Music: back to tangibles

The Economist sums up a story on the record labels’ new business model with an Edgar Bronfman quote: “The music industry is growing. The record industry is not growing.”

It seems the labels have decided that they need a cut of more than just a band’s CD sales; their new contracts include live music, merchandise, and endorsement deals.

Just as the old instincts for relationships and reality have driven the pet industry to generate more revenue than media (see my post Animal Instincts) tangibles are reasserting themselves in the music industry. The Economist, citing the Music Managers Forum trade group, reports that seven years ago, record-label musicians derived two-thirds of their income from pre-recorded music, with the other one-third coming from concert tours, merchandise and endorsements. Those proportions have been now been reversed. For example, concert-ticket sales in North America alone increased from $1.7 billion in 2000 to over $3.1 billion last year, according to Pollstar, a trade magazine.

Fingercerting: an alternative to DRM or collective licensing

There was good news for Audible Magic yesterday when MySpace announced that it would use their software to filter out uploads that infringed copyright. Recognizing media clips using fingerprinting (more) has become fashionable as content owners begin to sue hosters.

Fingerprinting, combined with digital certificates, offers a way around the drawbacks of two currently favored ways to govern digital media use. I will focus here on video, since I recently attended a workshop on the future of video copyright at the USC Annenberg Center.

The core of the digital copyright problem is reconciling two valid interests:

Interest 1: Creators’ need to be compensated in order to cover costs and encourage more creation.

Interest 2: Consumers’ ability to make copies of copyrighted material under limited circumstances (loosely, “fair use”).

Here are two fashionable approaches to solving this problem. Each is biased to addressing one of these interests, while ignoring the other.

Solution 1: DRM

In this model, content is locked by DRM under terms specified by the creator/distributor. The consumer can only get access by observing these rules; circumvention is prevented (in the US) by the reverse-engineering terms of the DMCA.

A major difficulty arises in the intersection of DRM with fair use, since the criteria for fair use cannot be encoded in machine-executable form. Thus, Interest 2 above is generally not respected. Other difficulties include the vulnerability to a single hack that puts a piece of content in the clear, particularly if hosted off-shore; the anti-trust consequences of Content/CE/IT standardization; and usability problems with consumer experience.

Solution 2: Collective Licensing

In this model, ISPs would pay a monthly license fee on behalf of each subscriber. This would then be distributed among rights holders a la BMI/ASCAP (cf. EFF’s proposal for music).

A difficulty arises because content creators lose the ability to negotiate their compensation with consumers, thus undermining Interest 1. Owners would be compensated on the basis of some rigid formula determined by the collecting agency. Other difficulties include deriving a formula, since video isn’t as homogeneous as music; anti-trust issues in a collection monopoly; and charging users on enterprise rather than consumer networks. Option 2 also implicitly assumes that DRM is outlawed; if it were allowed to remain, then content creators could get two bites of the apple.

Another way: Fingerprinting + Certificates = FingerCerting

Option 1, the DRM approach, puts the control of content on the user’s device; however, the control is draconian and makes accepted uses like sharing around a user’s personal domain or fair use clumsy at best. Option 2, collective licensing, removes content control by levying a blanket license fee on all broadband subscribers through their ISP, but at the cost of creating an inflexible collecting monopoly and outlawing DRM.

In the “FingerCert” approach, fingerprinting is used to identify content, and an accompanying digital certificate (or “cert”) indicates that the owner has approved its transmission. If the content is registered as copyrighted but not accompanied by a valid digital certificate, an intermediary (ISP or hoster) is obliged to block it. There can still be a negotiation between an owner and a purchaser, but DRM isn’t required, only attaching a cert to indicate a contract. Once the media has been delivered, the cert can evaporate. If the media is provided without encryption, the end user can make copies for fair use without having to worry about arcane and unexpected restrictions.

The big problem with digital media is not personal copies; it’s large-scale illegal distribution. Content owners could use light-weight DRM as a “bump in the road” to mark their rights, but heavyweight (and futile) restrictions intended to prevent even a single hack won’t be necessary. This means a good experience for the vast majority of users who are happy to pay for content, but who would be deterred from buying if DRM were rigorous enough to persuade content executives that their assets were protected against all possible infringement. If you’re only willing to sell sandwiches wrapped in bank vaults, you won’t sell many sandwiches. FingerCerting prevents large-scale distribution by stopping the flow across the Internet, not in someone’s house or between friends’ iPods; it addresses thepiratebay.org and AllofMP3.com, not somebody making a mash-up for their friends. The gates don’t have to be in many places – just the major intersections, like big content sites, or perhaps just at the major IXCs.

FingerCerts gives content owners a way to control distribution of their content (protecting Interest 1), while allowing them to do so without harsh DRM that undermines fair use copying (protecting Interest 2).

What Fingercerting Isn’t

FingerCerting doesn’t require watermarking, that is, embedding (often hiding) a copyright notice in a file. Fingerprinting sets out to recognize the file from its visible characteristics. Watermarking, just like fingerprinting, has to be keep working even when videos are manipulated, e.g. by cropping or transcoding. My uneducated guess is that fingerprinting is more robust in these cases than watermarking since it’s not trying to hide the indicia.

FingerCerting doesn’t require DRM, but neither does it preclude it. It creates an environment where DRM isn’t essential to protecting mass abuse of copyright, and hopefully takes the sting out of the argument over this technology.

Challenges

Any solution to a complex problem will have weaknesses. Here are some I can think of regarding FingerCerting:

Will you need a standard for fingerprints? Audible Magic has a mechanism to register media and recognize clips; so do other companies like Philips. Cert standards exist, but one can imagine different content owners using different solutions. The complexity may be too great for intermediaries if they have to support more than a small number of mechanisms.

Packet inspection technologies to do stream identification are available. Attaching certs to streams is a different issue; I can imagine solutions, but I haven’t stumbled across any yet. Pointers, please.

False negatives – not recognizing an illegal file or stream – will occur, but that’s OK; large scale distribution can stopped since intermediaries will have multiple shots at catching streams. The bigger problem is false positives, that is, when an intermediary mistakenly blocks content. This will annoy users, and present a wonderful scenario for denial of service attacks.

Content hosters/routers will have to be motivated, by litigation or legislation, to implement such a scheme. Current US law provides a disincentive to implementing fingerprinting: Google/YouTube would rather not know that it’s hosting infringing content, because that increases its liability under the DMCA. I presume some legislation or regulation would be required to set up the incentives for a fingercerting process; I don’t know if it will be more or less onerous than that required for DRM (cf. the DMCA) or for collective licensing.

Not selling what they’re buying

At the root of the argument between content owners and copyright activists lies fundamentally different mental models. (Earlier posts on this topic: Media business beyond DRM, From copyfight to copytruce, King Content vs. the Copyfighters.)

To the activists, music (or other digital content) is a substance. When they hand over money, they feel they have bought this substance. This “stuff” is turned into entertainment through rendering, and they thus feel they have the right to render it anywhere, and anyhow.

Rights holders think they’ve sold a permission: the right for a customer to enjoy specific content in a particular way. The physical item, if there is one, is mostly a token that the customer has the right to play that music in a particular way. Customers, at least if they’re activists, aren’t buying what the rights holders are selling.

Nobody had to think about this much until now, because the music “substance” and the performance “permission” were inextricably tied to a physical medium. With intangible media, though, the consequences of the models diverge:

• To the activists, DRM is a hindrance to their right to enjoy the music-stuff they bought in any way they choose.
• To rights holders, Fair Use is a diminution of the permissions they own.

The activists’ model is grounded in the habits and customs associated with tangible media. You can take your CD to a friend’s house, and hear it on player, not to mention in the car: music is stuff you can take with you anywhere. You own the CD, and thus you own the music. The same can be said for sheet music. The rights holder view is more esoteric, and depends on abstractions far removed from everyday experience, like rights in non-rival goods. Their model has some similarities with live concerts. (This is ironic, since activists argue that bands should make money from live music, not media sales.) Buying a ticket to a show doesn’t entitle you to walk into a record store and just take the CD; you’ve only bought the right to enjoy that show, at that time, in that place. It’s widely understood that making fan recordings usually isn’t legal – viz. “bootleg tapes.”

Given these dissonant views among the experts, how do “ordinary consumers” think about the entertainment they buy? Do they see purchased music as a substance, as a set of permissions, some paradoxical mixture, or something else altogether? I doubt anyone has bothered to ask. The partisans don’t want facts to cloud the issue, and, as Peter Cowhey has explained to me, scholarship on public opinion and policy doesn’t care about the “what do they know” questions. Scholars are more interested in the heuristics that people use to decide complex issues – whose opinion can you trust on an issue you don’t know much about? – and in how the framing of an issue can determine outcomes. I think rights holders over-estimate the power of the permissions frame, which doesn’t resonate with the public’s assumptions about media; and activists over-estimate the degree to which the public experiences the DRM frame as a hindrance. I look forward to seeing the scholarship on this question. My hunch is that consumer thinking is closer to the activists’ view. (Aside: I’d be fascinated to see how many people who have an opinion about the term “DMCA” can explain why it’s a good or bad thing. I suspect even the experts will struggle.)

The dirt/digital differences may exacerbate the problem because digital media are so unlike the physical stuff humans have evolved to cope with. Perfectly copyable, persistent media are counter-intuitive, which accounts for rights holders’ terror of the “release once, gone forever” consequences of non-DRM content. (Not that DRM helps, since it will always be broken...) Opacity also plays a role: Digital media are hard to understand because they’re non-rival and non-excludable. DRM is deeply inscrutable, and even though the license terms sound simple, it’s often hard to understand why, or predict whether, media plays in some places and not in others. DRM tries to convert a non-rival, non-excludable information good into an excludable one. I’ve always found it hard to think about non-rival, non-excludable goods; perhaps I’m not alone.

The problem for rights holders is that there are few things in our everyday experience that fit their model of music as a rights-controlled good. It’s not that people can’t deal with the restrictions that come from “technological boundaries.” Brad Gillespie has pointed out to me that most people didn’t have problem moving from LPs to 8-track to cassettes to CDs. He observes that they can deal with restrictions based on physics – playing a CD on two different players at once, or making an LP play in a CD player – but they don’t accept “virtual restrictions.” The problem is that rights holders have over-estimated the persuasiveness of the permissions frame. They’ve also under-played analogies that might help them, like “buying digital music is like buying a book of concert tickets.”

Of course, as Brad Gillespie notes, legal restrictions like “don’t steal” are not imposed by physics. One thus has to confront the question of why humans obey laws. Rights holders have tried to appeal to consumer self-interest in ads where studio crafts people say that they wouldn’t have a job making movies if the pirates won. The problem is that there’s an over-supply of creators. That’s always been true (Q: "What does an English major say after graduation?" A: "You want fries with that?"), but finding an audience used to be hard. The distribution problem is now being solved by YouTube et al. The catch is that the Fat Rump still makes most of the money for Hollywood, and that the oversupply is in the Long Tail. Consumers like some Rump as part of a fully balanced media diet, but rights owners have trouble distinguishing between rump and tail.

From copyfight to copytruce

There is middle ground between the competing principles that I highlighted in King Content vs. the Copyfighters: content owners’ right to sell bits, and consumers’ rights to Fair Use and First Sale. The "Digital Copyright Principles" are a basis for detente between the combatants:

Content owners have the right to monetize their property by selling it. While long admitted by many in the copyfight, this will be hard for some partisans to to concede.

Consumers and secondary content producers have a right to Fair Use of published content, which technology vendors will implement in their DRM solutions.

If there isn't an accomodation, the content industry will fight a long but doomed rear-guard action against a new system of intellectual property. For their part, copyfighters will rage against the machine for years, with little to show for it.

I’m suggesting that Copyfighters:

• Give up the notion of First Sale as a consumer right, and recognize that licenses are an acceptable way to make money from digital goods
• Stop demonizing DRM

In return, industry would:

• Implement Fair Use in DRM. This will require a significant development effort. It will also be hard in legal terms, since Fair Use precendents may be contradictory.
• Address copyright terms – the current approach of “Don’t let Mickey Die!” is commercially reasonable in the short term, but destructive to itsability to defend the social contract around IPR in the long term.

The goal would be to go from “copyfight” to “copytruce”.

A test of the détente will be whether the two sides can agree on a rewrite of the DMCA. Once that’s done, the two sides should rework the badly broken copyright regime. Some industry players have acknowledged flaws in the software patent regime by taking an “it’s necessary, but we know it’s broken, and here’s how to fix it” approach; the same is needed for copyright.

The lack of a counter-party on the copyfight side makes negotiations tricky; who does industry talk to? It will be up to figures in the community like Larry Lessig and Cory Doctorow to take a lead. Provocations will be inevitable; one can never stop freelancers from taking radical action to scuttle any deal they don’t like. However, the Brits pulled this off with the IRA in Northern Ireland over the last decade or so, so it’s doable.

Doable, but not easy. Intangibles are hard for humans to deal with. There is little precedent, and we may just not be wired with good intuitions about digital goods. Abstract concepts can also generate the worst kind of conflict - take all the bloodletting in the Reformation around such abstractions as predestination vs. justification through works.

The politics are not conducive to a legislative solution. In the US, the White House doesn't much care about the issue, and certainly doesn't care about the players. Let's check of the list: Copyfighters - Lefties; Hollywood - Lefties; Silicon Valley - Lefties. Citizens' access to content is perhaps a more active issue in Europe, but since entertainment regulation is a national prerogative, the Commission may opt not to intervene.

2007 looks like a pivotal year. There will be a new administration in the White House, and key ICT directives will be up for renewal in Europe. Let's lay the groundwork, in terms of legal theory, technology and personal relationships, in the next 18 months.

King Content vs. the Copyfighters

I’m new to Copyfight, and I found Scott Kleper’s Introduction to Copyfighting a useful primer. Kleper defines the premises of copyfight by stating two complementary principles:

1. “Copyfighters aren’t saying that information should be free.” I’ll call this Selling Bits, which is shorthand for the right that owners of digital information have to make money selling their products in any way they choose.
2. “We are saying that as consumers of media (film, television, software, literature, etc.) we have certain rights that we would like to protect, [including] Fair Use [and] First Sale.” I’ll call this Fair & First. (Let’s leave aside the fine distinction that Fair Use is not a right but a defense against claims of infringement, and the fact that First Sale case law is murky at best. )

These two principles are the heart of the matter, not least because they are the paragraphs Cory Doctorow highlights in his endorsement of Kleper’s statement.

The hard question is whether both principles can be satisfied simultaneously for digital media. The very existence of the copyfight suggests that they cannot, since it is a struggle over which right trumps the other.

Incumbent content owners and their technology suppliers (“King Content”, for short) argue that DRM is the only way to make money from content. In order to implement DRM, they do not allow Fair Use (since copying any part allows a bad actor to copy and then infinitely reproduce the whole), and prevent First Use redistribution (since digital redistribution without limit means the value of the first copy is zero) by only licensing their goods, and not selling them. (In the interests of transparency: I used to work for King Content.)

The Copyfighters are inventing new business models that uphold Fair & First, since the existing ones which satisfy this principle don’t work very well. The examples so far are not conclusive. Kleper avers that there’s a wealth of content available under the Creative Commons license (CC); but even if one stipulates that volume of content is significant, that says nothing about profitability. Even CC itself allows producers to specify which uses are not allowed – but without DRM, or an equivalent technology, how are those rights to be enforced? And speaking of the Creative Commons Founders’ Copyright, Tim O’Reilly says “It lets publishers like us free up great books after they've lost profitability,” which implies that being free and being profitable are at odds.

The Tussle

Since both principles can’t be satisfied simultaneously, we have two camps, each advancing the primacy of their preferred choice: King Content vs. the Copyfighters. Each side concedes that both principles are important – but not equally important. King Content attempts to simulate some Fair & First functionality, though not at the expense of monetization; and the Copyfighters advance cases for monetization, though not at the expense of Fair Use and First Sale.

It’s a contest on many levels: insurgents vs. incumbents, paradigm shifters vs. the shiftees, and fragmentation vs. integration. The insurgents exalt the diversity and recombinant vitality of the web, and are betting that a new content consumption paradigm will inevitably follow. The incumbents want to keep making money with the least possible disruption; they support the status quo. Since scarcity is a precondition for value and hence profitability, the incumbents want to control as much of the value chain as possible – they want a closed, integrated end-to-end solution, which disgusts the insurgents.

Have no doubt, this is a political struggle. We’re talking about a shift in technology paradigm, which the Copyfighters want to convert into a shift in legal paradigms. If they succeed, it will lead to a shift in business power structures. This is a scary prospect for King Content – though as the Betamax case shows, the outcome could in fact be very profitable for the incumbents. The Copyfighters have a philosophical fervor that reminds me of the story John Markoff tells of the way the Sixties laid the foundation for the PC revolution in his new book, What the Dormouse Said.

In the court of public opinion, it becomes a question of who bears the burden of proof. Should the Copyfighters demonstrate that, and how, both principles can hold at once, or should King Content prove that they can’t? If both can’t hold, should King Content prove that Selling Bits trumps Fair & First, or do the Copyfighters have to establish the reverse?

Put another way: Is there a problem? Who’s problem is it? And who’s responsible for solving it?

At the moment each side is trumpeting the merits of its preferred principle. While Copyfighters mostly care about threat to Fair & First, their opponents see that as a threat to selling bits, since they can’t imagine of a viable business alternative. Both sides feel threatened – hence the passion.

Political skirmishing is well under way. The Digital Millennium Copyright Act (DMCA) limits one’s ability to obtain Fair Use by hacking content protection, on the basis that Selling Bits comes first.

Digital Rights Management

DRM is the Copyfighter’s Grendel. It is the mechanism King Content has chosen to use to charge for its product, and it is antithetical to Fair & First. The arguments against it fall into distinct (though often conflated) categories. DRM is said to be:

1. Inconvenient
2. Impractical
3. Counter-productive
4. Immoral

One of the most spirited cases against DRM can be found in Cory Doctorow’s talk at Microsoft Research in June 2004. He argues that DRM systems don’t work (= impractical); are bad for artists, for business in general, and for Microsoft in particular (= counter-productive); and are bad for society (= immoral). Doctorow, Kleper et al. always provide entertaining anecdotes, including the obligatory one about not being to tape from a DVD, about how infuriating DRM can be in practice (= inconvenient).

The arguments play different roles. If any of the first three are correct, business logic would dictate that King Content should change his behavior. However, neither people nor companies are logical… Given how entrenched positions have become, it’ll be difficult for industry to concede objections One through Three publicly if they turn out to be true. Hence the copyfight’s need for the fourth objection on moral grounds. Copyfighters have to make the political argument that even if DRM were to be convenient, practicable and productive, it is still to the detriment of society.

King Content cannot avoid the moral – that is, political – fight even if it wanted to, since the industry also needs political change. I don’t have a problem with Hollywood and Co stipulating whatever legal business terms they choose for their products. (Some in the copyfight community might disagree, or mightargue that some terms which are legal today shouldn’t be.) If Content’s offer is inconvenient or impractical, customers will spurn it and turn to the alternatives. If the alternative is legal and viable, and the Copyfighters are working to construct such a world, then let the best solution win. But since we’re dealing with new technologies here, legacy legislation won't always fit. King Content will need new law, as it did with DMCA. The debate then shifts from technical to moral ground, and a negotiation about the greater good. The Grokster case postponed industry’s need for new legislation, but cannot defer it indefinitely.

Denial

Both sides are in denial. While the Copyfighters profess to support the selling of bits, the examples I’ve seen where both of Kleper’s conditions are satisfied are anecdotal at best, though good work is emerging on the related topic of Open Source: see eg Perens on the economics of Open Source, and Steven Weber's book The Success of Open Source. Even if the Copyfighters can demonstrate that media in the new world are Free as in Speech, not Free as in Beer, they will still face indefinite trench warfare with King Content unless they can also show the incumbents a viable alternative to their current models. Right now they’re like the old-timer telling someone looking for directions that “It’s quite simple, really, but I wouldn’t start from here.”

It’s a favorite argument of Copyfighters that Bad Actors aren’t their problem. There will always be hackers, it is said (the Darknet paper is invariably invoked here), but most people are good, honest folk. Good, honest folk deserve Fair & First; tough luck on King Content if someone takes advantage of it to squeeze profits. In fact, the Copyfighters argue that there won’t be a squeeze. The folk who work for King Content, though, have a fiduciary duty to protect their business, and they’re still convinced that Bad Actors will suck out all their profits if Fair & First is applied the way Copyfighters want.

If industry has a failed business model, it’s not only its problem – it’s the Copyfighters’ problem, too. Without it, the rebels will only reach the sunny uplands of digital utopia over the cold dead bodies of today’s incumbents. That would be a long and bloody fight.

King Content, in turn, is suffering from “copyfright”. The industry is working hard to maintain the old model using new technologies, and is using legislation and litigation wherever possible to keep the market within the bounds that it’s comfortable with. There’s a resonance between King Content and King Canute, though with a notable difference: Canute was making the point that the sea cannot be held back, not trying to stop it.

The industry isn’t helped by the fact it’s in a “DRM Winter”, but can’t admit it. Like the AI Winter, great things were promised for DRM, but haven’t been delivered. The problem as stated is simply too hard to solve. In the end, many of the technologies AI researchers developed did come to market, but with little fanfare. Similarly, DRM technology will play a useful commercial role however the fight turns out. However, King Content denies the need for a Plan B; it’s DRM (in all its glory) or bust.

Outcomes

Copyright is a socially negotiated balance between content creators and consumers. “Copyfight” is the latest round in this tussle. At its simplest, there are three possible outcomes:

1. King Content wins
2. The Copyfighters win
3. There’s a negotiated settlement

The rebels are looking for a win, but since they’re the underdogs, they would probably settle for draw. The industry hasn’t thought seriously about what an accommodation might look like; it seems too awful to contemplate. It’s not illogical: for King Content, a draw is as bad as a loss, since it changes industry dynamics – not to mention the unacceptable loss of face if the promised DReaM doesn’t come true. However, a mixed world is the most likely outcome. I’ll explore the shape of a Content/Copyfight coexistence in a subsequent post.