enemy,
who is the pirate?
Convenience
Quality
Format Replacement Cycle
vs.
The Pro-Am Gap
1. Denial: CD's "original sin"
CD Released 1982
CD-ROM Released 1985
Released 1993
2. Anger: Lawsuits & Threats
Against Innovators
Against 40,000 Consumers
“It doesn’t seem practical. It’s virtually impossible to do . . . Besides, I have very strong views about privacy, so I’m not going to start doing it.”
- RIAA chief Hilary Rosen, 1999
3. Bargaining: DRM
Outages
Closures
Apple's Walled Garden
4. Depression
5. Acceptance
"Of course we were wrong. By standing still or moving at a glacial pace, we inadvertently went to war with consumers."
- Edgar Bronfman, 2007
Chapter 4: How Bad is P2P, Anyway?
Chapter 5: The Story Behind the Numbers
Chapter 6: Is the Music Industry its Own Worst Enemy?
P2P "quite simply threatens to put the whole music sector out of business."
- John Kennedy, IFPI
But P2P is just a set of (mostly open) protocols, like email or the web.
Yeah, right.
Don't people use it to hurt the music industry?
Claim #1: Every download is a "lost sale"
Let's do the math:
Claim #2: P2P Usage Diminishes Revenues
“While the majority of studies find that file sharing reduces sales,” there are several that “document a positive effect,” and “an important group of papers reports that file sharing does not hurt sales at all.”

Oberholzer-Gee, & Strumpf, 2010
Claim #3: Sales Revenues Tell the Whole Story
Other label revenue streams are growing:
Broadcast performance rights: $943M
Synch rights: ~$1B
Live events: >$20B (at least $1B for labels)
Sponsorships: >$1B
Hardware royalties: ???

Global Music Economy: +27% 2005-2010 (IFPI)

Global Entertainment: +66% 1998-2010 (PwC)
Claim #4: "Digital Piracy" Hurts Artists
RIAA: piracy crusade will "protect artists and benefit everyone, especially music fans."
For every $1,000 in music sold, the average musician makes $23.40.
- Don Passman
"P2P to me means,
'power to the people.'"

- Chuck D
The Perfect Bubble: 1985-2000
The Perfect Storm: 2000-2011
“the period of growth in recorded music sales driven by the introduction and penetration of the CD format has ended.”
- Warner Music Group
When I talk to people in the music business, most of them will admit the problem is they’re selling songs and not albums. I mean, you do the math.
- Bob Pittman
Where Do Piracy Estimates Come From?
"American companies lose roughly $250 billion a year through intellectual property theft."
Chickens Home to Roost
"Industry rule number 4,080:
Record company people are shady"
"Breach of contract, breach of the duty of good faith and fair dealing & unfair competition"
Payola
Price fixing
Album filler
Negative option
Self-scalping
Battling Customers = Badwill
40,000 Americans sued by RIAA
Dead people
People without computers
Naval cadets preparing for war
Disabled veteran widow
Sherman: "We're feeling pretty good."
Adding Insult to Injury
RIAA caught
"pirating" 60
TV episodes
via P2P
Melchior Rietveldt
Melchior Rietveldt
P2P "quite simply threatens to put the whole music sector out of business."
- John Kennedy, IFPI
But P2P is just a set of (mostly open) protocols, like email or the web.
Yeah, right.
Don't people use it to hurt the music industry?
Claim #1: Every download is a "lost sale"
Let's do the math:
(a) IFPI: 95% of music downloads are illegal.

(b) Legal downloads were $8.3B in 2012.

(c) This amounts to $157.7B in "lost sales."

(d) Peak global music sales: $47B
Claim #2: P2P Usage Diminishes Revenues
“While the majority of studies find that file sharing reduces sales,” there are several that “document a positive effect,” and “an important group of papers reports that file sharing does not hurt sales at all.”

Oberholzer-Gee, & Strumpf, 2010
Claim #3: Sales Revenues Tell the Whole Story
Claim #4: "Digital Piracy" Hurts Artists
For every $1,000 in music sold, the average musician makes $23.40.
- Don Passman
"P2P to me means,
'power to the people.'"

- Chuck D
Chapter 7: No Good Idea Goes Unpunished
Chapter 8: Antipiracy and Civil Liberties
Chapter 9: Is Democracy Piracy?
Final Analysis:
“Actually, it’s quite painful thinking about it. It wasn’t fun.”
Analysis:
"I felt betrayed. I was like, this is not a negotiation in good faith."
“I still wish the state of music on the internet was better.”
Analysis:
"The economics do not allow you to build a business that’s sustainable. . . . And you end up scarred and broke at the end of it, before you even have your product to market. To know whether consumers care."
Analysis:
“It was a sad day, really. Because I had all these great plans, visions, and we weren’t really able to achieve it.”
Analysis
“ I did the best I could. It brings a tear to my eye.”
"The Recording Industry Association of America takes an uncompromising stand against censorship and for the First Amendment rights of all artists to create freely"
- RIAA Website
Lobbying & Campaign Finance, 1989-2011
Bill Lockyer
"Grave concern" about P2P
(Written by MPAA)
$36,000 in 2004
"Six strikes"
"Copyright Czar"
Victoria Espinel
The Antipiracy Agenda
Stronger
Treaties
Stronger
Domestic
Laws
Stronger
Foreign
Laws
Stronger
Rulings
Stronger
Agreements
"harmonization"
TRIPS/WIPO (1996)
Longer (c) terms
Automatic (c)
Anti-circumvention
DMCA (1998)
Copyright Directive (2001)
Stronger Penalties
No Electronic Theft Act (1997)
PRO-IP Act (2008)
National Defense Auth Act (2012)
Secondary Liability
INDUCE Act (2004)
Grokster (2005)
ACTA/TPP
COICA
Surveillance
CISPA
SECURE-IT
ACTA/CETA
Encourage government agencies and private companies to share “cyber threat information” about internet users’ activities.
Censorship
HADOPI
Digital Economy Act
6-strikes agreement
"The promotion, protection and enjoyment of human rights on the Internet"
"Graduated
response"
COICA
SOPA/PIPA
Black Lists
What's on the
WISH LIST?
Customs
Enforcement
& Education
ISP
Self-Filtering
DOJ & DHS
"preventative
& responsive
strategy"
Net Neutrality
Exemption for
Infringement
Mandated
DRM for CE
Manufacturers
Remote
Disable of
Suspects'
Computers
Broadcast
Flag
Selectable
Output
Control
INTERNET KILL SWITCH
Protecting Cyberspace as a National Asset Act (2010)
Cyberscurity Act of 2012
So What?
"Warner further admits that [it] could not practically download and view the contents of each file prior to requesting that it be taken down"
Seized by DHS
November 2010
(Returned without charges, December 2011)
IPRED
La Ley Sinde
"You who will transcribe this book, I charge you, in the name of our Lord Jesus Christ and of His glorious Second Coming, in which He will come to judge the living and dead, compare what you have copied against the original and correct it carefully."
fastest-growing political group in Europe
1790s:
2010s:
Strange Bedfellows
What are the alternatives?
OPEN Act (2011/12)
Beyond
Copies?
PiracyCrusade.com
sinn@rutgers.edu
THANK YOU!
CEO of Business Software Alliance, September, 2013
"LOVEINT"
$330M in artist revs
$300M in artist revs
[EQUIVALENT TO $27 BILLION IN LABEL SALES]
Lawsuits by
Patent Trolls
2006-2012
Shorter (c) Terms
Opt-out required for certain uses
Small claims tribunal
"It is time for Congress to think
about the next great copyright act"
Maria A. Pallante
Meir Shitreet
New bill would legalize unlicensed downloading
for personal use, supported by a tax on media technology
Innovation Act (2013)
Claim #5:
Motivation:
“The music industry was visibly missing the boat”

Challenge:
"There was this idea that ‘these guys might go out and make a load of money that we’re not making. And they might make a load of money on the back of our content. And he might make a load of money that he wasn’t making with us.’"
Outcome:
Labels demanded millions up front
No major label license
750k users, no full songs
After 9/11, doors closed
Motivation:
“Strictly as a user interface experiment” to solve “an incredibly tragic disconnect”
Challenge:
The day after launch, UMG counsel called and “asked where he should send the summons.”
"The business side would say, 'We love Muxtape.' And the lawyers would be like, 'We are going to sue you into the ground.'"
Outcome:
Labels demanded tens of millions up front, plus equity, promotion & creative control
VCs wouldn't "pay that much money to a bunch of robber barons"
RIAA shut down site, mid-negotiations, despite 600k users
Motivation:
"You should have a right to do whatever you want with your personal property."
"It was a big data problem – how do you get a person’s music collection into the cloud?"
Challenge:
Received cease-and-desist orders from major labels a few weeks after launch
Ceased and desisted “just to show good faith to the record labels.”
Labels sued anyway
Outcome:
$53.4 million in damages
MP3.com went bankrupt
Bought by major label owner Vivendi at less than 1/5 of IPO price
Motivation:
Digital music was “very cumbersome, it wasn’t very elegant. A layperson couldn’t really do it.”
Challenge:
"They required huge advances. They wanted all sorts of changes in the product ...They wanted all sorts of promotional guarantees...They wanted equity in the company, and obviously a piece of revenue... It was just all not practical."
Outcome:
“We never signed any deals because the terms were so onerous.”
8 million users
Bought by label-owner Bertelsmann
CHORUSS
Motivation:
As long as there was “a pool of money, and a fair way to split it,” everybody could be happy.
Challenge:
"Covenant not to sue" rather than a license
Chicken-and-egg problem: how to get ISPs and labels on board without mutual commitment
Details (Pricing, Opt-out vs. Opt-in)
Mistrust between labels!
“Lawyers are the hardest part of the industry. Our impression is that they were working against [Choruss] the whole time.”
Outcome:
No agreement.
WMG pulled plug after 18 months
“There was a general reluctance to outsource by licensing if you could do it yourself.”


The "not-invented-here problem . . . down deep [the major labels] hate each other."


"Why license them and make a little, when you can sue them and make a lot?"


Huge cash advances = "entrance tickets" OR "a company we can just fleece an advance out of"


“It’s very hard to understand if there’s any kind of an overarching strategy going on at these companies. Or if there ever was, I guess.”
Larry Kenswil
UMG eLabs
?
Full transcript