digital music
for a list of resources on this topic, see the technology policy bibliography
BY
ANDREAS HALL
The Issue and its Social Significance
Digital technology has revolutionized the reproduction of music. What before was a tedious and difficult task, compressed digital music files provide the ability for consumers to easily perform mass-copying of copyrighted music without sacrificing quality. Ripping software has simplified the process of uploading material on purchased CD's to computers, allowing for easy dispersion of the files to others on the internet, while CD burners have made it possible to effectively produce physical CD copies of original music CD's[i]. Moreover, with centralized servers on the internet, and file sharing software, millions of consumers connect to effectively share music.
As the free flow of music in part deprives music producers of their ability to collect revenue from licensed sales of their creations, they face great challenges in enforcing the copyrights to their work. Consequently, producers have started to utilize newly developed technologies designed to more effectively control the flow of music, which consumers contend is depriving them of their rights as consumers of music. Therefore, legislators currently face great challenges in dictating the laws regulating music copyrights, as the rapid changes in technology brings about the need for continuous interpretation of, and additions to, copyright law. Further, given the significant strengthening of technological dependency in our society, the evolution of the law and its interpretations will have wide reaching economic, moral, and social consequences[ii].
Record Companies and the Economics of the Music Industry
Most value creating activities that members of society undertake, such as investing time in education, research, or artistic expression, are to a large extent performed with the expectation of being rewarded in terms of material wealth[iii]. The right to claim ownership and trade ones creations in return for another good of value is a central part to the economy of any well functioning society. Further, in an efficient market economy, the market mechanisms of supply and demand ought to determine the value of these goods. Hence, in accordance with traditional economic theory, material value maximization in society occurs when the cost of producing a particular unit of value equals the price that society is willing to pay for that unit. If this is not the case, society could achieve greater value by allocating those resources to other activities.
In conjunction with the modernization and growth of the mainstream music industry, record companies have become important in determining the artist's commercial success. The four greatest players, Universal Music Group, Sony BMG, Warner Music Group, and EMI Group, presently account for approximately 72% of all music sales[iv]. In addition to helping create and record, record companies make significant monetary investments in marketing, promotion, and distribution of the artist's creations. Consequently, today's dominating music producers incur the majority of costs of production before the product becomes available in the marketplace.
For the record companies to be profitable therefore, pricing of CD's as an independent economic unit must lie well above its actual marginal production cost. Hence, record companies are economically dependent on enforcing copyright laws, as they serve to provide record companies with the opportunity to maintain high prices to regain the significant sunk costs of production[v] (The Congress of the United States, 2004).
In 2004, the size of the global music industry was estimated to be $30-40 billion[vi]. The exact impact on CD sales due to illegal digital copying activities is more difficult to estimate, as there are several factors that could influence variations in CD sales[vii]. However, Informa Media claims the recording industry incurred losses of approximately $2.4 billion due to file sharing in 2004[viii]. In terms of volume, it is estimated that online music piracy is responsible for 2.6 billion downloads every month through the use of P2P services[ix]. Further, recording companies anticipate that the adverse economic impact of the phenomenon will be amplified in tandem with increased usage of the internet, which has come to serve as a major arena for copyright infringing activities. Record companies and artists therefore argue that the growth of illegal digital technology leaves them unable to reap financial reward for their work, which, in turn, weakens their incentive to supply and create music.
Conversely, consumers argue that it is the producers themselves that have provoked the popularity of illegal downloading through their excessive pricing, which encourages consumers to look for more economic alternatives[x]. Further, only a small proportion of revenue collected by the record companies actually trickles down to the artist themselves. This way, much of the reasonably sized revenues that through enforcement of copyright law were initially intended to compensate the artist, have grown to disproportionate revenue collections, which fall in the hands of the record companies. Since musicians today make the majority of their profits from concerts rather than CD sales, increased exposure through the internet may lead more people to attend concerts, thus generating larger returns for the artist.
In addition, some consumers contend that distribution of music in digital form is significantly less costly in comparison to CD sales, which allows artists producing music appealing to a narrower audience to publish their work at a low cost[xi], which in turn, will provide more diversity in the music supply.
As internet and other technological applications enable marketing and distribution of music with less initial investment[xii], many consumers see the development of digital technology as forcing about necessary changes in the basic economic structure of the music industry, effectively having the internet take on the current role of record companies.
Moral Disputes
As music in itself holds no physical characteristics, the creators of music are not deprived of any physical property when another individual downloads or copies a song. Hence, whether or not the creators of music are in fact morally entitled to control the dispersal and use of their work is also an issue.
The moral justification behind copyright laws, which encompass the intellectual copyrights that regulate music, can be attributed to western societies' placement of moral value in the human being's right to claim entitlement to things it has created, and be sufficiently rewarded for its work. In the extension of this basic argument, the recording companies claim it is morally right to ensure that they, along with the artists, receive sufficient monetary compensation. Further, as downloading music deprives the artists of their ability to be accurately compensated for their work, downloading music is immoral[xiii].
Conversely, consumers claim that copyright infringing activities on the internet are morally justified, because the activities does not cause the artist to lose revenue, as the consumer would not have listened to the music had it not been available for free on the internet. Therefore, record companies and artists do not lose money or market share by the activity, as their revenue collection would have remained the same regardless of the infringing internet activities. Also, some consumers contend that it would be immoral not to share something that for the owner implies no sacrifice[xiv].
The Role of Digital Rights Management (DRM)
Music file sharing on the internet also has significant social consequences. In particular, the actions that music producers have taken to control the free dispersal of their work, has led to increased tensions between record companies and consumers. Central in this regard, has been the evolution of Digital Rights Management (DRM).
DRM is a term that describes technological innovations that enable music producers to control the dispersal of music through restricting copying of CD's, in addition to users' ability to copy and share music over the internet[xv]. More importantly, these initiatives provide the industry with the opportunity to collect revenues through consumer purchasing of digital music files on the internet. For example, Apple's "itunes" is a program which provides the user with the ability to enter an online store where they can purchase albums and songs at a price per unit, legally under copyright law. Once the song is purchased, consumers have limited rights to the product, in that they can listen to it as much they want, but have restricted ability to transfer or copy the songs to other users or devices.
Initially, this initiative seems to strike a great middle ground in the dispute, since recording companies can better supply and price products in accordance with the particular rights that consumers wish to acquire, while at the same time maintaining grounds for their economic survival. DRM therefore enables more consumers to legally enjoy music, as the people that could not previously afford buying complete albums can buy particular songs that they like for a reduced price, which, as a result of the likely increased consumer base, would boost revenue collection for record companies.
However, a major concern for consumer organizations is that DRM may overly restrict the usage rights of music consumers, effectively weaken rights that presently are well established through the legal system. For example, consumers argue that DRM limits the consumers' fair use doctrine[xvi], which stipulates the right for consumers to make copies for personal use. Trust must hence be built between the record companies and the consumer, through utilization of DRM technologies that respect consumer rights to fair use. In addition, consumers must in fact start utilizing products such as itunes, and turn away from the illegal file sharing.
Relevant Research
Given the high publicity that the issue has been given in recent years, significant research has been performed on the impact illegal downloading has had on consumer sentiment in relation to music and the music industry, as well as its impact on CD sales. Although record companies publish significant data on sales information, it is hard to determine how much of fluctuations in sales that can be attributed to digital copying activities. In other words, it is very hard to identify the exact causal factors, and different research. A dive into relevant consumer surveys and academic research further illustrates this point.
According to a survey conducted by Pew Internet & American Life Project in 2004[xvii], interesting trends are seen among US consumers of digital music on the internet. The company surveyed 1371 adult internet users and shows that 14% of active American internet users that at one time downloaded music no longer do so. A third of these users in turn, pointed to the increased legal initiatives taken by the music industry as the primary reason for having quit. However, the number of people that in fact downloaded music files increased from 18 to 23 million since the company's last survey in 2003.
Drawing observations from the Digital Music Survey of 2007, performed by Entertainment Media Research and Olswang (law firm)[xviii], shows some interesting developments on consumer sentiments in Europe. A major conclusion of the survey is that the growth of people performing legal downloads is declining. Also, the company points to increases in illegal downloading, the high price level of legal downloadable products, and increased negative awareness of DRM as the major reasons for this development.
Scholarly articles also contribute to increased knowledge in the subject area. According to a recent study performed by Felix Oberholzer-Gee and Koleman Strumpf[xix], internet downloads are not the primary reason for the decrease in CD sales. Rather than relying on surveys, this study is the first to use observations of actual file-sharing behavior to assess the impact of downloads on sales. Using detailed records of transfers of digital music files, the authors conclude that file sharing has had no statistically significant effect on purchases of the average album in their sample.
Lastly, scholars also apply economic theory in investigating the effects of digital technology developments on the music industry. In the article "Why DRM Should Be Cause for Concern: An Economic and Legal Analysis of the Effect of Digital Technology on the Music Industry"[xx] Paul Petrick develops an economic model to assess how DRM will affect the music industry. He concludes that the success of DRM in terms of economic efficiency in large part is dependent on the cost of implementation, and that empirical analysis is necessary to ultimately determine the aggregate economic welfare outcome of such technology.
The Evolution of Copyright Law and Regulation of Music
The idea of copyright is deeply entrenched in the American legal tradition. Article I, Section 8, Clause 8 of the United States Constitution, known as the Copyright Clause, was created "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries"[xxi]. The main purpose of the act was hence to encourage creative expression in society by enabling creators and artists to have entitlement to their work for a limited time, while also providing the public with the privilege to enjoy those creative works. Legislation and jurisprudence have consequently evolved in light of this principle, balancing private and public privileges, for the best of society as a whole.
However, besides the Copyright Act of 1909, no major additions were made until The U.S Copyright Act of 1976[xxii]. This law preempts all previous US copyright law, and was aimed at regulating the significant structural shifts that had taken place in the field of technology. In particular, the emergence of TV, Radio, and Motion Pictures raised significant debates with regards to copyright protection, which had to be addressed by the legal system. In addition, the US support of the Universal Copyright Convention, an international convention regulating copyrights implemented in 1952 by the United Nations, necessitated a modernization of US law to reflect international standards put forth in the agreement.
Under section 102 of the Act of 1976, copyright protection was extended to encompass "original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device"[xxiii]. This major legislation emphasized, in accordance with the traditional constitutional directives, the importance of balancing private and public desires. Moreover, the law specified the time in which the creator had the opportunity to exercise the right on his or her creation, before it became part of the public domain, and could be used without authorization of the copyright holder. Currently, a copyright lasts for the life of the author, plus seventy years[xxiv].
In addition, limitations were placed on the rights that could be exercised by the owner during the life of the copyright. The most important limitations are the "first sale" doctrine, and the "fair use" criteria. The first sale doctrine says that once an individual has rightfully acquired a copyright protected item, the individual has the right to transfer the ownership of this item to another individual without prior consent of the copyright owner. Therefore, the doctrine provides the consumer with the right to distribute copyrighted items, but not copy. Internet downloads or P2P file sharing is therefore in violation of this doctrine, as a new digital copy is made for every download or file transfer[xxv].
The other main limitation, the "fair use" criteria, dictates that the consumer or purchaser of a copyright protected item have the right to share the product with others in certain settings without infringing on the copyrights of the owner[xxvi]. For example, use of the item in class room settings may be exempt from copyright infringement[xxvii]. The enforcement of this doctrine is also heavily debated today, as consumers argue that producers' attempts to regulate the copyright to their works in fact weakens the consumers' right to fair use.
In 1989, the US amended the Berne Convention Act, the major international copyright standard, which was first implemented in Europe in 1886[xxviii]. In 1893, the organization governing the rights put forth in the convention became known as the United International Bureaux for the Protection of Intellectual Property, and then eventually taking its current name of the World Intellectual Property Organization (WIPO) in 1970[xxix].
Prior to the amendment of the Berne Convention, copyright in the US was only valid if the copyright holder had an official approval from the Copyright Office. With the adoption of the Berne Convention however, the creator assumes all copyrights automatically upon creation of the artistic work, without having to file for approval. In practice though, most artists file for copyrights at the Copyright Office, as this makes it easier to prove that they in fact are the creators and rightful copyright holders in a court case[xxx].
The rapid development of digital technology, and particularly the internet, provoked further legislation encompassing digital music. In 1992, the Audio Home Recording Act (AHRA) was created, which put limitations on the manufacture and trade of devices that could be used in mass copying of digital audio.
Then, in 1998, the Digital Millennium Copyright Act (DMCA) was formed, which was in large part a consequence of issues that had arisen with the growth of the internet. In particular, the Anti Circumvention Clause (ACC) and the Safe Harbor Clause (SHC) were created to help copyright owners uphold their rights on the internet. The ACC states that it is illegal to circumvent a technology designed to prevent unauthorized usage of copyrighted files, or create programs with the purpose of circumventing these technologies[xxxi]. In many ways, one can therefore say that the DMCA opened up for more aggressive use of Digital Rights Management technology, as it legitimized and protected programs that have been specifically designed to prevent unauthorized usage of copyrighted material.
As a clarification to the ACC, the SHP explains the extent to which internet service providers (ISP's) can be held liable for contributing to copyright infringement on the internet. If the ISP's does not fulfill certain standards in limiting infringing activities with the help of their sites, holders of copyrights could file lawsuits against the service provider.
In sum, as evident from the legal developments seen in the last century, one can safely say that developments in technology have rigorously complicated copyright regulation and enforcement[xxxii], and that continued technological development will obscure the legal landscape further.
Legal Disputes
In fighting the growth in copyright infringing activity, the record companies have aggressively taken legal action against violators. Although it is both difficult and expensive to go after individual pirates, the industry has so far had success in lawsuits against companies operating file sharing networks, forcing most of them to shut down their business[xxxiii].
The most famous example was the lawsuit filed against Napster Inc., a popular file sharing service with more than 26million members in 2001. Ultimately, Napster was forced to shut down after being held liable for contributing to mass copyright infringement after a law suit filed as early as 1999 by several recording companies[xxxiv]. Important in this case was that the plaintiffs were successful in limiting the infringement, as it could be stopped by shutting down one specific intermediary that facilitated extensive file sharing between individuals.
However, following the Napster controversy, several other products that facilitate so-called P2P file sharing have been created, which enables consumers to share files with other consumers without utilizing a central server. In conjunction with increased internet speeds, this phenomenon has been growing in popularity.
As the record companies now must pursue smaller consumer groups one at a time to stop the illegalities, it has become much more difficult to actively fight copyright infringement activities on the internet. Further, it is harder for the record companies to sue the companies providing the products that enable such file sharing, as their products in part can be used to share non-copyrighted works. Hence, it is difficult to prove that the product was made with the intention to encourage people to share copyrighted works.
Important to note in this regard, is the ruling that occurred in 2005 in favor of The Motion Picture Association of America and Recording Industry Association of America, in their case against the software P2P provider Grokster Ltd. Ultimately, the court ruled in favor of the plaintiff, on the basis that Grokster mainly was created to make money on soliciting illegal file sharing. This created an important jurisprudence, as it established that P2P software providers indeed may be held liable for copyright infringement[xxxv].
Possible Solutions
Unless changes are made to the pricing and selling structure of music, the recent progress in technology developments will continue to stress the relationship between the producer and consumer due to the misalignment of interest. Record companies have taken a strong stance, both politically and economically, against many possible changes to the industry, which is making it difficult to implement any new ideas attempting to solve the copyright issues raised by technological innovation. Several ideas have been introduced which attempt to encourage growth and distribution of digital music at the lowest cost possible to consumers, meanwhile allocating enough revenue to the record companies and artists to entice them to create music.
In the book "Promises to Keep", academic William Fisher proposes a system which uses the government as the intermediary between the copyright holder and the consumer in the circulation of digital files[xxxvi]. This system would allow the copyright holders to register with the governmental Copyright Office every piece they would like to distribute and be compensated for. Each piece that is registered would receive a unique code, which would allow the Copyright Office to track the frequency of use and distribution of the digital copies of the work. Meanwhile, through taxation, the government would raise funds from the public, which, in turn, would be distributed to the copyright holder in accordance with the popularity of the piece.
Fisher argues several benefits from such a system. Most importantly, it would increase diversity and supply of music, as it would be easy for less popular artists to register, and through digital dispersal perform wide and quick distribution of their work. Also, the artists' dependency on the record companies' marketing and distribution capabilities would be weakened, perhaps providing a larger amount of profit to flow directly to the artist. As for the consumers, they would receive unlimited legal access to copying, downloading and sharing digital files. Lastly, society currently incurs significant costs due to litigation expenses associated with illegal file sharing. This system, which legitimizes file sharing, would significantly decrease this social burden.
Although Fisher's suggestion has valid points, it appears likely that record companies would fight its implementation as it would inevitably weaken the current role of the recording companies as intermediary between the artist and consumers. Also, you may see tax- payers presenting opposition as not every tax-payer would be willing to support this system as it would entail paying higher taxes.
In comparison to Fisher's suggestion of using the government as an intermediary, the Electronic Frontier Foundation (EFF), an organization which represents consumers in the music industry, has made a related proposal titled Voluntary Collective Licensing[xxxvii]. EFF proposes that all record producers and artists should organize into one group. Through this group, they would charge a fixed fee in return for unlimited legal access to their digital files. As with Fishers suggestion, the compensation will be distributed to the copyright holders from the collected fees, and will be based on the popularity and demand of the artists work.
There are several benefits which the EFF argues from this system. First, as with Fisher's suggestion, the artists will be less dependent on record companies for commercial success, as distributing digital music would be less costly, in comparison to distributing physical CD's. Moreover, EFF argues that through this system, the artist and record companies will yield the same, if not greater, net income, as this system would cut a significant portion of production, distribution, publication and legal costs, while securing sufficient revenue collection for the record companies as they are a member of the group. Analyzing this suggestion from a profit based perspective it seems that its influence on the record companies and artist should be beneficial[xxxviii]. Therefore, it may be more likely that record companies would be in support of such a system, when compared to Fishers proposal.
In summary, an overarching argument in both of these suggestions is that rather than fighting the digitalization of music, it would be more effective to develop a system that encourages utilization of digital music to maximize the social utility. The cha
[i] National Research Council, The Digital Dilemma, p. 32, (2000)
[ii] Robert W. Hahn (Ed.), Intellectual Property Rights in Frontier Industries, p. ix, (2005)
[iii] The Congress of the United States, Copyright Issues in Digital Media, p. 21, available at: http://www.cbo.gov/ftpdocs/57xx/doc5738/08-09-Copyright.pdf
[iv] IFPI, IFPI releases definitive statistics on global market for recorded music, available at http://www.ifpi.org/content/section_news/20050802.html
[v] The Congress of the United States, Copyright Issues in Digital Media, available at: http://www.cbo.gov/ftpdocs/57xx/doc5738/08-09-Copyright.pdf
[vi] Wikipedia, Music Industry, available at http://en.wikipedia.org/wiki/Music_industry
[vii] Martin Peitz and Patrick Waelbroeck, The Effect of Internet Piracy on Music Sales: Cross Section Evidence, Volume no. 1, Review of Economic Research on Copyright Issues, 2, p. 5, (2004), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=511763
[viii] Albert Lin, Understanding the Market for Digital Music, p. 1, available at:
http://surj.stanford.edu/2005/pdfs/Albert.pdf
[ix] AFM, Online Music Piracy, available at http://www.afm.org/public/departments/leg_issues_05.php
[x] FAD Research, The Changing Face of Music Delivery:
The Effects of Digital Technologies on the Music Industry, p.7, available at: http://www.pch.gc.ca/pc-ch/pubs/effects/music_delivery_e.pdf
[xi] James D. Torr (Ed.), Internet Piracy, p. 40 (2005)
[xii] EFF, A Better Way Forward: Voluntary Collective Licensing of Music File Sharing, available at http://www.eff.org/pages/better-way-forward-voluntary-collective-licensing-music-file-sharing
[xiii] Igor Testen, Social and Ethical Issues of Sharing Music over the Internet, p. 6, available at:
http://www.wu-wien.ac.at/usr/h95b/h9526293/Lectures/English/SE/Documents/English%20SE%20
Music%20Piracy.pdf
[xiv] Wikipedia, Copyright infringement, available at http://en.wikipedia.org/wiki/Digital_piracy
[xv] Eberhard Becker, Willms Buhse, Dirk Gunnewig, Niels Rump (Eds.), Digital Rights Management: Technological, Economic, Legal and Political Aspects, p. 314, (2003)
[xvi] Electronic Frontier Foundation, Unintended Consequences: Five Years under the DMCA, available at: http://w2.eff.org/IP/DMCA/unintended_consequences.pdf
[xvii] Lee Rainie and Mary Madden, The state of music downloading and file-sharing online,
available at http://www.pewinternet.org/pdfs/PIP_Filesharing_April_04.pdf
[xviii] Entertainment Media Research, The 2007 Digital Music Survey, available at http://www.entertainmentmediaresearch.com/reports/EMR_Digital_Music_Survey2007.pdf
[xix] Felix Oberholzer-Gee and Koleman Strumpf, The Effect of File Sharing on Record Sales: An Empirical Analysis, Journal of Political Economy, Vol. 115, pp. 1-42 (2007), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=961830
[xx] Paul Petrick, Why DRM Should Be Cause for Concern: An Economic and Legal Analysis of the Effect of Digital Technology on the Music Industry, Berkman Center for Internet & Society at Harvard Law School Research Publication No. 2004-09 (2004), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=618065
[xxi] William F. Patry, Copyright Law and Practice, available at http://digital-law-online.info/patry/patry4.html
[xxii] Lee A. Hollaar, Legal Protection of Digital Information, p. 7, (2002)
[xxiii] Lee A. Hollaar, Legal Protection of Digital Information, p. 11, (2002)
[xxiv] Alan S. Bergman, What is Copyright? - The Theory and Practice of Protecting Your Music, p. 3, available at http://www.alanbergman.com/whatiscopyright.pdf
[xxv] Michael J. Remington, Background Discussion of Copyright Law and Potential Liability for Students Engaged in P2P File Sharing on University Networks, p. 2, available at: http://w2.eff.org/IP/P2P/P2P_Joint_Commitee_paper.pdf
[xxvi] TyAnna K. Herrington, Intellectual Property, Humanistic Studies, and the Internet, p. 59 (2001)
[xxvii] Robin Jeweler, Copyright Law: Digital Rights Management Legislation, p. 6, available at: http://www.ipmall.info/hosted_resources/crs/RL32035_040528.pdf
[xxviii] Lee A. Hollaar, Legal Protection of Digital Information, p. 10, (2002)
[xxix] Wikipedia, United International Bureaux for the Protection of Intellectual Property, available at http://en.wikipedia.org/wiki/United_International_Bureaux_for_the_Protection_of_Intellectual_Property
[xxx] United States Copyright Office, www.copyright.gov
[xxxi] Thomas E. Anderson, The Day The (Free) Music Died, available at: http://www.michbar.org/journal/pdf/pdf4article573.pdf
[xxxii] Lydia Pallas Loren, Untangling the Web of Music Copyrights, Case Western Reserve Law Review, Vol. 53, p.679 (2003), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=424701
[xxxiii] Peter K. Yu, The Escalating Copyright Wars, MSU-DCL Public Law Research Paper No. 01-06 available at SSRN: http://ssrn.com/abstract=436693
[xxxiv] CNN, Napster Timeline, available at http://www.cnn.com/SPECIALS/2001/napster/timeline.html
[xxxv] Bruce G. Joseph and Scott E. Bain, Copyright in the Digital World: Basics, Law, and Policy, p. 52 (2005)
[xxxvi] William W. Fisher, Promises to Keep, p. 202 (2004)
[xxxvii] James D. Torr (Ed.), Internet Piracy, p. 46 (2005)
[xxxviii] EFF, A Better Way Forward: Voluntary Collective Licensing of Music File Sharing, available at http://www.eff.org/pages/better-way-forward-voluntary-collective-licensing-music-file-sharing
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