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Consultation on (P2P) file-sharing

CONTENTS

Executive Summary

SECTION ONE: LICENSING IS THE SOLUTION
1.1 A market is not being served
1.2 What new services need to look like
1.3 P2P may be free, but it is not consumer-friendly
1.4 New deals blocked in the UK
1.5 Abuse of market position and restriction of trade by rights holders
1.6 New deals outside of the UK
1.7 Licenses covering ‘all the music’ on reasonable,
non-discriminatory terms are still needed
1.8 What licensing should look like
1.9 The effect of legal services so far
1.10 Other content

SECTION TWO: ENFORCEMENT OBLIGATIONS

2.1 Letter writing
2.2 Specifics of the proposed ‘technical measures’
2.3 Disconnection
2.4 Financial penalties are more appropriate
2.5 Problems with evidence
2.6 The right to due process
2.7 Other countries’ experience
2.8 Powers of secretary of state

SECTION THREE: THE EVIDENCE, COST AND OUR CONCLUSION

3.1 The scale of the problem and evidence of file sharing
3.2 Cost of the proposals
3.3 Conclusion

Executive summary

Online infringement is the result of the absence of legitimate markets and licensing regimes. The legal market has failed to satisfy the desire of music fans to use new technological possibilities to access music as easily as possible. Illicit use of peer-to-peer technologies has filled the gap.

The Open Rights Group argues that action to establish online licensing is more urgent and more likely to resolve the problem of creating online revenues and reducing unlicensed online content than harsh enforcement measures.

We argue that for a decade rights holders have stalled and abused their market position to control and limit legal services.

However, even the limited growth of legal offerings in the last year has significantly reduced online infringement.

Enforcement action in the absence of a fully functional and developing market is both unfair and premature and may hamper the development of new licensing regimes.

Launching Digital Britain, Gordon Brown said: “A fast internet connection is now seen by most of the public as an essential service, as indispensable as electricity, gas and water.” We agree.

Therefore, we believe disconnection and other impediments – the removal or restriction of a service as essential as gas and water - is a disproportionate response to alleged copyright infringement and will breach citizens’ fundamental human rights, including their freedoms of expression and association.

The measures in this proposal offer punishment without trial. They will create collective punishment of families and organisations. They run counter to stated government goals of universal broadband access and delivering education and access to government services online. The enforcement costs could be more than the losses allegedly suffered, and none of the cash spent would reach music producers.
These measures will also drive a wedge between music producers and their customers that will only make it harder to convince fans to try out the emerging services that the industry claims it wants to license.

The government’s proposed policy is ultimately based on moral panic induced by poor and discredited evidence, mostly from industry. Academic research from other countries reveals a much more complicated set of effects The government should commission its own original evidence.

In summary, the proposed legislation on peer-to-peer copyright infringement is the wrong response to a changing market, seeking to suppress demand rather than cater for it legally. It will damage both human rights and economic and creative development, and should not be adopted.

SECTION ONE: LICENSING IS THE SOLUTION

1.1 A market is not being served

In October 2008, in response to the first consultation we said:

Illicit p2p is not a law enforcement problem

According to estimates cited by the BPI, the UK is home to around 6.5 million people who share unlicensed copyright files over the internet using peer to peer networks. This is roughly 10% of the UK population. Rather than demonstrate the underlying criminality of UK citizens (as an aside, we note that with regard to private downloading copyright infringement remains a civil law issue, and not a criminal law issue), we believe that these astonishing figures indicate a market that is not being served.

The Open Rights Group does not condone illicit peer-to-peer file sharing. Current economic thinking dictates that we can reasonably expect the market to supply what consumers demand. Why has this not happened in the case of recorded music? (1)

We observed that surveys had showed that up to 80% of consumers would use a legitimate, paid-for service if one were available.

We went on to detail the problems with copyright licensing for online music services in the UK, and outlined what an online licensing solution should look like.

Since that consultation, we have seen slow progress in the UK. A number of new online music services have been established, and these have already helped reduce P2P infringement. However, a number of key deals are still being blocked, while those that have moved forward are subject to restrictions by rights holders.

Compared to other industries, including online film, software, shopping and news, the progress and diversity seen in music services is painfully limited.

1.2 What new services need to look like

The market is very unpredictable. Social and sharing elements will be important. ‘Feels like free’ is an important principle for some. Micro-payments work for others. Access rather than ownership is increasingly important.

Services using ‘Digital Rights Management’ technologies are likely to be at a disadvantage. Too often consumers have had their fingers burnt: and industry needs to avoid using such technologies which penalise honest customers and undermine mutual trust.

What is really clear is that licensing deals need to allow new services to choose the nature of their offerings and pricing in diverse ways rather than, as we see currently, having their services limited by the models rights holders prefer.


1.3 P2P may be free, but it is not consumer-friendly

‘Free’ P2P comes at a cost to consumers. Downloads may include viruses. It can be difficult to locate material. There is no guarantee of quality. Downloading may be slow. P2P services are frequently advert-heavy and unpleasant to use. Because they work on the edge of legality, they are not attracting investment nor building consumer-friendly interfaces.

In short, illicit services, especially those most visible to the casual infringer, are begging to be out-competed by better commercial products.

1.4 New deals blocked in the UK

Several innovative services that have failed to materialise due to licensing difficulties, are widely known, and some are detailed below. However, the number of new businesses that have been blocked by lack of licensing agreements is not public knowledge. Many failed deals will simply never have been brought to light.

Furthermore, getting evidence about these problems and their potential solutions, is not easy because the businesses seeking deals wish to continue to work with the rights holders who are causing their problems.

We do not wish simply to blame rights holders, however. The structure of the recorded music business, with four companies holding around 80% of the market, paradoxically makes it very hard to gain agreement as each company – in competition with the others - sees its own interests as paramount; and any single player can easily block the industry-wide deals that are needed.

It is also difficult for the rights holders to predict what deal may be best for their future business, or which may undermine the value of their rights portfolio. This makes caution an easy policy, where adventurousness is required to find the real market leaders.

Ten years after Napster, we believe it is time to conclude that the market has failed to provide the licences and services needed to monetise music online. Here are a few brief reminders of the some of the services that could be reducing online infringement, but that have been blocked by licensing problems:

Datz

The UK company Datz was named in June’s Consultation document (p12) as an example of the creative solutions emerging from the industry. Datz has now closed down, we believe in large part due to restrictive licensing practices.

Datz was an innovative service that sold access to a private website, secured by a dongle (hardware security key), from which purchasers could download whatever tracks they wanted in MP3 format.
Licensing issues, including catalogue selection and interference with the presentation of music on the website, left Datz hamstrung from the start, and it is likely that it had to agree to large quarterly advance payments no matter what their sales were. It closed down this month, September 2009, removing another key potential competitor to unlicensed P2P. (2)

Pandora

Pandora is a music service based in the USA that is highly regarded despite the many restrictions placed on users in the way they find and access tracks. Pandora has been unable to get a license deal in the UK.

MP3.com

This innovative US-based service tried to operate on a wholly legitimate basis, but was stopped after action from rights holders over ‘My MP3.com’ which allowed individual CD owners to access MP3s of their CD collections from anywhere. This was seen as infringement of copyright. In blocking rather than licensing the service, another competitor to online infringement was lost. (3)

Google music

Google is not talking about music licensing in the UK, but offers a comprehensive service and a repertoire of 1.1m songs in China. The Chinese service monetises downloads with ad revenue. Both streams and downloads are free.

Google appears to have the infrastructure ready to deliver music in the UK but is not publicly pursuing deals. The harsh copyright licensing environment is no doubt again having a chilling effect in the UK. (4)

Virgin Unlimited / Playlouder ‘all you can eat’ service

Two separate attempts from Virgin to introduce ‘all-you-can-eat’ online music services have been blocked. The first was blocked by music industry partners earlier this year.

The second hoped-for Virgin deal is currently in train with Universal alone, but other music rights holders are now refusing to license their content. (5)

Tiscali / Mercora Jukebox

In 2006, Tiscali’s legal P2P stream-and-sale service was ready to launch, but unreasonable licensing restrictions prevented users from searching by artist.

Tiscali concluded that it was “virtually impossible to work with [the European Recording Industry] in the promotion of legal music online”. (6)

Other ISP or institutional deals

Unlike other countries, no ISP or institutional deals have been negotiated in the UK. These are frequently talked about, but none have been brought to market.

1.5 Abuse of market position and restriction of trade by rights holders

Other music services are restricted in ways that seem unreasonable and seem to stem from an abuse of rights holders’ dominant market position:

Spotify

Spotify provides music on demand paid for with adverts or by subscription. The company has handed 20% of its equity to the major labels. (7)

Napster

The ‘new’ legal Napster provides unlimited access to a very large catalogue at a fairly high price, but forces users to accept digital rights management that prevents them from shifting tracks to other formats. We presume this is a condition of their licence., and expect it has restricted the service’s growth. (8)

YouTube music videos

Because of the nature of the licences, YouTube’s music videos were withdrawn earlier this year because of a disagreement over remuneration. The dispute was eventually settled, but the situation compares unfavourably with licensing regimes that allow for dispute resolution (such as radio licensing through the Copyright Tribunal).

It is difficult to see how a smaller business could survive such a pricing dispute. It is also apparent that YouTube’s market size was a decisive factor in obtaining a licence on suitable terms. (9)

1.6 New deals outside of the UK

Other jurisdictions are making progress on licensing deals. Some are moving quicker than others. Here are some examples.

TDC Denmark

TDC, an ISP in Denmark is providing ‘access to music’ for no extra cost as part of its broadband and mobile packages. This is similar to Nokia’s mobile-only ‘Comes with music’ package in the UK. (10)

USA: Choruss project

Choruss will allow universities to buy a license permitting students to download music from a central site or any P2P service. Music outside the deal is covered by an indemnity. The details of the deal are making it controversial with P2P services that are themselves seeking to become licensed. (11)

Isle of Man

The Isle of Man has been considering some sort of deal to allow broadband users to access music online. The charge may or may not be compulsory. (12)

1.7 Licenses covering ‘all the music’ on reasonable, non-discriminatory terms are still needed

Online music needs a simple licensing structure so all comers can bring services to market regardless of rights holders’ opinion of them, and free of arbitrary restrictions.

As an example of how this might function, we can look at UK radio licensing. In UK radio, a license covering nearly all available recorded music can be bought by a broadcaster on non-discriminatory grounds on terms that are set in advance. Disputes regarding this licence are settled via the Copyright Tribunal. Strictly, this licence is a private one, but it functions very similarly to a ‘public licence’.

ORG has no view as to how such an online licence should be constructed, or what the precise terms and remuneration should be; we merely believe that such a license must exist as a precondition for an operative online market. We observe that:
• The industry has had ten years to establish online licences on similar terms
• The industry repeatedly blocks deals and ‘picks winners’
• ‘Picking winners’ is likely to damage consumer benefits and competition
• Key services have not emerged
• Online jobs are therefore being lost

The government needs to establish powers to act, and must consider the last resort of establishing a public licence for online music if rights holders cannot provide an all-encompassing private licence on reasonable, non-discriminatory terms.

1.8 What licensing should look like: Fred von Lohmann’s seven principles

IP lawyer Fred von Lohmann offers seven principles for online licensing in a discussion paper published by the Electronic Freedom Foundation. While we recognise that the Digital Britain needs to formulate its own response to the creative industries, nevertheless we believe that von Lohmann's guidance shows a strong pro-business agenda, preserving good incentives while sufficiently safeguarding consumer choice and privacy.

Fred von Lohmann’s seven principles

Voluntary for Music Fans

People who do not share music shouldn't have to pay for a license they don't need.

Voluntary for Artists and Rights Holders

Artists shouldn't be forced to participate if they don't want to. That said, the vast majority of creators and rights holders will likely opt in, rather than opt to sue individual Internet users.

Not a Collecting Society, but Collecting Societies

Freedom of choice for artists only means something if they have options to choose among. Competition is critical to keeping collecting societies honest and transparent.

Voluntary for ISPs

There is no need to force ISPs to offer blanket sharing licenses to music fans. Some ISPs will voluntarily bundle music with their offerings; some ISPs may choose not to.

All the Music, From Anywhere

Music fans have made it clear that they would like to use their choice of software, and download and enjoy a wide variety of content, including the unauthorised concert recordings, the rarities, the old B-sides, and the alternate takes. It's time to figure out who should be paid for them rather than wishing for a world where you can somehow make them disappear.

Technology Agnostic

Linux, Mac, Windows, iPod, cell phone. Downloads, streaming, buffered streams. Music fans want their music in whichever format, on whichever device works best for them.

Protects Privacy

Paying for music sharing shouldn't entail giving up your privacy. There are many examples of fair systems to allocate royalty payments in other businesses such as television and radio; it is not necessary to report usage by full and personally identifiable census.

Adapted from "Monetizing File-Sharing: Collective Licensing Good, ISP Tax Bad", available at http://www.eff.org/deeplinks/2008/03/monetizing-file-sharing-collective-licensing-good-isp-tax-bad

1.9 The effect of legal services so far

Legal services in the UK seem to be reducing infringing behaviour. Music Ally and The Leading Question have found a drop of around 25% in file sharing, and a drop from 42 to 26% among 14-18 year olds. Streaming services in particular seem to be out-competing file sharing to provide the instant gratification of listening to music. (13)

Legal services in music include Amazon, iTunes, eMusic and Spotify. Despite all of the limitations and market distortions we note, legal services seem already to be changing user behaviour. Spotify and YouTube in particular provide an excellent quick and shareable alternative to unlicensed P2P music.

Increasingly, younger users are reported to see little point in ‘owning’ music, and prefer instead to ‘access’ content through services. This makes it very easy to compete with illicit P2P.

With 15 million UK YouTube users, and over one million Spotify users, we are certain these licensed services have made a significant contribution to changing user behaviour. (14)

1.10 Other content

Video and books

Video is not yet a fully developed online market. The same issues of bringing content online will emerge if rights holders do not seek to provide wide-ranging licence deals. The issues raised by online music, the proposed Google books settlement and online video are similar: businesses will seek to provide online services, and licensing arrangements need to accommodate new possibilities for distribution.

Video and TV content have had some remarkable consumer successes in for instance iPlayer, and rights holders seem much more aware of the needs to bring their content to market and avoid the mistakes the music industry has made.

Photographs and text articles

A further worry we have is the impact of enforcement on other types of content. The government needs to be very clear in the bill that only P2P file sharing is being targeted, or their obligation to notify users could quickly spread to copied and pasted news articles, misappropriated photographs and other copyright violations. Although, photographers and other smaller content producers deserve protection, particularly from commercial misappropriation of content, the potential impact on ISPs and on freedom of speech for millions of small blogs would be enormous. However, the main reason for drawing attention to these other rights holders is that the lack of consideration given to them in this consultation merely serves to underline the total imbalance in the Government's approach – which has merely proposed special provisions for a subset of an entire economic sector.

Software and games

These types of content are much less vulnerable to claims that illicit downloads may erode sales. For some software, illicit copying is in fact essential as a means to train upcoming generations of users, and to lock markets into products. Illicit software is also of no use for businesses needing support and guarantees that their businesses can resolve technical issues. Online software services and games of course require access to a service, which is easier to control. While rights holders may worry about copyright infringement and occasionally misjudge the market, the problems of licensing are less likely to surface.

SECTION TWO: ENFORCEMENT OBLIGATIONS

2.1 Letter writing

As has been noted elsewhere, letter writing has been found to reduce infringement significantly. This may be for many reasons including:
• Lack of prior awareness of what is or is not legal
• Lack of awareness of behaviour of children or other household members
• Lack of awareness of legal services

However, we do not believe the market is ready to provide the range of services and licences needed to fully monetise music if such consumers are persuaded to change behaviour. The likely effect of a strong. Behaviour-changing campaign now would be to suppress demand and reduce the overall online market.

This approach may help to shore up the value of the declining market for CDs, but it would harm the development of new online businesses. A better approach would be to fully open up the licensed market and induce behavioural change once a fuller range of services can soak up demand.

2.2 Specifics of the proposed ‘technical measures’ other than disconnection

• Blocking (Site, IP, URL), Protocol blocking, Port blocking
All of the above can be easily circumvented. They may, however, make it difficult to use legitimate services and cause business damage to third parties.

• Bandwidth capping (capping the speed of a subscriber’s internet connection and/or capping the volume of data traffic which a subscriber can access)
• Bandwidth shaping (limiting the speed of a subscriber’s access to selected protocols/services and/or capping the volume of data to selected protocols/services)
These are not much different in their effect to disconnection. They are restrictions on people’s accounts. It is not possible to ‘target’ restrictions to ‘allow’ email and ‘basic’ web browsing. Restrictions will simply make it more difficult to use all services – and most services are now designed to take advantage of the increased bandwidth of broadband. It is, however, worth remembering that sharing small music files will not be stopped by the above measures.

• Content identification and filtering
This is easily avoided. P2P applications now include encryption by default, rendering this kinds of approach irrelevant

2.3 Disconnection

Launching Digital Britain, Gordon Brown said:

“Whether it is to work online, study, learn new skills, pay bills or simply stay in touch with friends and family, a fast internet connection is now seen by most of the public as an essential service, as indispensable as electricity, gas and water.” (15)

We agree with the Prime Minister and the government’s objective of universal broadband access. Disconnection from the internet is an extreme and severe punishment. Bandwidth throttling and other account restrictions would have a similar effect.

Musicians, including a ‘special meeting’ of 100 stars, agreed that disconnection would be too harsh a punishment for copyright infringement. ISPs have also registered their opposition. Consumer groups are united against the proposal. Only rights holders' lobbyists seem to be in favour.

We note that some people have advocated disconnection for people who have been tried and convicted of criminal sexual activity with children. In some circumstances this may be proportionate - but to propose disconnection for civil infringements of copyright is totally out of kilter.

Disconnecting a single user is in fact likely to mean disconnecting a family unit, business or charity. This is effectively collective punishment.

The negative impacts of disconnection, both short and long term, will include the disruption of:

• Education: children and students are increasingly dependent on the internet as an educational tool
• Business and work: home businesses will find it almost impossible to operate without Internet access, forcing people onto benefits to survive. Individuals who have been working from home will be forced back to commuting, with an obvious impact on congestion and an increase in their carbon footprint.
• Purchasing power: internet users have been proven to get better deals for goods and services, so that disconnection will have a indirect but still significant financial impact on families.
• Freedom of expression: the internet is the primary political tool for many citizens, who use it to directly petition the Prime Minister, contact MPs and other representatives, and to organise and engage with other like-minded people.
• Freedom of association: social lives are increasingly run online, with internet access helping people to associate with others who have similar needs and interests. These interactions do not just represent leisure interests or young people, but are vital links for groups as varied as mothers with young children, and health-related self-help groups, vital to many people’s well-being.

2.4 Financial penalties are more appropriate

Copyright infringement is a problem because licence payments are not being made. The value of these avoided licence payments may be difficult to quantify, but the offence made by an infringer is that of depriving rights holders of income.

Infringing copyright licenses is a financial matter, and proportionate financial punishments should be the result. Restrictions on freedom of expression, association, social lives, education, business and work have absolutely no place in dealing with a financial misdemeanour.

We can think of no parallel where sentences are so harsh for a financial misdemeanour. Tax offences, bankruptcy, and fraud are unlikely to result in such drastic restrictions on a citizen’s life unless the offences are so severe that they are found by a court to require a custodial sentence.

2.5 Problems with evidence

It is well known that an IP address is not the same thing as an infringer. It may be, with varying accuracy, identified with an account holder. But the infringer can be anyone behind that IP address, either a householder or someone sharing the account, for instance via wireless connections.

The processes for identifying both IP addresses and accounts are automated. Both are subject to error. Accusations put forward by the law firm Davenport Lyons last year resulted in a number of complaints by people who had been wrongly identified. These complaints are currently being investigated by the Solicitors Regulatory Authority. (16)

We should also note the reputational damage that flows from accusation, which can deter innocents from even making a defence.

We do not yet know how robust evidence will be in practice, or how well individuals will deal with the notification process. We do know that several million file sharers may be dragged into a trawl net of automated identification and notification letters, with an estimated 20-30% not changing their behaviour and potentially going forward on the basis of that evidence for punitive measures. Given such a large number of potential cases, errors are bound to occur, and evidence needs to be tested before a court before punishments are imposed.

If these punitive measures are imposed without testing the evidence before a court, then citizens will be wrongly accused and punished. Errors will undermine the legitimacy of this scheme and UK justice in general.

Copyright already suffers from a bad reputation among a growing section of the population, and this risks further harming its reputation.

Instead of rushing into a scheme to deal out what amount to ‘drive-by’ convictions on behalf of rights holders who do not make use of existing court procedures, government should be extremely cautious about establishing new layers of semi-judicial procedures and evidence gathering involving large sections of the population.

Due process is more important when dealing with new fields of evidence and misdemeanour, not less.

2.6 The right to due process

The right to due process is a fundamental human right, enshrined in UK law and in the European Convention on Human Rights (ECHR). Furthermore, the 1998 Human Rights Act requires UK law to comply with the ECHR. UK courts can also declare primary legislation to be incompatible with the ECHR.

It is currently unclear how due process and the freedoms of expression and association will be impacted by this legislation. The consultation document did not include a human rights impact assessment of the legislation. We would like to echo calls from Consumer Focus and others for a full human rights impact assessment, putting particular emphasis on the problems of due process.

The implication of the consultation is that rights holder evidence of infringement will be used first to first trigger letter writing, and second, using any approved technical measure, impose restrictions on a user account, possibly after giving a warning which the user might have the right to appeal.

Appeals are not the same thing as ‘due process’. They circumvent a priori requirements to test the evidence. Given that severe punishments are being suggested – and the evidence may be flawed – there is a fundamental obligation to presume innocence and test the case.

Furthermore, the consultation suggests that technical measures “may be taken against [citizens] without the benefit of a judicial hearing. In those circumstances it may be appropriate for an enhanced consumer appeals process to be introduced along the lines of an ombudsman.” (17)

We reject the notion that appeals should take the place of judicial processes, and call on the government to uphold the right to due process.

2.7 Other countries’ experience

The original consultation document drew attention to the EU Parliament’s position that disconnection represents an infringement of fundamental rights, and should be subject to due process. It also drew attention to the French Constitutional Court's ruling that disconnection could only occur after a fair trial.

Commercial operators have found it extremely difficult to disconnect users without the intervention of a court. Courts in Spain and the Netherlands have reversed disconnection decisions because of concerns about due process, privacy and proportionality. (18)

We would expect that UK courts may well be influenced by these EU examples when interpreting cases here.

2.8 Powers of secretary of state

The original suggestion in the first draft of this consultation – that Ofcom would handle the process of adjudicating the efficacy of anti-infringement measures and requesting secondary legislation – at least had the merit that Ofcom might have been obliged to assess whether the content industries were taking sufficient action themselves to provide legal services and sufficiently open licensing.

The new P2P statement proposes that:

the Secretary of State be given a two-part power of direction. The first part would enable him to direct Ofcom to carry out preparatory work on the mechanics of introducing technical measures, including an assessment of their efficacy on different networks, as well as developing the code that will apply to implementing such additional measures, and to consult on their conclusions.
The second part would allow the Secretary of State to direct Ofcom to introduce the measures they had determined were effective and proportionate should he conclude that such measures are necessary to achieve the overall objective. Ofcom will still have a duty to monitor the overall position and report on the effectiveness of the original obligations in order to provide an evidence base for the Secretary of State’s decision, but this advice would not be binding on the Secretary of State and he would be able to take into account other, wider factors and other sources of information before taking any decision on the introduction of technical measures.

As an approach. this is extraordinarily imbalanced. Rather than placing the burden of regulation on a neutral arbiter, giving power to the Secretary of State to direct the introduction of measures makes any decision highly political.

It is likely to create an expectation among rights holders that they can continue to press for harsher enforcement measures via political lobbying, rather than address their licensing problems.

It gives rights holders a direct incentive to lobby for such measures in advance of licensing, whereas the previous arrangement would have placed a burden on Ofcom to ensure industry was moving at sufficient pace, as well as ensuring the efficacy of any online enforcement.

Furthermore, access to the Secretary of State is limited for non-commercial voices. Open Rights Group, for instance, has met with Ofcom’s top-level staff three times since January, but only once with staff close to the Secretary of State, and never with the Secretary of State himself.

This, we are sure. is perfectly reasonable given the range of duties of the Secretary of State, but it will make it very difficult for consumer and civil society groups to gain the necessary level of attention from the key decision-makers if the SoS is personally responsible for making decisions on future enforcement measures.

We feel this introduces political dangers that are less present in a model led by Ofcom, which is charged with acting to regulate the market in the interests of consumers, and needs at all times to show itself capable of being an impartial regulator.

However decisions are reached, the decision must be evidence-based, transparent and accountable. Whether it's the Secretary of State or Ofcom who makes these decisions, the result must be open to challenge by judicial review.

SECTION THREE: THE EVIDENCE, COST AND OUR CONCLUSION

3.1 The scale of the problem and evidence of file sharing

We find it extremely disturbing that this proposal is being driven by industry figures who have been widely discredited as inflating the problem.

As an example, the BBC have highlighted the way SABIP’s 7 million file sharer figure was based on a BPI commissioned survey, which in turn had overestimated the online population at 40 million, against an actual 34 million; and also, for reasons unspecified, assumed around 30% under-reporting of file sharing in its survey. (19)

Furthermore, industry figures are used to estimate the damage caused to industry. The government’s laudable funding of SABIP has not translated into original research like Ups and downs: Economic and cultural effects of file sharing on music, film and games, carried out by IVIR in the Netherlands, which showed a strong correlation between file sharing and music purchasing. IVIR’s report also explodes the myth that a download might equal a lost sale in any way , instead revealing a complicated picture:

the percentage of buyers among music sharers does not differ significantly from the percentage of buyers among non-downloaders. And those music sharers who also go to the shops to buy music do not buy any more or less than do non-downloaders. What is more, people who download music also tend to go to concerts more often and buy more merchandise. For films, too, there are roughly as many buyers among downloaders as among non-downloaders, but those film sharers who also go to the shops, buy more. Film sharers and non-film sharers go to the cinema equally often. In the area of games, we see that the percentage of buyers is higher among game sharers than among those who do not download and that game sharers who are also buyers, buy more games than gamers who never download.
… ... One possible explanation for the fact that major shifts are not expected in the hypothetical situation that downloading would no longer be possible, could be that discovering new music, films and games – resulting at times in a purchase – is a key driving force behind file sharing. In this case the internet is used to explore new content and facilitate choice. (20)

IVIR concludes that limited economic harm may be being felt by the music industry in the Netherlands, balanced by consumer access benefits, but that the answer to industry’s problems is not a clampdown:
The music industry is suffering from a decline in sales. It is therefore tempting to point the blame at file sharing as the main or sole cause. Yet the challenge is to capitalise on the dynamics of the digital age by responding to the new reality created by users and by reinventing business models.

Research in Norway by the BI Norwegian School of Management concluded that file sharers in fact spend more on music, not less:

the people who use unpaid downloading have ten times the consumption of paid downloads than those who do not use unpaid downloading. This confirms that, even with declining CD sales, people do understand that copyrighted music recordings costs money (21)

Neither of these reports nor ORG takes the lack of licensing to be a good thing; but we make the point that the evidence for damage from file sharing is much less clear than rights holders suggest. We also do not expect the government to simply accept evidence from overseas: instead we call for original research from UK institutions.

Inflated scales of damage and infringement have led to moral panic and a focus on the symptom – unlicensed services – rather than the cause, which is a decade of lack of reasonable licensing models that suit the new technologies, coupled with anti-competitive and restrictive practices from the rights holders.

3.2 Cost of the proposals

The cost of these misguided proposals will be borne by consumers. Not a penny of these costs will reach artists or the recording industry. Instead, the costs will be frittered away on bureaucratic mechanisms, and on the purchase of large amounts of networking equipment, mainly from US companies - impacting the balance of payments.

BT has estimated the cost to the industry of running the enforcement proposal at an annual £360 million, against industry estimates of damages from illicit file sharing of £200 million. (22)

Even assuming that both losses and enforcement costs could be exaggerated due to overstating the number of illicit file sharers, the fact that enforcement is estimated to cost a similar amount to the losses it is chasing should give the government serious cause for thought.

Would it not be better to try to put these sums of money into the hands of the music industry?

We must finally sound a note of warning about harsh punishment measures in a relatively liberal country. The real costs here could be to the recorded music industry and respect for copyright itself. The backlashes in Europe has established a European parliamentary party campaigning for radical copyright reform in Sweden, and sufficient support for a sister party to qualify for state funding in Germany. To quote IVIR’s report again:

… A survey conducted among the internet population in the Netherlands showed that file sharers are the industry’s biggest clients, indicating that downloading and buying go hand in hand here. The fact that file sharers in the United States buy fewer products may be related to their harsher treatment in that country.

Given that most of the problems can be solved by resolving licensing issues, we again ask the government to reconsider its strategy, starting with radical action to end a decade of market failure, restrictive practices and anti-competitive action from music rights holders, and liberate the online music industry.

3.3 Conclusion

The primary means of reducing the appeal of unlicensed services is introducing competitive licensed services that meet consumer expectations, and reforming market conditions so that this may take place.
Online music services have been repeatedly blocked by the same people now arguing for punitive action: music rights holders. This is abuse of market position and anti-competitive behaviour by rights holders. Licensing on reasonable, non-discriminatory terms requires government action.

Disconnection and other account restrictions are an abuse of people’s basic human rights, including freedom of expression and association. These punishments will damage citizens' education, finance and welfare. There is no equivalent punitive measure for any other financial misdemeanour. As a financial misdemeanour, a proportionate response would be a monetary penalty.

We regard the current position of creating punitive measures while failing to reform the market as highly irresponsible. It is likely to result in a backlash, particularly if legal services are not first allowed to properly develop. In market terms, the strategy can at best repress demand, but will not make any money for artists or the music industry. It may even cost more than the alleged damage.

The government needs a strategy to liberate and grow licensed online music services. We are yet to hear what it is.

 

References

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