Information Technology and the Law

The advent of peer-to-peer file-sharing technology has created a significant imbalance in copyright, where rights holders have seemingly lost control over the distribution of their work. The fear is that this imbalance will cause a loss of incentive and discourage future artists from producing new artistic works. But as ‘mdaly’ and renowned producer Steve Albini point out, artists have traditionally sold their copyrights to record labels and rarely see a cent of profit based on record sales. Normatively, the situation just doesn’t seem right– the musical geniuses behind the product often make peanuts compared to the big-wig record executives. It is then no surprise that those crying foul in today’s peer-to-peer fight are not predominantly the artists, but rather the record label cartel that profits tremendously from their middleman activities.

This situation begs the question: in the age of the Internet, where artists are now empowered with the ability to distribute to the masses, is it even necessary for record labels to exist in the future? Peer-to-peer technologies have demonstrated the extremely high public demand for creative musical works, as well as the broad acceptance of this highly efficient medium of distribution. Many artists have been slow to embrace the technology that has made them surprisingly popular; a direct effect of the technology not providing a means of compensation (and what Clay Shirky calls the “fame versus fortune” problem). I believe any balanced payment scheme that is beneficial to society as a whole would need to encapsulate the four properties enumerated below:

1. Decentralization: Current attempts at selling music online, most notably iTunes and WeedShare, have all utilized highly centralized payment systems. This gives the central agent vast leverage over how much to charge for each work while taking a cut of the profits. In an effort to generate economic efficiency, a decentralized system would utilize the market to dictate how much consumers are willing to pay for an artist’s work. As Evan DeLaney proposed earlier, further granularity could be gained by leveraging artist popularity to determine a market price for individual works.

2. Only those who download should pay: It is unrealistic to install any type of tax on all Internet users. For one, there are plenty of users who have never and never plan on downloading a copyrighted MP3 from a peer-to-peer system. A “music tax” precedent might potentially set off an ugly slippery slope of unnecessary Internet taxes. No doubt, rights holders in the motion picture industry would eventually demand a “movie tax” to recoup their losses, and would be followed by a host of other industries. Any payment scheme should ideally only charge those who actually benefit from the downloading.

3. Artists get their fair share: In a scheme such as voluntary collecting licensing where consumers can download without limits for a periodic flat-rate price, it is virtually impossible to fairly divvy up the profits to individual artists. A balanced system should be able to precisely determine how many times each artists’ work has been downloaded, without using sampling techniques that could shortchange lesser-known artists.

4. Robust to handle all digital content: This problem of digital copyrights clearly extends far beyond just music. As high-bandwidth connections become ubiquitous, the motion picture industry and other high-bitrate creative works will eventually also require a payment scheme as their problem gets worse. Thus, an ideal scheme should be extensible to all types of copyrighted digital content that may require future compensation.

The above is merely a theoretical and normative discussion about what a payment mechanism should look like if the technology allows it. It’s evident that we currently do not possess the technology to perfectly discriminate downloaded files to pay artists directly, but I believe that the above is an ideal that would balance the rights of creators and consumers while maintaining efficiency in the market. This could mark the beginning of the end for traditional record labels, but the death of an inefficient business model would benefit both creators and consumers alike. It would allow peer-to-peer technology to flourish, leaving technological innovation unhampered. Furthermore, there would exist economic incentives and social demand for both researchers and industry to invest resources in making a balanced payment scheme a reality. Before hoping to get closer to such an ideal though, the Sony-Betamax precedent must clearly prevail in Grokster v. MGM.

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