Last week, Sony announced they were going to stop manufacturing walkmans — you know, those things with the audio cassettes — while Arnoud Engelfriet and I wrote an opinion piece on online innovation in the music and film industry: are they succeeding at making money off distributing copyrighted material?
Downloading is not theft, because copyrights are not property rights. The term ‘intellectual property’ is often used, but this is rather misleading. Property rights were invented in order to regulate what’s mine and what’s yours. If someone steals your car, it’s not going to be there again untouched the next morning. If someone downloads a film, nobody loses anything. Copyrights were invented for an entirely different reason: to stimulate the creation of new creative works, and the marketing and distribution thereof. The precise ways in which stories, films and music are distributed was rarely an issue worth discussing before the advent of the internet. A story is published as a book or as a serial in a magazine, obviously, that goes without saying. And if there’s a useful new medium of distribution, then of course the author will publish their work through that medium as well. They want to make money, don’t they?
That’s what you might think, but the ‘distribution industry’ (such as record companies, who are in charge of distributing copyrighted works) isn’t always quite that eager about new avenues and technologies for distribution. Or rather: they declare them ‘piracy’ by definition and sue them to death without even giving them a chance, never mind trying to cooperate on formulating viable new business models. Innovation in this market is difficult, because permission from copyright holders is next to impossible to get and because there’s a high risk of legal prosecution.
If this business were a land and innovation were exploration, you’d better get out of there in a hurry, because that’s the kind of welcome you get from the éminences grises who rule these lands. The industry is now calling not just for closing down ‘piracy sites’, but even for introducing strict internet filters and cutting people off from the internet altogether for copyright infringement. This puts the internet at risk of becoming a heavily guarded prison, with internet service providers working as internet police who have to block users and websites. How does that help the creation and distribution of new films and music on the internet?
Creators deserve fair compensation
Artists and other creative people who have invested months of their time to make new films or music should of course get ample payment for this. This is why, in the Netherlands, we have a ‘private copying levy’: whenever you buy a blank CD or DVD, sixty cents of what you pay will be passed on to artists, or rather: to record companies. Record companies make good money from the sale of CDs and DVDs (it’s not clear how much exactly, but online sources say that for a € 22.70 CD, the artist only gets € 1.36; at any rate, it’s not a lot) and with the rise of the internet, they risk losing their humongous profits: the artists could take care of everything themselves without needing the record company! If that happens, less and less people would bother going to the physical record store, too — the record player doesn’t work any more anyway — and then that industry would also risk losing its revenue and its profits. That’s why they oppose downloading so passionately.
Revenue from internet sales on the rise
The music industry’s total revenue added up to $15.5 billion last year. Data from the international organisation for record companies’ interests IFPI show that 2009’s revenue from digital distribution amounted to $4,7 billion, a 9% increase! This last fact is curious, because record companies do not seem particularly fond of digital distribution. After years of legal warfare against Napster and Kazaa, who had invented an innovative new method of music distribution (and who absolutely did intend to pay the industry properly), and a long series of lawsuits against websites like The Pirate Bay, the only legal online music outlets in the Netherlands now are iTunes and Spotify (owned in part by… major record industries). Only two outlets in a market with $ 4.7 billion revenue. Don’t bother trying to buy films online, those are still only sold in plastic DVD boxes. Your favourite Beatles song or the song “Fell in love with an alien” by The Kelly Family aren’t available on iTunes yet either. These are just a few examples that make this 9% revenue increase in one year a curious fact.
Not much innovation
The development of new distribution services is not going smoothly. The reason for this is the fact that online entrepreneurs looking to develop better alternatives to physical record stores and iTunes are having a difficult time negotiating with individual film and record companies. Those companies aren’t too happy about a method of distribution that directly undermines their business model, which is still all about discs in boxes. The entrepreneurs have no choice: they’ll need those companies’ permissions. Successful artists yield their copyrights to these companies, which then represent their interests from that moment on. However, the companies don’t just look after the artist’s (commercial) interests, i.e. as many sales as possible, via as many avenues as possible, leading to as much income as possible for the creator. No, they also look after their own self-preservation. That means the path of films and music from creator to consumer needs to remain a long, drawn-out process, so they can charge a lot of extra money for it. If not, bands, film makers and artists might more easily start selling their works online themselves: lower prices, more profit!
From ‘record’ company to artist coach
Record companies will have to start taking on more of an advisory role, coaching talented new artists and helping them get their songs to the top of the charts, while contenting themselves with a smaller piece of the pie. Producing vinyl records used to be a specialist’s job, but anyone can design a cover and upload a file to the internet. The problem with coaching and advising is that it’s not the sort of work that can generate millions of euros of profit. That’s why, like dinosaurs cringing their last spasm before dying out unlamented and unmissed, the major record companies will continue trying to fight online innovation with lawsuits and lobbying within and outside the Netherlands. This gets in the way of not only clever entrepreneurs with ‘piracy sites’ or internet service providers who will need to construct expensive and technologically difficult internet filters, to be paid for by their customers themselves, and who will need to cut customers off. It also gets in the way of consumers who would like to pay for access to a new film via the internet.
At any rate, the future of the film and music industry will be on the internet, exactly where the current industry is holding back innovation. When will we see new business models, new ways to challenge creators to make great new films and music? Will there be a day when people can buy access to an online film première even before it hits the cinemas, or will the red carpet remain exclusive to celebrities only? It seems change will have to come from politics or from the creators themselves. Until then, any well-meaning innovation advice addressed to the major multinationals will be pearls before swine, while they passively hide behind a large pile of rusty old record players.