Special report How can we begin to unpick the tangled mess that the technology and creative industries have created?
There's certainly no shortage of blame to go around. In the past every new wave of technology has delivered healthy creative markets - but today this is no longer happening.
Just 20 years since the birth of the internet economy, with the advent of the worldwide web, it's worth asking why. It's time we looked afresh at where both industries went wrong, and how they can get on the right track again.
Much of what follows will highlight key mistakes made - but before we do that, we need to put them in some historical context. What worked in the past is a fairly reliable indication of what can work again in the future.
The current impasse between technology and copyright sectors is certainly an odd one. Historically, war is the greatest driver of technological innovation of all, but in peacetime it's the demand for culture and entertainment that spurs the most innovation. People want to see and hear stuff, and are prepared to pay for it.
The cash generated is ploughed into more entertainment - we've certainly moved on from the early movie dramas, which were starchy filmed theatrical plays. This creates more investment in technology so people can enjoy the entertainment in a better way. Round and round it goes.
At the heart of this virtuous circle, copyright has been the obscure back-room business-to-business mechanism that keeps the players honest. Creators demanded that their industries engage with the new technologies to create new markets, which returned more money for their talent.
As a result technology innovators got talented people producing stuff for their kit: recording their music on long-players rather than shellac, or printing their movies in technicolor. So the two sides need each other. Technologists' incentives were simple: create more amazing gear to deliver the best of other people's stuff. And each wave of innovation grew the market, and ensured the creators and workers were richer. No innovation has ever made creative industries poorer, remember.
Unfortunately, the truth of this historical mutual dependency gets forgotten today because the incentives aren't lined up. Investment decisions in technology services are made without a thought for the health of the creative people who generate the demand for the goods. Creative investment decisions either don't take advantage of the technology, or are hamstrung in a way that leaves the potential of the technology untapped. Things are also complicated by another factor we'll call the Unicorn.
I'll open the catalogue of errors at chapter one, the music industry.
Late, Later, Last
The music industry's yellow brick road of mistakes are encapsulated in one story – a story the former Napster attorney Chris Castle told us.
In 1997, Castle was representing a startup that needed a music licence from a major label. The label exec returned his call with this: "You know what? We're going to take our time getting into this space. We've decided we're going to be last to market."
Last to market? You read that correctly.
The attitude convinced Castle it was time to move to Silicon Valley. At the original Napster, and subsequently at Shawn Fanning's next venture Snocap, Castle tried to make peer-to-peer sharing of paid-for content legal – a tale that is little-known and one that David Lowery reminded us of in his recent El Reg interview. Pay attention, dear reader, this will become quite important.
Being slow to bring attractive legal goods to the marketplace was probably the biggest single mistake the music industry ever made.
Napster took off in 1999, but that was four years before Steve Jobs bludgeoned the labels and dragged them to the table with iTunes. That delay wasn't catastrophic – few users in 1999 had broadband – but the mistakes continued.
Songs that people bought at Apple's store didn't work on any other manufacturer's device – or at least not reliably and not for long. The major labels were obsessed with controlling the movement of their legitimate product, even though the internet was deluged with illegitimate tracks and even toxic copies planted by the labels' own anti-piracy teams.
Much like the compulsory FBI warning at the start of DVDs, which torrent downloaders never see, this punished the legitimate purchaser and gave the freetard the better user experience.
What a way to run a railroad.
The book publishing industry has fared better so far because it didn't wait so long to get involved. As this article by Listen.com founder Rob Reid at the WSJ notes, both music and book industries saw a 20 per cent fall in sales, but books have made up the dip with ebooks.
"Selling things to early adopters is wise," concludes Reid. It's not the full picture, of course, as Nick Carr counters here: books aren't music and the fungibility of music means the industry was always "basically screwed". But engagement with the technology, rather than hanging around on the sidelines, is undoubtedly a factor.
A new essay was published this week called Copyright and Innovation: The Untold Story by Michael Carrier, a professor at Rutgers School of Law in Camden, New Jersey. It quoted music technology companies and music business executives, and catalogued many industry errors. Professor Carrier noted, for example, that Napster "unbundled" the album package long before iTunes did.
It starts to get interesting when, as a "counterfactual", the professor mused that when music labels' copyright attorneys closed down Napster they lost an opportunity to monetise peer-to-peer file sharing. He wrote:
If the Napster decision had come out the other way or the parties had reached an agreement, it seems almost certain there would have been more innovation in the digital distribution of music. As discussed above, respondents explained that the decision:
(1) had a chilling effect on innovation,
(2) limited developments in technology such as filtering,
(3) stifled “different delivery mechanisms” that would have led to new ways for consumers to access music, and
(4) resulted in numerous missed opportunities.
Professor Carrier is correct in suggesting that taking down a centralised peer-to-peer service made counting product usage, and therefore monetisation, more difficult. But it didn't make counting impossible. And he appears to be entirely ignorant of what happened next.
The labels were prepared to experiment with legitimising and licensing file-download apps LimeWire and Kazaa, and the new wave of decentralised services that followed Napster. In Wayne Russo, they found a pirate operator prepared to take the offer and run with it. But ultimately nobody followed the well-worn route from outlaw to statesman, from pirate radio operator to major player. Fanning's Snocap kept trying to turn the black market into a white one and eventually gave up. In 2008 the Snocap assets were flogged off to Imeem; the following year MySpace picked up the Imeem assets for peanuts.
(In 2009, the UK's cable operator Virgin Media came close to launching the world's first legitimate peer-to-peer file sharing service, but by then the lawyers and risk management suits had won out over the business innovators, and Virgin Media put the project on ice at the eleventh hour.)
There is no mention in Carrier's study of the Snocap saga – which is intriguing in itself. Did he not know? Or did he know and feared that the episode would disrupt the story that he had decided to write, one that so many people, evidently, want to read? What the professor presents instead over 60 pages is the copyright skirmishes reduced to a simple moral fable: the good guys wear white, and the bad guys wear black. Quite why the prof wanted to carve out such a simplistic tale, in spite of the evidence, is a mystery we will get to in a moment. The Unicorn has yet to make its appearance.
Let's recap. We see that both sides are nervous and unwilling to engage in the market. The pirate operators valued their outlaw pinup status to which the lustre of victimhood was soon added. They were unwilling to exchange the internet infamy they'd gained on the margins for wealth. Unable to turn a black market white, the music industry had little option but to prosecute the pirates.
On the music side, the industry has changed from nervously seeking to control the movement of its legitimate product (via digital rights management mechanisms, aka DRM) to nervously seeking to control the wholesale and retail markets through its investment strategies. It offers "most favoured nation clauses", and grants licences in exchange for equity in new music services. Transparent accounting is a thing of the past. Rather than encouraging a vigorous market, the major labels pick winners and losers by setting barriers to entry that are just a whisker on the side of legitimate.
So keep all that in mind as emblematic of interests not being aligned to mutual benefit. Here's another bang-up-to-date example, from the other side of the fence.