TCS Daily

Napster Decision No Substitute For Competitive Pricing

By Duane D. Freese - February 19, 2001 12:00 AM

Protecting the intellectual property of artists and writers is something any artist, or writer, or citizen ought to appreciate. The Constitution of the United States provided for copyright and patents more than two centuries ago in recognition that for a society to prosper, it needs to encourage creativity. And one way to do that is to make sure a person is rewarded for his labor - that such profit for creation isn't stolen by others.

So, why is it that last week's federal appeals court decision against Napster, the centralized online music swapping service, is worthy of only the applause of one hand clapping? And why should the recording industry seriously consider accepting the settlement Napster offered yesterday -- $150 million a year in payments for industry players to divide -- so it can stay in business?

It is not because Napster has done no harm.

Napster supporters have claimed CD sales increased in 1999 despite Napster's 20 million members. The most recent manufacturers sales figures, though, show that packaged sales dropped last year, mostly because of a steep decline in singles sales by the music industry, which it attributed to the swapping and sales of singles over the Internet. And that's despite the poor quality of computer- file traded music and its lack of portability. (How do you listen to your computer on the run or in your car?)

As compression technology improves and the private burning of CD discs becomes less costly and more widespread, Napster's model of something-for-nothing music really could make a huge dent. And if it extended to movies, the Internet could fast become a highway of digital entertainment theft, affecting cable companies and other content providers as well.

My lack of enthusiasm for the ruling also is it not because copyright and other intellectual property protections amount to monopolization on freedom of association and expression, as some critics claim. Jesse Walker, an editor of Reason Magazine, makes the strongest argument against overbroad copyright protections when he argues that "every book, film, and song in the world draws on an existing cultural commons. Creativity rarely, if ever, means inventing something out of nothing. It means taking the scraps and shards of culture that surround us and recombining them into something new." Fine. Only Napster isn't about taking shards and scraps. It's about taking the whole thing.

No, what's troubling about the Napster decision is that it demonstrates a failure of our usually responsive market system to adequately meet public demand. And the question is: Why? The answer is: too much government involvement.

Such over involvement by government in decision-making is measurable to some extent by the black market that's created. The failure of communism was found in the underground market for things the Soviet apparatchiks didn't provide. Prohibition led to bootlegged booze here, while excessive taxes have caused Canadians to bootleg cigarettes there.

Well, the movie and entertainment industries are rife with black markets both here and abroad. The Recording Industry Association of America estimates losses from recording piracy and bootlegging, not including the Internet, amount to $4.5 billion annually - about 30 percent of U.S. sales and 12 percent of worldwide totals. The motion picture industry estimates its losses from video and film piracy to amount to $2.5 billion to $5 billion a year.

And who is engaged in this thievery? In the case of Napster, it's college and high school students who own computers who are swapping files. In the case of physical tapes and CDs, it's Latin Americans, some here but mostly abroad. For movies and videos, the big share of losses comes from pirating done in Asia - particularly cheap copies made in China.

What do the customers of this pirated entertainment have in common? They are people of limited means; in the case of Latin American and Asian consumers, very limited means.

But rather even thinking about that, the response of the motion picture and music industry has been to reach for Soviet-style command and control tools to curb their black markets: increased enforcement, bigger punishments, and curbs on technology.

The entertainment industry has gotten the U.S. government to threaten trade sanctions against developing nations if they fail to crack down on piracy. They've even threatened universities with lawsuits if they didn't keep students from using Napster over university Intranets. "Do the crime and you will pay the fine or do the time," industry officials like to say.

Last month, a U.S. district court judge went to the extreme of outlawing publication of computer code that would decrypt the code protecting digital videodiscs from replication. And while the Napster decision didn't exactly outlaw software code, it makes the centralized use of it problematic by holding a business liable for what its users make use of it.

Such impositions on freedom make the industry as backward in its thinking about the Internet as the corrupt Catholic Church was about the printing press at the time of the Reformation. The church in an attempt to maintain its authority ordered all printing houses to submit their books and other publications to the church for approval before publication.

That didn't stop Martin Luther, though, from publishing the Bible in German, or numerous printers from making pictures mocking the pope and College of Cardinals for the granting of indulgences. The entertainment industry likewise can't stop software programmers and computer makers from making it increasingly easy for people to digitally transfer and download words, pictures and sounds over the Internet.

If the industry hadn't become so reliant on government copyright protections (which have been vastly expanded in recent years) and enforcement, no one knows what prices would result from the advent of that technology. When the printing press came in, prices for books dropped by 80 percent. Faced with the huge black market, the industry might have found ways to tap that underground demand -- for example, the kind of subscription plan that trading tunes and music now offers it.

The music industry's victory in the Napster decision protects copyright, which is great. But copyright isn't a license that allows the entertainment industry to get away with trying to bully people into buying their product. All that creates is a huge black market that the Internet and computers will surely spread around.


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