Background: This was written to argue against the new Norwegian copyright law, which would implement the EUCD directive, essentially a European version of the DMCA. It is an attempt to sum up the market-based argument against protection of DRM technology, as it applies to Norway. It may have interest for other countries as well.
The original article appeared in Dagens Næringsliv (a Norwegian business paper) on April 22, 2005.
Guardians of markets past
Every year a veteran car race from London to Brighton is arranged to commemorate the 1896 abolishment of the “red flag” law. This law forced automobile drivers to have a man walking in front of the car, waving a red flag to warn pedestrians and horse carriages that something new and dangerous was approaching. The law came into being because the lawmakers were scared of a new technology – the automobile – and thought they could keep it at bay with a simple, technical barrier.
It didn’t help
The new copyright law, popularly referred to as the MP3-law, is on track to become this century’s version of the man with the red flag. It is promoted by the large music industry companies, who blame falling CD sales on Internet distribution and pirate copies. According to the industry spokesmen, it is curtains for music as we know it unless we get legally protected technical barriers to use and publicly
sanctioned Internet wiretapping.
However, if you look a little bit closer at the music industry’s own statistics, and hold them up against developments in other markets, the picture changes. I have spent some time doing this (a longer, Norwegian-language report can be found at www.espen.com/musikk.pdf) and have found that:
The Norwegian music records
industry is interesting from an academic viewpoint because it is an excellent
example of an industry being hit by a disruptive
technology . This concept,
coined by Harvard Business School professor Clayton Christensen, signifies a
sneaking attack from a new technology. The new technology (in this case, MP3-files delivered over the Internet) has
lower quality (MP3-files are not as good as CDs,) first attracts customers the
traditional companies don’t care for (teenagers with little money,) and – most
significantly – if the traditional companies were to switch to it, their profitability would fall (margins on Internet-sales are low, as are the costs.)
- Record sales in Norway have decreased somewhat the last 4-5 years, but this is mainly because new products, particularly mobile phones, are competing for young people’s discretionary spending money. SMS (where sales
are twice as high as the whole music record market), computer games, mobile
phones, DVDs and other electronic services and gadgets are out-competing CDs –
which, come to think of it, have not had much happening in terms of product
development since 1984. Additionally, it may be that an increasing portion of
CD sales happens outside the domain of the music industry association’s
statistics, through parallel imports, foreign Internet sales, and from
independent record producers.
- The Norwegian record industry is not very Norwegian (80%
of the market share is foreign companies, who largely are sales channels
for foreign music), does not produce much Norwegian music (about 20%), and
does not compete very hard (stable or somewhat increasing margins despite
falling sales). The industry is not in crisis, neither now nor in the future,
and does not deserve special protection, neither based in economics nor
polices of national culture promotion.
than diving into a large and growing market for music on the Internet, the
industry tries to promote copy protection and DRM technologies so they
themselves do not have to change their ways. These technologies, tantamount to
a declaration of war on their customers, will
not help: Neither the customers nor the performers want them, the technologies
are easily circumventable and a law against them will be close to impossible
- Independent research shows that music distribution over
the Internet can reduce the marketing- and distribution costs by 40-66% -
maintaining the same level of compensation for the artist. Lower prices and
more possibilities to consume music opens for a much larger market, but
demands large changes in how music is marketed and sold.
transition to a new business model is particularly hard for the existing music
records companies, since they cannot abandon their old and expensive, but
still profitable distribution system. This has happened before, in many
different industries, and is nothing to worry about: New competitors will come
in (Apple, with their iPod player and iTunes music store, is first in line,),
some of the old companies will make it over (Sony/BMG has announced that they
are abandoning copy protection and getting into open MP3 player sales,) and
some old companies will go down with flying colors (EMI, insisting on copy
protection even thought the artists and customers don’t want it, is a good
though it starts small, the new technology gradually eats into more and more
attractive parts of the market, and the existing companies will gradually lose
ground to something against which they really can't defend themselves.
The industry will say that pirate
copying effectively will make music a free resource, and that locks and police
protection is necessary for it to survive. It is impossible, says the industry,
to sell something that people can get for free on their own.
In 2004, however, 19 million
liters of still water was sold in Norway, an increase of 19% over 2003. This
in a country rightly famous for its excellent water - which is available free
of charge almost anywhere, including at restaurants. Still people buy
bottled water, because it is convenient, chilled and has branding status. You
buy the experience of the
water, not the water itself. Moreover, you can refill the bottle, since the
bottlers have not insisted on legally protected barriers to reuse.
Music distribution over the
Internet, without technical barriers, will give customers more music, artists
more money, and the society further culturally important musical development.
Against this stand those whose interests are mainly in preserving an outdated
business model. They demand a digital version of the man with the red flag. And
since many legislators believe them, they might get what they want.
The rest of us will just have to
watch how things evolve, and perhaps start to plan what kind of arrangement we
should have when we, with much suppressed laughter and shaking of heads, abolish
the law again.
This page at http://www.espen.com/papers/guardians.html
Contact information at http://www.espen.com/contact.html