Record Company Piracy = $6bn Losses

Record Company Piracy = $6bn Losses

How ironic.  Major record companies in Canada are facing a lawsuit for copyright infringement.  Apparently, these companies have a long standing practice of including songs on compilation CDs without paying the authors for doing so.  So, Michael Geist is helping them sue CRIA in Canada.   The record companies have successfully lobbied for excessive copyright damages to be enshrined in legislation.  Now they are potentially on the receiving end of them – at $20,000 per song for 300,000 songs, gives $6e9 (ie $6 billion Canadian dollars).  To use their (incorrect) rhetoric, they have ’stolen’ this money from artists.   Presumably the cut and thrust of this sort of action would result in the parties reaching a settlement for a sum substantially less than this.  It will be interesting to see whether record companies argue that the full amount of such penalty damages should only be awarded for individual file sharers who do not profit from their infringement and not in the case of the organised infringement for profit that they have apparently been engaging in.   That would qualify them as unethical, as the essence of ethics is to not make an exception of yourself.

Further, of course, if there were any justice, then the Attorney General should be bringing criminal actions against them, since commercial infringement for profit typically brings with it criminal sanctions.  I suspect this won’t happen either.  Should the State pursue individuals at the record company’s behest, but fail to prosecute them in worse circumstances, that would be corruption.   What happens in Canada will determine whether or not widespread cynicism about copyright is justified.

No Cost Too Great for Copyright

No Cost Too Great for Copyright,

Brendan Scott

How timely.  Soon after my post on confirmation bias in copyright came two examples of it in action.

First, the Coshocton Tribune reports that, a public service wifi system has been shut down because a single (unidentified) person  is accused of illegally downloading a single movie over it.  According to the report, the service had apparently been put in place five years ago and provided free wireless Internet access in the city block around the local courthouse.  Further, Sony Pictures sent an infringement allegation to the ISP running the service, who on forwarded it to the county.  The county decided to shut the service down as a result.   The report does not disclose whether the county just took Sony’s word for it, or whether the infringement was proven with any degree of rigor.  Second, CNet reports that a pub in the UK was ‘fined’ £8,000 (probably a settlement rather than a fine as the article refers to it as a civil action) because someone downloaded copyright material over the pub’s open WiFi network.

The whole issue here is one of the climate of fear which the legislature (aided somewhat by the courts) have created around copyright and copyright infringement.   This climate of fear creates extreme risks for honest, law abiding citizens who find themselves in a copyright dispute.   In theory, Sony ought to have had to prove: that copyright subsisted in the movie, that the copyright was held by Sony, that Sony had not granted an exclusive right over the copyright, that the movie was copied, that copying was an infringement.  What happens in practice is that people receive one of these notices and realize that because the legislature has vastly inflated the consequences of copyright infringement that they must err exceedingly on the side of caution.  Presumably that happened in this case, with the county shutting down a wi-fi network which served up to 100 people a day during its peak times.

There is a ’solution’ – acquire a filtering solution for $3000 ish up front, and $1000 ish per year.  These sorts of costs are prohibitive in the context of a small initiative like that in Coshocton.  Morover, they add nothing to the service – indeed, they put a drag on the service by requiring traffic to pass through the filter.   This lost innovation is an enormous cost to the community in order to protect a $20 movie.  The provision of a free Internet wi-fi service is a valuable local innovation.  It provided a substantial contribution to the administration of justice (police parked nearby and filed incident reports over it) and to commerce (with vendors using the network for processing payments during festival times).   It is just the sort of local innovation by the aggregation and propagation of which our society advances.  Once you start imposing such large costs on innovation, you cut its throat.  You also destroy the benefits which flow from it.  Outcomes such as these may well spell the death of open WiFi for example, yet no one mentions this category of cost when discussing taking further rights from citizens under the copyright law.

Of course, we should also ask whether this corresponds in any reasonable manner with our ordinary everyday lives.  Imagine for example, if someone unidentified got off a bus outside some department store, went in, shoplifted and then left.  The store, analogously to Sony here, could well send a letter to the bus company complaining about authorising the shoplifting.  They have, after all, clearly provided the means for the person to access the material which was taken.  The bus company could easily put in place measures to prevent this sort of thing happening.  They could easily prevent known shoplifters from riding on the bus, for example.  What’s stopping the drivers from having a list of faces in the cabin?  Or from having a face recognition system?  Or requiring the use of electronic tickets which uniquely identify the passengers? Passengers could be required to wear clothing with few, small pockets. Sure, these things may be a little expensive, but we’re talking about stealing here – don’t you care about property rights?

None of these things are impractical in the sense that a bus operator could implement them if they had to.  The only question would be the cost, and the inconvenience that would be involved.  In the real world we give credence to the costs which we impose on innocent third parties even when they are carriers of or faciliators of law breakers.  Indeed, I don’t believe people would change their view even if the store had repeatedly been the subject of shoplifting by passengers of the bus company, or if the store had told the bus company about the shoplifting and/or the possibility of the shoplifting by its customers.  Despite the fact that connecting the bus operator with the shoplifting done by a passenger would be considered by many to be, well, frankly insane, courts have been particularly willing to engage in a form of cognitive dissonance and think it completely rational to make this connection as between ISPs and their customers.

Presumably courts are more willing to ping ISPs because they are perceived as having more capacity than a bus company to control the actions of their passengers, but this is an illusion.  A bus company has much the same ability to control its passengers, as an ISP does its users.  The difference however is that courts respect the rights of passengers, but don’t respect the rights of users.  The bus company’s passengers have a right not to be subject to a demeaning search by the bus company and courts are happy to respect that right.  However, courts do not afford the same respect to passengers when the fire up their internet browser.  They ought to.

Copyright and Confirmation Bias

Copyright and Confirmation Bias

Brendan Scott

see also: No Cost Too Great for Copyright

An old (2005) post about Napster was recently brought to my attention.   In it, Don Dodge, a former VP of product development at Napster  maps out what happened to the company, how they pleaded with the music industry to provide a better solution to them (which was more or less reinvented/reimplemented many years later by iTunes) and how the music industry had put itself in such a position as to be literally unable to act in its own best interests, or the interests of its artists.    Dodge estimates, based on internal Napster research, that Napster could have generated $3 billion per year for the industry, with minimal overhead.

I talk to people at copyright conferences and they will make some observation such as copyright has managed to support specific identified individuals and therefore it’s a good thing (most recently it was specific teachers whose retirement was funded by their textbook sales).   However, to rely on this sort of evidence in policy making is basic bad practice.  It seeks out only the evidence which supports the proposition, when it should be critically analysing it.  A proper analysis would look at how many people paid more than they ought to have for a book, and whether some people went without because the cost was too high.  Moreover, it would look at the also-rans who devoted much time to writing a textbook only to have it fail in the market.  It would look at the books which were substandard and were not improved because of copyright restrictions.  For every success there are orders of magnitude more failures.  Proper policy would be more circumspect in trying to entice, through the incentive of copyright, the unwary into the market.

Copyright costs the community.  That cost is never factored into any copyright policy – at least, so far as I have been able to tell.  Most recently, the prohibition on parallel importing of books is an obvious example.  The Productivity Commission put out a report which set out, in bare, incontrovertible terms, the damage that this particular aspect of copyright does to the community.  After a long period of merciless lobbying the proposals to remove the anti-consumer restrictions on parallel importing have been defeated (ironically, the report was criticised for being considered analysis, it was even expanded to cover some of the criticisms of it).

Copyright, and IP policy in general seems to exist in a twilight zone in which reality is not permitted to reach.   Copyright holders have express exemptions to the Trade Practices Act that property owners can only dream of.   They are funded by the government to lobby for more copyright and then, of course, use their monopoly profits to lobby for more funding.  They are allowed to sing the benefits while policy makers fail to even seek out evidence of the costs.   Despite the concept of natural rights of copyright being expressly repudiated by parliament and judiciary they are allowed to persist in their rhetoric of rights.  Despite the copyright monopoly having little in common with property, they continue to talk as if it does.

In the case of Napster, the copyright monopoly seems to have delayed the innovation we now call iTunes by a good part of a decade, and diddled musicians out of billions of dollars in the process, but copyright ideologues will not hear of it.

[Update: Professor Alan Fels (the former head of the Competition and Consumer Commission) is quoted as being critical of the parallel import decision:

Professor Fels said the decision to explicitly reject a recommendation of the Productivity Commission meant that ”every time one of our more than 10 million book readers visit a bookshop and pay more for books, the Government will be and should be held responsible”.

CAL’s 06-07 Annual Report

CAL’s 06-07 Annual Report

Russel Coker has published an article referencing some copyright related posts.  In passing he noted that the Copyright Agency Limited apparently doesn’t pay you distributions if your entitlement is below a certain threshhold.  His article prompted me to finish a blog post I had been meaning to do for some time – an analysis of one of CAL’s annual reports.   Every year CAL produces an annual report on their activities through the year (unfortunately CAL appears to have removed their 06-07 report from their website, so you’ll need to get a hard copy if you want to cross check these figures).  I thought it might be an idea to have a look at one of these reports to extract some information from it.

Revenue

CAL’s revenue for 06-07: $116.4 million (@13)

CAL’s net income: $98.2 million (@13)

CAL’s expenditure is $18.1 million (@19 – a more precise figure for expenditure can be calculated from the tables in the  back of the report)

Distributions (ie amounts paid by CAL to members etc)

Amounts distributed by CAL to members in 06-07: $134.3 million (@11).  The report states this is unusually high because of some one-off accelerated payments (@39)

Category                            Paid     %

Authors:                           $10.9m    8.12%
Publishers:                        $95.3m   70.96%
Collecting Societies (Australian):  $1.5m    1.12%
Collecting Societies (Foreign):    $26.6m   19.81%

Notes:

1. Almost 20% of the amount distributed was sent to foreign collecting societies.

2. Despite comprising only 36% of members (see below), publishers have received about 71% of the total distribution.

3. Given that Australian collecting societies comprise only 1.12% of the distribution it is probably not appropriate to give them too much weight.   CAL in its report makes reference to the fact that, including indirect members, CAL represents  28,000 rights holders.  Presumably the excess over the roughly 10,000 direct members are accounted for in this 1.12% figure.

4. A minority of the distributions were paid to authors (whether Australian or foreign – even assuming all of the money sent overseas went directly to authors and not 70% to publishers as in Australia).

As a graph:

Where the Money Goes

Comparing CAL’s Admin costs to the Amounts it Pays to Australian Author Members

From above, we know that distributions to Australian Author members was $10.9 million, and that CAL’s expenses – ie the costs it incurs in operating/administering the scheme – were $18.1 million.  As a graph:

Admin Costs exceed Payments to Australian Author Members

Overseas Collecting Societies

As per above, $26.6 million was sent to overseas collecting societies.  In return, CAL received $1.2 million from overseas collecting societies destined for Australian authors.

As a graph:

CAL pays foreign collecting societies more than Australian authors

Receipts from Overseas v Payments to Overseas

CAL paid $26.6 million to overseas collecting societies and received $1.2 million in return (@46).

CAL Pays much more to Foreign Collecting Societies than it Receives from Them

Average Distribution Per Publisher, Author Members

Total distributions to Publishers: $95.3 million distributed among 3698 publisher members = $25,770

Total distributions to authors: $10.9 million distributed among 6574* non-publisher members=$1,658

* Note: the report does not expressly disclose the number of author members, but it is no more than the total number of members less the number of publishers.

Distributions per Author as Percentage of Average Adult Male Earnings

Average adult male weekly earnings in May 2007: $1,221 => per year: $63,528.40

Average distribution to authors = $1,658, or about  3% of average adult male earnings.

Average distribution to publishers = $25,770 or about 41% of average adult male earnings

As a graph:

Making a Living off Copyright:

Based on these numbers, for an author member to receive average adult male earnings from CAL distributions roughly 33 other CAL author members would need to receive nothing.

How is Membership Broken Down (@23):

Publishers 36% (ie about 3698 members)
Journalists: 26%
Academics: 11%
Visual Artists: 7%
Other Authors: 17%
Surveyors: 3%

It is not clear how other collecting societies are categorised here.

As a graph:

How CAL Membership is Broken Down

“With The Utmost Respect”, the Model is Broken

“With The Utmost Respect”, the Model is Broken

At this very moment, the only reason the West has news of any kind of the turbulence within Iran is due to the individual initiative of members of that community – powered by the Internet.   Rather than celebrate the wonderous power of free riding, driven by the Invisible Hand to overcome the concerted effort of government censorship Gary Becker and Richard Posner have chosen to post an article on their blog wringing their hands over the likely demise of the newspaper industry.   Their argument seems to be that, precisely because newspapers are becoming increasingly irrelevant and cost-ineffective,  the legislature should step in and disrupt the rest of the economy in order to perserve them.  The solution they pose is that consumers should pay more in order to preserve an inefficient industry past its use by date.  This is no solution at all.

In essence, their proposal is to take a leaf out of feudalism, randomly taking rights from citizens for the benefit of Newspaper Barons.   The right they propose to take is, quite literally, the right to give directions to others.  Under their dystopia linking would be illegal – that would be like making it illegal in Real Life to tell someone where the nearest school, or hospital is.   Such a proposal in the real world is so exceedingly bizarre no one would have the courage to float it in public, let alone posit it as a serious option.   That such a proposal can today be put forward at all indicates not only how completely disconnected from reality has copyright ideology become, but also how far that ideology, with its unhealthy obsession with demonising legal, justifiable, laudable free riding has permeated “official” opinion.    It is also testament to the far reaching power of copyright feudalism.

If newspapers serve no function they should be left to rot, or be shot.  The people they employ should be assisted to transition into a new world where they get paid like everyone else.   Some will thrive and some will falter and these are unlikely to be the same as thrived and faltered under the old model.    The world survived well enough before newspapers and I cannot see any reason why the world will not fare equally well in a future without them.  As is the case for news from Iran at the moment, there is no reason to think the absence of newspapers will result in the absence of news, or of opinion.  I did not go to a newspaper to read Becker and Posner’s article.   I read it where they published it – on their blog.    I went to them because I trust them to have an opinion as experts (notwithstanding that I find their approach affronting).   They’re both clever men, whose time is valuable.   Somehow they don’t seem to notice that they have managed to publish a piece of some non-trivial effort, despite not being supported by advertising (if it is there it is pretty subtle).  Depressingly, they serve as an obvious counter-example to their own argument.

Moreover, I can’t see my quality of life changing noticeably if I were never to read another newspaper (Nassim Nicolas Taleb has a similar view).   I do not, for example, have any newspaper in my list of rss feeds.  This is not to say I won’t have news or opinion, but, rather, that I will get it from a better source than a newspaper.   The “news” of today is such that it can be summarised in a ticker along the bottom of CNN.   To lose it is no loss.  The news of tomorrow will be more tangential and more relevant, closer and more distanced, more nuanced and more blunt.  It will be all those things because individuals are all producing news and perspectives on everything.   It is astounding to realise that there still exist people who think content creation stops in the absence of some Media Baron guiding it.

Becker and Posner’s proposal is not so much a proposal in favour of newspapers, as an attack on the individual rights of journalists.  Rather than saying that journalists ought to be able to compete with each other in an open market, they are in effect crueling the free market and, as a consequence, requiring that journalists be indentured to newspapers.   The natural consequence of their proposal is that a small number of places will become valuable as aggregation sources.  Over time it will cost journalists dearly in order to have access to a market through those aggregation sources.   The Becker-Posner proposal would be better placed in those societies which believe that individual initiative should count for nothing, and that the only actions individuals should embark on are those permitted by their betters.

No doubt they would charge for a link to the place where you get a linking licence.

Shame Australia: Opposing Blind/Deaf Access to Works

Shame Australia: Opposing Blind/Deaf Access to Works

KEI reports (another here) that the Australian delegation is opposing a treaty which would prohibit discrimination against blind and deaf people trying to access works.   A shameful display of copyright ideology.

Creeps watching you in the Cinemas

Apparently there are now proposals for ushers to be paid to spy on people in cinemas

He would not name the movies, citing ongoing investigations, but said that, for a number of years, movie studios had been adding “unique forensic markers” to film prints distributed to theatres, allowing them to trace any leaks back to a specific location.

For Australia’s release, financial rewards of $200 will be provided to cinema staff for catching pirates, who will be ushered out of the cinema or referred to police, depending on the seriousness of their offence.

But Gane said the industry was not only looking for the commercial pirates who sell their illegal camcorder recordings on DVD. Even those filming short clips as a keepsake on their mobile phones would be targeted.

Is the thought of being spied on while you’re watching a movie creepy enough to just not go?  If you brought your own scope in and did this do you think you’d be arrested?