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 much.

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:

• 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.
• Rather 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 to enforce.
• 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.
• The 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 candidate here.)

Even 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.