Dec. 27 (Bloomberg) -- Hollywood’s best box office years ever were 2009 and 2010. Net revenue from book sales was up 5.6 percent in 2010 from 2008. And sales of e-books, in particular, grew 1,274 percent in those two years.
In the music industry, while the decline in sales of physical recorded music continued, the global performance-rights market share increased an impressive 13 percent in 2010 over 2009. Even musical instrument sales increased 8 percent over 2009.
Yet, the widespread perception among copyright owners is that legitimate markets are shrinking, and that copyright laws are failing to stem their losses.
Failure can be judged only in relation to what we want our copyright laws to do. Most often, defenders of these laws say they should give authors the financial incentive to create works and give the public access to cultural works. Copyright laws should also enable creators to prevent their works from appearing in contexts they don’t approve of.
But copyright law cannot accomplish all three of these objectives at the same time without conflict. There are, to begin, conflicts between authors and distributors over royalty payments and distribution rights. There are conflicts among authors: Some established ones favor extensive rights and resist new technologies that challenge their control over their works (think of Metallica and Prince), while most emerging artists tend to favor the ability to copy from established artists and explore new technologies in order to get their works before an audience.
A Powerful Story
Then there are conflicts between the public and authors over availability of works, pricing and the scope of rights. One example is the 2009 dust-up over Amazon.com’s text-to-speech feature for the Kindle 2, which allowed buyers of books to have computerized voices read the text. This was of tremendous benefit to the blind and in no way competed with authorized audio books, which are read by performance artists. Yet the Authors Guild of America objected, Amazon bowed to the pressure, and no one benefited.
Copyright laws can, in fact, serve valuable purposes: They can ensure that once works are created, their authors are able to protect them and benefit from them economically. But copyright laws rarely cause people to create things they otherwise wouldn’t have. Nor are copyright laws responsible for either commercial or critical success. The benefits from ownership of copy rights have always flowed disproportionately to gatekeepers who are interested in artificial scarcity and monopoly profits, rather than abundance and diversity.
Why do so many think copyright laws directly lead to more works and more money in authors’ pockets? Because the copyright industries -- which are after all in the storytelling business - - have constructed a very powerful story, complete with heroes and bad guys, that policy makers want to believe. In this story, the villains are file sharers and Internet companies out to destroy the American (or fill in any other country’s) way of life. And like Superman, legislators can swoop in and pass stronger copyright laws to put the bad guys in jail. The sun will come out; there will be milk and honey in the land again. That’s a great story, but it doesn’t match today’s reality.
Today, owning copies of works is no longer the principal goal of most consumers. More and more, people have works streamed to them. So selling ownership of copies of works should no longer be the principal business model for the copyright industries.
We are now in a world of digital abundance, where one copy of a work is as good as the next, and there is no longer any need for a single, authorized gatekeeper. Copies can be made and distributed globally at no extra cost, so creators can reach vast audiences directly -- without a big cut of the financial rewards going to gatekeepers. To make money in the world of digital abundance, you just have to sell more copies for lower prices.
Pricing Is Critical
Yet copyright policy makers often fail to appreciate that the underlying issue today is pricing, not technology. Technology is not the enemy but simply the means by which market expectations are created and satisfied.
Young people (the prime audience for the core copyright industries) have never lived in the world of artificial analog scarcity and are voracious, intuitive consumers of every new technology. For the copyright industries (often headed by people in older generations) to ignore the digital DNA of their principal consumers is suicide. Copyright content businesses that don’t respond to consumer demand should not expect to stay in business, and most assuredly, no government should help them do so.
Copyright laws should not act to shore up outdated business models against the tide of new technologies. Francis Gurry, director general of the World Intellectual Property Organization, has rightly argued that successful copyright policy has to be based on neutrality, and it should not “preserve business models established under obsolete or moribund technologies.”
The technological changes at hand are even more profound than a mere switch from analog to digital. Today, ordinary people, using the Internet and digital applications, are unwittingly engaging in major copying endeavors. It makes no sense to have laws that consider this copying to be infringement.
We are fast approaching an era when there will be copyright laws without copies in the traditional sense of the word. Consumers have shown a growing preference for works to be streamed to them, rather than buying physical media like DVDs or CDs. Accessing works stored in the cloud (on someone else’s computer servers) is now a significant business model, and will probably be the dominant one in many areas. That enables copyright owners to reach much larger audiences, with significantly reduced costs of production and distribution.
Yet, our copyright laws pose significant threats to these developments. Incumbent gatekeepers do not like making the transition away from the physical, because it eliminates their traditional ability to create artificial scarcity and thereby receive monopoly profits. In an effort to maintain scarcity in the digital environment, copyright owners have obtained new rights that give them the power over technologies developed by third parties.
How? Through the use of “digital locks” -- software code inserted into a CD, DVD or other consumer products to restrict consumer access. The 1998 U.S. Digital Millennium Copyright Act and similar laws in other countries made it both a civil and criminal offense to circumvent -- or “hack” -- such locks.
Here’s how it works, for example, with DVDs: In order to sell players that would show the DVDs Hollywood sold to consumers, electronics manufacturers had to build into their machines a key that, when matched to a key in the DVD, allowed the images to play in the correct order. Without the key, viewers got an unwatchable visual mess. The manufacturers were quite capable of simply breaking the algorithmic key, but the law did not allow it.
That’s not the only way in which the new copyright laws place the public in a worse position in the digital world than in the analog world. A venerable principle of copyright law is the first-sale doctrine: Once a lawful copy of a book or other work is sold or given away, the owner of that copy can turn around and resell it or give it away without permission or payment. That’s why we can have second-hand bookstores. But if the transaction is considered a license, as with e-books, then the first-sale doctrine doesn’t apply, as thousands of startled Amazon.com purchasers found out when their copies of George Orwell’s “1984” were remotely removed from their Kindles by Amazon, after Amazon determined that its source wasn’t authorized.
Digital locks can be used not just with individual consumers, but also with libraries. Last March, HarperCollins stunned the library world by announcing that a license to lend its e-books will expire after 26 loans.
The Digital Millennium Copyright Act is a prime example of our march backward, of how our laws are used to thwart innovation and creativity. It’s the reason you can’t load lawfully purchased copies of your DVDs into your iPod, why you can’t transfer copies of many lawfully purchased works from one electronic device to another, why DVDs bought in one country may not work in another. (This is something that should have greatly embarrassed President Barack Obama when he gave then-U.K. Prime Minister Gordon Brown a set of DVDs of American movies, which couldn’t be lawfully played on Brown’s player.) Under this law, both consumers and technology are treated as the enemy.
(William Patry, senior copyright counsel at Google Inc., is the author of “Moral Panics and the Copyright Wars” “Patry on Copyright” and “Patry on Fair Use.” This is the first in a three-part series of excerpts from his new book, “How to Fix Copyright,” to be published Jan. 5 by Oxford University Press. The opinions expressed are his own. Read Part 2.)
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