The Digital Economy Bill: Be Careful What You Wish For

Do you find it easy to be moderate about things? It’s taken me a long time to learn about moderation, about knowing how to leaven and temper my passion with patience. For most of my life I’ve been an extremist, either full-on about something or not at all engaged. As a result, particularly of late, I’ve had to take time to learn one thing: If you feel really passionate about something, take the time to step back and look at things from the opposite perspective.

Now the Digital Economy Bill is something I feel passionate about, which is why, as we approach Tuesday 6th April 2010,  I’ve been writing a post a day on the subject for the past few days. The Bill covers a litany of subjects; the particular bit that bothers me is to do with the treatment of downloaders, the what, the why, the who, the how, the whole shooting match. As far as I’m concerned, I feel that the premise is wrong (illegal downloading does not take place at the levels claimed); the people are wrong (the Bill is being pushed through by unelected people who have clear bias in favour of “rightsholders”); the process is wrong (such an important Bill should not be finagled through parliament without proper debate) and the punishment is wrong (as BT CEO Ian Livingston pointed out recently, a fine is more appropriate for the crime, it’s easier to administer and it does not affect others in the household).

Notwithstanding all that, let me try and look at this issue from the perspective of the “rightsholder”. In fact let me go further, let me look at it from the viewpoint of the rightsholder after the Bill, in its current state, has become law. Ostensibly as happy as a creature of the porcine persuasion in an environ of excrement.

What could possibly go wrong? Let me count the ways:

1. People stop downloading all digital music, not just “illegal” music

Retaliation: The music industry, particularly through organisations like BPI and IFPI ,has spent a long time telling its customers what rotten people they are. In the latest report issued by Ofcom, the country had around 17.3 consumer and small business broadband lines; which suggests that a very high proportion of digital music customers acted illegally. Irritated by the change in law and by being treated like criminals, people may just give up and stop downloading music altogether, legal as well as illegal.

Fraud: Given the level of internet fraud going around, people may not want to take the risk of losing their broadband connection by buying music in good faith from a pretend-legal site. When they buy anything else, they tend to get their money back from the credit card company. When buying music, even in good faith, they run the risk of losing their broadband connections. So they stop buying music online altogether.

Streaming: Man’s ability to record and replay music is itself less than 150 years old. Newer than the postage stamp, newer than the locomotive, newer than the Grand National, newer than the FA Cup. By British standards, recorded music is a mere stripling, a callow youth. Man’s ability to own the recorded music and retain it for personal enjoyment is even newer, it hasn’t been there that long. And it may not be in vogue for long either: there is a growing body of evidence that the Millenials prefer streamed music to owned music. My own habits have changed. I still buy vinyl, but in dribs and drabs. I still buy CDs, but also in dribs and drabs. For the most part, I use services like Spotify.

So whether it’s frustration or fear or a change of habit, people may use this opportunity to stop downloading altogether. Since digital music sales are reported to be booming, the industry runs the risk of killing the baby goose before it really has a chance to lay any golden eggs.

2. People stop downloading music illegally, but there is no materially positive impact on revenues

Download levels estimated wrongly: The Mandelson 7 million figure turns out to be hogwash. [And, like Churchill, I shall resist the temptation to say I told you so]. So even though everyone behaves legally when it comes to downloads, the market uplift just isn’t there. [ I am so tempted to ask that, in the event of the law being passed unchanged, the music industry is asked to put down 15% of the loss figures it has claimed into escrow in advance,  to pay ISPs for the cost of implementing the technical solutions].

High price elasticity of demand: The pirated downloads might have been real, but there is greater price elasticity of demand than was anticipated by the industry. Rolex watches sell for thousands of pounds. Rolex ripoffs sell for tens of pounds. No one in Rolex honestly believes that the customer who paid a tenner for a ripoff was a real contender for paying five hundred times that for the real thing.

The end of try-before-you-buy dampens sales: There is evidence that people who download music are also the ones who buy digital music. After all, they must have the connections, the access and the equipment in the first place. By being denied the chance to try the music out, they may not buy at the levels they used to. So any uplift in digital revenues via the change in law is compensated and balanced by a drop in the revenues that used to be there.

It is one thing to lay out a whole series of “facts” in order to browbeat busy politicians to do something; it is another altogether to expect that those “facts” become real in the process. In this respect, the Digital Economy Bill may turn out to be a case of shutting the stable door after the piglet has bolted.

3. People stop buying from established labels and channels and move to new, independent channels that offer them what they want

In a fascinating study entitled The State of Music Online: Ten Years After Napster, the Pew Research Center makes the following, telling,  observation:

While the music industry has been on the front lines of the battle to convert freeloaders into paying customers, their efforts have been watched closely by other digitized industries — newspapers, book publishing and Hollywood among them — who are hoping to staunch their own bleeding before it’s too late. And if the music market is any indication of how consumer expectations will evolve elsewhere, the demands for free content will extend far beyond the mere cost of the product.

In the decade since Napster’s launch, digital music consumers have demonstrated their interest in five kinds of “free” selling points:

  1. Cost (zero or approaching zero).
  2. Portability (to any device).
  3. Mobility (wireless access to music).
  4. Choice (access to any song ever recorded).
  5. Remixability (freedom to remix and mashup music).

All of this makes for a tall order, but if history is any guide, music consumers usually get what they want. And as researchers look back on the first decade of the 21st century, many will no doubt point to the formative impact of file-sharing and peer-to-peer exchange of music on the internet. Napster and other peer-to-peer services “schooled” users in the social practice of downloading, uploading, and sharing digital content, which, in turn, has contributed to increased demand for broadband, greater processing power and mobile media devices. Further, the Napsterization effect extends to non-media areas such as sharing health information, oversight of politicians, access to government data and online dating via free social networking sites.

Remember this is about digital music consumers, not “dirty rotten illegal downloaders and filesharers”.  The people who crafted the current version of the Digital Economy Bill appear to have thrown away all the input and consultation to do with the consumer side of the music business and concentrated on the “rightsholders”. [I suppose this should have been expected, since that is the precise problem with a lot of modern copyright law, too one-sided to be useful or progressive]. Consumers want the five things stated above. If they don’t get it from the established digital music industry, they will go somewhere else to get it. Which gives independent labels and new entrants the chance they’re waiting for, to drive a bus through the barndoor of opportunity that’s opening up for them. Artists have the opportunity to set up their own label and distribution capability, like the Grateful Dead did nearly fifty years ago. There are many who are watching and learning from the Dead, from Radiohead, from Nine Inch Nails, and so on.

4. Content is not king: simplicity and convenience rule

There was a very interesting article published by Andrew Savikas in the middle of last year, talking about content being a service business. In it he quotes from Trent Reznor of Nine Inch Nails:

[W]hat you NEED to do is this – give your music away as high-quality DRM-free MP3s. Collect people’s email info in exchange (which means having the infrastructure to do so) and start building your database of potential customers. Then, offer a variety of premium packages for sale and make them limited editions / scarce goods. Base the price and amount available on what you think you can sell. Make the packages special – make them by hand, sign them, make them unique, make them something YOU would want to have as a fan. Make a premium download available that includes high-resolution versions (for sale at a reasonable price) and include the download as something immediately available with any physical purchase. Sell T-shirts. Sell buttons, posters… whatever. [emphasis added]

Reading through what Reznor had to say in his original post, I found another extract telling in the extreme:

The database you are amassing should not be abused, but used to inform people that are interested in what you do when you have something going on – like a few shows, or a tour, or a new record, or a webcast, etc.
Have your MySpace page, but get a site outside MySpace – it’s dying and reads as cheap / generic. Remove all Flash from your website. Remove all stupid intros and load-times. MAKE IT SIMPLE TO NAVIGATE AND EASY TO FIND AND HEAR MUSIC (but don’t autoplay). Constantly update your site with content – pictures, blogs, whatever. Give people a reason to return to your site all the time. Put up a bulletin board and start a community. Engage your fans (with caution!) Make cheap videos. Film yourself talking. Play shows. Make interesting things. Get a Twitter account. Be interesting. Be real. Submit your music to blogs that may be interested. NEVER CHASE TRENDS. Utilize the multitude of tools available to you for very little cost of any – Flickr / YouTube / Vimeo / SoundCloud / Twitter etc.

The key phrase for me is this one: make it simple to navigate and easy to find and hear music.

When I read the Savikas article, one of the points I understood was this: the success of iTunes lay in the quality of the service they offered, the simplicity and convenience, rather than in premium content. In fact, the pricing of digital goods tends to reflect this: prices for songs, albums, films and books tend to be very similar for a given class of digital good, suggesting that the content behaves like a commodity, that the perceived value is in service simplicity. When you take into account recent developments such as Ofcom’s stance on Sky’s exclusive premium content, there is every possibility that there’s going to be downward pressure on the prices of premium digital content.

So let me summarise. I don’t know much about  how the world is changing as a result of the internet and the web, as a result of digitisation. What I do know is this: these changes are putting real structural pressure on a number of industries, particularly on the “publishing” industries of music, film, journalism and books. Every participant in the supply chains of those industries is feeling that pressure.

During such a time of flux, the customer becomes even more of a scarcity, even more of an asset. Any action you take which alienates customers, you take at your peril.

In this context, the actions of the music industry at this time, particularly in the context of the Digital Economy Bill, seem foolhardy in the extreme. Foolhardy enough for shareholders and activists to look at the consequences very carefully, and to take legal action against the decision makers.

You know something? If I was one of those people who’d lobbied to put all the garbage in the Digital Economy Bill, I would start praying. Now.

And I would write to my MP and ask that the Bill be withdrawn. Even if I worked for the BPI. Particularly if I worked for the BPI.

Sometimes it pays to Be Careful What You Wish For.

26 thoughts on “The Digital Economy Bill: Be Careful What You Wish For”

  1. Another powerfully written piece which cements still further in my head just HOW WRONG this bill is. Every MP in the country should be made to read your recent posts before voting on this abomination of a bill. If the bill comes in I will no longer purchase ANY items it covers, preferring to do without and spend my hard earned on other things instead.

  2. Glad I stayed up to read this! Well rounded analysis. Like many, I clamour for a thorough discourse on the issue. Not the grandiose stick wielding stance of the govt.

  3. Some folk round here used kazaa to download songs. It took a week to get one on dial up. That is what drove demand to enable our exchange and get broadband to the area. (still can’t get it in many areas around here).
    As you pointed out in your post, those same people became the inspiration for many others to get online because not only songs were free, information was free.

    Now you can do so much online, and hand on heart I can agree, “Napsterization effect extends to non-media areas such as sharing health information, oversight of politicians, access to government data and online dating via free social networking sites”

    The dark lord should be encouraging music downloads and saving the govt a fortune. The £300million of free laptops they are dishing out will end up on ebay if there are worries or restrictions as to what people can use them for. Its a case of the right hand cutting off the left hand.

  4. Don’t forget that there is a considerable difference between music and copies, between the two industries that have built up through their production and sale.

    Those producing and selling music will adapt and embrace the far more efficient and economic distribution and communications infrastructure that is the Internet.

    Those producing and selling copies have just seen the bottom fall out of their market, and the Digital Economy Bill is simply yet more draconian legislation to eliminate the competition that cannot be eliminated: that large scale producer of unauthorised copies, i.e. the public.

    The thing about corporations is that they are like sharks (and about as unintelligent). They will continue to ratchet up the level of lobbied legislation until they either run out of money or the people revolt.

    Unfortunately, the legislators and supposed representatives of the people, would rather get the kickbacks than act in the people’s best interest.

    The people aren’t that much better – still operating under the delusion that an 18th century privilege of being able to prosecute anyone else for producing unauthorised copies of one’s published work is a ‘good thing’ – everyone likes a privilege (except when they’re on the wrong end of it).

    But, you try suggesting that if everyone was denied the privilege things might actually be better…

  5. I wonder if it isn’t the financial services industry that is secretly supporting this suicidal end game from the music publishing industry. Classic misdirection gambit. Lest the voting public should look too closely at their own cosseted industry, where ironically the barriers erected to innovation are labeled “consumer protection regulations”, so the public can sleep safely knowing that at least it’s a regulated racket… ;)

  6. Thanks for the comments.
    @drew @conscious_ness @cyberdoyle that’s the strange thing, the downloader aspect of the bill actually militates against everything that Digital Britain stands for. I’m hearing unconfirmed reports that these alleged 7m downloaders are now responsible for alledegly only £400m of revenue losses. It will cost that much to police them, and probably a lot more, especially if digital storage sites and universities were roped in as well.

    @crosbie agree! I am still working on the “extreme nonrival good” aspect of things digital. Will post on it today.

    @sean yup, it’s groundhog day in every industry that is affected by dematerialisation, digitisation and direct access. [ps you don’t answer your phone. how’s the recuperation going?

  7. JP, your points are all salient, and so obvious to those of us who understand these things a little (which clearly does not include our un-elected law makers) that it seems to me that this bill, not unlike the anti-terrorist laws brought in on the wake of the tragedies early in the noughties, is not a law being introduced at face value, to protect the copies-of-music-distribution industry, but really a law to allow for draconian removal of civil liberties, personal freedom and privacy.
    I fear that the end result will be less folk on the public internet, and more folk using encrypted “dark nets”.
    While I can currently manage tracking cookies and malware on my home network with reasonable confidence, as soon as the tracking and spyware exists – on tap, with just a modicum of “suspicion” – to “agencies”, from directly within my ISPs network, my levels of trust will be much further erodes. My home network will likely become a source of random noise recognizable only to me and a VPN provider, probably based out of a tax haven elsewhere. So much for traffic throttling.

    Indeed, on the face of this bill, setting up an offshore VPN provider sounds like quite a good business…

  8. Agree completely.The powers-that-be are so interested in protecting their fading distributor-biased copyright law that they have no real understanding of the consequences of their stupidities. darknets will increase, dissent will go underground, further pollution will be introduced into the internet as it stands.

  9. Great analysis however I think you missed a potential outcome:

    5. Nothing changes

    a) ISPs put up their prices to cover their new enforcement obligations. Subscribers grumble and then pay up. Infringement notices start getting sent out. 63.8% of teenagers are grounded. Later, technical measures are imposed on a few subscribers (they are largely guilty, though the Guardian reports the throttling of a few innocent grandparents.) The recording industry hails this as a great victory yet struggles to explain a mysterious lack of increased profits.

    b) Someone writes a file-sharing system that makes it impossible to tell which files are being shared by whom. A small darknet emerges. Then it gets Slashdotted and everyone on the planet starts using it. Copyright infringement doesn’t just return to pre-DEB levels – boosted by the knowledge that rights holders have lost the ability to link subscribers to infringements, growth is similar to that observed during the emergence of the original P2P networks (post-Napster).

    c) The recording industry declares that file sharing is killing music and lobbies the Government to intervene…

    The moral of this story is that those who will not learn from history are doomed to repeat it ;o)

  10. I really enjoyed reading this post. It’s thought provoking and raises many more questions than it answers. Just to be Devil’s Advocate though, perhaps there are some counter-arguments?

    1. People stop downloading all digital music, not just “illegal” music

    Your assertion that people may stop downloading any music because of fear of ‘accidentally’ buying music illegally makes no sense to me. i would think it more likely that most people will simply buy from iTunes, Amazon, Spotify or other well known established sites. As far as I understand it, they will be informed by their ISPs if they have inadvertently downloaded illegally. They would have to have infringed the law on multiple occasions before other action was taken. Surely, either somebody wants to hear music enough to pay for it or not? They can obviously stream music through Spotify or LastFM if they just want to listen, not purchase.
    So, what’s the problem?

    2. People stop downloading music illegally, but there is no materially positive impact on revenues.

    You argue that if people can’t ‘try before they buy’ then they may not purchase. But if people want to try before they buy then they can listen on Spotify, stream tracks on a band’s Myspace or website, listen to samples of any song on iTunes or listen to the radio (an old fashioned try before you buy device). How much more ‘try before you buy’ do you need? It’s a record, It’s not a car you need to test-drive, or a house that needs a full surveyor’s report. It’s a bunch of songs that bundled together costs about seven pounds. Get some perspective. If an artist still wants to give MP3s away for free then they can.

    Your ‘Rolex’ argument also confuses me. The analogy doesn’t make sense. At the moment, the consumer is not getting a fake Rolex for cheap, they are getting a real Rolex for free. If you consider that music is overpriced, then that’s a different argument altogether. I do agree that the scale of Piracy has been exaggerated. I also think from talking to my peer group that people do illegally download albums they would never consider buying just because they can and also in the hope they might like one track on a record. People I know have torrented many albums they’ve had no time to listen to and possibly never will. So would the question be better put as ‘will the bill have a negative affect on revenues’. I am interested to hear whether you think this will be the case. If you can’t argue that artists and musicians making music will suffer more because of this Bill, what’s the problem? As for consumers suffering because of this Bill, on the arguments you’ve put forward so far I can only find evidence that people illegally downloading music would suffer because of this Bill, which is, I guess, the point of this Bill.

    3. People stop buying from established labels and channels and move to new, independent channels that offer them what they want

    You go on to say

    ‘While the music industry has been on the front lines of the battle to convert freeloaders into paying customers,’….

    This statement troubles me because I think that the industry is more concerned their paying customers feel that obtaining music for free isn’t any kind of criminal act, and therefore, piracy will increase as traditional paying customers download for free instead. Their worry is that consumers see illegal downloading as a victimless crime. Obviously, there will always be people who don’t like paying for music who are technologically savvy enough to find their way around any type of legislation (through an encrypted dark net for example). You state that there are artists ready to drive a ‘bus through the barn door of opportunity’ and learn from Radiohead, The Grateful Dead, Nine Inch Nails and many other bands. It’s funny that the bands you mention all achieved their success from costly, Major Record Company investment (NIN being the honorable and pretty rare exception) and from fans who bought (not illegally downloaded) their records at least in the vital career building early years! These established bands may now be in the privileged position of being free from that awful corporate machine that made them rich, so they can maximize the income from their established fan-base (through live shows and merchandise), but for most struggling new bands the ‘barn door of opportunity’ isn’t nearly as obvious. So, what’s the problem with the Bill if it encourages people to seek out new bands who willingly want to give consumers what they want? Hopefully this flood of consumers who seek this independent route will help these bands who are happy to give their music away for free to build a fan-base.

    So, in conclusion, lets all write to our MPs to encourage the Bill to go through. As far as I can see this will hasten the demise of the Record Industry and it’s outmoded, unfair corporate ethos and promote new bands and music as people seek out alternatives to having to pay for ‘Major Label’ financed music.

  11. Got told by the switchboard that my MP – Vernon Coaker, Gedling – does not take calls from constituents. Fantastic.

  12. “In this context, the actions of the music industry at this time, particularly in the context of the Digital Economy Bill, seem foolhardy in the extreme.”

    Perhaps they just want to enforce copyright online? It’s their right to do so, after all.

    We all agree the music business should be doing more, and if it had launched licensed Spotify and Napster service it would not be where it is today. But are you seriously suggesting online music copyright cannot be enforced, and therefore should not be?

    That undermines your entire argument.

  13. @Paul *all* intellectual property rights need state intervention in order to merely exist. unlike other rights, they cannot be “enforced” any other way. wherever the enforcing of such rights contradicts other, more basic rights, I would push back against the technique used to enforce the right.

  14. Why not just put encryption on my eyes and ears and charge me every time I use them !! lets get real here, 98% of what I download is utter crap, there’s no way in this world that I would pay £20 for most of the movies I watch, nor would I pay £12 for most of the music albums I have downloaded….. But i would have paid a small fee. at the end of the day we should get VALUE for money. make media VALUE for money and I will pay!!, that way if i purchase something that is rubbish I am not left feeling like I have just been ripped off, which may i add has happened many a time after paying an extortionate amount to go see some over hyped crap at the local cinema !

  15. A great article!

    The DEB is ridiculously flawed. The negative repercussions on our society and economy as a whole hugely outweigh any potential gains from combating piracy in this way. It’s an insult to democracy by being so blatantly written and pushed through by lobbyists from the BPI and other “music industry” figures. It ignored the British judiciary system by assuming guilt in the absence of proof (IP addresses cannot prove guilt in a court of law). It jeopardises our young digital economy, by eroding the chances of gaining truly wireless cities, and removes any incentive to provide free wi-fi areas.

    What’s more, it is unlikely to have any effect on file-sharing, as is evident when you look at Sweden as a case study, where file-sharing has risen since their anti-piracy laws, just now it is encrypted. Instead the record companies who wrote this Act should be focusing on live music promotion as their primary revenue stream rather than protecting an old, out-dated business model.

    For my blog on the implications of the DEB please go to Cheers.

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