Wednesday, March 30, 2005

USA Today writes, "Dozens of lawyers and big names in the entertainment and technology industries crowded into the red-upholstered seats" to hear arguments on "MGM vs. Grokster" today. Actually, that sentence should read, "Dozens of lawyers and big names in the soon-to-be-former entertainment and technology industry". The case hinges on the interpretation and application of the precedent set in 1984's "Sony v. Universal Studios" decision. I contend that both entertainment copyright holders (but not entertainment creators) and file-sharing networks (but not sharing music) are on their way out. It's funny to watch them fight over who gets to exit first.

The entertainment companies claim that file sharing software (by encouraging piracy) violates their copyright. Music companies have felt this most acutely, but movie companies are stepping up to the plate before it inevitably becomes an issue for them, too. They claim that the networks allow people to make their content freely available, without their permission. Clearly they view file sharing as a threat to their business.

Ironically, the real long-term threat to entertainment companies isn't software that illegally makes content free to people, but people who make legally free content. In a study conducted at MIT, they found that scientists who published their findings freely on the Internet were 10 times more likely to be cited than scientists who insisted on preserving copyright and published in paper journals. I imagine that the court will consider statistics like the percentage of traffic used for trading music illegally. But the number of files we are talking about - the handful of "hits" that pay the record company bills - is a tiny fraction of the quality music in the world, and tiny compared even to free music available on alone. Unlike Don Henley, Sheryl Crow and the Dixie Chicks, there are 140,000 artists gladly making their music available as unprotected, free mp3s. Granted, they have less to lose, but the point is that if someone offers a free option of comparable quality, you're gonna have a lot of pressure on the price of your product.

Despite their insistence to the contrary, file sharing software makers need the record labels to care about copyright and at least try to lock up the music. Why? Because ironically, the networks depend on the promotional investment record companies make to identify/create the hit songs that causethe bulk of their trading traffic. If record companies are unable to protect copyright, they will have less incentive to invest in and promote music. If the record companies stopped promoting music, the file sharing networks would devolve into an undifferentiated morass.

If MGM loses this cases, that doesn't mean we're talking about the day the music died. Record companies historically serve two purposes.

  • allocating the scarce resources of studios, manufacturing, and distribution

  • and

  • promoting and marketing music to a passive listening audience

New technology like Apple's GarageBand is making it easier and cheaper for anyone to create music...just for the fun of it (imagine that). And of course, file sharing is just a derivative of core technologies - mp3 and the Internet - that make it far easier and cheaper to distribute content. All-in-all there is actually more music being made today than ever before. The resources record companies used to muster are no longer scarce!

However, people's attention spans are still scarce. So if record companies can no longer afford to market and promote music, how are we going to sort through the embarrassment of music being created? New technologies like the GBRP, RSS 2.0 and iPodder are leading the way to a world where the collective activity of music lovers fills the promotional void. It's real peer-to-peer music sharing, community building, and culture creating.

I have left out something from this does anyone make any money in this world? An interesting thing happens when you stop talking about scarcity and start talking about abundance: money doesn't seen to matter because everything is so intrinsically cheap. However, not everything is abundant in this emerging world, so capital still needs to be allocated and therefore money can be made. Recognizing the trend (however nascent it is), is developing a business model for our members, but I'll save that discussion for another time - when it is no longer confidential ;)